No. 14212 

IN THE SUP- COUIiT OF THE STATE OF MONTANA 

1978 

ARNOLD H. SCHULZ MINNIE B. SCHULZ , husband and wife, and FXlBDV L. SCHULZ, 

Plaintiffs and Appellants, 

FRED J. PEAKE and ANNA MAE PEAKE, 

husband and wife, 

Defendants and Respondents. 

+peal frm: District Court of the Sixth Judicial District, 

Honorable Jack Shanstram, Judge presiding. 

Counsel of Record: 

For Appellants: 

Landoe, Gary and Planalp, Bozes~n, bbntana 

For Respondents: 

-, Skir aTfir\lurpny,e~, ?&mtam 

Suhnitted on briefs: August 2, 1978 

Decided: PUG 2 1378 

--f 
Mr. Justice John Conway Harrison delivered the Opinion of 

the Court. 

This is an appeal in a damage action for alleged 

fraudulent representations in the sale of a motel. In a 

nonjury case, the court found for defendants and plaintiffs 

appeal. 

Plaintiffs-appellants are Arnold and Minnie Schulz, 

husband and wife, and their son Robert Schulz. The family 

had operated a drive-in restaurant in Elkton, Oregon, before 

coming to Gardiner, Montana. While living at Elkton, they 

formed a friendship with Luis Dohnalek who later moved to 

Gardiner. Through Dohnalek they became interested in and 

later bought the Northgate Motel in Gardiner. 

While living in Gardiner, Dohnalek became acquainted 

with defendants-respondents, Fred and Annamae Peake. He 

learned they were interested in selling the motel and 

Annamae Peake offered him $500 finders fee if he could find 

a buyer. At that time, he wrote appellants to find out if 

they were interested. They contacted Dohnalek and respondents, who confirmed their interest in selling. Minnie 

Schulz testified that Peake told them that in addition to 

the motel, there were 13 acres at the site. That figure was 

denied by the Peakes. 

In May, 1973, Arnold and Robert Schulz went to Gardiner, 

stayed at the motel and spent three days inspecting the 

motel and the surrounding premises. They walked the grounds 

and inspected most, if not all, of the motel units. During 

this visit, they were informed by respondents that certain 

of the units were not habitable during the winter while 

others could be occupied all year. On May 10, 1973, appellants agreed to purchase the motel and made a $1,000 earnest 
payment. Appellant Robert Schulz prepared the memorandum of 

the agreement which was signed by Robert and Arnold, and 

Arnold also signed his wife's name. They then returned to 

Oregon to try and sell their business at Elkton. 

On July 13, 1973, Dohnalek wrote to appellants concerning certain details about the motel. At that time he 

told them if they did not decide to buy the motel that he, 

Dohnalek, was interested in buying it. He also told appellants that respondents would refund the earnest money payment if they did not purchase the motel. Either in the July 

13 letter or an earlier letter, Dohnalek attached a sketch 

of the motel area. 

Early in September, 1973, Arnold and Robert returned to 

Gardiner, moved into the motel and spent some 20 days there 

prior to executing a contract for the purchase of the motel. 

During this period they again inspected the units, talked to 

local people and generally educated themselves about the 

business and its problems. Three days before the contract 

was signed Minnie Schulz came from Oregon to look at the 

property. The parties signed a contract for deed which 

accurately described the property purchased and said contract was placed in escrow. 

Approximately a year after the purchase, appellants had 

a controversy with a neighbor over a boundary line. They 

had their area surveyed and it resulted with the fact they 

owned approximately 1.3 acres of useable land instead of 13 

acres. They then brought this action for damages alleging 

four specific misrepresentations. The District Court found 

no misrepresentations and no fraud. 

Four issues are presented on appeal: 

1. Was Luis Dohnalek an agent for Fred Peake? 
2. Did the court err in its findings and conclusions 

holding that the "Complete Investigation" clause insulates 

sellers from fraud? 

3. Did the court err in its failure to find that sellers misrepresented the acreage to the buyers? 

4. Did the court err in failing to find sellers misrepresented the heating system? 

Appellants argue the court ruled Dohnalek was not an 

agent because of the friendship between Dohnalek and the 

parties. The record does not sustain that argument. The 

court found that prior to May, 1973, Minnie Schulz had 

contacted Dohnalek asking him to locate a business in 

Gardiner. Dohnalek first suggested they purchase a grocery 

store in Gardiner, but appellants were not interested. It 

was later he learned respondents were interested in selling 

and wrote to appellants about the motel. 

To have found Dohnalek an agent of respondents, the 

trial court would have to have found he came within the 

following two statutes and our cases interpreting those 

statutes. 

Section 2-101, R.C.M. 1947, defines agency: 

"Agency defined. An agent is one who represents 

another, called the principal, in dealings with 

third persons. such-representation is called 

agency. " 

Section 2-103, R.C.M. 1947, distinguishes between 

special and general agents: 

"Agents, general or special. An agent for a 

particular act ortransaction is called a special agent. All other are general agents." 

A person dealing with a special agent is bound at his 

peril to ascertain the scope of the agent's authority. 

Moore v. Skyles (1905), 33 Mont. 135, 138, 82 P. 799; Schaeffer 

v. Mutual Benefit Life Ins. Co. (1909), 38 Mont. 459, 465, 
100 P. 225; Northwestern Electric Equipment Co. v. Leighton 

et al. (1923), 66 Mont. 529, 213 P. 1094; Benema v. Union 

Central Life Ins. Co. (1933), 94 Mont. 138, 147, 21 P.2d 69. 

Sections 2-104, 2-105, and 2-106, R.C.M. 1947, define 

actual and ostensible agencies: 

"2-104. Agency, actual or ostensible. An 

agency is either actual or ostensible. 

"2-105. Actual agency. An agency is actual 

when the agent is really employed by the 

principal. 

"2-106. Ostensible agency. An agency is 

ostensible when the principal intentionally, 

or by want of ordinary care, causes a third 

person to believe another to be his agent who 

is not really employed by him." 

It is significant to note there is not one shred of 

testimony, nor any allegation that Luis Dohnalek or Fred 

Peake ever represented that Dohnalek was Peake's agent. All 

negotiations were admittedly conducted between appellants 

and respondents. Dohnalek was merely the conduit through 

which information was transmitted to appellants. Some of 

this information was provided by Peake, other information 

gathered by Dohnalek himself, and some by third parties 

through Dohnalek. But all of such information was gathered 

by Dohnalek as a friend of appellants, at their special 

instance and request, and not as the agent of Peake. 

In the old case of Hartt v. Jahn et al. (1921), 59 

Mont. 173, 181, 196 P. 153, the Court, in interpreting 

section 2-216, R.C.M. 1947 (then Section 5424 Revised Codes 

1907), said: 

" * * * It must be remembered that the subject 

matter is real estate, and that any contract 

conferring upon an agent or broker the authority 

to make a sale or to contract to make sale of 

real estate must be in writing. * * * As the 

statutes now read, any binding authority given 

to an agent to contract to sell land must be in 

writing. Inasmuch as the authority of the 
agent must be in writing, he can have no more 

authority than is vested in him by the writing." 

The burden of proof was on appellants to prove their 

claim. Certainly, if the agency relationship is contended to 

be material, appellants failed to sustain the burden of 

proof in establishing an agency. See Federal Land Bank of 

Spokane v. Myhre (1940), 110 Mont. 416, 101 P.2d 1017. 

Under the law of these cases, the court found, as we 

must, that the evidence was insufficient to make out a prima 

facie case of agency. 

As to any oral authorizations alleged, section 2-116, 

R.c.M. 1947, provides: 

"Form of authority. An oral authorization is 

sufficient for any purpose, except that an 

authority to enter into a contract required 

by law to be in writing can only be given an 

instrument in writing." 

This section was interpreted (as Section 7939, Revised 

Codes of Montana 1921) in Hartt v. Jahn, supra, as heretofore quoted. In Electrical Products Consolidated v. El Camp 

Inc. (1937), 105 Mont. 386, 395, 73 P.2d 199, the Court 

said: 

"The decisive question presented for review by 

this court is whether the plaintiff made a 

case upon the law and the facts sufficient to 

sustain the judgment. * * * It is our opinion 

that such a case was not made; this because 

there was no sufficient showing of the authority 

of Day to avoid the effect of the statute requiring an agent's authority to be in writing 

in conformity with section 7939 * * *." 

Nor can it be said that respondents ratified any action 

of Dohnalek, because Dohnalek took no action. He never 

claimed to be the agent of respondents nor did he ever 

exercise any such authority. This is a unique effort to 

make respondents responsible for alleged misrepresentations 

of Dohnalek, who admittedly never claimed to be the agent of 

respondents, nor did respondents ever represent to anyone he 
was their agent. Neither can section 2-117, R.C.M. 1947, 

concerning ratification add any strength to appellants' 

already weak position. This section provides: 

"Ratification of agent's act. - A ratification 

can be made on5 in the manner that would have 

been necessary to confer an original authority 

for the act ratified, or where an oral authorization would suffice, by accepting or restraining 

the benefit of the act, with notice thereof." 

We find no error as to the first issue. 

The second issue concerns the court's finding and 

conclusion that appellants relied on their own inspection of 

the motel and therefore respondents were not liable. 

Paragraph 14 of the contract reads: 

"Examination of Property. The purchasers declare 

they are purchasing said property on their own 

examination and judgment and not through any 

representations to them made by the sellers, or 

their agents, as to its location, value, future 

value, income therefrom or as to its production." 

In interpreting the contract, we look to the statutory 

guidelines provided in section 13-702, R.C.M. 1947: 

"Contracts--how to be interpreted. A contract 

must be so interpreted as to give effect to the 

mutual intention of the parties as it existed 

at the time of contracting, so far as the same 

is ascertainable and lawful." 

Here, the language is clear and unambiguous. So being, 

it needs no construction and it is the court's duty to 

enforce it as made by the parties. Bullard v. Smith (1903), 

28 Mont. 387, 72 P. 761; Frank et al. v. Butte & Boulder 

Mining & Lumber Co. (1913), 48 Mont. 83, 135 P. 904; Thompson 

v. Thompson (1976), 170 Mont. 447, 554 P.2d 1111; Danielson 

v. Danielson (19771, Mont . , 560 P.2d 893, 34 

St-Rep. 76. 

Issues three and four will be considered together for 

they concern the allegations of misrepresentation of acreage 

and the heating system by respondents. 
We must observe at this level of review of such allegations that the trial court has the unique position of observing the witnesses, their demeanor, and then finally 

passing on the credibility and weight to be given such 

testimony. We are confined to the cold record of that 

testimony and recognize that it is the trial court's province 

to judge the credibility of the witnesses. Davidson v. 

Lewis (1978) , Mont. , 579 P.2d 762, 35 St.Rep. 662. 

Here the complaint originally set forth four alleged 

fraudulent misrepresentations as to: 

(1) Acreage; 

(2) Concealment of a previous highway take; 

(3) Lack of insulation in cabins; and 

(4) Possible leakage in the gas line. 

Two of appellants exhibits, one a description of the 

property showing the highway take as being 1,961 feet, and 

the other a letter from Dohnalek telling appellants of said 

take, necessitated an abandonment by appellants of this 

allegation. The trial testimony and the depositions of 

appellants fell far short of supporting the complaint, a 

factor no doubt in the trial judge's acceptance of the 

credibility of appellants' testimony. All three appellants 

had contradicting testimony as to the insulation of the 

various cabins. At trial Robert testified, contra to his 

deposition, that Peake told him the riverside cabins, seven 

in number, could not be used in cold weather, but that there 

were eleven units that could be used. 

The same contradictory type of testimony was given both 

by deposition and at trial about the alleged gas leakage. 

The local propane dealer, Harold Rediske, who had serviced 

the cabins for years, testified there had never been a gas 
leak at the motel. Over the years they had trouble keeping 

the pilot lights clean and on, a problem common to that type 

of heating, but no major leak. Rediske testified that the 

major problem of heating the units was that there was only 

one tank to service all units, creating a pressure problem. 

 his was solved by the installation of another tank at a 

cost of only $50 per year. 

On appeal appellants allege a misrepresentation as to 

the heating system, a change from the original complaint, 

but nowhere in their testimony do they produce creditable 

testimony to sustain their allegations. The trial judge 

quite properly found no misrepresentations. 

Finally, we consider the question of whether or not 

there was a misrepresentation as to the acreage. 

Reviewing the facts as to the acreage involved in the 

purchase, we cannot see that the trial judge abused his 

discretion in finding for respondents on the evidence produced for his consideration. 

Appellants twice visited the motel site before making 

the purchase. Arnold and Robert inspected it numerous times 

and had the boundary lines pointed out to them. Most 

certainly they must have recognized that the difference 

between 1.3 acres and the alleged 13 acres was great and 

should have asked questions before the purchase. 

Appellant Robert drew up the earnest money agreement 

and made no mention of the acreage nor did the contract 

signed by the parties later in the fall of 1973. 

In a very similar case, involving the purchase of a 

motel, Waller v. Heid (1976), 170 Mont. 501, 554 ~.2d 1331, 

this Court held: 
"Wallers contend defendant made these misrepresentations to induce them to enter the 

contract: (1) that the motel and residence 

were winterized and could be operated the entire year; (2) that the highway to Yellowstone 

Park would be moved and pass directly in front 

of the motel; (3) that the plumbing and wiring 

to a second bathroom in the residence was roughed 

in and could be completed merely by hooking up 

the utilities; and (4) that the motel's washer 

and dryer worked. Wallers argue they would not 

have entered -- into the contract - if these misrepresentations --- had not been made. 

"It has long been the rule in Montana that a 

prima facie case of fraud is not established 

unless the plaintiff proves he relied on the 

truth of the representations made to him. Dunlap v. Nelson, 165 Mont. 291, 296, 529 P.2d 

1394; Clough v. Jackson, 156 Mont. 272, 279, 

479 P.2d 266; Young v. Handrow, 151 Mont. 310, 

315, 443 P.2d 9. The district court found that 

Wallers relied on their own investigations of 

the property and those of Gary Teaney, rather 

than representations made by defendant. In 

Cowan v. Westland Realty Co., 162 Mont. 379, 

383, 512 P.2d 714, this Court said: 

"'This Court has stated many times 

that its function on appeal is to 

determine whether there is substantial 

evidence to support the findings of 

the district court. This Court will 

not reverse the findings of the trial 

court unless there is a clear preponderance of the evidence against 

such findings. [Citing cases.]' 

"It is undisputed that Wallers visited West 

Yellowstone twice and personally examined the 

motel and residence, including the bathroom and 

laundry room. Of particular significance is the 

fact they hired an agent with substantial real 

estate experience to investigate the property 

and make recommendations on the purchase. Wallers paid Gary Teaney $5,000 for his services. 

The district court could properly find from this 

evidence that no reliance was placed on any representations made by defendant. Without reliance 

there was no cause of action for fraud." 

170 Mont. at 502-03. (Emphasis added.) 

At no time during trial did appellants say they would 

not have purchased the motel had they been aware of the fact 

there was less than 13 acres. They said they would have 

thought more about it. Then, over a year later, after 

making the payments and continuing to make payments, they 
brought this action for $25,000 damages--not for recission 

of the contract. 

We held in Anderson v. Applebury (1977), - Mont . - I 

567 P.2d 951, 954, 34 St.Rep. 842: 

"It is well settled that a prima facie case of 

fraud is not established unless plaintiff 

proves the making of a material misrepresentation, and reliance -- upon the truth --- of such misre~resentation. (Citincr cases.)" (Emphasis 

adhed. ) 

Applying our holding to this case, we note appellants 

had at least three opportunities to avoid this sale after 

inspecting it. Under these facts we cannot find the makings 

of material representations nor the reliance upon same by 

appellants. 

The District Court judgment is affirmed. 

We Concur: Cj 

%A$ %'P&Q* 

CMef Justice