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 CONNECTICUT MUTUAL LIFE INSURANCE 

COMPANY, a Connecticut corporation, 

Defendants, Respondents and Appellants, 

wpw 9 =?99i$ 

,- HORTON B. KOESSLER, as Personal Representative 

of the Estate of HORACE H. KOESSLER, Deceased, ,: .; 1 ,i.<' , cp .-.rt .d.illl"rz. 

cLE;.<i<, aF s$p;3c:;.!E COUR? Plaintiff and Appellant, 5yj,\i< 3:- ;t;..;;.,'<Ap,ifi 

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: 

David A. Veeder, Veeder & Broeder, Billings, Montana 

(Davey & Koessler) ; David R. 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, 1991 
Justice Terry N. Trieweiler delivered the opinion of the Court. 

On February 5, 1988, M. E. Davey filed a complaint against 

Edward M. Nessan, Joan E. 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 court and 

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 obligation by 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 property was a dry-land 

farm, butthe Davey and Koessler farms had center-pivot irrigation. 

DuBeau and Nessan bought the Candee 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 of Mr. Nessan alone in 

the Koessler action, references to "Nessan" in this opinion include 

the claims of Mrs. Nessan. 

2 
Davey 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) their underlying 

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 to make payments to Candee, Davey, and 

Koessler in the event of default by DuBeau and Nessan. DuBeau and 

Nessan subsequently entered into written agreements to this effect 

with Davey and Koessler. Specifically, Davey and Koessler granted 

3 
Connecticut 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 for deed. This happened again in 1983. Later 

in 1983, DuBeau and Nessan advised Connecticut Mutual that the cash 

flow situation was not improving and that they intended to default 

on both the land contracts and their contract with Connecticut 

Mutual. 

DuBeau and Nessan 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 foreclosure by default. Connecticut Mutual 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 the property at the foreclosure sale on 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 

for deed until July 1987, when it notified Davey and Koessler that 

it intended to tender the property back to them. Davey and 

4 
Koessler accepted possession and then filed the present lawsuit 

against DuBeau, Nessan, and Connecticut Mutual. 

Davey and Koessler alleged that Connecticut Mutual had assumed 

the debt of DuBeau and Nessan. They based this theory on the 

allegations that: (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 for deed. DuBeau and Nessan based 

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 for breach 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 

5 
interest at the foreclosure sale, that the quitclaim was 

inoperative to transfer DuBeau's and 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 claims against 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 obligation by Connecticut Mutual to 

assume the debts of DuBeau and Nessan. Because the appellants take 

very similar positions on appeal, we discuss the Davey and Koessler 

claims together with 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 the quitclaim deed from DuBeau and 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. 

6 
An "assignmentg1 of contractual rights is not the same as an 

'(assumption" of contractual obligations. All of the parties 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, assume the obligations imposed by 

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; Connecticut Mutual argues that neither the 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 : 

The dissent perforce admits the undeniable rule that 

the assignment of a contract does not ordinarily operate 

to cast the 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. [Emphasis added.] 

Thompson, 138 P.2d at 955-56. 

7 
In Thompson, the buyer'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 instrument of assignment was silent on the question of 

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 

appropriate case an assumption might arise by implication, Tliompsoit , 

138 P.2d 956. However, the majority concluded that under the facts 

of that case no implied assumption had occurred. Thompsorz, 138 P.2d 

at 956. Thus, the suggestion in that case that an assignee may 

assume contractual obligations by implication was 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 duties may 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. 

8 
The 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 

obligor of the assigned rights is an intended beneficiary 

of the promise. 

Caveat: The Institute expresses no opinion as to whether 

the rule stated in Subsection (2) applies to an 

assiqnment bv a purchaser of his riqhts under a contract 

for the sale of land. [Emphasis added.] 

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 of decisions strongly take the position that the 

assignee of the purchaser does not become bound to the 

vendor for the price in the absence of an express 

assumption of the duty in his contract with the assignor. 

The analogy to the transfer of mortgaged land has 

doubtless been influential. [Emphasis added.] 

3 Samuel Williston, A Treatise on the Law of Contracts 5 418A at 

109 (Walter H.E. Jaeger, ed., 3d ed. 1960). 

The Wisconsin Supreme Court elaborated on this rule in Peterson 

v. Johnson (1972), 201 N.W.2d 507. The court said: 

The cases which analyze the foundations for the 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 estate between the vendor and the assignee but 

not of contract. The obligation to pay is not a covenant 

running with the land. It is a personal obligation based 

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] to be 

personally liable for a deficiency judgment, it is 

9 
necessary either that he negotiate a contract directly 

with the vendor, producing a novation, or that he enter 

into an express aqreement with the purchaser assuming the 

contractual obligation to pay. Under the second 

alternative, while there would be no privity 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 customary presumption 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 assumption may arise by implication. Thus, we conclude as 

a matter of law that Connecticut Mutual had no contractual 

obligation to continue to make payments on the underlying contracts 

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 also pled bad faith claims against Connecticut 

Mutual. Under Storyv. CityofBozeman (1990), 242 Mont. 436, 450-51, 791 

10 
P.2d 767, 775-76, bad faith is actionable in an ordinary contract 

action. However, we have already concluded that there was no 

contract between Davey-Koessler and Connecticut Mutual. 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 cite Nicholson v. United Pacific Insurance Co. (1985) , 2 19 Mont. 32, 42, 

710 P.2d 1342, 1348, for the proposition that a person breaches 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 conduct required by the implied covenant of good faith and fair 

dealing is "honesty in fact and the observance of reasonable 

commercial standards of 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 it was 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 foreclosure and the terms of 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 

was put together everyone thought that land values would 

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 foreclosed on DuBeau-Nessan's purchaser's interest and 

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 the bottom fell out of 

the real estate market, and Connecticut Mutual walked 

away, it lost a large amount of money - its original 

investment, the substantial improvements to the property, 

as well as the annual payments it made for several years 

on the property. It had, however, done everything it 

could to protect itself against incurring further losses. 

It should be noted that DuBeau and Nessan were 

experienced, sophisticated agricultural real estate 

professionals and investors. They, as well 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 established by 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 

12 
unreasonableness" 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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