No. 14752 IN THE SUPREME COURT OF THE STATEOF MONTANA 1979

JOHN KINJERSRI

### , Plaintiff and Appellant,

VS. FRITZ LAMEY, individually and as President of K & L LIVESTOCK,INC., a corporation,and PHILLIPS CREEK RANCH, a corporation, Defendants and Respondents,

ANNA KINJERSKII Third Party Defendant and Appellant.

Appeal from: District Court of the Nineteenth Judicial District, Honorable Robert M. Holter, Judgepresiding. Counsel of Record: For Appellants: Morrison Law Offices, Missoula, Montana Frank Morrison, Sr., argued and DouglasBauxbaum argued,

Missoula,Montana For Respondents: Fennessy,Crocker,Harman & Bostock, Libby,Montana ThomasBostock argued, Libby,Montana

Submitted: November 1, 1979 Decided:

# DEC27

# jm Filed: 

# ECz7Mr. Chief Justice Frank 

### I. Haswell delivered the Opinion of the Court. Plaintiff John Kinjerski brought this action to recover 49 head of cows, $22,000 earnestmoney, and seeking an accounting of assets held by K & L Livestock, Inc. Defendants, Fritz Lamey and Phillips Creek Ranch, Inc. answered denying Kinjerski

was entitled to relief and alleging several affirmative defenses. Defendants also counterclaimed,naming plaintiff's wife Anna as

a third-party defendant and alleging that plaintiff and his wife were attempting to defraud defendants of the 49 head of cows. The jury returned a verdict in favor of the defendants on the issue of ownership of the 49 cows and the accounting,and in favor of plaintiff on the issue of the $22,000 earnest money. Plaintiff's motion for a new trialwas denied and from that denial they appeal

on the issue of the ownership of the 49 cows. Defendants' crossappeal on the issue of the $22,000 earnestmoney, Neither party appeals from denial of the accounting. In 1976defendantsLamey and Phillips Creek Ranchwere urged by the Bank of Columbia Falls to take remedial steps to reduce outstanding indebtedness to the Bank. Consequently, in order to raisemoney, Lamey decided to form a joint venture with Kinjerski. The jointventure was to be known as K & L Livestock, Inc. Theprincipal assets of K & L were to be a certain number of registered purebred Hereford cattle and a parcel of land,both to be purchased from the Ranch. The agreement contemplated thatKinjerski and Lamey would purchase a parcel of land from the Phillips Creek ranch by putting up $120,000 and assuming the outstanding mortgage on the land. Each party was to pay $60,000 of the $120,000down payment. Kinjerski contributed an initial $22,000 as earnest money while Lamey made no cash contribution to this end. Laterwhen the contemplated purchase of the land did not transpire,Lamey drew an instrumentacknowledging a debt of $22,000 to Kinjerski to be paid when theproperty was sold. Concerning the cattle that were to be purchased by K & 

### L,Kinjerskiwas to purchase some cattle from Lamey and the PhillipsCreek Ranch. Lamey drew a bill of sale stating that Lamey and the PhillipsCreek Ranch sold to Kinjerski 131head of cattle (80cows, 31bulls and 20 calves) for a total price of $59,000 of which $24,000was paid leaving a balance of $35,000. Kinjerski claimed that he never received 49 of the 80

cowsprovided in the bill of sale. InApril 1978,Kinjerski demanded these 49 cows from Lamey. Upon Lamey's refusal, Kinjerski filed the present action. Prior to trial,Kinjerski's attorneys made a motion in limine to disallowany parol evidence to impeach,vary or contradict the terms of the bill of sale. Thismotion was denied without prejudice to later objections during the trial. Despite an objection during trial Lamey was allowed to testify that he had not received the $24,000. He was also allowed to testify that the parties intended that only 31 cowsbe transferred, that the other 49 cowswere dead at the time that the bill of salewas written, and that the purpose of the arrangementwas to boost Kinjerski's borrowing power. Kinjerski, in turn, testified that he paid the $24,000and that the bill of sale constituted the entire transaction between the parties. The jury found that Lamey did not owe Kinjerski the 49

cows. They also found that Lamey owed Kinjerski $22,000 arising out of the purported agreement on the sale of the land. We will summarize the controlling issues on appeal in this

manner: (1) The admissibility of evidence under the parol evidence rule. (2) Sufficiency of the evidence to support the judgmentof $22,000 in favor of Kinjerski's. (3) Sufficiency of the evidence to support judgment in favor of Phillips Creek Ranch on ownership of the cattle. The parol evidence rule in Montana has been stated as follows:"'"Theprinciple iswell-established and of general application, subject to certain exceptions, thatwhen a contracthas been reduced towriting the contents of suchwriting cannot be added to, contradicted,altered, or varied by parol or extrinsic evidence,and that suchwriting supersedes all oral negotiations concerning its matter which preceded, accompanied or led up to its execution. Thiswas the rule at common law,and has been embodied in the statute law of this state 11 I 11 

# ... W. River Equip. v. Holzworth (1959),134 Mont. 582, 588, 335 P.2d 298. Different aspects of this rule have been codified in Montana at sections 28-2-904, 28-2-905 and 28-2-1602,MCA. The parties in this case do not dispute the fact that the rule applies to the bill of sale. Respondents do contend,however, that the testimonywhich varied the terms of the bill of sale,was admissibleunder one ormore of three exceptions to the parol evidence rule. Those exceptions are ambiguity, fraud,and failure of consideration. Under section 28-2-905(2) evidencemay be introduced to explain an extrinsic ambiguity in a written agreement. In the instant case we find no ambiguity which would call for the application of this exception. Section 28-2-905(2) also allows the introduction of parol evidence to establish fraud. The case law in Montana is to the

same effect. GoggaIiv. Winkley (1970), 154Mont. 451, 459, 465 P.2d 326. Lamey was allowed to testify that thepurpose of putting the figure of 80 cows instead of 31 cows on the bill of sale,

was to boost Kinjerski's borrowing power. Lamey contends that thispurpose constitutes fraud and that he was correctly permitted to give testimony that 49 of the cowswere dead.The case of Higby v. Hooper (1950), 124Mont. 331, 221 P.2d 1043 is closely analogous to the instant case and is controlling here. In the Higby case therewas a written contract to the effect that the defendantwould build a house for the plaintiffs for a certain sum. The defendantwas allowed to testify at trial that the contract price was merely an estimate to aid the plaintiffs in securing a loan and that there was an oral argreement that he was to receive costsplus 10%. The judgment was for defendant at trial court. This Court reversed, saying: "Under certain circumstances,none of which is here present, a person may show that the document in questionwas intended to serve the purpose of a mere jest, joke or sham. 'But a justpolicy would seem to concede this only when the pretense is a morally justifiableone (as, to calm a lunatic or to console a dying person). When it ismorally beyond sanction,or aims at an evasion of the law or a deception of other persons, by intention of the parties, that intentionwill not be given effect.' 9Wigmore on Evidence, 3d Ed., sec. 2406, subd. (I), pp. 16, 17. "The lawdoes not allowparties to a contract to show that it was got up as a sham to deceive and defraud. Graham v. Savage, 110Minn. 510, 126 N.W. 394, 396, 136 Am.St.Rep. 527, 19Ann.Cas. 1022. So here the defendant will not be permitted to defeat his own solemn written contract by saying that it was given solely for a fraudulent and deceitful use." 124Mont. at 350. Lamey was allowed to testify as follows: "Q. Your testimony is that you were both aware of those 49 cows not alive? A. Yes. "Q. What was the reason for that?

"A. Well, it was justmainly to boost John's borrowing power. "Q. Was that specificallydiscussed at that time? A. Well, that is the only reason he could have wanted them for." In otherwords, Lamey was allowed to testify that his

own bill of salewas a sham. Under Higby this testimony is notadmissibleunder the fraud exception. Itwas error for this testimony to be admitted. There is another reasonwhy the defendantmay not rely upon the fraud exception to the parol evidence rule. Under Rule 9(b), M.R.Civ.P. the circumstances constituting fraudmust be stated withparticularity. The elements of fraud under Montana law are: 

### " 

# . .. (1)a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignoranceof its truth; (5)the intent that it should be acted upon in the manner contemplated; (6)the hearer's ignoranceof its falsity; (7)the hearer's reliance upon its truth; (8) the right of the hearer to rely thereon; and (9) the hearer's consequent and proximate injury or damage." Hutton v. Ming (1970), 155Mont. 149, 153, 469 P.2d 688. In the present case, the defendant's answer in one instance makes a bald assertion of fraud. In another instance itmerely states the fact that the recitation of the 49 additional cattle

on the bill of salewas at Kinjerski's request and that the institution of this action constitutes fraud. Nowhere in the answer

or counterclaimdoes it appear that Lamey was ignorant of the fact that 49 of the cowswere dead or that he relied upon the truth of any of Kinjerski's representations. The defense of fraudwas not properly pleaded and itmay not be used as a defense or an exception to the parol evidence rule under the facts of this case. Respondents next allege that Lamey's testimony that he did not receive the $24,000was admissible under the failure of consideration exception to the parol evidence rule. "It is frequently held that a want or failure of consideration,either whole or in part,may be shown by parol, and that this is true at least as between the original parties to the instrument in question." 32A C.J.S. Evidence S948. This exception, however, must be limited in its application. The rule in Montana was stated in Warner v. Johns (1949),122Mont. 283, 201 P.2d 986: "Therule with a long line of supporting authorities is stated in 32 C.J.S., Evidence, sec. 958, page 889,as follows: 'Wherethe statement in a written instrument as to the consideration ismore than a mere statementof fact or acknowledgement of payment of a money consideration,and is of a contractualnature, as where the consideration consists of a specific and direct promise by one of the parties to do certain things, thispart of the contract can nomore be changed ormodified by parol or extrinsic evidence than any other part, for a party has the right to make the consideration of his agreement of the essence of the contract,and when this isdone the provision as to the consideration for the contract must stand on the sameplane as the other provisions of the contractwith reference to conclusivenessand immunity from attack by par01 or extrinsic evidence

# .. .1 11 122Mont. at 288-289. The recitation as to the $24,000 in the bill of sale in the instant case is more than the acknowledgementof payment of money consideration. It constitutes the central element of the contract. That is, 131 cattle for $59,000; $24,000having been paid. Lamey's testimony that he did not receive the $24,000 varied the written terms of the contract. Lamey is not attempting to compel payment of the $24,000. He is seeking to escape the legal effect of the bill of sale. The testimony is inadmissible for thispurpose. 32A C.J.S. Evidence, S956. Defendants contend that the verdict as to the issue of cattle ownership is sustained by substantial credible evidence

even if theparol evidence is disregarded. They contend that even if it were error to admit such evidence, that it was harmless

error. Lamey testified that 49 dead cowswere added to the bill of sale in order to induce the bank to loanmore money to Kinjerski. Lamey also testified that he did not receive the $24,000. Both of these items of testimony were inadmissible under the parol evidence rule. The jury found that Kinjerskiwas not entitled to 49 of the 80 cows listed on the bill of sale. From our review of the record we find that the jury could not have reached thisconclusionwithout relying on the wrongfully admitted evidence. Because this evidencewas admitted, theplaintiff's rightswere substantially affected. When such is the case, it cannotbe said that this isharmless error. Ehni v. N.P. and White Pine Co. (1969), 152Mont. 373, 381, 450 P.2d 882. Finally, respondents contend that the verdict against them for $22,000 based on Lamey's guarantee to Kinjerski was not supported by substantial credible evidence. This written guarantee stipulated that Lamey did not owe the $22,000 to Kinjerski until theproperty was sold. There is no evidence that the property was sold. The general rule is that a bill payable on condition does notmature until theperformance of the condition. Where the time fixed,however, is for the convenience of the parties and the future event does not happen as contemplated the law implies a promise topay in a reasonable time. 10 C.J.S. Bilkand Notes, S245(d). In the instant case the $22,000was to be repaid from theproceeds of the sale of theproperty. It is apparent that thisprovision was for the convenience of the parties. That is, the $22,000would not be available until that time. Consequently, the reasonable time standard would apply. Obviously the jurymust have found that a reasonable time had elapsed. They found for plaintiffs on this issue. The instrument itself provided substantial credible evidenee that themoney was owed to plaintiff. This supports the jury's verdict. The verdict as to the $22,000owed by Lamey to Kinjerski is affirmed. As to the issue of the ownership of the 49 cows,
cause reversed and appellants awarded a new trial.

Chief Justice