### No. 80-68 INTHE 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: ForAppellants: Jon E. Ellingson argued,Missoula,Montana For Respondents: Datsopoulos,MacDonald and Lind,Missoula, Montana Ronald MacDonald argued, Missoula, Montana

Submitted: November 19, 1980 Decided: 

## IdfC

## 19 

## 1984 Filed: 

# R-C1".91980

### 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 agentwas 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 showvarious 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 toLincoln 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 lotwhich was described inthe contract as "the south one-half of Lot 32." The written contract contained inparagraph 18, language that theMcCartys

# ".

.

# . acknowledge that they have examined and inspected the property and are fully familiar and acquainted therewith and that they

areentering into thisAgreement based on theirown 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, theMcCartys initiated legal action against Lincoln Green, Inc., Berryman, and Berryman's bonding company. Lincoln Green, Inc., responded by filingits third party complaint against the real estate agent Berryman as thirdparty defendant. The McCartys alleged that the agent Berryman had improperly identified the realproperty which he showed to the McCartys. Itwas alleged that Berryman showed the McCartys

a lotdesignated as "Lot 31," and identified the lottothe McCartys asbeing the "south half of Lot 32." McCartys further claimed thatwhen 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 factbuying the real property which isLot 31. Three months before McCartys had executed their contract, Lot 31 had been sold. While the litigationwas pending, and before trialin the DistrictCourt, Lincoln Green, Inc. and the McCartys entered into an agreement for settlement astothe 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 connectionwith the suit against itby 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 relationshipwith 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 transfer. 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 Berrymanwas tortious -4-and that no defenses available toBerryman could relieve the agent from liabilityto the McCartys. Berryman then contends that the DistrictCourt erred in finding either that he was negligent orthat therewas a misrepresentation of property which gave rise toa legitimate claim againstLincoln Green, Inc. Berryman's argument on thispoint is grounded on evidence that the real estate agent told McCartys atthe time they went out thathe wasn't sureof the exact location of the property and therefore, the McCartys assumed "any risk associated" in locating the correct parcel; and on paragraph 18 of thewritten contractwhereby theMcCartys disclaimed any reliance inentering intothe contract upon anything other that theirown 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, thepurchaser of a motel property sued for fraudulent misrepresentations inthe sale, contending they were told that they were getting 13 acres inaddition tothe motel. A year after thepurchase, the buyers discovered they had only 1.3 acres of land. The purchase agreement had in it a similarprovision toparagraph 18 inthis case, to the effect that thepurchasers had conducted their own examination and wererelying on that and not on any representationmade tothem by the sellers or the sellers' agents. ThisCourt held thatbecause of the contractual provisions,

aswell as the evidence that the purchasers had in fact inspected the property numerous timeswhen the boundary lineswerepointed out to them, and innone of the sales agreements was the figure "13 acres" included, the motel and theparcel containing 1.3 acreswere properly described in the transfer agreements.Schulz, supra, is distinguishable from the facts inthe

case atbar. 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 thewrong property

was brought about through the failure of the real estate agent properly toidentify the property thathe was showing to theprospective buyers. Thus, inthis case, Lincoln Green, Inc. incurred a liabilitytothe McCartys because a seller isbound by misrepresentationsmade by a real estatebroker or agent as to the locationof the property, or as tothe particular lotor tractwhich 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 section28-10-602, MCA, a principal is responsible to thirdpersons for the negligence of his agent inthe transaction of the business of the agency, includingwrongfulacts committed by such agent in and as a part of the transaction of suchbusiness. Neither assumption of risk nor contributory negligence

werepleaded as affirmative defenses. This Court willnot pass on issues not raised inthe 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 therewas no evidence before the District Court as tothe standard of care ordinarily exercisedby real estate agents in the community in like circumstances. In its conclusions of law, the ~istrict Court found that Berryman was negligent in failingproperly -6-toidentify the parcel tobe sold, thereby misrepresenting theparcels 

### of thepurchasers "contrary tothe duty a real estate agent owes tohis principal as established by the standards accepted by the profession inthe State of Montana." The language inthe conclusions respecting the standards accepted by the profession inMontana appears tobe gratuitous, because no evidence of the standardswas presented atthe trial. We findno error on thispoint. An agent is responsible tothirdparties asa principal, when his acts arewrongful intheir 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 thewrong property on behalf of a prospective seller toa prospective purchaser. The lastissue raised by Berryman relates tothe damages awarded by the District Court. When theMcCartys discovered that aftermaking improvements upon the property which they thought was theirs, that the agreements described thewrong property, they did not seek rescission, but instead sued for damages. They sought not only actual damages, but punitive damages ina sum inexcess of $107,660.00. The court found that Lincoln Green, Inc. and theMcCartys entered into an arms-length negotiation whereby Lincoln Green, Inc., credited the unpaid balance on an existing contract for deed for thewrong parcel by the sum of $2,500.00; interest

on the unpaid balance was forgiven inthe sum of $2,108.08; and it obtained an access suitable toMcCartys for the other property inthe sum of $2,500.00. There was also the cost of $61.50 for a current titlecommitment and insurance policy, and Lincoln Green, Inc. incurred legal fees in the amount of $2,200.00 inthe 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 therewas a difference in value between the property actually received by the McCartys and what the McCartys actuallypaid 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. Itprovides: "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 detrimentproximately 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.

,* ----, 

### JusticeWe 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, "theparties 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. 

# .

# ." GreatNorthern Railway Co. v. United States (D. Mont. 1960), 187 F.Supp. 690, 693.

### In its suit for idemnificationrespondent alleged,by way of a third party complaint, that appellant, due to his negligentmisrepresentation 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 sumsdue and owing resulting from the negligentmisrepresentation. Respondent has failed in this regard; thus, itwas not entitled to prevail on the suit for indemnification. In supportof 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 relianceupon the alleged misrepresentation as required to establish a cause of action for negligent or fraudulentmisrepresentation. As a basis for this contention, appellantmakes note of the contract for deed between respondentand McCartys. Included in this contract is the followingprovision: "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 agreementbased upon their ownexamination and inspection, and thatno representationsof any kind concerning the property have been made by the Sellersor anyone acting on behalf of the Sellers." A similar contractprovision was interpreted inSchulz

v. Peake (1978), Mont. 

## , 583 P.2d 425, 35 St.Rep. 1295. The Court inSchulz held thatthe language in such a contract clause isclear and unambiguous and, thus, is tobe enforced asmade by the parties. The Court then went on to affirm the lower court's decision thatthe "complete investigation" clause insulates the sellers from an allegation of fraudulentrepresentation. Upon examining the contractprovision and giving it effectasmade by the parties, it 

### isclear and apparent that theMcCartys denied any reliance on any representations of the selleror the seller's agent and entered into the agreement based on their own examination and inspection. With thisbeing 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 thateven if it 

### isdetermined that it was not liable toMcCartys for representations made by to appellant, it is stillentitled/indemnification for the costs of the settlement. In support of this contention, respondent citesGreatNorthern Railway

# =,supra. InGreatNorthern Railway Co. theplaintiff (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 actionwith the injured party and then initiated suitagainst theUnited StatesGovernment for indemnity.One of the issues on appeal in that case was whether the plaintiff isprecluded from recovery for a payment, voluntarilymade, inview of a finding thatplaintiff's agentwas not negligent. The court, indeciding the issue, stated that since the defendant had refused the tender of defense of the original action, plaintiff was justified in effecting a fairand reasonable settlement without resisting the litigation institutedby 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, isdistinguishable from GreatNorthern Railway Co. Firstof all, the court placed a greatdeal of reliance on the factthat the defendant (indemnitor)was given notice of the original suityet refused to tender a defense. In the present case, respondentmerely sued for indemnification by means of a third party complaint with no demand being made, or one refused, thatappellant tender defense of the action brought by the McCartys. Furthermore, inGreatNorthern 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, stillentitlingthe injured third party toa recovery. Here, however, not only was respondent's liability eliminated by the contractprovision entered intoby McCartys, but appellant's liability to the parties aswell. Respondent alsocitesWashington Water Power Co. v. Morgan Electric Co. (1968), 152Mont. 126, 448 P.2d 683, in support of its argument that it isentitled to indemnificationi'n.spiteof liability. The Court in thiscase 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 after 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 settlementpaid by it in good faith absentproof that the settlement is unreasonable." 448 P.2d at 689. Appellant againwould 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 settlementnegotiations 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,isnot the case in this instance. In essence, appellant argues thatprior 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 settlementbe 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 settlementcosts. As to the requirementof notice, although there is authority to the contrary, as a general rule the liability of an indemnitordoes 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 complaintby indemnitee seeking recovery from indemnitor, such as occurred here,would be sufficient. As to justification of the settlement, the authorities

are divided onwhether actual liability is required or whether mere potential liabilitywill suffice. See Blockston v. United States (D. 

### Md. 1968), 278 F.Supp. 576, 586. Themajority of the courts hold, however, that when an indemnitee seeks reimbursement from his indemnitar for a paymentmade by him in discharge of a claim,he is not bound to submit a suit to judgmentbefore paying the claim; but, - 

### if the indemnitee settlesprior 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), 177N.W.2d 5; Williams v. Johnston

(1968)r 92 Idaho '292,442 P.2d 178; 42C.J.S. Indemnity, S25 at 603-604. The contractentered into between the parties, if it is given effectby the Court, contains a clause that has been held to insulate the seller and the seller's agent from a claim of fraudulent or negligentmisrepresentations. 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 courtdetermined that appellantwas liable for negligentmisrepresentation. 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 factwill not be reversed on appeal unless the evidence clearly preponderates against the findings. Berdine v. Sanders County (1974), 164Mont. 206, 520 P.2d 650. The findings in this case, however, are not supported by 

### the evidencepresented. Thus, the decision of the District Court should be reversed.

In

### substance, 

### I join int