No. 14712 

IN THE 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 District Court denying their 

request for specific performance of an option to purchase 

clause contained in a lease which the Stovalls had entered 

into with Lillian I. Watt. Defendant Lillian Watt also crossappeals from an award to the Stovalls of $9,600 in damages for 

her breach of agreement to convey the real property involved. 

The trial court determined that defendants Dan M. Hardy and 

Fern A. Hardy had superior equitable claims to the purchase of 

the land involved as a result of a lease option to purchase 

agreement which they also had entered into with defendant 

Lillian Watt. 

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 to purchase clause 

contained in a lease dated March 3, 1969. The primary contention of defendant Watt in her cross-appeal seeking to avoid 

damages awarded to the Stovalls, is that the stovail lease 

had no inception in fact and that the lease was also subject 

to a 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 in question until his death in June 

1966. Andrett had previously used C. D. Wolfe of Farm and 

Ranch Management Co. of Billings to act as his agent in leasing 

the land involved. Through a continuing series of leases 

the Hardys had leased the land from the agency since 1951. 

The problems began when the leasing agency dealt directly with 

the Hardys after the death of Edmund Andrett but where Lillian 

Watt dealt, through her attorney, primarily, with the Stovalls. 

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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, Dwight N. 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 lease was 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 rental payments. For this reason, she contacted 

attorney Mason and asked him to find a new tenant. Unknown 

to Lillian Watt or to attorney Mason, however, the leasing 

agency managed by Wolfe, had entered into a renewal lease 

with the Hardys on March 1, 1968. This lease was recorded 

on November 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 option with 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 

in Missoula in early February 1969, and expressed their 

interest in leasing the property. Mason told the Stovalls 
that Lillian Watt would be receptive to an offer to lease 

the land involved because she was then having problems with 

the Hardys and did not want to continue leasing to them. 

After returning home, the Stovalls sent a written offer for 

lease terms, negotiations ensued, and finally attorney Mason 

prepared a lease dated March 3, 1969 and Lillian Watt and 

the Stovalls signed it. This lease was recorded on September 

22, 1969, a month before the Hardys recorded their lease from 

the leasing agency managed by Wolfe. 

The Stovall lease was 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" 

in the event of any sale during the term of the lease. Another 

clause recited that ". . . possession thereof to be given as 

soon as present tenant (the Hardys) vacates same . . ." The 

Hardy lease also contained an option to purchase clause similar 

to that contained in the Stovall lease. Although the Stovalls 

knew that the Hardys were occupying the land attorney Mason 

told them that if any problem arose as to possession 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 to claim possession of the land. They 

rebuilt some fences, opened up gates, and moved their cattle 

from adjoining land onto the Lillian Watt property. his 

sparked action by the Hardys, who were occupying the land. 

They moved the cattle off the property and locked the gates. 

These acts triggered a series of communications between attorney 

Mason, the Hardys, Lillian Watt, and Wolfe, the manager of 

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the leasing agency who had signed the lease with the Hardys. 

From these communications it was learned that the Hardys 

were not actually in default on the rental payments, and that 

the Hardys had entered into the 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 Lillian Watt 

on March 21, 1969, but she rejected his offer, returned his 

check, and told Wolfe that she would not accept any rent from 

the Hardys for 1969. On April 5, 1969 Lillian Watt wrote to 

attorney Mason and told him she would 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 to have the cropland through the 

1969 crop season and the Stovalls would use the grazing land. 

The Sto-~alls did not need the grass until fall, and they felt 

that under customary practice the Hardys would, in any event, 

be entitled to the 1969 crop which the Hardys had planted. 

It appears however, that neither the Hardys nor the Stovalls 

ever specifically agreed to this compromise arrangement. In 

any event, the attitude of Lillian Watt toward the Hardys 

changed markedly after she decided to let the Hardys stay 

on the property through 1969. 

Although she apparently believed at that time that 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 in June 1970, she sold 

the property to the Hardys. As a result of this sale to the 

Hardys, the Stovalls filed suit seeking specific performance 

from Lillian Watt, and that they were entitled to purchase the 

land rather than the Hardys. 

In entering its order denying specific performance the 

trial court determined that Lillian Watt had relied in good 

- 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 

to obtain the property by specific performance 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 will not be enforced 

against a party to a contract if his assent was given under 

the influence of mistake, misapprehension, or surprise. 

Specific performance, will not, furthermore, be granted in 

a situation in which the total circumstances demonstrate that 

it would produce a hardship or injustice. Seifert v. Seifert 

(1977), 173 Mont. 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 the property, although she claims she did not thereby 

ratify the Hardy lease previously executed by agent Wolfe. 

Attorney Mason sent letters to both the Hardys and the Stovalls 

soliciting offers for the purchase of the property, and the 

Hardys responded by making an offer to purchase the property. 

This sale was mnsl-m.ated by recording a deed on June 3, 1970. 

To grant specific performance to the Stovalls would be 

to deprive the Hardys of property which they had continuously 

leased, farmed and operated since the early 1950'~~ and then 

later decided to purchase. The trial court made no findings 

that the Hardys were operating ir?. bad faith. There can be no 

doubt that specific performance granted to the Stovalls 

would work a harsh result upon the Hardys who were actual 

occupants of the land for many years. Nor can we ignore 

the fact that Lillian Watt had substantially changed her 

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position by conveying the property to the Hardys and therefore she was in no position to convey the land to the Stovalls. 

We cannot say, moreover, that the denial of Stovclls 

rcquesc for specific performance 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 

Lillian Watt. Although the Stovalls later wrote a letter to 

Lillian Watt 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. 

In balancing the equities it is clear that the total circumstances favor the result reached here by the trial court. 

We note furthermore, that the trial court awarded damages 

against Lillian Watt for her breach of the agreement with the 

Stovalls, and the Stovalls had thus been made whole. 

In contending that she snould not have to respond in 

damages to the Stovalls, Lillian Watt contends that the 

Stovall lease was subject to a condition precedent that the 

Hardys vacate the property, which event never occurred. She 

thus contends that the lease did not in fact 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 

in the face of the clear Lmguage of the lease itself which 

provided that the term was to start "Three Years from and 

after the said 3rd day of March, 1969." Her contention is, 

moreover, inconsistent with the circumstances surrounding its 

execution and with her conduct in relation to the lease after 

its execution. 

At the time she signed the lease with the Stovalls, 

Lillian Watt and attorney Mason had unfriendly feelings toward 

the Hardys, and it is clear they did not want them to continue 

-7- 
in possession. Indeed, until litigation appeared imminent, 

Lillian Watt consistently operated on the assumption that 

the Stovall lease was valid and she and her attorney had 

made efforts to place the Stovalls in possession. Furthermore, neither she nor her attorney ever contended that the 

Stovall lease was invalid at the time when the Stovalls were 

pressing her and attorney Mason for information on other bids 

so that the Stovalls could decide whether or not to meet any 

bids that had been made. Attorney Mason first put forth the 

theory that the Stovall lease was conditioned upon the Hardys 

vacating the property only after the sale terms to the Hardys 

had been agreed upon and attorneys for the Hardys had made a 

release of the Stovall lease, a title requirement. The 

trial court specifically found that the Stovall lease with 

Lillian Watt was not conditioned upon the Hardys first vacating 

the property. Substantial credible evidence supports this 

finding. 

Under section 27-1-314, MCA, if the breaching party 

operates in bad faith, the measure of damages is the 

difference between the agreed price and the value of the 

estate at the time of the breach, plus expenses properly 

incurred in preparing to enter 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 Watt had 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 to the Stovalls on September 

15, 1969, informed them that the property was for sale and 

solicited an offer. Later, on October 16, 1969, the Stovalls 

sent a letter to Lillian Watt reminding her of the lease 
agreement, their right to take possession, and the option 

to purchase provision in the lease. In this respect the 

Stovalls requested information as to any offer which Lillian 

Watt received so that the Stovalls could decide whether or 

not to meet the offer and exercise their rights under the 

lease. In response Lillian Watt wrote to the 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 certainly be 

consulted and given a chance to meet the bid. 

Nothing transpired until January 1970 when attorney Mason 

wrote identical letters to the 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 to determine what bid they would need to meet 

in order to exercise their option under the lease agreement. 

But neither Lillian Watt nor attorney Mason gave a forthright 

answer to the Stovalls. Lillian Watt referred the Stovalls 

to attorney Mason and attorney Mason referred the Stovalls to 

Lillian Watt. At this point, the Stovalls could not obtain 

anything definite. 

Sometime later, Lillian Watt mentioned a figure of 

$20,000 to the Stovalls, and in response the Stovalls wrote 

both Lillian Watt and attorney Mason asking for the exact 

figure which they had to meet if they were to exercise their 

option. Neither Lillian Watt ror attorney Mason responded to 

the Stovalls' request. Furthermore, at the time the Stovalls 

had written this letter, attorney Mason had already decided 

to accept the Hardy offer and in fact the attorney for the 

Hardys had already tendered a 10 percent down payment and a 

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contract for deed to attorney Mason. Mason, however, 

never disclosed this information to the 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 

offer by the Hardys, the Stovalls on March 27, 1970 sent 

letters to both Lillian Watt and attorney Mason advising 

them that they would meet this $20,000 bid and exercise their 

option under the lease. But neither Lillian Watt nor attorney 

Mason responded to the letters. Furthermore, Lillian Watt 

and attorney Mason failed to return numerous phone calls 

to them by the Stovalls in relation to the 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 to purchase 

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 in relation to 

the property involved. Lillian Watt also agreed to pay any 

legal fees incurred in relation to such action brought by 

the Stovalls. 

We cannot say, in light of all these circumstances, 

that Lillian Watt's conduct, both personally, and through 

her attorney, was less than bad faith in relation to the 

dealings with the Stovalls. 

The damages awarded here are clearly within the limits 

of section 27-1-314, MCA. Damages were established by a 

simple process. Lillian Watt sold the 960 acres to the 

Hardys at a price of $20 per acre. Joe Cormier, a local 

rancher familiar with the market conditions for land sales, 

testified that the Lillian Watt lan2 was conservatively worth 

-10- 
$30 an acre. Cormier had made a sale of his own ranchland 

at about the same time as Lillian Watt sold her property to 

the Hardys. Cormier received a price of $35 per acre for 

comparable land, but that was in conjunction with a ranch 

sale involving a large quantity of deeded land, plus leases. 

The trial court found that the Lillian Watt property was 

reasonably worth $30 per acre. There is no record, however, 

of any expenses incurred by the Stovalls preparatory to 

entering the land to take possession. There is testimony 

that one-half mile of fence was rebuilt, but no attempt was 

made to itemize 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, the trial court was correct in entering judgment 

against Lillian Watt for the amount of $9,600 and costs. 

The judgment of the District Court is affirmed. 

We Concur: 

Chief Justice 

u Justices 
Justice John C. Sheehy dissenting: 

I concur in part 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: 

"The detriment 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." (Emphasis added.) 

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 first portion 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 document preparation 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 "admittedly because of the guidance 

of [her attorney]." The District Court further found that 

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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 lease was 

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 transferred was 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 "it was 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 $20,000 bid, attorney Mason solicited the bids from 

both parties to avoid "cutthroat action". 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 farm purposes, and the other to have the 

grazing privileges after the farming was completed in the 

fall. Indeed, on April 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 contingent upon 

the Hardys moving off the place, and no money has changed 

hands . . ." I think the evidence is clear that the contention 

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that Stovall had a conditional lease was 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 cannot be characterized as 

a miscreant. 

This brings us to a consideration of what constitutes 

"bad faith" in connection with 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.hown by a seller who refuses to perform 

though able to do so. Charles County Broadcasting Co., 

Inc. v. Meares (Md. 1973), 311 A.2d 27, 31. As applied to 

an insurer under an insurance policy it is said that "bad 

faith" embraces more than negligence and imports dishonest 

purpose or conscious wrongdoing. Simpson v. Motorists 

Mutual Insurance Company (7th Cir. 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 contract was 

sufficient to show bad faith, it has 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) , 

144 Cal.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 faith may be found as to a 

vendor who refuses to perform an agreement to convey real estate, 

such bad faith must be based upon some motive 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. She made 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, she had 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 

contract breach is the amount which will compensate the 

party aggrieved for all the detriment proximately caused 

thereby or which 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 recoverable on the ground of bad 

faith and on that ground I would 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