No. 14212 INTHE SUP- COUIiTOF THE STATEOFMONTANA 1978

ARNOLD H. SCHULZ MINNIE B. SCHULZ

### , husband 

### andwife, and FXlBDV L. SCHULZ, Plaintiffs andAppellants,



### FREDJ. PEAKEand ANNAMAE PEAKE, husband 

### andwife, Defendants and Respondents.

+peal frm: District Court of the SixthJudicialDistrict, Honorable Jack Shanstram, Judgepresiding. Counsel of Record: ForAppellants: Landoe, Gary

### and Planalp, 

### Bozes~n, bbntana For Respondents: 

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

Suhnitted

### onbriefs: August 2, 1978 Decided: 

## PUG2 

## 1378

--fMr. Justice John Conway Harrison delivered the Opinion of the Court.

This is an appeal ina damage action for alleged fraudulent representations inthe saleof a motel. In a nonjury case, the court found for defendants and plaintiffs appeal. Plaintiffs-appellants areArnold and Minnie Schulz, husband and wife, and their son Robert Schulz. The family had operated a drive-in restaurant inElkton, Oregon, before coming toGardiner, Montana. While living 

### atElkton, they formed a friendshipwith Luis Dohnalek who latermoved to Gardiner. Through Dohnalek they became interested inand laterbought theNorthgate Motel inGardiner. While living inGardiner, Dohnalek became acquainted with defendants-respondents, Fred and Annamae Peake. He learned they were interested in selling themotel and Annamae Peake offered him $500 finders fee if he could find

a buyer. Atthat 

### 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 thatPeake told them that inaddition to themotel, there

### were 13 acres atthe site. That figure

### was denied by the Peakes. InMay, 1973, Arnold and Robert Schulz went toGardiner, stayed atthemotel and spent threedays inspecting the motel and the surrounding premises. They walked the grounds and inspected most, if not all, of themotel units. During thisvisit, they were informed by respondents that certain of the units were not habitable during thewinter while others could be occupied allyear. On May 10, 1973, appellants agreed topurchase themotel and made a $1,000 earnestpayment. Appellant Robert Schulz prepared thememorandum of the agreement which was signed by Robert and Arnold, and Arnold also signed hiswife's name. They then returned to Oregon totry and sell their business atElkton. On July 13, 1973, Dohnalek wrote to appellants concerning certain details about themotel. Atthat 

### timehe told them if they did not decide tobuy themotel that he, Dohnalek, was interested inbuying it. He also told appellants that respondents would refund the earnestmoney payment if they did not purchase themotel. Either inthe July 13 letter or an 

### earlier letter, Dohnalek attached a sketch of themotel area. Early inSeptember, 1973, Arnold and Robert returned to Gardiner, moved into themotel and spent some 20 days there prior toexecuting a contract for the purchase of themotel. During thisperiod they again inspected the units, talked to localpeople and generally educated themselves about the business and 

### itsproblems. Three days before the contract



### was signed Minnie Schulz came from Oregon to look atthe property. The parties signed a contract for deed which accurately described theproperty purchased and said contractwas placed inescrow. 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 specificmisrepresentations. The DistrictCourt found

no misrepresentations and no fraud. Four issues arepresented on appeal: 1. WasLuis Dohnalek an agent for Fred Peake?2. Did the court err inits findings and conclusions holding that the "Complete Investigation" clause insulates sellers from fraud? 3. Did the court 

### err inits failure to find that sellersmisrepresented the acreage to the buyers? 4. Did the court err infailing to find 

### sellersmisrepresented 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 thatprior toMay, 1973, Minnie Schulz had contacted Dohnalek asking him to locate a business in Gardiner. Dohnalek firstsuggested they purchase a grocery store inGardiner, but appellants 

### were not interested. It

was later he learned respondents were interested in selling and wrote toappellants about themotel. To have found Dohnalek an agent of respondents, the trial courtwould have tohave 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, indealings 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 actortransaction is called a special agent. Allother are general agents." A person dealing with a special agent is bound athis peril toascertain 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 isreally employed by the principal. "2-106. Ostensible agency. An agency is ostensible when theprincipal intentionally, or by want of ordinary care, causes a third person tobelieve another tobe his agent who is not really employed by him." It is significant tonote 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 allof such information was gathered by Dohnalek as a friend of appellants, attheir 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, ininterpreting section 2-216, R.C.M. 1947 (thenSection 5424 Revised Codes 1907), said: 

### "

## * * * Itmust be remembered that the subject matter isreal estate, and that any contract conferring upon an agent orbroker the authority tomake a saleor tocontract tomake sale of 

### real estatemust be inwriting. 

## * * * As the statutes now read, any binding authority given to an agent tocontract to 

### sell land must be in writing. Inasmuch as the authority of theagentmust be inwriting, he can have no more authority than 

### isvested inhim by the writing." The burden of proof was on appellants toprove their claim. Certainly, if the agency relationship is contended to be material, appellants failed to sustain the burden of proof inestablishing an agency. See Federal Land Bank of Spokane v. Myhre (1940), 110Mont. 416, 101P.2d 1017. Under the law of these cases, the court found, as

### we must, that the evidence 

### was insufficient tomake out a prima facie case of agency. As toany 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 intoa contract required by law tobe inwriting can only be given an instrument inwriting." This sectionwas interpreted (asSection 7939, Revised Codes of Montana 1921) inHartt v. Jahn, supra, as heretofore quoted. In Electrical Products Consolidated v. ElCamp Inc. (1937), 105Mont. 386, 395, 73 P.2d 199, the Court said:"The decisive question presented for review by this court iswhether the plaintiff made a case upon the lawand the facts sufficient to sustain the judgment. 

## * * 

## * It is our opinion that such a 

### case was notmade; thisbecause therewas no sufficient showing of the authority of Day toavoid the effectof the statuterequiring an agent's authority tobe inwriting inconformity with section 7939 

## * * 

## *." Nor can itbe said thatrespondents ratified any action of Dohnalek, because Dohnalek took no action. He never claimed tobe the agent of respondents nor did he ever exercise any such authority. This is a unique effort to make respondents responsible for allegedmisrepresentations of Dohnalek, who admittedly never claimed tobe the agent of respondents, nor did respondents ever represent to anyone hewas their agent. Neither can section 2-117, R.C.M. 1947, concerning ratification add any strength toappellants' already weak position. This sectionprovides: "Ratification of agent's act. A ratification 

### - can be made on5inthemanner thatwould have been necessary toconfer an original authority for the actratified, or where an oral authorization would suffice, by accepting orrestraining thebenefit of the act, with notice thereof." We find no error as tothe firstissue. The second issue concerns the court's finding and conclusion that appellants relied on their own inspection of themotel and therefore respondents 

### were not liable. Paragraph 14of the contract reads: "Examination of Property. The purchasers declare they arepurchasing 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 itsproduction." In interpreting the contract, 

### we look to the statutory guidelines provided insection 13-702, R.C.M. 1947: "Contracts--how tobe interpreted. A contract must be so interpreted as togive effect to the mutual intention of the parties as it existed atthe timeof contracting, so far as the same is ascertainable and lawful." Here, the language isclear and unambiguous. So being, it needs no construction and it is the court's duty to enforce it asmade by the parties. Bullard v. Smith (1903), 28 Mont. 387, 72 P. 761; Frank etal. v. Butte & Boulder Mining & Lumber Co. (1913), 48 Mont. 83, 135P. 904; Thompson

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

v. Danielson (19771, Mont

# . , 560 P.2d 893, 34 St-Rep. 76. Issues three and four willbe 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. Davidsonv. Lewis (1978)

## , Mont. 

## , 579 P.2d 762, 35 St.Rep. 662. Here the complaint originally set forth four alleged fraudulentmisrepresentations 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 gasleak atthemotel. 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 therewas only

one tank to service allunits, creating a pressure problem. his was solved by the installation of another tank ata 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 intheir testimony do they produce creditable testimony to sustain their allegations. The trial judge quiteproperly found no misrepresentations. Finally, 

### we consider the question of whether or not there was a misrepresentation as tothe acreage. Reviewing the facts as to the acreage involved in the purchase, we cannot 

### see that the trialjudge abused his discretion infinding forrespondents on the evidence produced for his consideration. Appellants twicevisited themotel sitebefore making the purchase. Arnold and Robert inspected it numerous times and had the boundary linespointed 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 inthe fallof 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 defendantmade these 

### misrepresentations to induce them toenter the contract: (1)that the motel and residence were winterized and could be operated the entire year; (2) that the highway toYellowstone Park would be moved and pass directly in front of the motel; (3) that the plumbing and wiring to a second bathroom inthe residence was roughed inand 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 misrepre

### -- - sentations had not been made. 

### --- "Ithas long been the rule inMontana 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. Dunlapv. Nelson, 165Mont. 291, 296, 529 P.2d 1394; Clough v. Jackson, 156 Mont. 272, 279, 479 P.2d 266; Young v. Handrow, 151Mont. 310, 315, 443 P.2d 9. The districtcourt 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 thatits 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. [Citingcases.]' "Itisundisputed thatWallers 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. Wal

### lers paid Gary Teaney $5,000 for his services. The districtcourt 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.) Atno time during trialdid 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 tomake 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 iswell 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 suchmisre~resentation. (Citincrcases.)" (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 factswe 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* 

### CMefJustice