No. 14712 INTHE SUPREME COURT OF THE STATE OF MONTANA 1979

JAY STOVALL and JUANITA STOVALL, Plaintiffs and

### &nts,

-vsLILLWWATT, DAN HARDY and FERN HARDY, t I ' Defendants and

### *~&ell&ts.

Appeal from: District Court of the Thirteenth Judicial District, Honorable Charles Luedke, Judge presiding. Counsel of Record: For Appellants: Hibbs, Sweeney and Colberg, Billings, Montana Maurice R. Colberg, 

### Jr., argued, Billings, Montana For Respondents: Freeman and Martin, Hardin, Montana Laurence R. Martin argued, Hardin, Montana

Submitted: September 18, 1979 Decided: 

### 4~fi 2 

## 1384

- - 

### -- Filed: - 

### .-Mr. Justice Daniel J. Shea delivered the Opinion of the Court.

The Stovalls, plaintiffs below, appeal from a judgment and order of the Big Horn County DistrictCourt denying their request for specificperformance of an option topurchase clause contained ina lease which the Stovallshad entered intowith Lillian I. Watt. Defendant LillianWattalso crossappeals from an award tothe Stovallsof $9,600 in damages for her breach of agreement toconvey the 

### real property involved. The trial court determined that defendants Dan M. Hardy and Fern A. Hardy had superior equitable claims tothe purchase of the land involved 

### as a result of a lease option topurchase agreement which they alsohad entered intowith defendant LillianWatt. The essential contention of the Stovalls is that the trial court abused 

### its discretion by not granting their claim for specific performance of the option topurchase clause contained ina lease dated March 3, 1969. The primary contention of defendant Watt inher cross-appeal seeking to avoid damages awarded tothe Stovalls, 

### is that the stovail 

### lease had no inception infact and that the leasewas also subject toa condition precedent that the Hardys vacate the land involved, and that the Hardys never did vacate the land. The problems began with the death of Edmund Andrett who owned the property inquestion until his death inJune 1966. Andrett had previously used C. D. Wolfe of Farm and Ranch Management Co. of Billings toact ashis agent inleasing the land involved. Through a continuing seriesof leases the Hardys had leased the land from the agency since 1951. The problems began when the leasing agency dealt directlywith the Hardys after the death of Edmund Andrett but where Lillian Wattdealt, through her attorney, primarily, with the Stovalls. -2-

### Lillian Watt, an elderly Seattle,Washington resident, became the owner of the property involved by virtue of a decree of distribution entered on July 18, 1967. The property

was then subject to an existing Hardy lease. She retained Missoula attorney, DwightN. Mason, to handle her affairs concerning the property. During all of the proceedings or transactions in relation to the land, she had never gone to

see the land in this state located in Big Horn County. The Hardy leasewas to expire on March 1, 1968. Prior to this time, however, Lillian Watt and the Hardys were disputing lease rental payments. For some reason, Lillian Watt believed that the Hardy lease had expired and that the Hardys were in default on rentalpayments. For this reason, she contacted attorney Mason and asked him to find a new tenant. Unknown to Lillian Watt or to attorneyMason, however, the leasing agency managed by Wolfe, had entered into a renewal lease with the Hardys on March 1, 1968. This leasewas recorded

onNovember 22, 1969. The problem became complicated then because attorney Mason had,pursuant to Lillian Watt's instructions, found another tenant for the farmland and entered into a lease and purchase optionwith the Stovalls. The following circumstances led to the Stovall-Lillian Watt lease option to purchase agreement. Attorney Mason wrote a letter to the father of Jay Stovall and solicited him as a tenant. Jay Stovall's father had died however, and the letter was passed along to Jay Stovall, who was ranching property adjacent to the ~illian Watt property occupied by the Hardys. Jay Stovall and his wife met with attorney Mason inMissoula in early February 1969, and expressed their interest in leasing the property. Mason told the Stovallsthat Lillian Wattwould be receptive to an offer to lease the land involved because shewas then having problems with the Hardys and did not want tocontinue leasing tothem. After returning home, the Stovalls sent a written offer for 

### lease terms, negotiations ensued, and finallyattorney Mason prepared a lease datedMarch 3, 1969 and Lillian Watt and the Stovalls signed 

### it. This leasewas recorded on September 22, 1969, a month before the Hardys recorded their lease from the leasing agency managed by Wolfe. The Stovall leasewas for a three year term starting March 3, 1969 and 

### it also included a preferential right of renewal and an option "to

### meet the purchase price offered" inthe event of any saleduring the term of the lease. Another clause recited that

# ".



# . .possession thereof tobe given as

soon 

### as present tenant (theHardys) vacates same 

# . . ." The Hardy 

### lease also contained an option topurchase clause similar tothat contained inthe Stovall lease. Although the Stovalls knew that the Hardys 

### were occupying the land attorney Mason told them that if any problem arose as topossession that he would evict the Hardys and place the Stovalls on the land as the tenants. Problems erupted almost immediately because of the two competing leases and claims made by the respective parties. Upon receiving 

### a signed copy of their 

### lease the Stovalls immediately proceeded toclaimpossession of the land. They rebuilt some fences, opened up gates, and moved their cattle from adjoining land onto the LillianWatt property. his sparked action by the Hardys, who 

### were occupying the land. They moved the cattleoff the property and locked the gates. These acts triggered a 

### series of communications between attorney Mason, the Hardys, LillianWatt, and Wolfe, the manager of -4-the leasing agency who had signed the 

### lease with the Hardys. From these communications 

### it was learned that the Hardys



### were not actually indefault on the rental payments, and that the Hardys had entered intothe March 1, 1968 renewal lease with agent Wolfe. The Hardys had paid the rental money to agent Wolfe. Wolfe then tried to 

### settle the rents with LillianWatt

on March 21, 1969, but she rejected his offer, returned his check, and toldWolfe that she would not accept any rent from the Hardys for 1969. On April 5, 1969 LillianWattwrote to attorney Mason and told him shewould not ratify the Hardy lease. Lillian Watt and attorney Mason then suggested a compromise agreement between the competing 

### lessees whereby the Hardys would be allowed tohave the cropland through the 1969 crop season and the Stovallswould use the grazing land. The Sto-~alls did not need the grassuntil fall, and they felt thatunder customary practice the Hardys would, in any event, be entitled tothe 1969 cropwhich the Hardys had planted. It appears however, thatneither the Hardys nor the Stovalls

ever specifically agreed tothis compromise arrangement. In any event, the attitude of LillianWatttoward the Hardys changed markedly after she decided to 

### let the Hardys stay

on theproperty through 1969. Although she apparently believed atthat 

### timethat the Hardys did not have a valid 

### lease, ~illian Watt accepted the grazing rental from the Hardys. In September 1969, Lillian Watt decided to 

### sell the property, and inJune 1970, she sold the property tothe Hardys. As a result of this sale tothe Hardys, the Stovalls filed suitseeking specific performance from LillianWatt, and that they 

### were entitled topurchase the land rather than the Hardys. 

### In entering 

### itsorder denying specificperformance the trialcourt determined thatLillianWatt had relied ingood 

# -5-faith on attorney Mason's advice, and that out of this reliance flowed 

### a series of factual and legal misapprehensions. The 

### trial court decided that under the total circumstances of the case, equity would not permit the Stovalls toobtain theproperty by specificperformance against Lillian Watt, and that damages awarded against Lillian Watt, would, under the circumstances, be the proper remedy. Under section 27-1-415(4), MCA, specific performance 

### willnot be enforced against a party toa contract if his assentwas given under the influence of mistake, misapprehension, or surprise. Specificperformance, 

### willnot, furthermore, be granted in

a situation inwhich the total circumstances demonstrate that 

### it would produce a hardship or injustice. Seifertv. Seifert (1977), 173Mont. 501, 504, 568 P.2d 155, 157. Here the Hardys 

### were not delinquent on their lease payments and always believed they had a valid lease. Lillian Watt accepted the Hardys' rental payments before she decided to

### sell theproperty, although she 

### claims she did not thereby ratify the Hardy leasepreviously executed by agent Wolfe. Attorney Mason sent letterstoboth the Hardys and the Stovalls solicitingoffers for the purchase of the property, and the Hardys responded by making an offer topurchase the property. This sale

### wasmnsl-m.ated by recording a deed on June 3, 1970. To grant specificperformance tothe Stovallswould be todeprive the Hardys of property which they had continuously leased, farmed and operated since the early 1950'~~ and then laterdecided topurchase. The trialcourt made no findings that the Hardys 

### were operating

### ir?. bad faith. There can be no doubt that specific performance granted tothe Stovalls would work a harsh result upon the Hardys who 

### were actual occupants of the land formany years. Nor can 

### we ignore the fact that LillianWatt had substantially changed her 

### -6-position by conveying the property tothe Hardys and therefore she was inno position toconvey the land tothe Stovalls. We cannot say, moreover, that the denial of Stovclls rcquesc for specificperformance operates 

### as harshly upon them. They never had possession of the property and made no lease rental payments under the lease they had signed with LillianWatt. Although the Stovalls laterwrote a 

### letter to LillianWatt and attorney Mason stating that they would 

### meet the $20,000 offered by the Hardys and made arrangements for such financing, they made no payments toward a purchase price. Inbalancing the equities it 

### is clear that the total circumstances favor the result reached here by the trial court. We note furthermore, that the trialcourt awarded damages against LillianWattfor her breach of the agreement with the Stovalls, and the Stovalls had thus been made whole. In contending that she snould not have torespond in damages tothe Stovalls, Lillian Watt contends that the Stovall lease

### was subject toa condition precedent that the Hardys vacate theproperty, which event never occurred. She thus contends that the 

### lease did not infact commence and thus

no liability can accrue for any breach of the agreement permitting the Stovalls the right to

### meet the purchase price offered by anyone 

### else. Such a contention, however, flies inthe face of the clear Lmguage of the lease itself which provided that the 

### termwas to start "Three Years from and after the said 3rd day of March, 1969." Her contention 

### is, moreover, inconsistentwith the circumstances surrounding its execution and with her conduct in relation tothe lease after its execution. Atthe 

### time she signed the leasewith the Stovalls, LillianWatt and attorney Mason had unfriendly feelings toward the Hardys, and 

### it 

### is clear they didnot want them to continue -7-inpossession. Indeed, until litigation appeared imminent, Lillian Wattconsistently operated on the assumption that the Stovall leasewas valid and she and her attorney had made efforts toplace the Stovalls inpossession. Furthermore, neither she nor her attorney ever contended that the Stovall leasewas invalid atthe 

### timewhen the Stovalls

### were pressing her and attorney Mason for information on otherbids

sothat the Stovalls could decidewhether or not to

### meet any bids thathad been made. Attorney Mason firstput forth the theory that the Stovall leasewas conditioned upon the Hardys vacating theproperty only after the sale

### terms tothe Hardys had been agreed upon and attorneys for the Hardys had made a release of the Stovall lease, a title requirement. The trialcourt specifically found that the Stovall leasewith LillianWattwas not conditioned upon the Hardys firstvacating the property. Substantial credible evidence supports this finding. Under section 27-1-314, MCA, if the breaching party operates inbad faith, the measure of damages 

### is the differencebetween the agreed price and the value of the estate atthe 

### timeof the breach, plus expenses properly incurred inpreparing toenter the land. The events here clearly demonstrate that Lillian Watt, directly, and indirectly through her attorney, acted in a fashion constituting bad faith. By September 1969, Lillian Watthad decided to 

### sell the property and had informed attorney Mason of her decision. By this

### time she had already signed the lease agreement with the Stovalls. Attorney Mason's 

### letter tothe Stovalls on September 15, 1969, informed them that the property was for sale and solicitedan offer. Later, on October 16, 1969, the Stovalls sent a 

### letter toLillianWatt reminding her of the leaseagreement, their right totakepossession, and the option topurchase provision inthe 

### lease. In this respect the Stovalls requested information as toany offerwhich Lillian Watt received sothat the Stovalls could decidewhether or not to

### meet the offer and exercise their rights under the 

### lease. In response LillianWatt wrote tothe Stovalls on October 27, 1969 and told them that she did not know whether attorney Mason had received any bid from the Hardys, but she assured the Stovalls that they would most certainlybe consulted and given a chance to

### meet the bid. Nothing transpired until January 1970 when attorney Mason wrote identical 

### letters tothe Stovalls and the Hardys soliciting offers for the property. The Hardy's attorney responded with

an offer of $20 per acre, making $19,200 the total offer. The Stovalls responded by telephoning both Lillian Watt and attorney Mason and asked todetermine what bid they would need to

### meet inorder toexercise their option under the lease agreement. But neither LillianWatt nor attorneyMason gave a forthright

answer tothe Stovalls. LillianWatt referred the Stovalls toattorney Mason and attorney Mason referred the Stovalls to LillianWatt. Atthispoint, the Stovalls could not obtain anything definite. Sometime 

### later, LillianWatt mentioned a figure of $20,000 tothe Stovalls, and inresponse the Stovalls wrote both LillianWattand attorney Mason asking forthe exact figurewhich they had tomeet if they 

### were toexercise their option. Neither Lillian Watt

### ror attorney Mason responded to the Stovalls' request. Furthermore, atthe 

### timethe Stovalls had written this 

### letter, attorney Mason had already decided to accept the Hardy offer and infactthe attorney for the Hardys had already tendered a 10percent down payment and a -9-contract for deed toattorneyMason. Mason, however,

never disclosed this information tothe Stovalls although 

### it does appear that he told the Stovalls of the $20,000 offer made by the Hardys. As a result of the Stovalls learning of the $20,000 offerby theHardys, the Stovalls on March 27, 1970 sent 

### letters toboth Lillian Watt and attorney Mason advising them that they would 

### meet this $20,000 bid and exercise their option under the 

### lease. But neither LillianWatt nor attorney Mason responded to the 

### letters. Furthermore, LillianWatt and attorney Mason failed toreturn numerous phone calls tothem by the Stovalls inrelation tothe property involved. Before the Hardys signed the purchase agreement, their attorney examined the abstracts and found a defect in

### title, namely, the Stovall 

### lease with the option topurchase provision, which had been recorded on September 22, 1969. As

a result of this, Lillian Watt signed a 

### letter of indemnity to protect the Hardys from any damages which might flow as a result of any action brought by the Stovalls inrelation to the property involved. LillianWattalso agreed topay any legal fees incurred inrelation to such action brought by the Stovalls. Wecannot say, inlightof allthese circumstances, that LillianWatt's conduct, both personally, and through her attorney, was 

### less than bad faith in relation tothe dealings with the Stovalls. The damages awarded here are clearlywithin the limits of section 27-1-314, MCA. Damages 

### were established by a simple process. Lillian Wattsold the 960 acres tothe Hardys ata price of $20 per acre. Joe Cormier, a local rancher familiarwith themarket conditions for land sales, testified that the LillianWatt lan2 was conservatively worth -10-$30 an acre. Cormier had made a saleof his own ranchland atabout the 

### same timeas Lillian Wattsoldher property to the Hardys. Cormier received a price of $35 per acre for comparable land, but that was inconjunctionwith a ranch saleinvolving a largequantity of deeded land, plus leases. The trial court found that the Lillian Watt property 

### was reasonably worth $30 per acre. There 

### isno record, however, of any expenses incurred by the Stovallspreparatory to entering the land totake possession. There 

### is testimony thatone-half 

### mileof fencewas rebuilt, but no attempt was made toitemize the costs or expenses so incurred. It 

### is clear, therefore, that the measure of damages is ($30) the difference between the value per acre/as found by the trial ($20) court, and the actual contract pricd, which 

### is $10 per acre. Accordingly, thetrialcourt

### was correct inentering judgment against LillianWatt for the amount of $9,600 and costs. The judgment of the District Court 

### is affirmed.

WeConcur:

Chief Justice 

# u Justices

### Justice John C. Sheehy dissenting:

I concur inpart and dissent in part from the foregoing opinion. The statute under which the District Court granted the the judgment in the sum of $9,600 to/Stovalls was section 17-306, R.C.M. 1947, now section 27-1-314,MCA, which provides: "Thedetriment caused by the breach of an agreement to convey an estate in real property is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, with interest thereon; but adding thereto, in case of bad 

### ---- faith, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed, at the time of the breach, and the expenses properly incurred in preparing to enter upon the land." (Emphasisadded.) The District Court confined itself to that statute in determining damages. When one examines the language of section 27-1-314, MCA, above, one sees that damages thereunder

can take two forms and two determinations: (1) a return of monies paid and expenses incurred in document preparation; and, (2) if bad faith 

### - is present the difference between the price agreed upon and the value of the estate agreed to be conveyed at the time of the breach. Under the firstportion of section 27-1-314, MCA, the District Court found that no damages had been proved, since

no purchase price had been paid and there was no evidence relating to documentpreparation or other expenses. In connection with the second determination, the District Court found bad 

### faith on the part of 

### Lillian Watt, and on that basis awarded the damages stated above. The District Court found that the conduct of Lillian Watt in refusing to recognize the option agreement as having any validity was bad faith "admittedlybecause of the guidance of [herattorney]." The District Court further found that -12-

### Lillian Watt was not guilty of fraud or misrepresentation, and it did not find that she had unclean hands as against the Stovalls. The controlling element as far as the District Court is concerned is that Lillian Watt, through the advice of her counsel, took the position that the Stovall leasewas not a binding lease because the condition precedent, "possession thereof to be given as soon as present tenant vacates same



# . .."never occurred. The District Court found that Lillian Watt's position that the lease was not binding until the possession transferredwas not asserted at the time the Stovalls

were pressing Mason and Lillian Watt for information on the bids so they could exercise the option, and that "itwas not until after the sale to the Hardys had been agreed upon and Hardys attorney made a release of the Stovall lease a title requirement, that Mason put forth the theory that the Stovall lease was conditioned upon Hardy vacating." This determination by the District Court however, does not square with the written evidence of the case. In the time when attorney Mason was soliciting bids from the Hardys and the Stovalls,between January 1970 and March 27, 

### 1970, the latter date being when the Stovalls indicated they would meet the $20,000bid, attorney Mason solicited the bids from both parties to avoid "cutthroataction". It also appears that when the facts of the dual leases became known to all the parties, that the attorney wrote both to Hardy and Stovall suggesting that they share the lease, one to take the lease for farmpurposes, and the other to have the grazing privileges after the farmingwas completed in the fall. Indeed,onApril 5, 

### 1969,nearly -- 

### a year before the sale to Hardys was consummated,Lillian Watt had written to -- 

### her attorney "the lease to the Stovalls was contingentupon the Hardys moving off the place, and no money has changed hands 

# . .

# ." I 

### think the evidence is clear that the contention -13-

### that Stovallhad a conditional leasewas not an afterthought

on the part of Lillian Watt, but her view of the legal status of the Stovall lease all along. While such legal position may have been mistaken, when we consider her actions from the aspect of bad faith, she cannotbe characterized as
a miscreant. This brings us to a consideration of what constitutes "bad faith" in connectionwith an award of damages under section 27-1-314, MCA. It is a term that cannot be defined with scientific precision. It has been held that "good faith" is that ordinarily exhibited by a seller who is unable to perform through no fault of his own;while "bad faith" is that s.hownby a seller who refuses to perform though able to do so. Charles County Broadcasting Co., Inc. 

### v. Meares (Md. 

### 1973), 311A.2d 27, 31. As applied to

an insurer under an insurance policy it is said that "bad faith" embracesmore than negligence and imports dishonest purpose or consciouswrongdoing. Simpsonv. 

### Motorists Mutual InsuranceCompany (7thCir. 1974), 494 ~.2d 850, 853. Cal.2d 499, Although in Rasmussen v. Moe (1956),1381 292 P.2d 226, 229, it was held that the negligence of a vendor which put him in

a position of being unable to perform his contractwas sufficient to showbad faith, ithas also been held in California that in general bad faith extends beyond fraud or dishonesty and embraces unfair dealings; it often denotes a deliberate refusal to perform without just or reasonable

cause. County of Inyo v. 

### City of 

### Los Angeles (Cal. 1978)

## , 144Cal.Rptr. 71, 77, 78 Cal.3d 82. 

### A refusal to perform without just cause or excuse is sufficient to constitute bad faith according to Brandolino v. Lindsay (Cal. 1969), 75 Cal.Rptr. 56, 60, 269 Cal.2d 319. I would hold that before bad faithmay be found as to a vendor who refuses to perform an agreement to convey real estate, such bad faithmust be based upon somemotive of self-interest

### or ill will toward the other party. Those elements are lacking entirely here. The refusal to perform has not benefited Lillian Watt. In fact, the evidence indicates that the property which she agreed to sell had a value at the time of the trial of $157,000. While that is not a factor to be considered, since section 27-1-314,MCA requires the value to be determined as of the time of the breach, it does indicate that she was not motivated by self profit or self-interest in refusing to convey the property to Stovalls. Nor can it be said from the evidence that her decision was based upon ill will toward Stovall. Shemade her decision apparently because she recognized that the Hardys had farmed her properties since the 1950's and had acted in good faith in making their lease payments and procuring a new lease from the agent of her predecessor in ownership. Of course, shehad received no monies of any kind under the Stovall lease. Therefore since her actions do not constitute bad faith in the premises, the award of damages against her on that ground should be reversed. Nothing I 

### say here should be taken to mean that in a proper case a prospective vendee or option holder is precluded from recovering damages not only under section 27-1-314,MCA, but also under section 27-1-311,MCA. Section 27-1-311 is the general statute on the measure of damages for breach of contract, and incorporates the ancient principle of Hadley

v. Baxendale (1854), 9 Exch. 341, 156 Eng. Reprint 145; Laas


### v. Mont. Hwy. Comm'n. et al. (1971),157 Mont. 121, 131, 483 P.2d 

### 699. The general rule is that the measure of damages in a contractbreach is the amountwhich will compensate the party aggrieved for all the detrimentproximately caused thereby orwhich in the ordinary course of things will be

### likely to result therefrom. Section 27-1-314, MCA, 

### is not necessarily exclusive. Wiseman v. Holt (1973),163 Mont. 387, 517 P.2d 711. But this case was tried under the theory that extra damages were recoverableon the ground of bad faith and on that ground Iwould determine that the award of damages against Lillian Watt must fall. Accordingly, I concur in the majority opinion that specific performance is not applicable here but I dissent to the affirmance of the judgment against Lillian Watt in favor of the Stovalls.



# ................................ Justice