No. 86-505 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1987 

PAUL RUST 

Plaintiff and Respondent, 

VS 

JOHN B. KELLY and CHARLOTTE R. KELLY 

Defendants and Appellants. 

APPEAL FROM: District Court of the Fifth Judicial District, 

In and for the County of Beaverhead, 

The Honorable Leroy L. McKinnon Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

For Respondent: 

Submitted on Briefs: March 26, 1987 

Decided: August 26, 1987 

Filed: 

AUG 2 6 1987 

Clerk 
Mr. Chief Justice J. A. Turnage delivered the Opinion of the 

Court. 

John and Charlotte Kelly appeal a judgment entered by 

the District Court of the Fifth Judicial District, Beaverhead 

County, in favor of plaintiff and respondent, Paul Rust, on 

his claim for recovery of a loan. We affirm. 

Although appellants raise a number of issues on appeal, 

the following issue is determinative: 

Did the District Court err when it held Rust was entitled to full repayment, together with interest, on his 

investment? 

In 1977, John Kelly and Paul Rust were principal owners 

of "Highland Log Homes," a log home construction and sales 

company. During 1977, Kelly and Rust agreed to purchase a 

two-acre tract near Dillon, Montana. They planned to purchase the land, subdivide it and sell it at a profit. The 

two-acre tract is adjacent to land owned by Kelly. 

On April 18, 1977, Rust advanced Kelly $4,000 or 

one-half of the purchase price of the property. On April 20, 

1977, Kelly executed a buy-sell agreement with Richard Rankin 

for purchase of the property. The buy-sell agreement required that Kelly provide Rankin a $4,000 down payment, with 

the balance due at a later date. On December 18, 1977, Kelly 

paid the balance of the purchase price ($4,000) and recorded 

the deed. Kelly did not include Rust on the recorded deed. 

Rust moved from Dillon following his investment in the 

two-acre tract. Rust did not return to Dillon, but empowered 

his brother, David Rust, to act as his agent. David Rust 

testified that on two occasions, in April, 1979 and in the 

fall of 1980, he offered to purchase the Kellysl half of the 

two-acre tract. David Rust testified that on both occasions, 

John Kelly informed him the tract was "already sold." David 

Rust also testified that on both occasions Kelly offered to 
reimburse Paul Rust's $4000 investment. At trial, Kelly 

testified, "[I] never contended that the two acre tract was 

solely mine without any obligation to Rust." Kelly also 

stated, "[I] personally felt, because of our joint ventures 

in these land deals, that Mr. Rust [did] have a moral interest in [the property] . " 

Plaintiff and respondent Rust brought this action to 

recover the $4000 investment together with interest. Defendants counterclaimed alleging that Rust abandoned the joint 

venture. Following a bench trial on May 12, 1986, the court 

found the parties had entered into a joint venture. The 

court also found a novation arising from defendant John 

Kelly's promise to reimburse plaintiff Rust. Finally, the 

court found defendants had attempted to deprive plaintiff of 

his interest in the property. 

The court ordered the defendants to repay plaintiff 

Rust the sum of $4000 together with interest from April 18, 

1977. Defendants appeal the order of the District Court. 

Issue 

Did the District Court err when it held Rust was entitled to full repayment, together with interest, on his 

investment? 

Respondent Rust and appellants John and Charlotte Kelly 

entered into an oral agreement to invest equal amounts of 

$4,000 toward the purchase of the property. John Kelly and 

Rust testified they purchased the property to earn a profit. 

The District Court found the parties entered into a 

joint venture when they purchased the property. The parties 

do not dispute the District Court's finding. 

A joint venture is defined as: 

An association of persons with intent, 

by way of contract, express or implied, 
to engage in and carry out a single 

business venture for joint profit, for 

which purpose they combine their efforts, property, money, skill and knowledge, without creating a partnership or 

a corporation pursuant to an agreement 

that there shall be a community of 

interest among them as to the purposes 

of the undertaking . . . 

46 Am.Jur.2d Joint Ventures, S 1 at 21-22. 

In Murphy v. Redland (19781, 178 Mont. 296, 303, 583 

P.2d 1049, 1053, three ranchers entered into an agreement to 

purchase cattle and, upon fattening, to resell the cattle for 

profit. In Murphy, we stated: 

The parties here were engaged in a 

"joint enterprise" or "joint venture" 

looking sventually to their mutual gain. . . . Joint adventurers and joint 

enterprises are defined on principles of 

partnerships. Inter - se, partners and 

joint adventurers are obligated as 

trustees. The common element is the 

fiduciary relation. 

A constructive trust may be imposed by the court in the 

interests of justice, to redress a wrong or prevent unjust 

enrichment. Murphy v. Redland, 178 Mont. at 303, 583 ~.2d at 

1053, citing Bradbury v. Nagelhus (1957), 132 Mont. 417, 427, 

319 P.2d 503, 509. 

Appellants contend that the court erred when it found a 

novation between the parties. Specifically, appellants argue 

that David Rust gave no consideration for John Kelly's offer 

to repay respondent's $4,000 investment. Secondly, appellants argue that neither Paul nor David Rust accepted Kelly's 

offer within a reasonable time. 

We hold the issue at hand requires an accounting between members of a joint venture. An accounting of a joint 

venture is equitable in nature. Murphy v. Redland, 178 Mont. 
at 313, 583 P.2d at 1058; Roundup Cattle Feeders v. Horpstead 

(1979), 184 Mont. 480, 485, 603 P.2d 1044, 1047. 

Section 3-2-204, MCA, provides in pertinent part: 

In equity cases and in matters and 

proceedings of an equitable nature, the 

supreme court shall review all questions 

of fact arising upon the evidence presented in the record, whether the same 

be presented by specifications of particulars in which the evidence is alleged to be insufficient or not, and 

determine the same, as well as questions 

of law, unless for good cause a new 

trial or the taking of further evidence 

in the court below be ordered. 

Appellants are required in equity to hold the property 

in a constructive trust. Murphy, supra. The ~istrict Court 

found that appellants attempted to deprive respondent of the 

property. Therefore, the District Court properly held that 

respondent Rust was entitled to full repayment, together with 

interest on his investment. 

After reviewing the record and the findings of the 

District Court, it is clear that appellants and respondent 

paid equal amounts of $4,000 toward the purchase of the 

property at issue. On December 18, 1977, appellants received 

title to the property and recorded it without including 

respondent Rust. Further, appellants maintained sole possession of the property since December 18, 1977, to the exclusion of Rust. John Kelly, on two occasions, told Paul Rust's 

brother David Rust that the property was "already sold" when 

in fact it was not sold. Finally, John Kelly admitted that 

Rust had a "moral interest" in the property. 

We hold that in equity respondent Rust is entitled to 

the return of his $4,000 investment together with interest. 

Appellants have breached their joint venture fiduciary duty 

owed to Paul Rust. The judgment of the District Court has 
accomplished equity. Therefore, we need not review appellants' contention that the District Court erred when it found 

novation. 

Affirmed. 

We concur: 

C 

Chief Justice 

@P.P-~ Justices