No. 84-495 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

JOHN FORSYTHE and BETH TINNEY, 

Plaintiffs and Appellants, 

DAIiI ELKINS , DIANE ELKINS, CLARENCE 

HENDON, an d MICHAEL HENDON, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Ravalli, 

The Honorable James B. Wheelis, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Sol & Wolfe, Missoula, Montana 

For Respondents : 

Persson & Weber, Hamilton, Montana 

Submitted on Briefs: Feb. 14, 1985 

Decided: May 13, 1985 

ljrk Filed: <"4S3 

Clerk 
Nr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Appeal by John Forsythe and Beth Tinney 

(Forsythe-Tinney) from an order and judgment of the District 

Court, Fourth Judicial District, Ravalli County, denying 

Forsythe-Tinney rescission of an agreement to purchase an 

interest in real property, and further denying their petition 

to quiet title in them as owners of an equitable interest in 

certain real property in Ravalli County and from that portion 

of the judgment determining money damages between the 

parties. 

Dan Elkins cross-appeals from the judgment of the 

District Court, awarding to Forsythe-Tinney punitive damages 

in the sum of $1,000 and attorney fees. 

On September 8, 1980, Dan Elkins and Diane Elkins, 

husband and wife (Elkins), entered into a written contract 

for deed with Gerald Raley and Debra L. Raley, of Victor, 

Montana, for the purchase by Elkins from Raley of certain 

real estate located in R.avalli County, Montana, for a total 

purchase price of $53,000. The purchase price was to be paid 

in installments, $1-4,000 on the execution of the contract, 

$11,900 due September 5, 1982, with interest at 10 percent 

per annum, and $27,100 at the rate of $250 per month until 

the purchase price and accrued interest was fully paid but in 

any event the entire balance to be paid in full on January 

20, 1989. 

Prior to the execution of the written contract with 

Raleys, El-kins had entered into an oral contract with 

Forsythe-Tinney respecting the purchase. Under their oral 

agreement, the written contract for the purchase of the real 
estate would be executed in the names of Elkins as the 

purchasers. Elkins would make the first payment of $14,000 

and the second payment of $11,900 plus interest due on 

September 5, 1982. Forsythe-Tinney would make the monthly 

payments of $250, and the final payment due on January 20, 

1989. When Forsythe-Tinney had paid one-half of the purchase 

price, their names would be entered on the records of Ravalli 

County as co-purchasers of the Raley property. Both 

Forsythe-Tinney and Elkins would have the right to occupy 

trailer residences on the premises. 

In November 1981, the son-in-law and daughter of the 

Elkins, Clarence Hendon and Michael Lou Hendon (Hendon) moved 

a trailer home onto the real property that was being 

purchased. Their residency on the property was apparently 

with the consent of all the parties. 

When the payment of September 5, 1-982 came due, Elkins 

were unable to make the payment. With accrued interest, the 

needed sum was approximately $15,000. Some conversation had 

occurred between Elkins and Forsythe-Tinney as to whether 

Forsythe-Tinney would contribute one-half of the $15,000 

payment. Forsythe-Tinney approached a Ravalli County bank 

and apparently obtained authorization for a $7,500 loan, but 

the loan was never completed. It appears that at the same 

time, the Hendons were going to contribute the other $7,500, 

but the condition of the bank in lending the money to 

Forsythe-Tinney was that Forsythe-Tinney's name would have to 

be placed on record as a contract purchaser; apparently no 

offer was made by Forsythe-Tinney to place the Hendon name on 

the record as a contract purchaser. Nothing came of that 

possible arrangement. 
It developed therefore that Hend-ons made the 

approximately $15,000 payment due in September 1982. They 

made the payment after receiving from Elkins a written 

assignment for contract for deed from Elkins to Hendons 

covering all of Elkins' record interest in the contract of 

purchase with the Raleys. However, in making the written 

assignment to Hendons, Elkins reserved a life estate to 

themselves and to the survivor of them. There is no record 

of consent by Forsythe-Tinney to the assignment by Elkins to 

Hendons, nor to the reservation by Elkins of a life estate in 

themselves. 

In addition to recording the assignment of the contract 

interest, Elkins and Hendons sent copies of the assignment to 

the escrow holder under the Raley contract for deed and a 

warranty deed for delivery by the escrow holder to Hendons 

when the Raley contract was fully paid. 

At the time of the writ-ten assignment by Elkins to 

Hendons, Forsythe-Tinney had made the monthly payments of 

$250 in due time, and in fact had prepaid those payments 

through November 1982. After the written assignment to 

Hendons, Forsythe-Tinney refused to make further payments 

under the contract for deed although they continued in 

possession of their residence trailer on the property. At 

the time of the refusal, Forsythe-Tinney requested Hendons to 

refund to Forsythe-Tinney all amounts they had previously 

paid on the contract. 

On February 8, 1983, Hendons caused a notice of eviction 

to be served upon Forsythe-Tinney. The notice of eviction 

precipitated a complaint in District Court filed by 

Forsythe-Tinney against the Elkins and the Hendons in which 

Forsythe-Tinney prayed for judgment returning to them the 
$6,377 they had paid on the contract, for title to the 

property to be quieted to include their names as owners of 

record, for exemplary damages from the defendant, and for 

other relief not important here. 

After the complaint was filed and while the litigation 

was pending, Forsythe-Tinney determined that El-kins 

mistakenly had cut off the water from the well to the 

Forsythe-Tinney trailer. In November 1983, Elkins did 

disconnect the sewer septic system servicing the 

Forsythe-Tinney trailer. 

The District Court in its judgment in the case 

determined that Forsythe-Tinney were not entitled to 

rescission of their agreement with Elkins because they had 

not tendered their return of the claimed interest in the real 

property and had remained in occupancy on the property; that 

they were not entitled to specific performance because they 

did not offer to pay one-half of the amounts owed by Elkins 

on the Raley contract; that the assignment by Elkins to 

Hendons was not a fraudulent conveyance; that no false 

statements were made to Forsythe-Tinney by any of the 

defendants; that Forsythe-Tinney were not entitled to recover 

any damages on the theory of unjust enrichment; that 

Forsythe-Tinney owed Elkins $945.96; that the equity of 

Forsythe-Tinney in the contract of purchase should be equal 

to the amount of principal paid by the plaintiffs and not the 

interest paid thereon and the value of any improvements 

placed on the real property by the plaintiffs; and that the 

defendants be entitled to set off against those damages a 

reasonable rental for plaintiffs' use of the property from 

the inception of the oral agreement in the amount of $6,377. 

The District Court also found that Forsythe-Tinney were 
entitled to recover $1,000 punitive damages, and attorney 

fees (claimed to be $4,900) from Dan Elkins. 

Forsythe-Tinney has appealed from the judgment of the 

District Court as aforesaid, and Dan Elkins has 

cross-appealed from the award of punitive damages and 

attorney fees. 

Forsythe-Tinney raise issues that the District Court ' s 

findings of fact contradict the evidence, that plaintiffs 

should have been awarded rescission of their contract with 

Elkins, that the court should have imposed a constructive or 

resulting trust on the defendant Elkins and upon the 

defendant Hendons, and that the court erred in offsetting a 

rental value against the plaintiffs' payments. Dan Elkins 

argues that the District Court should. not have awarded 

punitive damages against him and the award of attorney fees 

against him was in error. 

The District Court accepted the proposed findings of 

fact submitted by Elkins and Hendons nearly in toto, which 

accounts for the curious result that in effect the District 

Court's findings deemed Forsythe-Tinney the breaching party 

in this case. 

At the time of the assignment by Elkins to Hendons, 

Forsythe-Tinney had fully performed their obligations under 

their contract with Elkins. They were not in default. In 

fact they had prepaid the monthly payments to November 1982. 

Nothing in the oral agreement between Forsythe-Tinney on 

the one hand, and Elkins on the other, precluded either party 

from assigning his interest under the oral agreement. If a 

contract contains a provision for non-assignment by any of 

the parties, an assignment against such non-assignability 

clause precludes the establishment of privity between an 
alleged assignee and the other party. Rother-Gallagher v. 

Montana Power Company (1974), 164 Mont. 360, 522 P.2d 1226. 

However, in the absence of a non-assignable clause, either 

party may generally make an assignment of rights under the 

contract. In Re Seiffert (D.C. Mont. 1926), 18 F.2d 444. 

In the ordinary course, an assignment by a purchaser of 

his interest in the contract for deed to an assignee who 

assumes the obligations of the contract has the effect of 

placing the assignee in the shoes of the assignor and making 

him liable for claims arising out of the contract. 

Massey-Ferguson Credit Corporation v. Brown (1977), 173 Mont. 

253, 567 P.2d 440. At the least, upon the assignment here, 

Hendons became primarily liable for the discharge of the 

obligations under the Raley contract, and his assignor, 

Elkins, became secondarily liable. Kintner v. Harr (1965) , 

146 Mont. 461, 408 P.2d 487. Moreover, since Hendons took 

the assignment of the Raley contract with notice of the oral 

agreement between Elkins and Forsythe-Tinney, Hendons took 

the assignment subject to whatever rights in the property 

Forsythe-Tinney may then have had by virtue of the oral 

agreement with Elkins. 

Thus if this were an ordinary assignment, Hendons would 

stand in the shoes of Elkins, and if Forsythe-Tinney 

continued to perform their obligations under the oral 

agreement, Hendons would have the duty to add the names of 

Forsythe-Tinney to the record title of the property when 

Forsythe-Tinney had paid one-half or more of the purchase 

price under the Raley contract. In other words, after the 

assignment, if it were in the usual course, when the Raley 

contract and the oral contract were fully performed, 
Forsythe-Tinney and Hendons would each be tenants in common 

of undivided shares in the real property purchased. 

However, Elkins did not make an assignment to Hend.ons in 

the usual course. Elkins reserved to themselves life estates 

in the property subject to the assignment. By so doing, 

Elkins made it impossible for Hend.ons, as assignee, to 

deliver the quality of title to Forsythe-Tinney that had been 

bargained for in the oral agreement. If Forsythe-Tinney 

continued to perform the oral agreement, under the state of 

t.he record title, Hendons would be a-ble to make 

Forsythe-Tinney tenants in common on the property purchased, 

but it would be subject to life estates. Unless 

Forsythe-Tinney consented, and there is no showing of consent 

here, it was impossible for Hendons, after the assignment, to 

deliver the same quality of title to the real property to 

Forsythe-Tinney if they had performed their portion of the 

oral contract after the assignment. At the point of the 

assignment under the circumstances of this case therefore, 

Elkins had breached the oral agreement by putting it out of 

his power, and out of Hendons' power, to deliver the kind of 

title that Forsythe-Tinney had agreed to purchase. 

It is true that one may agree as vendor to sell. property 

to another as vendee when the vendor does not in fact have 

the title in hand that he agrees to convey to the vendee. 

The rule is not iron-clad, however, and where during the time 

that the contract is executory, the vendor puts it out of his 

power to deliver the title which he contracted to sell, there 

is no reason why the vendee may not resort to his remedy of 

rescission. 

". . . On the other hand, while a vendee may not 

complain of defects or encumbrances which are 

within the power of the vendor in due time to 
remove, he should not be expected to proceed with 

the contract where the fact develops that there are 

defects or encumbrances, the removal of which rests 

on mere hope and conjecture, as where, in the 

acquisition of title, the vendor must necessarj-ly 

be wholly dependent on the will and volition of a 

third party. " -- Vendor - and Purchaser 241, 77 

Am.Jur.2d 414. 

In this case, Hendons ability, upon complete performance 

by Forsythe-Tinney, to convey the nature and quality of title 

that had been agreed to be conveyed in the oral agreement was 

outside of Hendons' power because of the life estates in 

third parties to the oral agreement (though the third parties 

were original parties before the assignment clouded. the title 

to be conveyed). In those circumstances, Forsythe-Tinney had 

a right to rescission. 

The assignment by Elkins reserving a life estate to 

themselves constituted a material alteration of the oral 

agreement to which Forsythe-Tinney had not consented. See 

~ipinski v. Title Ins. Co. (Mont. 1982), 655 P.2d 970, 39 

St.Rep. 2283. The legal effect of the alteration of a 

contract is to extinguish the right of the defaulting party 

to require all the executory obligations of the contract as 

against the party who does not consent and the party altering 

the contract cannot maintain an action on the contract in 

either its original or altered form; while the nonconsenting 

party loses no right and is not required to rescind or 

repudiate the contract as it actually is made. Smith v. 

Barnes (1915), 51 Mont. 202, 149 P. 963. However, 

Forsythe-Tinney in this case, by filing an action to recover 

the amounts which they had paid on the oral- contract in 

effect asked for rescission of the contract. 

In this case, Forsythe-Tinney had paid $6,377 under the 

oral agreement. The District Court determined that it would 
allow Forsythe-Tinney credit only for the equity that the 

payments had purchased, and without credit for interest that 

Forsythe-Tinney had paid in performance. This was an 

improper limitation on the damages sustained by 

Forsythe-Tinney. If we regard the breach of Elkins and 

Hendons to be one of contract, the measure of damages is the 

amount which will compensate the party aggrieved for all the 

detriment that was proximately caused thereby. Section 

27-1-311, MCA. If we regard. the situation as a breach of an 

a-greement to convey an estate of real property, the damages 

are considered to be the price paid and expenses incurred in 

connection with the contract. Section 27-1-314, MCA. In 

this case, the payments made by Forsythe-Tinney relieved to 

that extent, including interest, any payments that were 

required to be made under the Raley contract by Elkins. On 

breach or rescission, Forsythe-Tinney should be able to 

recover the monies they had paid on the contract with 

interest thereon from the date of the breach, 5 27-1-314, 

MCA . 

Further with respect to damages, the District Court 

allowed an offset against Forsythe-Tinney's interest based on 

the reasonable value of their occupation of the real property 

from the commencement of the oral agreement. However, the 

possession by Forsythe-Tinney was pursuant to the oral 

agreement between them and Elkins that each would have the 

right to occupy the property. On rescission, however, 

Forsythe-Tinney lost the right to occupy the property, and 

Elkins and Hendons would be entitled to an offset for the 

reasonable rental value of the property occupied by 

Forsythe-Tinney from and after the date of service of the 

notice to quit served upon them, on February 8, 1982. 
Although the object of S 28-2-1-716, MCA, requiring one 

rescinding a contract to make compensation or restoration, is 

to place the other party in status quo, absolute and literal 

restoration is not required, it being sufficient if 

restoration is such as is reasonably possible or as may be 

demanded by the equities of the case. O'Keefe v. Routledge 

(1940) , 110 Mont. 138, 103 P. 2d 307. It is not always true 

that a plaintiff remaining in possession waives his right to 

rescission. Rinio v. Kester (19351, 99 Mont. 1, 41 P.2d 405. 

Under the equities of this case, it is not necessary that 

Forsythe-Tinney be charged with the rental value of the 

property from the first date of their occupation to the time 

when the notice to quit was served upon them. 

The additional issue raised by Forsythe-Tinney that the 

District Court should have awarded more money on debts owed 

to them is foreclosed by Rule 52 (a) , that such find-ings must 

be clearly erroneous. 

With respect to the cross-appeal by Elkins, the finding 

and conclusion of the District Court that Forsythe-Tinney 

were entitled to exemplary damages in the sum of $1,000 for 

the wrongful cutting off of the sewer services is founded on 

evidence in the record and may not be set aside by us unless 

clearly erroneous. Rule 52 (a) , M.R.Civ.P. We do not find 

the court to be in error on this point. Punitive damages may 

be awarded without a finding of actual damages. Lipinski, 

supra. With respect to the award of attorney fees to 

Forsythe-Tinney, there exists no agreement between the 

parties for the payment of attorney fees. The measure and 

mode of compensation of attorneys is left to the agreement, 

express or implied, of the parties. Section 25-10-301, MCA. 
No legal reason appears for the award of attorney fees to 

Forsythe-Tinney in this case. 

Accordingly, this cause is remanded to the District 

Court with instructions to enter judgment thereon in favor of 

Forsythe-Tinney and against Elkins and Hendons in the sum of 

$6,377, with interest at the legal rate from and after 

February 8, 1982; that the court find and ascertain a 

reasonable rental value as an offset against said amounts 

owing to Forsythe-Tinney for the occupation of the premises 

from and after February 8, 1982; that the award of $1,000 in 

punitive damages to Forsythe-Tinney be affirmed, and the 

award of attorney fees to Forsythe-Tinney from Dan Elkins be 

reversed and vacated. Costs of appeal to Forsythe-Tinney. 

\ 

Justice 

We Concur: