No. 83-107 INTHE SUPREME COURT OF THE STATEOF MONTANA 1954

NORTHWEST POTATO SALES, INC., Plaintiff and Appellant,

-vsCHARLES BECK, Defendant and Respondent.

APPEAL FROM: District Court of the Third Judicial District, In and for the County of Powell, TheHonorable RobertJ. Boyd, Judgepresiding.

COUNSELOF RECORD:

ForAppellant: PatrickF. Hooks, Townsend, Montana

For Respondent: James J. Masar, Deer Lodge,Montana

Submitted onBriefs: June 30, 1983 Decided: March 2, 1984

Filed: $f&.( , . 

### 94Mr. Justice Daniel J. Shea delivered the Opinion of the Court. Plaintiff, Northwest Potato Sales, Tnc., a family corporation owned by the Martin McCullough family, and dealing primarily j.n the buying and selling of potatoes, appeals an order of the Powell County District Court dismissing its claim against the defendant, CharlesReck, for damages claimed as a result of an alleged failureby Beck to honor a contract to sell seed potatoes to Northwest Potato Sales. The trial court held that the alleged agreement was barred by the statute of frauds because Beck, althoughhe had received thewritten contract containing the necessary terms, had not signed it. Although McCullough raised estoppel as a bar to Beck's rel-iance on the statute of frauds, and presented evidence on this issue, the trial court, in a memorandum opinion accompanying its findingsand conclusions, but with no analysis of the evidence,and no attempt to apply the elements of estoppel to that evidence, held that the plaintiff failed to establish the requisite elements of estoppel. We reverse and hold that McCullough proved estoppel as amatter of law. The trial presented essentially three issues. First, whether there was an agreement between McCullough and Beck. On this issue, the trial court failed to make any findings and conclusions, but in a separate memorandum opinion the trial court did conclude that the parties had not reached agreement. Second,whether Beck was entitled to rely on the statute of frauds as a defense because he had not signed the written contract. To decide this issue, the trial court first ha.dto decide whether Reck was a "merchant" within the meaning of an exception to the statute of frauds as adefense. Third,whether Beck was estopped by his active and passive conduct from reliance on the statute of frauds as a defense. The findings and conclusions did not mention the estoppel issue, but the court concluded in a separate memorandum opinion that theplaintiff failed to establish the requisite elements of estoppel. In reaching this conclusion, however, the trial court failed to analyze this evidence bv applicationof the elements of estoppel. It is within this trial context that the issues are raised on appeal. First,McCullough asks thisCourt to imply

a trial court finding that an agreement did exist, because the trial court could not have decided the statute of frauds issue unless it first found an agreement to exist. Second, McCullough argues the trial court applied an improper legal standard in concluding that Beck was not a "merchant." In reaching its conclusion the trial court stated: "Eachof the farmer-growersand the one banker-rancher all agree that the farmer did not have the knowledge or skill in the market place as that of a buyer-broker." McCullough argues this is an improper legal standard by which to judge the status of both parties. While he concedes he is a "merchant", he argues that the test is not one of comparing the skills and knowledge of the parties, and that the parties need not have substantiallysimilar skillsbefore a conclusion is justified thatboth parties are "merchants"so that an exception to the statuteof frauds is triggered. However,because we conclude that McCullough proved estoppel as a matter of law, we need not decide the implied findings issue and we need not remand the case to the trial court to make findings on the "merchant" issue based on a proper application of the law.The third, and dispositive issue, iswhether McCullough proved the elements of estoppel. Beck argued at trial and

now in his appeal brief that estoppel does not apply to the UCC statute of frauds. McCulloughpresented evidence on the existence of the contract and on Beck's active and passive conduct after he received the contract. This evidence was virtually uncontradicted and is sufficientto estopBeck from successfully invoking the statuteof frauds. The trial court did not properly reach the estoppel issue. The separate findings and conclusions are silent on the estoppel issue. And although an attempt was made 

### in the accompanying memorandum to dispose of the estoppel issue, the tria-1court failed to analyze the estoppel evidence that McCullough had presented, and failed to apply the elements of estoppel to this evidence. We are left with the unsupported conclusion of the trial court that "[tlhe plaintiff has failed to establish the requisite elements of estoppel." We set forth sufficient facts here to provide a general background picture and we then add more fa-ctswhile applying the estoppel elements to the evidence. On July 17, 1980, Martin McCullough, pursuant to a general custom with other Montana farmers and also pursuant to a custom establishedwith Beck in three previousdealings, sent Beck a written contract confirming what McCullough believed was an oral.telephone agreement forBeck to sell to McCullough 10,000pounds of certified seedpotatotes at $4.50 per cwt (cwt being the price per 100 pounds of potatoes). McCullough farms seed potatoes with his son in Broadwater County Montana, but his primary business is that of a licensed potato broker with some 20 years experience. McCullough operates his business, a family corporationconsistingof himself, hiswife, and a son,out of Kennewick, Washington. Charles Beck is a farmer rancher in Powell County, who grows other crops and raises livestock, but who also had almost 15 years experience as a seed potato farmer. He was familiar with themarketing of seedpotatoes, although he did not have the overall general experience of Martin McCullough. McCullough and Reck had been neighbors in times past, and McCullough had for several years Leased 700 acres from Beck on which he grew seedpotatoes. Their dealingshad always been above board and each characterized the other as an honestperson. The written contract sent to Reckwas in compliancewith the UCC statute of frauds, and was sufficient to bind McCullough. By the time McCullough had sent the contract to Beck, McCul.lough had already made commitments to Washington "table-stock" farmers to purchase 10,000 pounds of Beck potatoes for use in the following spring planting season. Beck testified that he was fully aware of McCullough's practice in obtaining commitments from Washington "table-stock" farmers, and that he assumed McCullough had followed thatpractice in this instance. Although Beck did not sign the contract (hetestified at trial that he threw the contract away), he did nothing between July 17 and lateNovember to tellMcCullough they did not have 

### an a-greement. McCullouqh was not particularly worried about Beck not returning the siqned contractbeca.use he testified that Beck was habitually slow in getting his paperwork done. During the period from July 17th to the end pcei v$ of November,McCullough acted in reliance on what heto be Beck's promise, and during this same period Beckactively and passively ledMcCullough tobelieve the contract would be honored. The market price for seed potatoes rose steadily from July toNovember,and at the end ofNovember,when the market price was approximately $9.00 per cwt (or twice that of the terms stated in the July 17th contract), Beck informed McCullough for the first time that they did not have a contract. He told McCullough thathe had never agreed to the terms and that in any event he had not signed the contract. Because McCullough had commj-tted10,000 cwt of Beck's seed potatoes to Washington "table-stock" farmers,McCullough was forced to borrow 

### an additional $45,000 at interest to obtain the cash sufficienttobuy seedpotatoes at thehighermarket price of approximately $9.00 per cwt. Beck also took action with respect to his seed potato crop. Although he insisted that he was not hound by the July 17th contract because he had not signed it,Beck nonetheless soldhis 1980 seedpotato crop on threeverbal contracts

## -- he did not requirewritten, signed contracts forany of those transactions. This Court has never held that the absence of a signatureto a contract otherwise binding isabsolute]-yfatal to a contract for the sale of personal property. We recognized this principle most recently in Cargill Inc. v. Wilson (1975), 166 Mont. 346, 532P.2d 988,where the defense

was that the sellerhad not agreed to the contract becausehe had not signed the contract, even though his name had been signed to the contractby the graindealer,with the seller's acquiescence. Althoughwe recognized that the requirementof some writing is important to evidence the agreement,we held strict adherence to the signature requirement is not necessary where the "relationship and course of dealingsbetween the parties justifies one party's belief that the other has consented to the written statement of contract,

even though he had not signed it." 532 P.2d at 990. If the necessary relationshipand course of dealings is established,

weheld that:

11

# . . . the contract may be enforced. The beneficial purposes of the statute of frauds a.re preserved 

## - the dangers of mistake or fraud are averted 

## -- and the ends 

### of justice are served." Cargill-,supra,532 P.2d at 990. Although the facts of Cargill arenotdirectly analogous to the factual situation here, the case clearly recognizes that lack of a signature to a contract for the sale of goods is not indispensable to the enforcement of a contract otherwisebinding. And that is the situationhere. But here

we rely on the principles of estoppel in holding that Beck cannot be permitted to rely on the statute of frauds where his active and passive conduct in the transaction 1-ed McCullough to detrimentally rely on the belief that he had a contract. Although Beck cites authority holding that estoppel cannot apply to a UCC statute of frauds transaction,we have no difficulty in holding to the contrary. TheUCC expressly mentions estoppel as one of the genera1 principles of law that supplement the UCC (section30-1-103, MCA), unless other parts of the UCC expressly displace that principle. Here no provision of the UCC states that estoppel cannot be applied to defeat a statuteof fraudsdefense. Furthermore,another UCC provision, section 30-1-203,MCA, requires good faith in all UCC transactions, stating: "Every contract or duty within the [UniformCommercialCode] imposesas obligation of good faith in itsperformanceor enforcement."Relying on this good faith provision, the Oreqon Court of Appeals in Potter v. Hatter Farms, Inc. (Ore. 1982)

## , 641 P.2d 628, in a factual situation much like the situation here, held that estoppel as a bar to enforcement of the statute of frauds, is consistent with the obligation of good. faith required in all UCC transaction. And other cases with factual pa-tterns similar to this case have recognized estoppel as a principle to defeat reliance on the statute of frauds as a defense to a contract suit. SeeWarder and Lee Elevator v. Britten (Iowa 1979), 274 N.W.2d 339; Decatur Cooperative Association v. Urban (Ks. 1976), 547 P.2d 323; Farmers Elevator Company of Elk Point v. Lyle (S.D. 1976), 238 N.W.2d 290. And, although the case did not involve a statute of frauds issue, this Court applied estoppel to UCC banking procedures in Reyer v. FirstNational Bank of Dillon

(1-980) 

### , Mont

# . , 612 P.2d 1285. Clearly, in the absence of a provision expressly prohibiting application of estoppel to particular provisions of the UCC, estoppel applies toUCC transactions. This Courthas recognized equitable estoppel,promissory estoppel, and estoppel by silence. Sweet

### v. Colburn School Supply (1982), 196 Mont. 367, 639 P.2d 521 (equitable estoppel); Keilv. Glacier Park, Inc. (1980), Mont. 614 P.2d 502 (promissory estoppel); City of Billings v. Pierce Packing Company (1945), 117 Mont. 755, 161 P.2d 636. McCullough argues that he is entitled to relief by application of any one of these prj-nciplesof estoppel-, and he has set forth in detail the evidence to support that conclusion. Beck, on the other hand, presented no evidence to refute McCul-lough' s evidence, and Beck's appellate brief ignores the evidence marshalled by McCullough to support anestoppel application. Beck simp1.yargues that estoppel does not apply to a UCC statute of frauds transaction, a contention thatwe decide to the contrary. Althoughwebase our decision on estoppelby silence,we cannot deny that the factsmay fit elements of estoppel also appropriate to equitableestoppel. This is so,because as is so often the case in any branch of the law, each form of estoppel does not fall into a neatly packaged and exclusive category. Rather, the formsof estoppel alsoblend with each other. For example,here therewas not only a duty to speak imposed on Beckbecause of his relationshiptoPlcCulloughand his knowledge thatMcCulloughwa.srelying on a be1ief that a. contract existed, there was also active conduct by Beck that

can only be interpreted as constituting an intent tomislead McCullough into thinking that Beck wou1.dhonor the July 17th contract. This Court set out the rule of estoppel by silence in Sherlock v. Greaves (1938),106 Mont. 206, 76 ~.2d 87,where

we stated: "To constitute an estoppel by silence or acquiescence, itmust appear that the party to be estoppedwas hound in equity and good conscience to speak, and that the party claiming estoppel relied upon the acquiescence and was misled thereby to change his posi-tion to his prejudice. [citing authority] Mere silence cannot work an estoppel. To be effective for this purpose, the person to be estopped must have had an intent to mislead or a willingness that anotherwould be deceived;and the other must have been misled by the silence." Sherlock 

### v. Greaves, supra, 106 Mont. at 217, 76 P.2d at 91.

The general situatj.onis that Beck and McCullough knew each other well for many years, they had many dealings with each other over the years,and.they had three previouspotato seed sales where the same procedure was followed. Rased onpast experience, Reck knew thatMcCull.oughhad most probably committed the 10,000 cwt of Beck potatoes to Washington "table-stock" farmers, and Beck testified that he assumed such was the case in this transaction. Beck further testified that fromJuly 17, 1980, until the end ofNovember, 1980,McCullough at all timesbelieved thathe had a contract with Beck. And yet if Beck did subjectively believe that he had no contract with McCullough, he admitted he did nothing to inform McCullough of his position until the end of November. If Beck believed he had no contract with McCullough, he was clearly bound in equity and good conscience to tell. McCullough at his earliest opportunity that he believed he had no contract. But Beck was silent. However, the situation that existed after Beck received the July 17th contract in the mail, involves more than mere silence. Between July 17th and the end of November, McCullough testified that both Beck and Beck's wife told him

on more than one occasion that the contract would be signed and sent to McCullough. Although Mrs. Beck denied the substance of these conversations with McCullough by stating that she could not recall the details of the calls, McCulloughlstestimony about his conversations with Charles Reck stands unrefuted. Further, on two occasions Beck told McCullough thathisbanker was concerned thathe had notmade

a good dealbut thathe (Beck) was unconcernedbecausehewas running the operation, not the banker. One of these occasionswas in October when McCullough stopped at the Beck place an his way from Townsend, Montana to the state of Washington. This testimony also stand unrefuted. And finally,McCullough testified to

### avisit to the Beck place in August to check on the potato crops. Although Charles Reckwas not there (hewas in Dillon according to the farm hand who spoke to McCullough)

## , and Mrs. WcCullough testified that she could not recall whether McCullough visited the farm in August, McCullough's testimony about his visit and the details of his ~risitcannot be ignored. Clearly, he would not have visited the Beck place to check on the progress of the seedpotato cropunlesshe thoughthe had a contract with Beck. All of this is clear evidence thatBeck,by his active as well aspassive conduct, ledMcCullough tobelieve thathe had a contractwith Beck. The uncontradicted evidence is that McCullough clearly relied to his detriment on the belief, fostered by Beck's active and passive conduct,thathe had a contract with Beck. It was not until the end of November, when the market price for seed potatoes was up to $9.00 per cwt, that Beck first told McCullough that amisunderstandinghad occurred,thathe had never agreed to the contract, and that in any event he had not signed the contract. When McCullough learned of Beck's decision, in order to cover his commitment to Washington "table-stock" farmers for 10,000 cwt of Beck's seed potato crop, McCullough was forced to borrow an additional $45,000 at interest to purchase the potato seeds at the existinghighermarket price of $9.00 per cwt. Finally, although Beck nowmakes an issue of not having signed the July 17th contract,he did not hesitate in selling his 1980 seed potato crops to others on the basis of unwritten, unsigned contracts. The only differencewas that *w\ Beck sold his crops for the kkm existing market price of approximately $9.00 per cwt rather than the $4.50 per cwt he would have obtained had he honored the July 17th contract with McCullough.These facts establish an estoppel by silence as a matter of law. We reverse the iudgment of theDistrict Court and remand for consideration of the proper damages owed to McCul.lough.

We Concur:

Justices