No. 80-68 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

ROGER J. McCARTY and JANICE L. 

McCARTY and CAROL A. McCARTY, 

Husband and wife, 

Plaintiffs and Respondents, 

LINCOLN GREEN, INC., a Montana 

corporation, JAMES L. LEE, BERT 

A. NELSON and BENITA NELSON, 

Defendants, Third-Party Plaintiffs 

and Respondents 

VS. 

RAY I. BERRYMAN and AMERICAN BONDING COMPANY, 

Third-Party Defendants and Appellants. 

Appeal from: District Court of the Fourth Judicial District, 

In and for the County of Ravalli. 

Honorable Jack L. Green, Judge presiding. 

Counsel of Record: 

For Appellants: 

Jon E. Ellingson argued, Missoula, Montana 

For Respondents: 

Datsopoulos, MacDonald and Lind, Missoula, Montana 

Ronald MacDonald argued, Missoula, Montana 

Submitted: November 19, 1980 

Decided: Idf C 1 9 1984 

Filed: R-C 1". 9 1980 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Ray I. Berryman, a real estate agent,as third party 

defendant, appeals from a judgment in the Fourth Judicial 

District Court, Missoula County, in favor of Lincoln Green, 

Inc., James L. Lee, Bert A. Nelson and Benita Nelson (Lincoln 

Green, Inc.), third party plaintiffs. 

Berryman raises these issues fcr review: 

(1) A principal may not be held liable to a third 

party for negligence of its agent where there is no proof of 

the agent's liability to the third party. 

(2) The District Court erred in concluding that the 

principal's agent was negligent through his acts or omissions 

or by misrepresentation. 

(3) A real estate agent's negligence may not be 

established without proof that he failed to use the standard 

of care exercised ordinarily by real estate agents in the 

community . 

(4) The District Court improperly assessed damages 

against Berryman in the sum of $7,169.58, plus attorney's 

fees of $2,200.00. 

After due consideration, we conclude that the judgment 

of the District Court should be affirmed. 

In 1975, Lincoln Green, Inc. was offering for sale 

parcels of a subdivided ranch located in ~avalli County 

Montana. As part of its selling effort, Lincoln Green, Inc. 

permitted licensed real estate agents to show various parcels 

which were for sale, without entering into a listing agreement 

with such real estate agents. If a real estate agent showed 

any of the parcels and found a buyer, the agent who had 

shown the property presented a buy-sell agreement, executed 

by the proposed purchaser to Lincoln Green, Inc., for its 

approval and signature. 
In 1975, Berryman presented to Lincoln Green, Inc., a 

buy-sell agreement executed by Roger J. McCarty, Janice L. 

McCarty, ~obert J. McCarty and Carol McCarty (McCartys) as 

purchasers. On September 1, 1975, Lincoln Green, Inc. and 

McCartys entered into a contract for deed for the sale and 

purchase of a lot which was described in the contract as 

"the south one-half of Lot 32." The written contract contained 

in paragraph 18, language that the McCartys ". . . acknowledge that they have examined and inspected the property and 

are fully familiar and acquainted therewith and that they 

are entering into this Agreement based on their own examination 

and inspection, and that no representations of any kind 

concerning the property have been made by the Sellers or 

anyone acting on behalf of the Sellers." 

One year after the execution of the contract for deed, 

the McCartys initiated legal action against Lincoln Green, 

Inc., Berryman, and Berryman's bonding company. Lincoln 

Green, Inc., responded by filing its third party complaint 

against the real estate agent Berryman as third party defendant. 

The McCartys alleged that the agent Berryman had improperly identified the real property which he showed to 

the McCartys. It was alleged that Berryman showed the McCartys 

a lot designated as "Lot 31," and identified the lot to the 

McCartys as being the "south half of Lot 32." McCartys 

further claimed that when they executed the buy-sell agreement 

on the contract for deed for the purchase of the south half 

of Lot 32, they thought that they were in fact buying the 

real property which is Lot 31. Three months before McCartys 

had executed their contract, Lot 31 had been sold. 

While the litigation was pending, and before trial in 

the District Court, Lincoln Green, Inc. and the McCartys 

entered into an agreement for settlement as to the litigation 
between them. Lincoln Green, Inc. advised Berryman in 

advance of the proposed settlement, but Berryman declined to 

participate in the settlement in any form. The consideration 

for the settlement was $7,169.58. Lincoln Green, Inc. 

incurred attorney's fees of $2,200.00 in connection with the 

suit against it by the McCartys. 

After trial between Lincoln Green, Inc. and Berryman, 

on the third party complaint, the District Court found that 

Berryman had a duty to his principal reasonably to establish 

the location of the parcel by geographical landmarks and 

that this duty existed particularly where the seller, Lincoln 

Green, Inc., did not have an existing relationship with the 

McCartysand did not participate in the showing of the parcel 

or the preparation of the buy-sell agreement except to the 

extent that Lincoln Green, Inc. prepared the documents of 

transf er. 

The District Court concluded that Berryman was negligent 

in his scope as a broker salesperson in his failure properly 

to identify the parcel owned by Lincoln Green, Inc., and by 

misrepresenting the parcel to the McCartys, contrary to the 

duty a real estate agent owes to his principal as established 

by the standards accepted by the profession in the State of 

Montana. 

Accordingly, judgment was entered by the District Court 

and this appeal followed. 

We will consider together the first two issues raised 

by Berryman. Berryman contends that Lincoln Green, Inc. 

may not be held responsible to the McCartys unless Berryman 

himself was liable to the McCartys. Thus, he contends that 

Lincoln Green, Inc. may recover damages paid to the McCartys 

only if Lincoln Green, Inc. proves that Berryman was tortious 

-4- 
and that no defenses available to Berryman could relieve the 

agent from liability to the McCartys. Berryman then contends 

that the District Court erred in finding either that he was 

negligent or that there was a misrepresentation of property 

which gave rise to a legitimate claim against Lincoln Green, 

Inc. 

Berryman's argument on this point is grounded on evidence 

that the real estate agent told McCartys at the time they 

went out that he wasn't sure of the exact location of the 

property and therefore, the McCartys assumed "any risk 

associated" in locating the correct parcel; and on paragraph 

18 of the written contract whereby the McCartys disclaimed 

any reliance in entering into the contract upon anything 

other that their own examination and inspection of the 

premises. 

Berryman relies on our recent case of Schulz v. Peake 

(1978) , Mont . , 583 P.2d 425, 35 St.Rep. 1295. In 

that case, the purchaser of a motel property sued for fraudulent misrepresentations in the sale, contending they were 

told that they were getting 13 acres in addition to the 

motel. A year after the purchase, the buyers discovered 

they had only 1.3 acres of land. The purchase agreement had 

in it a similar provision to paragraph 18 in this case, to 

the effect that the purchasers had conducted their own 

examination and were relying on that and not on any representation made to them by the sellers or the sellers' agents. 

This Court held that because of the contractual provisions, 

as well as the evidence that the purchasers had in fact 

inspected the property numerous times when the boundary 

lines were pointed out to them, and in none of the sales 

agreements was the figure "13 acres" included, the motel and 

the parcel containing 1.3 acres were properly described in 

the transfer agreements. 
Schulz, supra, is distinguishable from the facts in the 

case at bar. Although the McCartys contracted that they had 

in fact inspected the premises and relied on their own 

inspection, it is also true that they had inspected the 

wrong property and that the inspection of the wrong property 

was brought about through the failure of the real estate 

agent properly to identify the property that he was showing 

to the prospective buyers. 

Thus, in this case, Lincoln Green, Inc. incurred a 

liability to the McCartys because a seller is bound by misrepresentations made by a real estate broker or agent as to 

the location of the property, or as to the particular lot or 

tract which was for sale. Blanke v. Miller (1954), 364 Mo. 

797, 268 S.W.2d 809; Williams v. Ritcheson (Tex.Civ.App. 

1948), 212 S.W.2d 813. 

Under section 28-10-602, MCA, a principal is responsible 

to third persons for the negligence of his agent in the 

transaction of the business of the agency, including wrongful acts committed by such agent in and as a part of the 

transaction of such business. 

Neither assumption of risk nor contributory negligence 

were pleaded as affirmative defenses. This Court will not 

pass on issues not raised in the District Court. Chadwick 

v. Gilberson (No. 80-7, Decided Oct. 8, 1980, 37 St-Rep. 1723) 

Berryman next contends that the Court improperly concluded 

that he was negligent because there was no evidence before 

the District Court as to the standard of care ordinarily 

exercised by real estate agents in the community in like 

circumstances. In its conclusions of law, the ~istrict 

Court found that Berryman was negligent in failing properly 

-6- 
to identify the parcel to be sold, thereby misrepresenting 

the parcels of the purchasers "contrary to the duty a real 

estate agent owes to his principal as established by the 

standards accepted by the profession in the State of Montana." 

The language in the conclusions respecting the standards 

accepted by the profession in Montana appears to be gratuitous, 

because no evidence of the standards was presented at the 

trial. 

We find no error on this point. An agent is responsible 

to third parties as a principal, when his acts are wrongful 

in their nature. Section 28-10-702(3), MCA. No standard 

could be countenanced by the real estate brokers'profession, 

accepting as a reasonable standard of care the showing of 

the wrong property on behalf of a prospective seller to a 

prospective purchaser. 

The last issue raised by Berryman relates to the damages 

awarded by the District Court. When the McCartys discovered 

that after making improvements upon the property which they 

thought was theirs, that the agreements described the wrong 

property, they did not seek rescission, but instead sued 

for damages. They sought not only actual damages, but 

punitive damages in a sum in excess of $107,660.00. The 

court found that Lincoln Green, Inc. and the McCartys entered 

into an arms-length negotiation whereby Lincoln Green, Inc., 

credited the unpaid balance on an existing contract for 

deed for the wrong parcel by the sum of $2,500.00; interest 

on the unpaid balance was forgiven in the sum of $2,108.08; 

and it obtained an access suitable to McCartys for the other 

property in the sum of $2,500.00. There was also the cost 

of $61.50 for a current title commitment and insurance 

policy, and Lincoln Green, Inc. incurred legal fees in the 

amount of $2,200.00 in the defense of the original litigation. 

-7- 
Berryman claims that in cases of a negligent misrepresentation, the measure of damages should be the difference 

in the value of the property received in the transaction and 

his purchase price or other value given for it, and the 

pecuniary loss suffered otherwise as a consequence of the 

misrepresentation, citing Restatement of Torts 5 552(b). 

Here, Berryman claims there is no evidence offered to substantiate 

that there was a difference in value between the property 

actually received by the McCartys and what the McCartys 

actually paid for it. 

The District Court decided the issues in favor of 

Lincoln Green, Inc., in this case, on tort liability of the 

agent. The measure of damages for tort liability is controlled by section 27-1-317, MCA. It provides: 

"For the breach of an obligation not arising 

from contract, the measure of damages, except 

where otherwise expressly provided by this code, 

is the amount which will compensate for all the 

detriment proximately caused thereby, whether it 

could have been anticipated or not." 

It is the intent and purpose of our statutes, except 

for liquidated damages, agreed damages, or exemplary damages, 

that damages be compensatory and are properly awarded when 

they serve to compensate the plaintiff for the detriment 

proximately caused by the defendant. Lovely v. Burroughs 

Corporation (1974), 165 Mont. 209, 527 P.2d 557, appeal 

after remand, 169 Mont. 454, 548 P.2d 610. The damages 

awarded by the District Court here meet the statutory test 

of section 27-1-317, MCA, and were properly awarded. 

Affirmed. 

,* ----, 

Justice 
We Concur: 

Chief Justice 

Justices 

Mr. Justice Gene B. Daly dissenting: 

I dissent. 

The right to indemnity is an equitable principal based 

on the general theory that one compelled to pay for damages 

caused by another should be able to seek recovery from that 

party. May Trucking Co. v. International Harvester (1975) , 

97 Idaho 319, 543 P. 2d 1159. 

A suit for indemnification is generally allowed where, 

"the parties are not in pari delicto, and an injury results 

from the act of one party whose negligence is the primary, 

active and proximate cause of the injury, and another party, 

who is not negligent or whose negligence is remote, passive 

and secondary, is nevertheless exposed to liability by acts 

of the first party. . ." Great Northern Railway Co. v. 

United States (D. Mont. 1960), 187 F.Supp. 690, 693. 
In its suit for idemnification respondent alleged, by 

way of a third party complaint, that appellant, due to his 

negligent misrepresentation to the McCartys, breached the 

standard of care established by the real estate profession. 

Respondent then went on to state that, as a result of this 

breach, appellant should indemnify respondent, as a third 

party plaintiff, for any sums due and owing the McCartys. 

In response to the third party complaint, appellant entered, 

by way of an answer, a specific denial to respondent's 

averments of negligence. Appellant, however, asserted no 

affirmative defenses or counterclaims to the suit. 

To establish a right of indemnity, as set forth in its 

third party complaint, respondent must prove that appellant, 

due to his misstatements as to the property shown the McCartys, 

breached a standard of care established by the real estate 

profession and, thus, is liable for any sums due and owing 

resulting from the negligent misrepresentation. Respondent 

has failed in this regard; thus, it was not entitled to 

prevail on the suit for indemnification. 

In support of his argument that respondent failed to 

establish any negligent behavior, appellant asserts that the 

testimony and evidence offered at trial reveals that the 

McCartys place no reliance upon the alleged misrepresentation as required to establish a cause of action for negligent or fraudulent misrepresentation. 

As a basis for this contention, appellant makes note of 

the contract for deed between respondent and McCartys. 

Included in this contract is the following provision: 

"18. Buyers acknowledge that they have examined 

and inspected the property and are fully familiar 

and acquainted therewith and that they are entering into this agreement based upon their own 
examination and inspection, and that no representations of any kind concerning the property 

have been made by the Sellers or anyone acting 

on behalf of the Sellers." 

A similar contract provision was interpreted in Schulz 

v. Peake (1978), Mont. , 583 P.2d 425, 35 St.Rep. 

1295. The Court in Schulz held that the language in such a 

contract clause is clear and unambiguous and, thus, is to be 

enforced as made by the parties. The Court then went on to 

affirm the lower court's decision that the "complete investigation" clause insulates the sellers from an allegation of 

fraudulent representation. 

Upon examining the contract provision and giving it 

effect as made by the parties, it is clear and apparent that 

the McCartys denied any reliance on any representations of 

the seller or the seller's agent and entered into the agreement based on their own examination and inspection. With 

this being the case, the essential element of reliance upon 

the seller's representations, needed to support a cause of 

action for fraud or negligent misrepresentation, is eliminated. 

Respondent contends that even if it is determined that 

it was not liable to McCartys for representations made by 

to 

appellant, it is still entitled/indemnification for the 

costs of the settlement. In support of this contention, 

respondent cites Great Northern Railway =, supra. 

In Great Northern Railway Co. the plaintiff (indemnitee) had been sued by a business invitee who was injured 

when struck by a mail pouch thrown by a United States Government postal transportation clerk. The plaintiff settled the 

action with the injured party and then initiated suit against 

the United States Government for indemnity. 
One of the issues on appeal in that case was whether 

the plaintiff is precluded from recovery for a payment, 

voluntarily made, in view of a finding that plaintiff's 

agent was not negligent. The court, in deciding the issue, 

stated that since the defendant had refused the tender of 

defense of the original action, plaintiff was justified in 

effecting a fair and reasonable settlement without resisting 

the litigation instituted by the injured party to the point 

of judgment. Great Northern Railway Co., 187 F.Supp. at 

697. 

Appellant contends that the present case involves a 

different factual situation and, thus, is distinguishable 

from Great Northern Railway Co. First of all, the court 

placed a great deal of reliance on the fact that the defendant (indemnitor) was given notice of the original suit yet 

refused to tender a defense. In the present case, respondent merely sued for indemnification by means of a third 

party complaint with no demand being made, or one refused, 

that appellant tender defense of the action brought by the 

McCartys. Furthermore, in Great Northern Railway Co., it 

was only the plaintiff's agent who was found not negligent; 

the defendant's agent's liability for the injuries still 

remained, thus, still entitling the injured third party to a 

recovery. Here, however, not only was respondent's liability 

eliminated by the contract provision entered into by McCartys, 

but appellant's liability to the parties as well. 

Respondent also cites Washington Water Power Co. v. 

Morgan Electric Co. (1968), 152 Mont. 126, 448 P.2d 683, in 

support of its argument that it is entitled to indemnificationi'n.spite of liability. The Court in this case found 

that: 
"Where, as here, the indemnitor and his insurer, 

after notice, refuse to defend the indemnitee; 

breach the indemnity agreement; refuse to participate in settlement negotiations or defend 

af ter demand; know the amount of the settlement 

and make no objections; the indemnitee is entitled to judgment as a matter of law in the 

amount of any settlement paid by it in good 

faith absent proof that the settlement is unreasonable." 448 P.2d at 689. 

Appellant again would have this Court distinguish the 

case at issue in that here there is no indemnity agreement; 

no demand or refusal to tender a defense; and no prior 

notice of the settlement negotiations or allowance to participate therein. Furthermore, the defendant indemnitor in 

Washington Water Power Co. was specifically found to be 

negligent, which, based upon the lack of reliance on appellant's representations, is not the case in this instance. 

In essence, appellant argues that prior to a proper 

indemnification for settlement costs the following elements 

must be present: (1) notice and refusal to tender a defense; 

(2) justification for seeking a settlement, with the appellant contending that said justification arises only when 

the indemnitee is exposed to actual liability (as opposed to 

mere potential liability) ; and (3) that the settlement be 

fair and reasonable. Appellant then argues that since 

respondent failed to give notice and demand a tender of 

defense and respondent failed to establish exposure to 

actual liability, it is not entitled to an indemnification 

for its settlement costs. 

As to the requirement of notice, although there is 

authority to the contrary, as a general rule the liability 

of an indemnitor does not depend on the reception of a 

notice that indemnitee is subject to a suit for injuries 

caused by the indemnitor's negligent acts. 42 C.J.S. 
Indemnity, §26 at 604. Even if notice would be a requirement, filing of a third party complaint by indemnitee seeking recovery from indemnitor, such as occurred here, would 

be sufficient. 

As to justification of the settlement, the authorities 

are divided on whether actual liability is required or 

whether mere potential liability will suffice. See Blockston v. United States (D. Md. 1968), 278 F.Supp. 576, 586. 

The majority of the courts hold, however, that when an 

indemnitee seeks reimbursement from his indemnitar for a 

payment made by him in discharge of a claim, he is not bound 

to submit a suit to judgment before paying the claim; but, - 

-- if the indemnitee settles prior - to judgment, as a -- condition 

- of recovery -- from his indemnitor, -- he is under the necessity 

- of proving -- he was actually liable -- for the amount paid. 

United Boatbuilders, Inc. v. Tempo Products Co. (1969), 1 

Wash.App. 177, 459 P.2d 958; Nelson v. Sponberg (1957), 51 

Wash.2d 371, 318 P.2d 951; see also Ke-Wash Co. v. Stauffer 

Chemical Co. (Iowa 1970), 177 N.W.2d 5; Williams v. Johnston 

(1968)r 92 Idaho '292, 442 P.2d 178; 42 C.J.S. Indemnity, S25 

at 603-604. 

The contract entered into between the parties, if it is 

given effect by the Court, contains a clause that has been 

held to insulate the seller and the seller's agent from a 

claim of fraudulent or negligent misrepresentations. With 

this being the case, respondent is unable to prove actual 

liability on the part of appellant. Thus, respondent is not 

entitled to an accrument of the right to indemnification for 

settlement costs. 

I acknowledge that the lower court determined that 

appellant was liable for negligent misrepresentation. I 
also note, however, that the trial court ignored appellant's 

argument that the contract for deed refutes the charges 

brought by eliminating an essential factor required to 

establish the cause of action. 

It is a well-settled rule of law that the finder of 

fact will not be reversed on appeal unless the evidence 

clearly preponderates against the findings. Berdine v. 

Sanders County (1974), 164 Mont. 206, 520 P.2d 650. The 

findings in this case, however, are not supported by the 

evidence presented. Thus, the decision of the District 

Court should be reversed. 

In substance, I join in t