Title: MANAGEMENT INC v MASTERSONS IN
Citation: N/A
Docket Number: 80-062
State: Montana
Issuer: Montana Supreme Court
Date: September 8, 1980

N o . 80-62 I N T H E SUPREME C O U R T O F T H E STATE O F MONTANA 1980 M A N A G E M E N T , INC., P l a i n t i f f and Appellant, -vs- MASTERSONS, INC., and G I B MASTERSONS, J R . , RUTHERFORDS PJWSEMENT, INC., and FRED RUTHERFORD, R & R LEASING, e t a l . , Defendants and Respondents. Appeal from: D i s t r i c t Court of t h e Eighteenth J u d i c i a l D i s t r i c t . , I n and f o r t h e County of G a l l a t i n , The Honorable W. W. Lessley, Judge p r e s i d i n g . Counsel o f Record: For Appellant: Landoe, Brown, Planalp, Kommers & Lineberger, Bozeman, Montana For Respondents: DrysdaLe, McLean, Screnar & Cok, Bozeman, Montana Submitted on B r i e f s : August 1, 1980 Decided: &C{J"-~-'-"L < / 7 J 0 F i l e d : 5 5 ~ 8 - M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court . This i s an appeal from t h e judgment of t h e District Court of t h e Eighteenth J u d i c i a l D i s t r i c t , G a l l a t i n County, which found p l a i n t i f f breached a c o n t r a c t , committed f r a u d and damaged property. W e s h a l l consider t h r e e i s s u e s on t h i s appeal: 1. Whether t h e D i s t r i c t Court e r r e d i n f i n d i n g t h a t t h e September 21, 1978, buy-sell agreement was a novation of t h e May 1 2 , 1978, agreement. 2. Whether t h e District Court e r r e d i n f i n d i n g t h a t t h e September 21, 1978, buy-sell agreement f a i l e d because of t h e n o n f u l f i l l m e n t of a c o n d i t i o n precedent of obtaining financing f o r t h e purchase of r e a l property. 3 . Whether t h e D i s t r i c t Court e r r e d by n o t i n t e r p r e t i n g t h e s u b j e c t t o financing c l a u s e t o i n c l u d e reasonable t e r m s . P l a i n t i f f , Management, Inc., brought s u i t f o r damages a g a i n s t defendant Mastersons, Inc., and o t h e r s f o r breach of c o n t r a c t , i n t e r f e r e n c e with c o n t r a c t r i g h t s and fraud. Defendants responded with a d e n i a l of a l l a l l e g a t i o n s and counterclaimed f o r damages t o property, improper r e p a i r and fraud. T r i a l was conducted without a jury. A judgment was rendered i n favor of defendants on both t h e complaint and t h e counterclaim. P l a i n t i f f appeals from t h e judgment. Three land s a l e s c o n t r a c t s f o r a l o t i n West Yellow- s t o n e , Montana, a r e a t i s s u e i n t h i s appeal. A commercial o f f i c e s t r u c t u r e known a s t h e Scooter Building and a small r e n t a l cabin a r e on t h e property. The f i r s t c o n t r a c t be- tween p l a i n t i f f , a s buyer, and Yellowstone Amusement, I n c . , c o n s i s t i n g of defendant Mastersons, Inc., and defendant Rutherford Amusements, Inc., a s seller, was signed on May 12, 1978. Under t h e t e r m s of t h e c o n t r a c t , p l a i n t i f f agreed t o purchase the property f o r $65,000 p l u s 1 0 percent i n t e r - e s t , with t h e purchase p r i c e due August 12, 1978. Because of heavy snow t h e Scooter Building had been damaged, s o between May 1 2 and September 1 2 , 1978, p l a i n t i f f e f f e c t e d reconstruction and r e p a i r . Monty Neville, t h e p r i n c i p a l agent f o r p l a i n t i f f , t e s t i f i e d t h a t a t t h a t time he d i d n o t have t h e p r e s e n t a b i l i t y t o pay f o r t h e property, b u t he sought t o r e p a i r t h e building and r e s e l l o r l e a s e it. P l a i n t i f f was unable t o pay Yellowstone Amusements, . Inc., when t h e o b l i g a t i o n became due on August 1 2 , b u t Neville informed Gib Mastersons, agent f o r Yellowstone Amusement, Inc., t h a t he would g i v e him a check when he received t h e funds from Empire Federal Savings and Loan i n Livingston, Montana. Thereafter, Neville gave Mastersons a postdated check with d i r e c t i o n s t o hold it a few days before cashing it. Mastersons d i d so, b u t t h e check was returned f o r i n s u f f i c i e n t funds. I n t h e meantime, Neville had informed defendant Ray Carkeek t h a t the building was a v a i l a b l e f o r s a l e . H e a l s o informed Carkeek t h a t t h e building was appraised a t $211,000, t h a t t h e r e was a l e a s e on one-half of t h e building, t h a t Empire Savings and Loan would finance t h e t r a n s a c t i o n and t h a t t h e r e were only two claims a g a i n s t t h e property. A t some p o i n t within t h i s t i m e frame, Neville t o r e down a r e n t a l cabin on t h e property. The f a c t s a r e i n d i s p u t e a s t o whether o r n o t he had Mastersons' approval t o do t h i s . O n September 21, 1978, t h e second c o n t r a c t f o r t h e property was entered i n t o with Gib Mastersons and p l a i n t i f f , a s sellers, and defendants Carkeek, Robert Dye, Lewis Robinson, and Robert Russell, a s buyers, agreeing t o pur- chase t h e property f o r $125,000. The c o n t r a c t was s u b j e c t t o two typed provisions: f i r s t , t h a t t h e e n t i r e c o n t r a c t was s u b j e c t t o defendants being a b l e t o s u c c e s s f u l l y o b t a i n financing from ~ m p i r e Federal Savings and Loan, Livingston, Montana; and second, t h a t t h e s e l l e r s agreed t o hold buyers harmless a g a i n s t any and a l l claims a g a i n s t t h e property. The c o n t r a c t was t o be closed on November 1, 1978, with defendant Mastersons receiving $65,000. Defendant Dye proceeded i n t o negotiations with Empire and was refused financing. Defendants a l s o discovered t h a t Neville had n o t mentioned s e v e r a l o t h e r claims a g a i n s t t h e property. De- fendants attempted t o n o t i f y Neville of t h e f a i l u r e of t h e c o n t r a c t provision, b u t because Neville was on a hunting t r i p , they placed a letter i n h i s door which he found upon h i s r e t u r n on October 29. Defendant Robinson contacted defendant Mastersons and advised him of t h e buyers' i n t e n t i o n t o cancel t h e c o n t r a c t f o r f a i l u r e of a condition precedent. O n November 2, 1978, defendant Mastersons sold t h e property under a t h i r d c o n t r a c t t o t h e p a r t n e r s h i p of de- fendants Dye, Robinson and Russell, known a s Block ~ s s o c i a t e s . P l a i n t i f f took no p a r t i n t h e t h i r d c o n t r a c t . The D i s t r i c t Court found a novation of t h e f i r s t con- t r a c t and t h a t p l a i n t i f f had, i n f a c t , breached the second c o n t r a c t and was i n d e f a u l t of both c o n t r a c t s . P l a i n t i f f argues t h a t t h e novation d i d i n f a c t occur, b u t disagrees t h a t t h e f i r s t c o n t r a c t was s t i l l binding. P l a i n t i f f claimed t h a t defendant Gib Mastersons, a s agent f o r Yellowstone Amusement, Inc., consented t o a new debtor when he entered i n t o a buy-sell agreement on September 2 1 , 1978, with p l a i n t i f f , a s sellers. Carkeek, Dye, ~ o b i n s o n , and Russell were buyers. By t h a t agreement defendant Mastersons, a s agent f o r Yellowstone Amusement, Inc., was accepting t h e promise of Carkeek and t h e o t h e r s t o pay $125,000. P l a i n t i f f i n s i s t s t h a t by accepting t h a t promise from defendants, it was discharging h i s debt owed t o Yellowstone Amusement, Inc. I n o t h e r words, t h e o b l i g a t i o n s between t h e o r i g i n a l p a r t i e s a s found i n t h e May 1 2 , 1978, agreement w e r e extinguished and a new o b l i g a t i o n was c r e a t e d which i s t h e b a s i s of t h e nova t i o n . W e do n o t accept p l a i n t i f f ' s argument. W e f i n d no novation. The p a r t i e s entered i n t o a c o n t r a c t on May 12, 1978. The c o n t r a c t c a l l e d f o r a payment on t h e c o n t r a c t on August 12, 1978. P l a i n t i f f defaulted on September 21, 1978. Defendant Mastersons informed p l a i n t i f f of h i s d e f a u l t . P l a i n t i f f f u r t h e r attempts t o s a t i s f y t h e c o n t r a c t o b l i g a t i o n a l s o f a i l e d when he gave defendant Mastersons, a s agent f o r Yellowstone Amusement, Inc., a check which was returned marked " i n s u f f i c i e n t funds." The o r i g i n a l May 1 2 , 1978, c o n t r a c t s t a t e d i n p a r t : " I f t h e e n t i r e sum i s not paid then t h i s c o n t r a c t s h a l l be i n d e f a u l t . " A t t h e time, t h e c o n t r a c t was n o t paid and p l a i n t i f f was i n d e f a u l t . I n a f r a n t i c attempt t o forego t h e e f f e c t s of d e f a u l t of t h e c o n t r a c t , p l a i n t i f f attempted t o sell t h e property t o another party-- defendants Carkeek, Dye, Russell and Robinson, thereby claiming a novation and a discharge of t h e o r i g i n a l c o n t r a c t . "'Novation' i s t h e s u b s t i t u t i o n of a new o b l i g a t i o n f o r an e x i s t i n g one." Section 28-1-1501, MCA. "Novation i s made by t h e s u b s t i t u t i o n o f : (1) a new o b l i g a t i o n between t h e same p a r t i e s with i n t e n t t o extinguish t h e old obliga- t i o n . " Section 28-1-1502, MCA. " I n order t o e f f e c t a novation t h e r e must be a c l e a r and d e f i n i t e i n t e n t i o n on t h e p a r t of a l l concerned t h a t such i s t h e purpose of t h e agree- ment, f o r it i s a w e l l - s e t t l e d p r i n c i p l e t h a t novation i s never t o be presumed; t h e p o i n t i n every case, then, is, d i d t h e p a r t i e s intend by t h e i r arrangement t o extinguish t h e o l d debt o r o b l i g a t i o n and r e l y e n t i r e l y on t h e new, o r d i d they intend t o keep t h e o l d a l i v e and merely accept the new a s f u r t h e r s e c u r i t y , and t h i s question of i n t e n t i o n must be decided from a l l of t h e circumstances." Harrison v. Fregger (1930), 88 Mont. 448, 453, 294 P. 372, 373. W e f i n d no s u b s t i t u t e d c o n t r a c t . The new agreement i s n o t a s u b s t i t u t e d cont.ract operating a s an immediate discharge. W e f i n d t h i s by t h e reasonable i n t e r p r e t a t i o n of t h e i n t e n t of t h e p a r t i e s a s found i n t h e record. "There i s no discharge by novation when a cre- d i t o r mere1.y accepts a payment made by a t h i r d person o r a s s e n t s t o t h e assumption of t h e d e b t by such a t h i r d person. I f t h e t r a n s a c t i o n reasonably appeared t o him a s one t h a t would give him a d d i t i o n a l s e c u r i t y , and n o t a wholly new and s u b s t i t u t e d obligor, t h e r e is no a s s e n t by him t o such a s u b s t i t u t i o n and t h e r e i s no discharge by novation." Corbin on Contracts, S1298 a t 2 2 4 ( 1 9 6 2 ) . Defendant Mastersons was t h e o r i g i n a l obligee. P l a i n t i f f defaulted. The o r i g i n a l c o n t r a c t was breached f o r nonpayment. Defendant Mastersons simply wanted h i s money f o r t h e build- i n g and property. He d i d n o t want t o s u b s t i t u t e t h e c o n t r a c t with another person. P l a i n t i f f i s a r e a l e s t a t e broker. He attempted t o secure a d d i t i o n a l buyers f o r t h e property when he was i n d e f a u l t and induced defendant Mastersons by allowing p l a i n t i f f t o e n t e r t h e buy-sell agreement of September 21, 1978, a s a s e l l e r . However, i n t h e end, t h e buy-sell agree- ment f a i l e d t o e f f e c t u a t e a binding c o n t r a c t . There was no s u b s t i t u t e d c o n t r a c t . The D i s t r i c t Court found t h a t t h e condition precedent of obtaining financing f o r the property was n o t f u l f i l l e d , t h e r e f o r e rendering t h e second c o n t r a c t n u l l and void. The o r i g i n a l obligor was never discharged. F a i l u r e t o e f f e c t u a t e a second c o n t r a c t r e s u l t e d i n no c o n t r a c t . Without a second c o n t r a c t , t h e r e can be no nova- t i o n . P l a i n t i f f argues t h a t t h e D i s t r i c t Court e r r e d by finding t h a t the s u b j e c t t o financing c l a u s e was a condition precedent and without finding t h a t defendants had t o make reasonable e f f o r t t o secure financing, thereby, allowing t h e defendants t o g e t o u t of t h e September 21, 1978, c o n t r a c t . W e disagree. The buy-sell agreement s p e c i f i c a l l y s t a t e d t h a t " t h i s o f f e r is s u b j e c t t o financing a t Empire Federal Savings and Loan, Livingston, Mt." "A condition precedent i s a f a c t o r event which t h e p a r t i e s intend must e x i s t o r take place before t h e r e i s a r i g h t t o performance. A condition i s distinguished from a promise i n t h a t it c r e a t e s no r i g h t o r duty i n and of it- s e l f b u t is merely a l i m i t i n g o r modifying f a c t o r . I f t h e condition i s n o t f u l f i l l e d , t h e r i g h t t o enforce t h e c o n t r a c t does n o t come i n t o existence. " Williston, A T r e a t i s e on t h e 7 - Law of Contracts, 5663 a t 12673rd ed. 1961). -- "A condition precedent i s one which i s t o be performed before some r i g h t dependent thereon accrues o r some a c t dependent thereon i s per- formed." Section 28-1-403, MCA. Before any p a r t y t o an o b l i g a t i o n can r e q u i r e another p a r t y t o perform any a c t under it, he must f u l f i l l a l l conditions precedent t h e r e t o imposed upon himself and must be a b l e and o f f e r t o f u l f i l l a l l conditions concurrent so imposed upon him of t h e l i k e f u l f i l l m e n t by t h e o t h e r p a r t y except a s provided by s e c t i o n 28-1-407, MCA. The D i s t r i c t Court properly found t h a t t h e f a i l u r e t o o b t a i n the necessary financing f o r t h e purchase from Empire Federal Savings and Loan i n Livingston, Montana, rendered t h e c o n t r a c t of September 2 1 , 1978, a n u l l i t y . The pro- v i s i o n i s s p e c i f i c . Under t h e circumstances of t h i s case, t h e e f f o r t s of defendants t o obtain t h e financing were reasonable. P l a i n t i f f represented t o defendants t h a t i n f a c t he had a commitment f o r financing a t Empire Federal Savings and Loan. Testimony from t h e bank o f f i c e r i n d i c a t e d t h a t no commitment was made. Further, defendants went t o Livingston t o make a p p l i c a t i o n f o r t h e loan b u t were i n - formed by t h e loan o f f i c e r t h a t he would n o t make a loan i n West Yellowstone, Montana, t o anybody and t h a t it w a s f u t i l e a t t h a t p o i n t i n t i m e t o make an a p p l i c a t i o n f o r a loan. P l a i n t i f f had no money. P l a i n t i f f had no access t o money--he was purely speculating on t h e property, and he embarked on a highly speculative venture i n hope t h a t some lending i n s t i t u t i o n would g i v e him t h e money, o r i n hope t h a t he could somehow f i n d a buyer f o r h i s property. Plain- t i f f d i d n o t p u t one c e n t of h i s own money i n t o t h i s building. P l a i n t i f f attempted t o salvage a loosely-held f i n a n c i a l gamble by making r e p r e s e n t a t i o n s t o o t h e r s a s an inducement t o purchase t h e property. There was no loan. There was no commitment f o r a loan. There was no l e a s e nor a commitment f o r a l e a s e on t h e premises. In t h e end when t h e cards w e r e c a l l e d , p l a i n t i f f came up empty-handed. P l a i n t i f f was obligated t o make payment. He f a i l e d t o do so. H e attempted t o make another p a r t y l i a b l e f o r h i s nonpayment and, thereby, extinguish h i s o r i g i n a l obligations--this too f a i l e d . Although the D i s t r i c t Court e r r e d i n concluding t h a t a novation had occurred, w e f i n d s u b s t a n t i a l evidence and proper a p p l i c a t i o n of law t o uphold t h e awarding of damages f o r t h e breach of t h e May 1 2 , 1978,contract. A f f irmed. J u s t i c e W e concur: /