### No. 91

-205 IN THE SUPREME COURT OF THE STATE OF MONTANA 1992
M. E. DAVEY, Plaintiff and Appellant, V. EDWARD M. NESSAN, JOAN E. NESSAN, DONALD E. DUBEAU and CONNECTICUTMUTUAL LIFE INSURANCE COMPANY, a Connecticut corporation, Defendants, Respondents and Appellants, 

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,- HORTON B. KOESSLER, as Personal Representative of the Estate of HORACE H. KOESSLER, Deceased, ,: .; 1 ,i.<' ,

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V. EDWARD M. NESSAN, DONALD E. DUBEAU, and CONNECTICUT MUTUAL LIFE INSURANCE COMPANY, a Connecticut corporation, Defendants, Respondents and Appellants.
APPEAL FROM: District Court of the Sixteenth Judicial District, In and for the County 

### of Rosebud, The Honorable Joe Hegel, Judge presiding. COUNSEL OF RECORD: For Appellants: DavidA. Veeder, Veeder & Broeder,Billings, Montana

(Davey& Koessler) ;DavidR. Paoli,Edwards & Paoli, Billings, Montana (Dubeau) For Respondents: W. Anderson Forsythe,Moulton Law Firm, Billings, Montana (Connecticut Mutual); Vicki W. Dunaway, Billings, Montana (Nessan)

Filed: Submitted on Briefs: December 4, 1991Justice Terry N. Trieweiler delivered the opinion of the Court. On February 5, 1988, M. E. Davey filed a complaint against EdwardM. Nessan,JoanE. Nessan, Donald E. DuBeau, and Connecticut Mutual Life Insurance Company in the Sixteenth Judicial District Court in Rosebud County. On the same day, Horton B. Koessler filed
a complaint in the name of Horace H. Koessler 

### in the same courtand against the same parties, omitting only Mrs. Nessan.* DuBeau and Nessan answered and asserted a cross

-claim against Connecticut Mutual. On December 29, 1990, the District Court granted summary judgment for Connecticut Mutual, dismissed all of the claims against it, and entered judgment in 

### its favor. All of the other parties appeal. We affirm. The issue on appeal is whether the District Court erred when it ruled that all claims against Connecticut Mutual failed due to the absence of any contractual obligationby Connecticut Mutual to
assume the debts of DuBeau and Nessan. Davey and Koessler owned contiguous farms adjacent to the Candee farm in Rosebud County. The Candee propertywas a dry

-land farm,buttheDaveyandKoessler farmshad center
-pivot irrigation. DuBeau andNessanbought theCandee property on a contract for deed in 1980. DuBeau and Nessan then began planning 

### to buy the

* Mrs. Nessan was a party to the Davey contract but not the Koessler contract. Because the claims of Mr. and Mrs. Nessan 

### in the Davey action are identical to the claims ofMr. Nessan alone 

### in theKoessler action,referencesto "Nessan" in thisopinion include the claims of Mrs. Nessan. 2Davey and Koessler properties under contracts for deed with the intention of operating all three farms as a unit. Their plan envisioned relocating the center
-pivot irrigation system on the Davey and Koessler farms to the Candee farm, and replacing 

### it with
a newer lineal irrigation system. On November 12, 1980, Connecticut Mutual offered to loan DuBeau and Nessan more than $1.8 million in order 

### to make the necessary down payments and capital investments. Connecticut Mutual offered DuBeau and Nessan a favorable interest rate in exchange for an option to acquire a one-half interest in the property if the venture proved to be profitable. In turn, Connecticut Mutual took a security interest in DuBeau's and Nessan's purchasers' interest in the three contracts for deed. DuBeau and Nessan accepted Connecticut Mutual's offer. Thus, in the development of this project DuBeau and Nessan incurred two different types of indebtedness: (1) theirunderlying debts to Candee, Davey, and Koessler on the three contracts for deed; and (2) their subsequent debt to Connecticut Mutual. In order to protect 

### its security interest in DuBeau's and Nessan's purchasers' interest against foreclosure, Connecticut Mutual insisted on the right tomake payments to Candee, Davey,and Koessler in the event of default by DuBeau and Nessan. DuBeau and Nessan subsequently entered intowritten agreementsto this effect with Davey and Koessler. Specifically, Davey and Koessler granted

3Connecticut Mutual the right, "at 

### its election and without obligation," to cure any default by DuBeau and Nessan. DuBeau and Nessan immediately experienced cash flow problems with the project. DuBeau and Nessan had to borrow more money from Connecticut Mutual in order to make the 1982 payments on the underlying contracts fordeed. Thishappened again in 1983. Later in 1983, DuBeauand Nessan advised Connecticut Mutual that the cash flow situationwas not improving and that they intended to default
on both the land contracts and their contract with Connecticut Mutual. DuBeauandNessan offered Connecticut Mutual a deed in lieu of foreclosure but Connecticut Mutual insisted on judicial foreclosure. On April 23, 1984, DuBeau and Nessan signed a settlement agreement with Connecticut Mutual in which they agreed to foreclosureby default. ConnecticutMutual waived its right to a deficiency judgment. The settlement agreement did not provide for any assumption by Connecticut Mutual of DuBeauls and Nessan's debt on the three underlying contracts for deed. Connecticut Mutual bought theproperty at the foreclosure saleon September 12, 1984. On November 6, 1984, DuBeau and Nessan gave Connecticut Mutual a quitclaim deed to their remaining interest in the three parcels of land. Connecticut Mutual made payments on the underlying contracts fordeed until July 1987, when it notified Davey and Koessler that it intended to tender the property back to them. Davey and
4Koessler accepted possession and then filed the present lawsuit against DuBeau, Nessan, and Connecticut Mutual. Daveyand Koessleralleged that Connecticut Mutual had assumed the debt of DuBeau and Nessan. They based this theory on the allegationsthat: (1)the quitclaim deed amounted to an assignment of all of DuBeau's and Nessan's right, title, and interest in the property; and (2) Connecticut Mutual's conduct in making payments on the contracts for deed from 1984 through 1987 indicated its intent to assume the underlying debt. Davey and Koessler asserted that by failing to in fact assume the debt, Connecticut Mutual breached 

### its contract and also breached the implied covenant 

### of good faith and fair dealing. DuBeau and Nessan asserted cross

-claims against Connecticut Mutual in which they, too, sought to hold it liable for the underlying debt on the contracts fordeed. DuBeau and Nessanbased these cross-claims on the allegation that Connecticut Mutual had intended to acquire outright ownership of the property from the very beginning of the operation and that the negotiations leading up to the 1984 settlement agreement had, therefore, contemplated that Connecticut Mutual would be assuming the underlying debt on the three contracts for deed. DuBeau and Nessan asserted that these facts supported actions forbreach of contract and breach of the implied covenant of good faith and fair dealing. Connecticut Mutual moved for summary judgment on all of the claims against 

### it. 

### It argued that it acquired only an equity
5interest at the foreclosure sale, that the quitclaim was inoperativeto transferDuBeau'sand Nessan's underlying debt, and that the parol evidence rule barred any evidence about the negotiations leading up to the 1984 settlement agreement. The District Court granted summary judgment for Connecticut Mutual on all of the claimsagainst it. All of the other parties appeal from this summary judgment order. The issue on appeal is whether the District Court erred when it ruled that all claims against Connecticut Mutual failed due to the absence of any contractual obligationby Connecticut Mutual to assume thedebts of DuBeau and Nessan. Because the appellants take very similarpositions onappeal,wediscusstheDavey and Koessler claims togetherwith the DuBeau and Nessan claims. I THE BREACH OF CONTRACT ACTIONS All of the appellants argue that Connecticut Mutual assumed a contractual duty to make payments on the underlying contracts for deed,either by virtue of thequitclaimdeed fromDuBeauand Nessan
or by virtue of Connecticut Mutual's conduct in making those payments from 1984 to 1987. They concede that Connecticut Mutual
never expressly agreed in writing to assume the underlying debt. In order to succeed, then, they must show that in some other way Connecticut Mutual assumed the contractual obligations of DuBeau and Nessan.

6An "assignmentg1 of contractual rights 

### is not the same as an '(assumption"of contractual obligations. All of theparties agree that generally "[tlhe assignee of an executory contract does not, merely by accepting the assignment, or by succeeding to the property subject to the contract,assumetheobligations imposedby the contract on the assignor." Thompson

### v. Liizcolri Nat. Life his. Co. (1943), 114 Mont. 521, 527

-28, 138 P.2d 951, 954. The parties disagree about whether an assignment actually occurred in this transaction;ConnecticutMutual arguesthatneitherthe foreclosure sale nor the quitclaim deed operated as an assignment. Because this case comes to us on appeal from an order of summary judgment
we assume, without deciding, that an assignment occurred. We turn to the question of whether there was also an assumption. The appellants argue that although an assumption must typically be expressed, in the proper circumstances 

### it may be implied by the conduct of the parties. They cite the following language in Thompson: Thedissentperforce admitstheundeniable rulethat the assignment of a contractdoes not ordinarily operate to castthe contract liabilities upon the assignee in the absence of an assumption thereof by him. The dissent further says, what is obvious, that the assignee may assume the assignor's liabilities, that under certain circumstances and conduct the law will imvlv such assumvtion, and that he may not enforce the contract without performing its terms. [Emphasisadded.] Thompson, 138 P.2d at 955

-56.

7In Thompson, thebuyer's estate sued the seller's assignee for damages resulting from the assignee's conveyance of the subject property to a third party without protecting the original buyer's rights. The instrumentof assignmentwas silenton the questionof assumption of liabilities. The buyer argued that the assignee's conduct gave rise to an assumption by implication. 

### Thomp.~oiz,138 P.2d at 953

-54. The majority of this Court, after stressing the general rule that the assignee is not bound in the absence of an express assumption, Thompson, 138 P.2d at 954, suggested that in the appropriatecaseanassumption might arise

### by implication,Tliompsoit

## , 138 P.2d 956. However,themajority concluded thatunder the facts of that caseno implied assumptionhad occurred. Thompsorz, 138P.2d at 956. Thus, the suggestion in that case that an assignee may assume contractual obligations by implicationwas purely dicra. We have never applied it in subsequent real estate cases to find an assumption of the assignor's contractual liabilities. The appellants also cite 

### Massey-Fergusoiz Credit Corporarioit

### v. Brown (1977), 173 Mont. 253, 567 P.2d 440, for the proposition that an assumption of contractual dutiesmay be implied. 

### Massey-Fe~~soiz was not a real estate case: it involved a sale 

### of goods that was subject to Article 9 of the Uniform Commercial Code. That distinction is significant.

8The American Law Institute has recognized that real estate transactions are qualitatively different from other transactions: (2) Unless the language or the circumstances indicate the contrary, the acceptance by an assignee of 

# . . . an assignment operates as a promise to the assignor to perform the assignor's unperformed duties, and the obligorof theassignedrights isan intendedbeneficiary of the promise. Caveat: The Institute expresses no opinion as to whether the rule stated in Subsection (2) applies to an assiqnmentbv a purchaser of his riqhtsunder a contract for the sale of land. [Emphasisadded.] Restatement (Second) of Contracts 5 328 (1979). Professor Williston explained the difference as follows: It must be conceded, however, that at least in regard to contracts for the sale of land the great majority ofdecisionsstronglytaketheposition thatthe assignee of the purchaser does not become bound to the vendor for the price in the absence 

### of an express assumption of theduty inhis contractwith the assignor. The analogy to the transfer of mortgaged land has doubtless been influential. [Emphasisadded.] 3 Samuel Williston, A Treatise on the Law of Contracts 

### 5 418A at 109 (WalterH.E. Jaeger, ed., 3d ed. 1960). TheWisconsin Supreme Court elaborated on this rule inPeterson


### v.Johnson (1972), 201 N.W.2d 507. The court said: The caseswhich analyzethe foundations forthe rule base their holding on the lack of contractual privity between the vendor and the assignee of the vendee's interest. In the case of a bare assignment, there is privity of estatebetween thevendor and the assigneebut not of contract. The obligation topay isnot a covenant runningwith the land. It is apersonal obligationbased on contract and enforceable only against those who have a contractual obligation to pay the purchase price. In order for an assignee [of a land contract] tobe personally liable for a deficiency judgment, it is 9necessary either that he negotiate a contract directly with the vendor, producing a novation, or that he enter intoan express aqreementwith thepurchaser assuming the contractual obligation to pay. Under the second alternative,while therewould be noprivity of contract with the vendor 

### in the common law sense, the assignee would be liable to the vendor under the third

-party beneficiary theory. Peterson, 201 N.W.2d at 509. We agree that there can be no implied assumption of contractual liabilities in real estate transactions. Because of the complexity of these transactions, the large amounts of money that are typically involved,and the customarypresumption that the only obligations are those which have been expressed, a rule that would permit the inadvertent assumption of debt is inappropriate. The appellants have conceded that Connecticut Mutual did not expressly assume the underlying debt, and we reject their theory that an assumptionmay arise by implication. Thus,we conclude as a matter 

### of law that Connecticut Mutual had no contractual obligation to continuetomake payments on theunderlyingcontracts for deed. We hold that the District Court did not err when 

### it granted summary judgment to Connecticut Mutual on all 

### of the breach of contract claims lodged against it. I1 THE BAD FAITH ACTIONS The appellants alsopled bad faith claims against Connecticut Under

### Storyv.

### CityofBozeman (1990),242Mont. 436, 450

-51,791 Mutual.

10P.2d 767, 775

-76, bad faith 

### is actionable in an ordinary contract action. However, we have already concluded that there was no contractbetween Davey
-Koesslerand ConnecticutMutual. Therefore, there was no implied covenant of good faith and fair dealing between Davey
-Koessler and Connecticut Mutual, and accordingly no action for breach of the covenant. DuBeau and Nessan, however, did have a contract with Connecticut Mutual in the form of the 1984 settlement agreement. They citeNicholson

### v. UnitedPacificInsurance 

### Co. (1985)

### , 219 Mont. 32, 42, 710 P.2d 1342, 1348, for theproposition that apersonbreaches the implied covenant of good faith and fair dealing by acting "arbitrarily, capriciously, or unreasonably." A majority of this Court overruled that aspect of Nicholson 

### in Story, when 

### it held that the conductrequiredby the implied covenant of good faith and fair dealing is "honesty in fact and the observance of reasonable commercial standardsof fair dealing in the trade." Story, 791 P.2d at 775. However, the Dubeau

-Nessan bad faith claim fails under either standard. Connecticut Mutual did not breach the implied covenant. It told DuBeau and Nessan 

### itwas considerinq taking a deed in lieu of foreclosure but then decided to proceed with strict judicial foreclosure. Although DuBeau and Nessan have complained of Connecticut Mutual's failure to advise them specifically that it had rejected their offer of a deed in lieu of foreclosure, its

11

### insistence

### on strict judicial foreclosureand 

### the termsof 

### the 1984 settlement agreement itself was sufficient to indicate to DuBeau and Nessan that Connecticut Mutual would not be acquiring the property outright. As the District Court explained in its memorandum and order: It is obvious that at the time the purchase transaction wasput together everyone thought that landvalueswould continue to rise. Everyone was concentrating on the upside potential; no one was looking at the downside potential, except,perhaps the Connecticut Mutual legal department. Instead of becoming an owner in the real estate, Connecticut Mutual took an option. It never exercised the option. Instead of taking a deed in lieu, it foreclosedonDuBeau-Nessan'spurchaser's interestand protected its interest in the subject real estate by making payments, until such time as it became apparent that 

### it was throwing good money after bad and it would never recoup its investment. When thebottom fell out of the real estate market, and Connecticut Mutual walked away, it lost a large amount of money 

## - its original investment,the substantialimprovementstotheproperty, aswell as the annual payments itmade for severalyears on the property. It had, however, done everything it could toprotect itselfagainstincurring furtherlosses. It should be noted that DuBeau and Nessan were experienced, sophisticated agricultural real estate professionals and investors. They, aswell as the other parties to this lawsuit, entered into these transactions upon advice of counsel. It 

### is clear that what happened in this case is that no one anticipated the sudden drop in the prices of agricultural land and everyone got caught short. The way the transaction was structured, Connecticut Mutual could legally walk away without incurring further losses. We agree. Connecticut Mutual merely took advantage of the structure of the transaction as establishedby an agreement DuBeau and Nessan executed while represented by counsel. This conduct violated neither the Niclzolsoii "arbitrary, capricious, or unreasonable" standard, nor the Story "dishonesty or commercial
12unreasonableness" standard, and therefore, did not constitute bad faith. We hold that the District Court did not err when it granted summary judgment on all of the bad faith claims lodged against it. The order and judgment of the District Court are affirmed.

We concur:

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