No. 14931. IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

FIRST TRUST COMPANY OF MONTANA, Personal Representative of the Estate of Jack W.Sisson, Decedent, Plaintiff and Appellant,

VS. LYLE McKENNA, Defendant and Respondent and Cross-Appellant.

Appeal from: District Court of the Tenth Judicial District, Honorable LeRoy L. McKinnon, Judge presiding. In and For the County of Judith Basin Counsel of Record: For Appellant: Swanberg,Koby, Swanberg and Matteucci, Great Falls,

Montana 

# F a Swanberg argued, Great Falls,Montana ORHAM

### E For Respondent:

Robert J. Emrnons argued, Great Falls,Montana Leonard McKinney, Lewistown,Montana

Submitted: March 28, 1980 Decided: 

### JUN

## 171980 Filed: 

# $mi! 7Mr. Chief Justice Frank I. Haswell delivered the Opinion of the Court. In an actionby the sellersof a farm to recover a real estatecommission and treble damages, the DistrictCourt granted summary judgment infavor of the real estatebroker and dismissed the broker's counterclaim formalicious prosecution. Both parties appeal from the respective judgments against them. In 1970 Jack Sisson and his brother Mark owned a ranch inJudithBasin County, Montana. The ranch consisted of about 8,400 acres of deeded land and about 6,320 acres of leased land together with livestock, machinery and improvements. The defendant was atall

### timespertinent to this

case a licensed real estate broker. InOctober 1969, the Sissons executed a real estate broker's contract authorizing the defendant to sell the Sissons' real property for $800,000. The defendant was unable tocomplete a sale and the contract expired on May 1, 1970. The Sissons thereafter had the ranch listedwith two ormore other real estate brokers, but no salewas consummated atthat time. On about December 6, 1972, the Sissons again sought defendant's services in selling the ranch. Defendant sought another broker's contract butwasunsuccessful. Hedid, however, begin looking for a purchaser and determined that

an area rancher, BillSkelton, was interested inpurchasing the real property only for $700,000. Without informing the Sissons of Skelton's interest inthe land, the defendant attempted topersuade the Sissons to separate the livestock and machinery from the real estate for separate sale. The Sissons declined because they wanted a single sale. On or about December 14, Floyd Hicks, a cattlebuyer, expressed an interest tothe defendant inpurchasing the

### cattle and machinery. Bill Skeltonwas apparently still interested in 

### buying just the land at this time for $700,000. Defendant then approached the Sissons and apparently left them with the impression that Hicks wanted to buy the entire ranching operation for $900,000. The reason defendant did not tell the Sissons that Hicks was only interested in the cattle and machinery and that Skeltonwas to put up the money for the land was given in the following testimony of defendant broker: "Q. Did they knowwho the buyer was? A. No. 

### "Q. Was there a reasonwhy you did not tell them who the buyer was? A. Yes. 

### "Q. What was the reason? A. Well, Jack Sisson had fights with all his neighbors. When Ihad the place sold to Sanmeyer, he refused to go because he didn't like Sanmeyer. Iknew the same thing would happen if I told him who the buyer was, so 

### Ididn't tell him the buyer. The buyer was a very good buyer, substantialmoney, good backing, but for personal reasons,Jack wouldn't have sold,probably--that ismy surmise." On December 18, the Sissons told defendant that they would sell to Hicks for $900,000. Defendantand Hicks went to the Sisson ranch, and a purchase agreement was drawn up but not signed. Defendantand Hicks then went to Skelton's ranch and discovered that Bill Skeltonwas beginning to change his mind aboutbuying the entire Sisson ranch. The Sissons, in the meantime, discussed the proposed sale with their accountant, who suggested that the sale price be allocated $675,000 for the land and $225,000 for the personalproperty. The Sissons contacted the defendant and a
new purchase agreementwas prepared on December 20 pursuant to the accountant's advice. Hicks was not present at this meeting, but he had given defendant $20,000 earnest money for a deposit on the property. The Sissons signed the agreement at this time.

### On December 21 defendant again visited the Sissons. By this time defendant knew that Bill Skeltonwas no longer interested inpurchasing all of the Sisson land. During the visit, the defendant informed the Sissons that Hicks could not handle the deal alone and that defendantwould have to go inwith Hicks. Defendantalso informed the Sissons, during this visit, that he wanted five separatedeeds so that the ranch could be resold in parcels. On December 29, the Sissons, Hicks, and defendantmet; the buy and sell contractwas signed; and the earnestmoney was paid. The District Court found that throughout the time defendant was attempting to sell the ranch, he was in contact with several neighbors and that some of these neighbors

were interested in buying parcels of the ranch. The District Court also found that defendant had notmade any deals to resell the parcels until after the closing date on December 29, 1972. Within eleven days from the date when the defendantand Hicks bought the ranch, the land was resold in parcels for $800,000. The cattle,hay and equipment were eventually resold for $279,657.39. This resulted in a $179,657.39 profit for defendant and Hicks. In addition, defendant earned a commission on the sale of $45,000. The amended complaint alleges that defendant breached his fiduciaryduty by failing to disclose to the Sissons the fact that he had been conducting negotiations to resell the parcels and that defendant had violated certain statutes governing the conduct of real estate brokers. ~efendant's answer, among other things, included a counterclaim for malicious prosecution. During the pendency of the actions, Jack Sisson died and the First Trust Company of Montana, the

### personal representative of his estate,was substituted as plaintiff in the action. Both partiesmoved for summary judgment. The District Court issued findingsof fact, conclusions of law, and judgment denying plaintiff a summary judgment and granting defendant a summary judgment. Additionally, the District Court granted plaintiff's motion for dismissal of defendant's counterclaim. Plaintiff appeals from the summary judgment against it, and defendant cross-appeals from dismissal of his counterclaim. The plaintiff has listed several issues which may be summarized as follows: 1. Did the District Court err in granting summary judgment in favor of the defendant? 2. 

### Did the District Court err in dismissing the malicious prosecution counterclaim for failing to state 

### a cause of action? Rule 56(c), M.R.Civ.P., provides that summary judgment shall be rendered if there is no genuine issue as to any material fact and the moving party is entitled to judgment

as a matter of law. In the present case the DistrictCourt granted defendant's motion for summary judgmentbecause the court concluded there was no issue of material fact as to the breach of any duty by the defendant. In this connection, the DistrictCourt also concluded that defendanthad acted in good faith in his dealings with the Sissons. Obviously, the District Court felt that the duty a broker

owes to his principal is a duty of good faith and that defendant did not breach his duty. In the recent case of Lyle v. Moore (1979), 

### -Mont

# .

, 599 P.2d 336, 36 St.Rep. 1307, this Court had occasion

### to consider the duty of disclosure which a broker owed to his principal. That case involved a clause in a broker's agreementwhich said, among other things, that the broker

was entitled to a commission if the defendants withdrew the broker's authority to sell before a certain date. The defendants withdrew the authority before that date and the plaintiff sued for his commission. The defendants claimed they did not understand the terms of the contract. The District Court held that this did not excuse the defendants and gave judgment for plaintiff.. This Court reversed, finding that the plaintiff had failed in his duty to explain the provision granting the broker his commission if the defendants withdrew his authority prior to a specified date. This Court said, 

### " [i]nCarnell v. Watson (1978), [176Mont. 3441 578 P.2d 308, 312, 35 St-Rep.550, 555, we recognized a fiduciary relationship between a real estate broker and his client. This fiduciary relationship between a broker and his client has been found to encompass a 'dutyof full disclosure' by a number of courts." 599 P.2d at 337. We went on to say: 

# ".

.

# . there are times when the law imposes a duty upon a party to speak rather than remain silent and thereby to disclose information to place the person with whom he is dealing on an equal footingwith him. The failure to speak in such a case amounts to the suppression of a fact which should have been disclosed and constitutes fraud." 599 P.2d at 339. (Citationsomitted.) A 

### broker has a duty to act in good faith toward his client. Embodied within this duty is a 

### requirement to make full disclosure. This duty to disclose all pertinent facts becomes particularly important where the broker is himself buying the property. See Crowley v. Rorvig (1921), 61Mont.This principle 

### is set forthinComment A to Restatement of Law, Agency 2d, Section 390, inthe following language: 

# ".

..Before dealingwith the principal on his own account, however, an agenthas a duty, not only tomake no misstatements of fact, but also todisclose tothe principal allrelevant facts fully and completely 

# . .." 12Arn.Jur.2d Brokers S91 at844 states: "The general rule isthata broker can neither purchase from, nor sellto, hisprincipal unless the latterexpressly assents thereto or, with full knowledge of allthe factsand circumstances, acquiesces insuch transaction. Moreover, even though theprincipal gives his assent toa purchase or saleby thebroker, the latter's actions throughout must be characterized by theutmost good faith, In the eventof any litigationbetween him and his employer, theburden isupon him toprove both thepermission and the exemplarymanner inwhich he availed himself of it. The reason 

### is that it isinconsistent for one to a c t a sa principal inhisown behalf while 

### is duty bound toactas the agent of another, for inthe lattercapacity he isbound toexercise hisbest skilland labor and a high degree of fidelity and good faith to secure forhisprincipal the bestbargain possible, even though his own conflicting interests atthe same time impel him todo just the opposite and thereby gain themost advantageous terms forhimself." In thepresent case, defendant orally agreed tobuy the land on December 21, 1972. On December 29 thepapers were signed and a check was given tothe Sissons. Defendant testified thaton December 22 he offered the entireranch to Henry Wortheimer for $950,000. Wortheimer later declined the offer. Defendant did not inform the Sissons that this offerwas outstanding, He testified: "Q. Why didyou not tell them? A. Well, we made a deal tobuy on the 20th, as far as I was concerned, and itwas sold on the 20th. Itwasnow my obligation to try topick up the pieces. I was ina position I had todeal formyself." Defendant also testified thathe had contacted Ray Hill

on December 23 and Hillhad indicated an interest inpurchasing a parcel of the ranch; thathe had contacted BillSkelton on December 20th and Skelton indicated an interest inpurchasing a portion of the ranch; that he contacted Eloise Reed on about December 27 and she was not interested. On December 27, BillSkelton gave defendant a purchase agreement fora portion of the ranch. Defendant did not inform the Sissonsof these facts. In addition, defendant told the Sissons thatHicks was going tobuy the ranch for $900,000 when in truth Hicks merely wanted tobuy the cattle, hay, and machinery for $200,000 and the land was tobe sold for $700,000 toBill Skelton. Defendant did not tell Jack Sisson that Skelton

was a potential buyer because he was afraid thatJack Sisson would not agree tothe sale if he knew that Skelton was involved. Defendant argues that he had no duty todisclose after December 21 because thatwas the day when the agency relationship came toan end. He argues that the agency relationship ends when a broker earns the commission and the commission isearned when the broker produces a ready, willing and ablebuyer for the property. Therefore, according todefendant, he no longer had a duty todisclose after he produced himself and Hicks asready, willing and able buyers on December 21. Defendant iscorrect inone respect. Montana cases have repeatedly stated that a broker 

### isentitled tohis commission when he produces a ready, willing, and able buyer. InDiehl & Associates, Inc. v. Houtchens (1977). 173 Mont. 372, 567 P.2d 930, thisCourt said: "Itisa generally accepted law that a real estate broker isentitled tocommissions when he has, inpursuance of hisemployment and within the time specifiedinthe contract of employment, procured a purchaser able, ready

### and willing to purchase the seller'sproperty on the terms and conditions specified in the contractof employment. Roscow v. Bara, 114 Mont. 246, 135 P.2d 364; 12Am.Jur.2d 921, Brokers S182. When the broker procures a buyer who makes a counteroffer or agrees to terms at variance to the terms specified in the employment contract, the seller has the option of accepting or rejecting the counteroffer. If the seller accepts the counteroffer of the procured buyer, the seller is legally obligated to pay commissions to the broker, either under the terms of the contractof employment or the mutually agreed terms of a contract for sale. "The broker's ability to recover commissions ispremised on the broker's ability to accomplish what he undertook to do in his contract of employment

# ...

"We note the distinctionbetween a brokerage contract which requires a broker to merely find a purchaser and a brokerage contract which requires a broker to sell,make or effect a sale. In the first case the broker earns his commission when he procures a buyer able, ready and willing to purchase on the seller's terms. A broker employed to sell or effect a sale does not earn his commission until he completes the sale. Completion of the sale,where real property is involved, amounts to payment of the purchase price and conveyance of title. O'Neill v. Wall, 103 Mont. 388, 62P.2d 672." 567 P.2d at 933-35. See also Hollinger v. McMichael (1978), 

### -Mont. 

### , 580 P.2d 927, 35 

### St.Rep. 856,and Apple v. Henry (1923), 66 Mont. 244, 213 P. 444. Itmust be noted, however, that in each of the abovecited cases, the issuewas whether the broker was entitled to a commission,notwhether the broker had a duty to disclose relevant facts to the principal, and in none of the

caseswas the broker the prospective buyer. A close reading of these cases reveals that the rule of law set forth therein is to protect a broker who has produced an eligible buyer. These cases do not stand for the proposition that a broker is released from a duty to disclose as soon as he proposes to buy the land for himself.Heredefendantwasnot legallybound tobuy the property

on December 21, 1972, the date that defendant and Hicks orally offered tobuy the property for $900,000 and the iss sons orally accepted the offer. Defendant was not legally bound tobuy the land until December 29 when the written contracts were signed. He could have backed out atany time. Itwas during this timethat the defendantmade several contacts concerning the property and did not tell the Sissons about the contacts. Research has not revealed a Montana case which is directly on point. We note, however, the case of Irby v. Lee (0kla.App. 1973), 512 P.2d 253, which presented a similar fact situation. In Irby the defendantwas a broker who had been trying to sell the plaintiff's land. On April 14, 1969, the broker told the plaintiff that he, the broker, would buy a portion of the land. On April 30, 1969, the broker entered intoa contractwith a thirdparty to sell theportion of land that the broker had bought. This was not disclosed to the plaintiff seller. In May the plaintiff received money for the land and conveyed the land to the broker. The courtwas presented with the issue of whether a fiduciary relationship still existed on April 30, the day the broker contracted to sell toa third party. The court held that the fiduciary relationship did not expire until May, when the broker paid the plaintiff for the property. The reasoning used by the courtwas that the broker was not legallybound tobuy the property until May and he was, therefore, still under a duty to disclose on ~pril 30. We follow the same rationale and hold thatdefendant had a duty of fulldisclosureuntil he was legally bound to buy the property on December 29, 1972. his holding corn-ports with the high standards applicable tobrokers buying property from a principal. However, thisdoes not automatically entitleplaintiff to summary judgment. The case presents genuine issues of material factas differentinferences can be drawn from the facts as towhether the defendant breached hisduty. Consequently, the summary judgment indefendant's favor isvacated and the case isremanded to theDistrictCourt for trial. Plaintiff has alleged that the DistrictCourt erred in not finding thatdefendant violated certain sectionsof Montana's Real EstateLicense Act. Atthe timethis action arose, the pertinent statutewas found atsection 66-1937, R.C.M. 1947, and has sincebeen amended. Those amendments, however, do not change our disposition of the case. In particular plaintiff cites section 37-51-321, MCA, which provides inpertinentpart: "Revocation or suspension - of license--initiation of -proceedin~--grounds. The board may on its own motion and shallon the sworn complaint in writing of a person investigate the actions of a real estate broker or a real estate salesman, subject to 37-1-101 and 37-1-102, and may revoke or suspend a license issued under this chapter when the broker or salesman has been found guiltyby a majority of the board of any of the following practices:

"(3)pursuing a continued and flagrantcourse of misrepresentation ormaking falsepromises through agents or salesmen or any medium of advertising or otherwise;

"(9) offering real property for sale or lease without the knowledge and consent of the owner or his authorized agent or on terms other than those authorized by the owner or his authorized agent;

"(19)demonstrating hisunworthiness or incompetency to act as a broker or salesman 

# .

# . .I'

### The District Courtmade no findings concerning these statutory provisions. Because there is conflicting evidence which presents a genuine issue of material fact, this issue

can be determined at the trial. Defendant has appealed from dismissal of his counterclaim. The counterclaim is based on an allegation of maliciousprosecution. The trial court dismissed this counterclaim for failing to state a cause of action. In actions for malicious prosecution the party bringing the action must prove that there has been a termination of proceedings. This rule has been stated as follows: 

# ".

. . On the other hand, an action for malicious prosecution may not be asserted by way of cross-complaintor counterclaim in the original proceeding,prior to its termination, since 

### - it is essential that the originalproceeding - 

### -- shall 

### -- have been previously terminated 

### - in favor of -- 

### the party bringing the malicious prosecution action. Hence a counterclaim purportinq

-- - 

### to set forth the cause of action in-maiicious prosecution is properly dismissed aspremature



# . .

# ." (Emphasisadded.) 52 Arn.Jur.2d Malicious Prosecution S14 at 195. In Bollinger v. Jarrett (1965), 146 Mont. 355, 406 P.2d 834, this Court said: "It is also contended that itwas error for the court to render summary judgment against appellant-buyer's counterclaim. The basis of the counterclaimwas that the sellers' action wrongfully injured the credit standing of the buyers. The only possible grounds for such a claim are libel and malicious prosecution, neither of which can be sustained here. There is no libel because any publication in a judicial proceeding isprivileged under R.C.M., 1947, 64-208. And malicious prosecution founded on a civil action is not the proper subject of 

### -- 

### --- a counterclaim since it requiresproof 

### -- of te& mination -- 

### of the f~rrne~~roceedin~~avor of the defendant therein. Baker v. ~i=an, 138 Cal.App.2d 510, 292 P.2d 595; 54 C.J.S. Malicious Prosecution §54,P. 1021." (Emphasisadded.) 406 P.2d at 837. For this reason the dismissal of defendant's counterclaimwas proper.Affirmed in part and reversed in part. The summary judgment in defendant's favor is vacated and the cause remanded to the District Court for trial.

Chief Justice

We concu 

# 3'

Justices

Mr. Justice John C. Sheehy: I dissent.

Justice