NO. 80-92 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1981 

GORDON RASE, JIM WOODARD et al., 

Plaintiffs and Respondents, 

VS . 

CASTLE MOUNTAIN RANCH, INC., 

Defendants and Appellants. 

Appeal from: District Court of the Third Judicial District, 

In and for the County of Powell. 

Honorable Peter Meloy, Judge presiding. 

Counsel of Record: 

For Appellants: 

Gough, Shanahan, Johnson & Waterman, Helena, Montana 

Ward Shanahan argued, Helena, Montana 

For Respondents: 

Poore, Roth, Robischon and Robinson, Butte, Montana 

James Poore argued and Urban Roth argued, Butte, 

Montana 

Filed : 

Submitted: March 26, 1981 

Decided: JUL 2 - 

JUL 2 - 1981 

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Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the Court. 

Both sides appeal from a judgment entered by the Third 

Judicial District Court, Powell County, imposing a constructive 

trust for more than 40 cabin sites at Rock Creek Lake in 

Powell County, on real property now owned by Castle Mountain 

Ranch, Inc., successor to Ward Paper Box Company (Ward). 

The cabin sites which surround Rock Creek Lake about 15 

or 20 miles from Deer Lodge, Montana, were owned until 1972 

by Rock Creek Irrigation, Inc., a subsidiary of Williams and 

Tavenner, Inc. (Tavenner), which operated the surrounding 

ranch. In 1972, Tavenner sold the ranch, including the 

lakeshore property, to Ward Paper Box Co. The ranch has 

since been transferred to Castle Mountain Ranch, Inc. Louis 

Ward is the principal shareholder or owner in both corporations 

and was the primary actor in the purchase of the ranch, including 

the cabin sites around Rock Creek Lake. 

The respondents and cross-appellants here (plaintiffs 

in the District Court) are owners of summer homes and cabins 

around the lake. They and their predecessors, acting individually, 

at various times since 1922, built and improved summer 

homes, some quite substantial, on the Rock Creek Lake front, 

on real property owned by Tavenner, and with the consent and 

permission of Tavenner. The issue for us to decide, as in 

the District Court, is the nature and extent of any agreement 

between the cabin owners and Tavenner, individually or 

collectively, express or implied, for termination of the 

permission. 

The cabins were built around the lake over a course of 

many years, by friends, neighbors and employees of the ranch 

owners, with their consent and possibly with their implied 
invitation. These were permanent structures, sometimes 

built with timber from the ranch and sometimes with the 

assistance of the ranch owners. The ranch owners owned one 

of the cabins. Reasons given for the ranch owners extending 

permission include the wish for companionship at the ranch, 

the help of the cabin owners in protecting the ranch properties, 

their availability for fire lookout and fire fighting, and 

their help in maintaining the roads, as well as their friendship 

and society. 

For at least 50 years, relations between the cabin 

owners and the ranch owners were amicable. The cabins were 

inherited, bought and sold without interference from the 

ranch owners. Cabins were expanded and renovated, and the 

ranch owners were advised of sales or inheritance of the 

cabins, sometimes after the fact. Through the years, the 

cabins were modernized, expanded and improved. The ranch 

owners were aware of the continuing maintenance of the 

summer homes. County records, at the time of trial, indicated 

that the summer cabins had an assessed value of $300,000. 

The ranch owners did insist on permanent structures to be 

located on the cabin sites; no trailers or movable homes 

were permitted. 

On some occasions, various cabin owners attempted to 

purchase the underlying cabin sites, but the ranch owners 

advised that the lake provided water for the ranch, and the 

ranch owners wanted to maintain control over the lake itself. 

The use of the lake for irrigation did not interfere with 

the owners' use of their cabins. 

In the very earliest years, no documents were entered 

into between the ranch owners and cabin owners. After some 

period of time, some of the cabin owners entered into lease 
agreements with the ranch owners, but these agreements 

expired by their own terms. Starting in 1963, however, the 

cabin owners signed documents that were entitled 'license 

agreements." These documents had been drafted by the lawyer 

for the ranch owners. All of the license agreements had the 

same general provisions, and essentially provided as 

follows : 

1. A license from Rock Creek Irrigation, Inc. 

to the cabin owner for the use of the cabin site 

together with right of access thereto. 

2. A term for the license, solely for a 

summer camp or cabin site, beginning January 

1, 1963 and ending on termination. 

3. A fee for $6.00 per year payable 

in advance or 50 cents per month for any part 

of a year on or before January 1 of each year. 

4. A provision for the erection of structures 

on the cabin site by the licensee, to be approved 

in advance by the licensor, and providing that 

such structures should be removed by the licensee 

at termination, or the structures became the 

property of the licensor. 

5. A provision making the licensee liable for 

damages to the crops, timber, fences and improvements of the licensor. 

6. A save harmless provision for the licensor. 

7. A termination provision which is the heart 

of this lawsuit and which provided: 

"Either party may terminate this agreement at 

any time, without regard to payment periods, 

by written notice to the other specifying the 

date of termination, which notice shall be 

given not less than thirty (30) days prior to 

the termination date therein specified . . ." 

8. A provision that the relationship of 

landlord and tenant was not created between 

the parties, and that the license is personal 

to the licensee and not transferable to 

administrators, executors, successors or assigns 

of the licensee. 

9. A provision for written notice by 

certified mail. 

Tavenner did not ever serve a notice of termination 

upon any of the cabin owners. In the years from 1963 to 
1972, the provisions of the license agreement were breached 

in many respects by various owners, without objection from 

Rock Creek Irrigation, Inc. Particularly, the cabins were 

bought and sold or transferred by inheritance without 

objection from the licensor. 

Robert Tavenner testified, however, that the reason 

there were no terminations was "we had no thought of selling 

the ranch." He further said they had no reason to terminate 

the permissions, but "we wanted to be in a position to 

terminate if we had to." 

It was probably assumed by all parties that the ownership 

of the ranch property would remain unchanged through the 

years. However, in 1969, on the death of one of the ranch 

owners, the position of the ranch owners changed, and the 

ranch property became available for sale. In 1972, Ward 

Paper Box Company entered the picture in the person of Louis 

Ward, its chief officer. He visited the ranch in the spring 

or early summer of 1972, and on July 21, 1972, his company 

(Ward) entered into a contract to purchase the ranch including 

the land surrounding Rock Creek Lake. The contract provided 

for a closing date of December 1, 1972. Attached to the 

contract for sale was a schedule of the license agreements 

which included the notation "consent of licensees to assignment 

not required." 

Robert Tavenner, one of the ranch owners, testified 

that near the end of the negotiations, Louis Ward requested 

that Tavenner terminate the cabin owners. Tavenner refused. 

He testified: 

"Q. Now as a matter of fact if that had been 

made a condition of the sale you wouldn't have 

gone through with the sale? A. We wouldn't 

have gone through, we told him that. If that had 

been we wouldn't have gone through. 
"Q. So, basically he took the sale and lake as 

it was, isn't that right? A. After I told 

him that we had a family conference, he said 

let me have a little time to think about it. 

And a day or two went by and he said he would 

take the ranch as planned, the cabins and all." 

On October 13, 1972, counsel for Ward mailed a letter 

to all cabin owners advising that the impending transfer of 

ranch property would be consummated on December 1, 1972, and 

which letter included the following paragraph: 

"We are writing on behalf of Ward Paper Box 

Company to advise you of this impending transfer 

and also to advise you that the purchaser has 

examined your license agreement and will construe 

it according to its literal terms. There have 

been no oral representations made to anyone with 

respect to the purchasers' intentions as to this 

property. You should therefore not assume that 

you have any rights or privileges other than 

those arising from your license agreement." 

The transfer of the ranch property occurred according 

to schedule and on July 11, 1973, the new owners sent each 

of the cabin owners a notice of termination of their licenses. 

On December 20, 1973, the cabin owners filed their action in 

the District Court for interlocutory and permanent injunctive 

relief, and to quiet the title in their cabins and establish 

permanent easements thereto. The litigation limped along 

through various motions, hearings, discovery and briefing 

schedules until November 13, 1979, when the District Court 

entered its findings of fact, opinion, conclusions of law 

j vdgrnen t and decree. After post-trial motions by both 

parties, the court issued its final order of January 15, 

1980. Timely notice of appeal was filed by Ward, and the 

cabin owners thereafter cross-appealed. 

THE APPEAL 

Ward raises essentially the following issues: 

1. The District Court erred in specified findings of 

fact made, and in refusing offered findings from Ward. 
2. The evidence does not support the District Court's 

decision. 

3. The District Court decree violates the statute of 

frauds and the par01 evidence rule, and disregards waiver 

by the cabin owners in signing the license agreements. 

4. Ward was a bona fide purchaser without notice. 

5. The court erred in imposing an equitable lien on 

the Ward properties. 

These are proceedings of an equitable nature. Under 

section 3-2-204(5), MCA, our duty is to review all questions 

of fact arising upon the evidence presented in the record, 

whether presented by specifications of error or not and to 

determine the same as well as questions of law. Rule 52(a), 

M.R.Civ.P., requires findings of fact made by the District Court 

to be upheld unless they are clearly erroneous. Rule 52(a), 

does not make any distinction between causes of an equitable 

nature and cases at law, as far as the appellate review of 

the District Court findings of fact is concerned. We have 

stated in other cases that in appeals of equity causes, we will 

review both questions of law and questions of fact, but we will 

not reverse the trial court in an equity case on questions of 

fact unless there is a decided preponderance of the evidence 

against the findings of the trial court. Boz-Lew Builders v. 

Smith (1977), 174 Mont. 448, 452, 571 P.2d 389, 391; Barrett 

v. Zenosek (1957), 132 Mont. 229, 315 P.2d 1001. However broad 

those statements may appear, they should not be taken to mean 

that this Court will dodge the statutory duty fastened on it 

to make an independent review of questions of fact in equity 

cases. We cannot shirk the statutory duty. Rather, the statements should be taken to mean that in equity cases, where the 

issues are close, as they are here, a degree of deference will 
be accorded the findings of the trial court since it is in 

a better position to make decisions of fact. Such statements 

are merely a reflection of the long-standing reluctance of 

appellate tribunals merely to substitute their judgment for 

that of the trial court in close issues of fact. 

The findings of fact of the District Court to which 

Ward objects are the essential findings upon which the 

decision of the District Court is based. In essence, those 

findings include: that Tavenner did not intend to cancel the 

cabin site arrangements while it owned the ranch; that although 

there were no express assurances, Robert Tavenner allowed 

cabin improvements, assuring the cabin owners from time to time 

that the license agreements were a "formality" and there was 

to be no change in the way the cabins were held by the cabin 

owners; that while the Tavenner corporation was involved in 

selling the ranch, it permitted Martin Olsen and James Biodgett 

to purchase homes from previous owners without informing the 

new purchasers of the impending sale, nerely submitting the 

usual license agreement to the new owners for execution; that 

by allowing the cabin owners to make improvements and to assume 

a long-term occupancy, Tavenner misled the cabin owners into 

believing they did not have to fear the loss of their investment 

and so allowed them to act to their detriment; that Louis Ward 

was advised Tavenner would not sell the ranch if Ward insisted 

on the cancellation of the license agreements; that Ward agreed 

to take the property although he knew, or through the reasonable 

exercise of inquiry, should have known, that the cabin owners 

hoped for a long-term occupancy and had made substantial 

improvements based upon the implied assurances of Tavenner; and, 

that such conduct amounted to constructive fraud against the 

cabin owners. 
To be sure, there were no express assurances from 

Tavenner that the cabin owners had any right of possession 

of the real property beyond the permission stated in the license 

agreements. It is equally clear that Tavenner engaged in a 

course of conduct, as we have set forth in our statement of the 

facts, that gave the cabin owners an implied assurance of a 

somewhat permanent tenure sufficient that they made substantial 

investments in erecting ahd maintaining the cabins openly 

recognized by Tavenner. From our review of the record, it 

is abundantly clear to us that while Tavenner, through the 

license agreements, wanted to be in position to terminate 

the permission for any cabin owner it might find undesirable, 

it was never the intention of Tavenner, in procuring the 

agreements or in permitting the improvements, to use the 

license agreements for a wholesale termination of every cabin 

owner's permission in one clatter. In fact, Tavenner refused 

to do just that. We determine from the record that it was the 

intention of Tavenner to have a degree of control over who 

possessed the cabins, though it never exercised that control; 

that it wanted to be in a position, if it felt the need, to 

terminate any undesirable possessors of the cabins; and perhaps 

that the execution of the license agreements and the requirement 

of a nominal sum per year eliminated any potential future claim 

of adverse possession or prescriptive right. 

We therefore conclude, though from a slightly different 

viewpoint, that the findings of the District Court are 

correct. 

Ward particularly objects to the finding that it was 

not a bona fide purchaser. Ward contends that it relied on 

the language of the license agreements, that it had its 

counsel write the October 13, 1972 letter to the cabin owners, 
and that the contract for deed with Tavenner included the 

statement that the consent of the licensees was not necessary 

to the execution of the contract for deed. The cabin owners 

point to the fact that Ward made no inquiry of the cabin 

owners with respect to their rights, and that the physical 

examination of the premises by Ward showed possession of the 

lake property by persons other than the record holder in the 

form of substantial permanent improvements, which put Ward 

on notice of something more than a 30-day terminable interest 

in the possession of the lands. 

In Yost Farm Company v. Cremer (1968), 152 Mont. 200, 

209, 447 P.2d 688, 693, we held that a purchaser of lands 

with actual knowledge of an intervening contract for purchase 

from the same owner was not an innocent purchaser without 

notice, and was subject to the prior contract holder's 

rights. It is generally conceded that when someone purchases 

land under circumstances which suggest outstanding equities 

in third parties, there is imposed on the purchaser a duty 

to make a reasonable investigation as to the existence of 

outstanding claims against the property, and one who fails 

to use due diligence to ascertain the facts within his reach 

is not an innocent purchaser. Berge v. Fredericks (1979), 95 

Nev. 183, 591 P.2d 246; Modrok v. Marshall (Alaska 19741, 

523 P.2d 172; MacEwen v. Peterson (1967), 102 ~riz. 209, 

427 P.2d 527. When there appears possession of land by persons 

other than the record holder, which possession is inconsistent 

with the record title, there is a duty of inquiry imposed 

upon a purchaser of that land. See, Valley National Bank of 

Ariz. v. Avco Develop. Co. (1971), 14 Ariz.App. 56, 480 P.2d 

671. 

-10- 
Applying those rules here, Ward is not an innocent 

purchaser. The letter of October 13, 1972 did not fulfill 

the reasonable diligence that was imposed upon Ward to make 

further inquiry. 

We therefore determine from a review of the evidence 

presented in the record, that the District Court findings are 

supported by the evidence and that Ward is not entitled to 

the status of an innocent purchaser without notice. 

In its conclusions of law, the District Court determined 

that the cabin owners had no right, title or interest in the 

lake property under the doctrine of adverse possession or 

prescriptive right, and their occupancy was based on permission 

from Ward's predecessors in interest. The District Court 

further concluded that the conduct of the predecessor landowners created a constructive trust in the improvements 

placed on the property by the cabin owners and that the 

trust was imposed upon Ward, as the landowners' successor in 

interest, as an equitable lien on the property in favor of 

the cabin owners. The court determined, as an exercise of 

equity, that the equitable lien could be satisfied by a 

continued use by the cabin owners for a reasonable period of 

time or by compensation and money for the value of the 

structures from Ward. 

The evidence supports these conclusions sitting in 

equity, and we find the District Court properly so concluded. 

In its judgment and decree, the District Court provided that 

in lieu of cash payment from Ward, the cabin owners may 

continue to occupy their particular cabin sites with the 

right of ingress and egress until December 31, 1987, at 

which time the licenses to occupy should terminate and if 

the improvements were not removed as set forth in the license 
agreements, the improvements should become the property of 

Ward without payment. Additionally, the District Court 

provided that the cabin owners had the option (to be exercised 

by them before May 1, 1980) , to receive payment from Ward 

for the cabin structuresand fixtures. If any cabin owner 

and Ward could not agree on the purchase price, the court 

would reserve jurisdiction to hear evidence and to make a 

determination as to the amount Ward should pay for the 

improvements. 

Ward contends that the judgment and decree violates the 

statute of frauds, the parol evidence rule, and disregards 

waiver by the cabin owners in signing the license agreements. 

The statute of frauds, section 70-20-101, MCA, provides 

in essence that no estate or interest in real property can 

be created except by an instrument in writing. 

The parol evidence rule is found in two statutes, 

sections 28-2-904, and 28-2-905, MCA, which provide in 

essence that the written agreement supersedes the oral 

negotiations or stipulations and that when the agreement is 

reduced to writing, it is to be considered as containing all 

the terms between the parties. 

The written agreements relied upon by Ward are the 

purchase contract of July 21, 1972, the warranty deed from 

the seller to Ward, dated September 25, 1972, the further 

warranty deed, dated December 1, 1972, and a relevant commitment 

for title insurance, dated December 1, 1972. Attached to 

the contract for purchase was a schedule of the license 

agreements with the cabin owners, and,of course, the notation 

thereon, "consent of licensees to assignment not required." 

There is an exception to the parol evidence rule when 

the validity of the agreement is the fact in dispute (section 
28-2-905(1)(b), MCA). Here the validity of the terms of the 

license agreements is the fact in dispute. When the validity 

of the agreement is a fact in dispute, par01 evidence is 

admissible, not to vary the terms of the instrument, but to 

show that what appears on its face as a valid, binding 

contract is in fact no such thing. Smith v. Fergus County 

(1934), 98 Mont. 377, 390, 39 P.2d 193. 

As to the statute of frauds set forth in section 70-20- 

101, MCA, the next following statute, section 70-20-102, 

MCA, provides an exception to the statute of frauds for "any 

trust . . . arising or being extinguished by implication or 

operation of law." This exception, of course, applies to a 

constructive trust. 

Ward's contention on the waiver argument is again based 

on a 30-day clause in the license agreements, and the probable 

existence of a similar clause in the earlier lease agreements. 

The waiver argument is another way of saying that the provisions 

of the license agreements control absolutely, and thus is 

another string to Ward's bow in contending that the court 

should not look outside the license agreements to determine 

the intention of the parties. Waiver is a voluntary relinquishment 

of a known right (Kelly v. Lovejoy (1977), 172 Mont. 516, 565 

P.2d 321) and since the District Court concluded that the 

license agreements were not executed with the intention that 

the cabin owners abandoned their permissive rights in favor 

of a 30-day cancellation, a finding of waiver in the execution 

of the license agreements would be inconsistent with the 

court's conclusion that the license agreements did not 

reflect the true intention of the parties at the time. 

The final issue raised by Ward is whether the court 

erred in imposing an equitable lien on the ranch owners 
properties. Since this involves to some extent the crossappeal, we will discuss these matters at the same time. 

Following the judgment, the cabin owners moved the 

District Court to amend the judgment to provide for a possession 

of 50 years instead of the 13 years granted in the court's 

decree. The 50 years is contended to be the life expectancy 

of the cabins built on the lake properties. 

The cabin owners raise other grounds on cross-appeal, 

but these are not argued. 

Ward's contention that the District Court went beyond 

its power in establishing its decree for an equitable lien 

for a term of years, and the cabin owners contention that 

the term should be for 50 years, go to the power of the 

District Court in an equity case to fashion an equitable 

result. A court sitting in equity causes is empowered to 

determine the questions involved in the case and to do 

complete justice. Ha x mes v. City of Polson (1950) , 123 4-4 

Mont. 469, 477, 215 P.2d 950, 955. The court has all of the 

power requisite to render justice between the parties, 

particularly if the intent and disposition of one of the 

parties is not to perform his contractual obligations. Link 

v. State By & Through Dept. of Fish & Game (1979) , 

Mont. , 591 P.2d 214, 222, 36 St.Rep. 355, 365. The 

court obviously framed its judgment and decree in this case 

so as to give the cabin owners an option to receive, from 

Ward, the value of the cabin improvements, or to enjoy their 

lakeside cabins for a term of years considerably shorter 

than the useful life of the cabins. Under either option, 

Ward will not be unjustly enriched, and recognition is given 

by the District Court to the long-term intentions of Tavenner 

and the cabin owners. Both parties won something from the 
District Court: the cabin owners, a recognition of their 

long-term rights and the value of their cabin improvements; 

and Ward, a method of obtaining eventually an unimpeded 

title to the lakeshore property. We find the result is 

equitable. 

The judgment of the District Court granted the cabin 

owners a period of six months from the date of judgment in 

which to notify Ward in writing that the cabin owners were 

exercising their option to receive payment for the cabin 

structures and fixtures. The prosecution of this appeal has 

taken the case beyond the date fixed by the District Court 

for the exercise of such option. We therefore modify the 

judgment and decree and grant the cabin owners a period of 

six months from and after the date remittitur is handed down 

from this Court to the District Court, in which the cabin 

owners shall have the option to be exercised by written notice 

to the defendant Ward, to receive payment for the cabin 

structures and fixtures. Except as so modified, we deny the 

cross-appeal, and affirm the judgment and decree of the 

District Court, and remand the cause to the ~istrict Court 

for further proceedings therein in accordance with its 

judgment and decree. 

Justice a/' 

We Concur: 
Mr. Justice Daniel J. Shea specially concurring: 

I concur in the opinion of the Court, with the 

exception that I would permit the plaintiffs to use the 

property for a substantially longer time than until December 

31, 1987. 

The only evidence in the record on the length of time 

the plaintiffs should be permitted to stay on the premises, 

was presented by the plaintiffs, and the evidence presented 

was 50 years. After the trial court made its decision, 

plaintiffs moved the trial court to amend its findings and 

conclusions to permit the 50 years, but the trial court 

refused to so amend the findings and conclusions. 

I do not say that 50 years must be the figure, but 

there is no evidence in the record for the trial court's 

decision to permit the plaintiffs to stay on the land until 

only December 31, 1987. I do not, however, deem it proper 

for an appellate court to set the number of years; that is 

the function of the trial court. 

I would affirm the trial court in all respects except 

that I would remand for a determination of the number of 

years the plaintiffs should be permitted to stay on the land, 

based on the evidence in the record. That evidence supports 

a decision far beyond December 31, 1987. 

This case is a prime example of what Corporate America 

through its activities in the State of Montana is doing to 

the citizens. It demonstrates the difference between ownership 

of land owned by residents of Montana and ownership of land 

owned by outside corporations who use this state as an 

economic playground. 

I concur with the foregoing.