No. 84-243 INTHE SUPRES4.E COURTOF THE STATEOF MONTANA 1984

ERA REAL ESTATE HOME & RANCH PROPERTIES, aMontana corp.

### , Plaintiff and Appellant,

BIG HOWJ GAME WCH,INC.

### , aMontana corp., Defendantand Respondent.

APPEAL FROM: District Court of the Thirteenth JudicialDistrict, Inand for the County of Yellowstone, TheHonorable DianeG. Barz,Judgepresiding.

COUXSEL OF RECORD: For Appellant: Parker,Sweeney,Healow & Lee;Mark D. Parker argued, Billings, Montana For Respondent: Davidson, Beeder, Baugh, Broeder,Poppler and Michelottir G. Todd Baugh argued,Billings,Montana

Submitted: September 21, 1984 Decided: October 18, 1984

-, .- ClerkMr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. ERA Real Estate appeals a summary judgment dismissiilg its claim for a commission in theYellowstoneCountyDistrict Court.The plaintiff real estate broker (ERA) brought this action to recover a real estate commission it believed had been earned on a large ranch sale. The defendant, Bighorn Game Ranch, Inc. (Bighorn),was the owner and seller of the 16,000-acreranch located near Hardin,Montana. ~ighorn gave Michael Murphy, an agent for ERA, a nonexclusive listing to sell the ranch in March 1982. There was no formal listing agreementexecuted,but the understanding between Bighorn and Murphy was that Murphy would earn a 5 percent sales commission upon making or effecting a sa1.e. At the time the listing was given to Murphy, Bighorn

was in a Chapter XI bankruptcy proceeding. Murphy was given authority by the trustee to sell the ranch and told to take directions from Larry Feldman, the president of Bighorn. Feldman directed Murphy to sell 100 percent of Biqhorn's stock, which would include the ranch asset and a substantial tax loss carry-over which Bighorn had accrued. Acting for ERA, Murphy found a potential buyer in September 1982. DennisHaden of Dallas,Texas, was eager to buy the ranch for its tax advantages and proposed a tax-free exchange of a building he owned in Dallas for the ranch. Feldmanwas amenable to the deal and signed a buy-sell agreement with the buyer on Septemher 10, 1982. Closing was set forDecember 9,1982. The buy-sell agreement contains several provisions pertinent to this appeal. One page entitled 

### "SpecialProvisi.ons"contained the following language in normal--sized type: "THIS SALE JS SUBJECT TO THE FOLLOWTNG:

"E. Concurrent execution of an agreement between theholders of 100% of the common stock in Big Horn Game Ranch, Inc., wherein they agree to sell all of their stock in said corporation free and clear of all encumbrances to PURCHASER, and PURCHASER agrees topurchase same forthe sum of $300,000.00

"J. $142,300.00 shallbe paid at closing to ERA Home & Ranch Properties,Bill-ings, Montana.

"L. This offer is made to the shareholdersof Big Horn Game Ranch, Inc.,but mustbe approved

### by all of the sharehold- 

## -- --- ers and the trustee of the Big Horn 

## - Fanch, Inc. bankruptcy." (Emphasis supplied

# . ) The contract to make a sale was therefore conditional upon approvalby the shareholdersof Bighorn. The shareholders of Bighorn were a group of oriental businessmen. The exact ownership of the common stock changed during the course of these dealings. The president Feldman negotiated with the buyer Haden under the belief he had authority to enter into a sales contract for Bighorn. Haden recalled in a deposition that Feldman told him before the buy-sell agreement was signed that he had the authority to speak for the shareholdersof Bighorn Game Ranch. The shareholders of Bighorn never unconditionally approved the proposed ranch sale and the deal never closed. On October 2, 1982, a combined meeting of the shareholders and directors was held in San Francisco. The meeting was conducted in various Eastern dialects. Feldman followed thebusiness of the meeting through interpreters and afterwards drafted his impressions intoproposed minutes. These minutes

were never signedby the Secretary of Bighorn or the majority shareholder, SupasitMahaguna. They state in relevantpart: "Inprincipal [sic]the Shareholders and board approved the sale and exchange [of the ranch] subject to an inspection of the building in Dallas, the approval of title insurance on the Dallas building, and the approval of the net lease on the building inDallas." Supasit Maha-guna visited and inspected the Dallas building owned by Dennis Haden the day following the shareholder meeting. Mahaguna speaks a little English and Haden asked him ifhewas satisfiedwith thedeal. Mahagunanodded affirmativelyand shookhands with Haden. Feldman learned indirectly in December that Mahaguna had rejected Haden's purchase offer. The closing date had previously been extended to February 28, 1983. Prior to February Feldman attempted to resurrect and keep the deal alive by writing Mahaguna and requesting him to reconsider. llahaguna did not respond. Feldman informed Haden in mid-February of these events and wrote,

# ".



# .. it currently appears as if I am not going to be able to deliver on my promise to se1.l you the Bighorn Game Ranch." In late February,Haden traveled toColorado and wasprepared to closehut Feldman was unable to proceed without the shareholders' approvalor stock certificates. ERA brought this action to recover the real estate commission from Bighorn. TheDistrict Court granted summary judgment in favor of defendant Bighorn on April 20, 1984. The District Court noted that the buy-sell agreement contains conditionsprecedent--specifically, full shareholder approval. Only upon such approvalwould the contract becomebindinq. The court accepted the authenticity of the minutes prepared by Peldman and stated in its order that the shareholders at the meeting had ratified the transaction "subject to an inspection of the building in Dallas." However, the trial court found the shareholders never outright approved the contract. Hence, the condition precedent was not performed, a valid contract did not result, and ERA did not effect a sale. The court concluded ERAwasnot entitled to a broker's commission. We affirm. The arguments appellant ERA presents on appeal can be summarized asone issue: Did the failureof the seller to close the sale constitute wrongful conduct entitling ERA to its broker's commission? The parties agree that the controlling Plontana cases
are Diehl & Associates, Inc. v. Houtchens (1377),173 Mont. 372, 567 P.2d 930,and Associated Agency of Bozeman, Inc. v. Pasha (Mont. 1981), 625 P.2d 38, 38 St.Rep. 344. ERA was required to effect a saleand under Diehlwe have interpreted this language to mean the broker must complete the sale to earn his commission. Completing the sale involvespayment of the purchase price and conveyance of title. In Pasha, the genera1 rule was modified: a broker is entitled to his commission even if the sale is not completed, providing a ready,willing and able buyer is procured and the failure to close was due to the wrongful conduct of the seller. See also, Ehly v. Cady (Mont. 19841, P.2d 

### , 41 St.Rep. 1611. Thebroker ERAhas failed toproduce evidence of wrongful conduct on the part of Bighorn. The buy-sell agreement

was clearly conditioned on full shareholder approval.Tndeed, this clausewas added to the contract at the request of the buyer Haden. Haden undoubtedly recognized the importance of shareholder approval in a deal where the entire assets of a corporation would be purchased. Bighorn's shareholders never unconditionally approved the sale. The "minutes"of the October shareholdermeeting,

even if elevated in authenticity to a signed, executed and accurate representation of the meeting, do not indicate ratification of the sale. The sale was only approved in principle and subjectto the approvalof the Dallasbuilding. One shareholder did apparently inspect and approve the exchange building. However, there were several other shareholders in Bighorn and the record does not disclose their opinions. The District Court correctly reasoned that the buy-sell agreementwas a conditional contract containing the condition precedentof full shareholderapproval. The conditionprecedentwas never performed and therefore the legal obligations under the contract--i.e., payment of thebroker's commission --never became enforceable. Section 28-1-403, MCA. Under these circumstances, the seller's failure to close did not constitute wrongful conduct within the meaning of our Pasha decision. Consequently, the broker ERA was not entitled to its commission on theuncompleted sale. ERA further argues that the corporation Bighorn should he held liable for the representation by its president, Feldman,thathehad authority to speak for the shareholders. This matter is addressed by the principles of the law of agency. The third party broker would like to hold the principal, Bighorn, liable for the contract executed by the agent, Feldman. Here, where the disclosed principal didnothing to indicate to the broker that the agenthad authority to bind all. shareholders, there is no liability. There

was no apparent authoritywhereby theprincipal could be held liable. Restatement (Second)ofAgency,5 159 (1958)

# . This is a case where the agent possibly exceeded 

### hi^ authority. Even where the agentwas reasonably mistaken and believed in good faith that he acted with authorization, the Restatement, supra,would absolve theprincipal and hold the agent liable. See, S 329, comment b. Cf., Losinski v. American Dry CleaningCo. (Minn. 1979), 281N.F!.2d 884; Husky Industries, Inc. 

### v. Craig Industries (KO. App. 1981), 618 S.W.2d 458. In this case we have an express provision in theunderlying contract that indicated additional approval from the shareholderswas required. The provision should have given the broker Murphy notice that the president had no authority to bind Bighorn. See,Hansen

### v. Power (1977), 279 Or. 589, 569 P.2d 573 (where it appears that a person dealing with an agent knew that approval by another person was required, there can be no claim of the agent's apparent authority); Mid-State Homes, Inc.

### v. Berry (Ala.Civ.App. 1978), 359 So.2d 401 (where the contract for sale of real estzte indicated that written approval was required, the agent's assurance that the contract would be approved did not negate the express restriction known to thebuyer). Appellant ERA cites Acmer Corporation v. State Transport Company (1976), 275 Or. 51, 549 P.2d 1114, for the proposition that a person who fails to deliver at closing is still liable fora commission. Respondent Bighorn justifiabl-ydistinguishes this case. In Acmer the corporation was found liable, but there was anexpress grant of authority to its president to sell the corporation. The president was a board member who owned two-thirds of the stock and the board of directors in a duly authorized meeting specifically granted him the authority to sell the corporation subject to approval by the owners of two-thirds of the stock of the corporation. When thepresident who had authorized the sale as a board member later rejected the transfer as a shareholder, the Oregon Supreme Court held the corporation liable for the broker's commission. There was no analogous grant of authority in this

case. Feldman was not expressly authorized by Righorn to sell, and Bighorn did nothing to indicate to thebroker that he was. The corporation is not liable for representationsby its agent that he acted with full shareholder approval, particularly when the underlying contract was expressly conditioned on such approval. The judgment of theDistrict Court isaffirmed.

~LDAAJ

# .&* Chief Justfce

We concur: