Court Opinion

ID: 880524
Source: CourtListenerOpinion
Date Created: 2013-06-05 00:13:01.302093+00
Date Added: 2024-06-11T09:07:37.032790
License: Public Domain

NO. 88-322

                   T N THE SUPREME COURT OF THE STATE OF MONTANA

                                          1989

BOYNE, U.S.A., INC.,
              Plaintiff and Respondent,
       -vs-
NICHOLAS L. MALLAS, BRUCE FRANK and
THE MONTANA TERRITORIAL LAND CO., a
Montana corporation,
              Defendants and Appellants.

NICHOLAS L. MALLAS and BRUCE FRANK,
              Plaintiffs and Appellants,
       -vs-
BOYNE, U.S.A., INC., LONE PEAK, INC.,
BIG SKY,INC., and JOHN E. KIRCHER,
              Defendants and Respondents.

APPEAL FROM:         District Court of the Eighteenth Judicial District,
                     In and for the County of Gallatin,
                     The Honorable Thoma Olson, Judge presiding.
COUNSEL OF RECORD:
       For Appellant:
                     Edmund P. Sedivy, Jr.; Morrow, Sedivy      &   Bennett,
                     Bozeman, Montana

       For Respondent :
              t-
                     Stephen M. Barrett; Kirwan     &   Barrett, Bozeman,
     Cd       3      Montana
     b-2   ' L CJ

                                          Submitted:     Dec. 2, 1988
                                            ~ ~ ~ i d February 28, 1989
                                                       ~ d :

                     --            I
                                          Clerk
Mr. Justice William E. Hunt, Sr. , delivered the opinion of
the Court.

     The defendants, Nick Mallas, Bruce Frank, and the
Montana Territorial Land Co., a Montana corporation, appeal
the decision bv the District Court of the Eighteenth ~udicial
District, Gallatin County, finding that the Jul17 18, 1986
agreement between Boyne U.S.A., Inc., the plaintiff, and the
defendants is not enforceable h y the defendants. We affirm
the District Court.
     The substantive issues raised on appeal are:
     (1) whether the District Court erred in finding that
Mallas   was   acting   in   a   fiduciary   capacity,   as   Boyne's
realtor, at the time of the July 18, 1986 agreement; and
     (2) whether an agreement between a principal and an
agent is voidable by the principal when the agent fails to
disclose information regarding the agreement.
     Boyne U.S.A., Inc. (Boyne) is a Michigan corporation
authorized to do business in the state of Montana.        The
corporation is solely owned by the Kircher family, with
Everett Kircher as president and his son, John Kircher, as
vice-president. Among its holdj-ngs, Boyne owns the R i g Sky
resort properties located south of Rozeman, Montana.
     John Kircher has served as general manager of Boyne's
Big Sky resort properties since 1982. His duties as general
manager of the Big Sky resort includes handling routine to
complex real estate transactions.      While John Kircher was
required to clear important transactions with the home
office, no consistent pattern of obtaining written corporate
resolutions for such transactions was observed. At a special
meeting of Boyne's Board. of Directors on February 1, 1985,
John Kircher was given authority h:,7 the Board to:
     investigate inquiries into the possible sale of Big
     Sky    of   Montana's    properties   and/or    the
     Corporation's possible purchase of other ski areas.
     This would entail discussions with prospective
     buyers as to their actual interest and ability to
     make such purchases; and   . . . John Kircher will
     present any such proposal(s) which appear to he
     valid to the Board for consideration and whatever
     action the Board deems appropriate.
John Kircher subsequently signed a one year listing agreement
on March 28, 1985 with the Montana Territorial Land Co., a
closely held corporation engaged in the sale of real estate
and owned by Nicholas Mallas and other family members. The
listing agreement was accepted by Mallas, a licensed real
estate agent, on behalf of the Montana Territorial Land, Co.
Mallas then began a search for a buyer for the Big Sky resort
properties.
     In September, 1985, Everett Kircher wrote to Mallas on
behalf of the Boyne's Board of Directors, advising Mallas
that John Kircher executed the March, 1985 listing agreement
without their knowledge or authority.        Everett Kircher
advised Mallas that the Board deemed the contract null and
void - initio because the agreement may result in the sale
     ab
of a substantial portion of Boyne's assets not in the
ordinary course of business which would require shareholder
approval.   Everett Kircher further wrote that the Board
"simply require[s] that you deal directly with our corporate
home office to negotiate an agreement which we can present to
the Board of Directors for their approval." This issue was
not resolved and the listing agreement was permitted to
expire in March, 1986. While the listing agreement was in
effect, no sale was consummated.     The listing agreement,
however, provided that Mallas would receive a commission for
the sale of the property if it was sold within twelve months
after the termination of the agreement to a prospect
introduced by Mallas.
     In May and June, 1986, Mallas started negotiating with
John Kircher regarding the sale of the Big Sky resort
properties.   Mallas apparently intended to be one of the
ultimate purchasers of the resort, although conflicting
evidence exists as to whether this was clearly disclosed to
John Kircher.   Mallas submitted two written offers to John
Kircher, one for $15 million and one for $17 million, with
different downpayments. John Kircher acknowledged receipt of
these offers and then relayed the price, downpayment,
interest rate, and the time over which the payments would he
made to Boyne by telephone to Boyne through Everett Kircher.
Boyne, however, rejected the two offers.      Because of the
rejection, the written offers were not forwarded to Boyne
headquarters by John Kircher, and the Board of Directors in
Michigan did not know of the specific terms contained in the
two offers.
     On July 18, 1986, Mallas called John Kircher and advised
him that he had a new offer to purchase the property.     The
offer was a $7 million downpayment and a $13 million note.
John relayed this offer to Boyne by telephone and was then
told that he could inform Mallas that the price was
acceptable. No terms or conditions of the offer other than
the price were discussed during the telephone call and no
authority was given to sign a binding contract. When John
Kircher indicated that the latest offer was acceptable,
Mallas then arranged to have a proposed agreement typed.
     Mallas and John Kircher met on July 19, 1986 at a
secluded lodge in Madison County.    At that meeting, Mallas
presented a written offer, dated July 18, 1986, that he
exclusively prepared for the purchase of the property. John
Kircher, his wife, Sara Kircher, and Mallas were present at
the meeting.   The July 18, 1986 written offer contained
provisions increasing the purchase price to $21.2 million;
providing for an $8.2 million downpayment; granting the
Montana Territorial Land Co. a $1.2 million commission;
subordinating Boynels note to "any bank financing required by
the Buyer, working capital required by the company and any
sale and leaseback of the machinery and equipment required bv
the Buyer;" allowing Mallas and Frank a unilateral right to
rescind the agreement without any obligation or reason while
Boyne had no such option; and stating that sellers have the
requisite authority, including Board of Directors' and
shareholders' approval, to      sell the    Big   Sky resort
properties.
     After reading the July 18, 1986 document, John Kircher
had reservations about the document.   No telephone service
was available at the secluded lodge, leaving John unable to
talk to either the Boyne1s Board of Directors or an attorney
employed by Boyne.    John asked few, if any, questions.
Nonetheless, he signed the document after Mallas convinced
him that the document was not binding but merely a "letter of
intent" which Mallas needed to show his financial backers in
California to establish that Boyne was serious about selling
its properties.
     On July 30, 1986, an attorney for Boyne wrote to Mallas
claiming that the July 18, 1986 agreement was of no force and
effect because the letter was only a nonbinding letter of
intent; the offer was vague; Mallas failed to disclose in the
agreement that he was acting as a principal and on behalf of
the Montana Territorial Land Co.; Mallas1s unilateral right of
recession was unconscionable and unenforceable; and the
agreement had not been reviewed by an attorney, contrary to
what the agreement stated. Boyne therefore brought action to
void and rescind the July 18, 1986 aqreement.    Nick Mallas
and   Bruce Frank, the defendants, brought         action to
specifically enforce the agreement.        The actions were
consolidated.   The District Court, sitting without a jury,
entered findings of fact and conclusions of law and submitted
an order that the July 18, 1986 agreement between Boyne and
Mallas and Frank is of no further force and effect. Mallas
and Frank appeal.
     The first issue raised on appeal is whether the District
Court erred in finding that Mallas was acting in a fiduciary
capacity, as Royne's realtor, at the time of the July 18,
1986 agreement.
     The District Court found that up to and including the
time when Mallas signed the July 18, 1986 agreement for the
purchase of the Rig Skv resort, Mallas was acting as a real
estate agent for Boyne and therefore was in a fiduciary
relationship with Boyne.     The court noted that the most
important factor which it based this conclusion upon was the
July 18, 1986 agreement, drafted by Mallas, which provided
that Mallas's company, the Montana Territorial Land Co., was
to receive a $1.2 million real estate commission.
     Mallas and Frank argue that substantial credible
evidence does not support the court's finding that a
fiduciary relationship existed. In attempting to explain the
word "commission" in the July 18, 1986 agreement, Mallas and
Frank argue that the "question of a 'real estate commission'
was never a factual." They argue that John Kircher knew that
the "stated 'commission' was not a true earned real estate
commission" because Kircher knew that Mallas was not acting
as Royne's realtor when he attempted to buy the property and
that it was Frank who suggested that the contract should
provide for a $1.2 mFllion commission.      Mallas and Frank
state that the commission would allow them additional capital
to renovate the golf course and make other improvements.
Mallas and Frank therefore argue that the significance the
District Court places on the use of the word "commission" is
not supported by the evidence.   We disagree.
      When a district court determines that an extrinsic
ambiguity exists in a contract, evidence may be used to
determine the intent of the parties.   Section 28-2-905(2),
MCA; Monte Vista Co. v. Anaconda Co. (Mont. 1988), 755 P.2d
1358, 1362, 45 St.Rep. 809, 814;    Martin v. Laurel Cable
T.V., Inc. (Mont. 1985), 696 P.2d 454, 457, 42 St.Rep. 314,
317. The terms of a contract are considered ambiguous when
different interpretations are possible. Monte Vista Co., 755
P.2d at 1362, 45 St.Rep. at 814.    In the present case, the
District Court did not note any ambiguity in the terms of the
contract providing Montana Territorial Land Co. with a real
estate commission of $1.2 million.      The District Court
therefore found that this most important provision contained
within the July 18, 1986 agreement was one of the
circumstances that allowed it to conclude that Mallas was
acting as a real estate agent and therefore in a fiduciary
relationship with Boyne.   The District Court did not err in
relying upon the unambiguious contract term "commission."
This provision granting Mallas's Montana Territorial Land Co.
a $1.2 million commission establishes that a fiduciary
relationship existed between Mallas and Boyne.
     The term "commission" is defined by Webster's Dictionary
as "a formal written warrant granting the power to perform
various acts or duties."  Webster's Ninth New Collegiate
Dictionary 265 (9th ed. 1984).   If the language of the
contract is clear and explicit and does not involve an
absurdity   then  the   contract's  language  governs  the
interpretation of the contract. Section 28-3-401, MCA. The
contract provides that Montana Territorial Land, Co. was to
receive a $1.3 million commission.   The terms of the contract
implicitly grants Mallas, as the real estate agent, the power
to perform various acts or duties in connection with the sale
of the Big Sky resort properties.       By granting Mallas a
commission, the contract also establishes that a fiduciary
relationship existed. The statute addressing when extrinsic
evidence concerning a written agreement may be considered, S
28-2-905, MCA, precludes us from even considering Mallas's
"argument" that everyone concerned knew that the commission
was not really a commission.         We therefore hold that
substantial credible evidence supports the District Court's
conclusion that a fiduciary relationship existed between
Mallas and Boyne, as a result of Mallas acting as Boyne's
realtor at the time the July 18, 1986 agreement was signed.
     The second issue raised on appeal is whether an
agreement between a principal and an agent is voidable by the
principal when the agent fails to disclose information
regarding the agreement.
     Mallas and Frank argue that substantial credible
evidence does not support the District Court's conclusions
that Mall-as breached his duty as Royne's real estate agent by
not disclosing critical information about the agreement.
They further argue that substantial credible evidence does
not support the District Court's conclusions that Boyne, as
the principal, may elect to rescind the agreement.          We
disagree.
     A contract is voidable by a principal if the principal's
agent, who was employed to sell the principal's property,
purchases the property himself, either directly or indirectly
through a third person. Crowley v. Rorvig (1921), 61 Mont.
245, 251-52, 203 P. 496, 496-97. The principal's right of
remedy is not defeated by the amount of consideration, the
absence of undue advantage, or other similar features. Only
after the principal has confirmed that he has full knowledge
of all the facts, brill this right to avoid the contract no
longer be available to the principal. Crowley, 61 Mont. at
252, 203 P. at 497.       The reasoning behind this well
established principal is to insure that an agent, when
carrying out an entrusted duty as the agent, does not place
his interests above the principal's interests. This Court
recognizes that when an agent's and principal's interests are
brought in conflict, the agent will not necessarily look upon
the principal's interests as more important and entitled to
more protection than his own. Therefore, the courts allow a
principal to void a contract without even inquiring into
whether   the   agent   obtained   an  advantage   or   acted
fraudulently. Crowlev, 61 Mont. at 252-53, 203 P. at 497. A
principal may void the entire contract even though purchasers
other than the agent are also involved in the transaction.
Crowley, 61 Mont. at 261-62, 203 P. at 500.
     As noted above, Mallas was acting as Boyne's real estate
agent at the time the July 18, 1986 agreement was signed and
therefore a fiduciary relationship existed between Mallas and
Boyne. Mallas and Frank note that John Kircher, as general
manager, vice-president and director of Boyne, was also an
agent of Boyne. Mallas and Frank therefore argue, citing S
28-10-604, MCA, that knowledge imparted to John Kircher by
Mallas is imputed by law to Boyne. FJhile Mallas and Frank
attempt to switch the focus from Mallas's duties as an agent
for Boyne to John Kircher's duties as an agent for Boyne, we
hold that the proper focus is whet.her Mallas breached his
duty bv not disclosing all pertinent facts regarding his
purchase of the Big Sky resort properties to Boyne and
whether he acted in the utmost good faith.      Mallas's and
Frank's reliance on S 28-10-604, MCA, is therefore misplaced
in light of the entire facts.     Further, as we have noted
pre~~iously, fil n the event of any litigation between [the
             "
agent] and his employer, the burden is upon [the agent] to
prove both the permission and the exemplary manner in which
he availed himself of it. . .  . " First Trust Co. v. McKenna
(1980), 188 Mont. 534, 539, 614 P.2d 1027, 1030 (quoting 12
Am.Jur.2d Brokers S 91 (1964)).
     As Boyne's agent, Mallas in his fiduciary capacity had
the duty to act in the utmost good faith towards his client,
which includes a duty to make full disclosure.       When the
agent is buying the property himself, this duty to disclose
all pertinent facts becomes particularly important. McKenna,
188 Mont. at 539, 614 P.2d at 1030. The evidence supports
the District Court's finding that Mallas knew or should have
known that Boyne's Board of Directors did not know of the
specific terms of the July 18, 1986 agreement and that John
Kircher did not have the authority to sign an agreement to
sell the Big Sky resort properties.        Specifically, the
evidence shows that Mallas exclusively prepared the July 18,
1986 agreement and that John Kircher first saw this agreement
on July 19, 1986 at a secluded lodge in Madison County. No
telephone was available for John Kircher to call and discuss
the contract provisions with either the Boyne headquarters or
an attorney employed by Boyne.       Mallas himself did not
discuss the provisions in the document with John Kircher,
including   the  meaning   and   possible   effects of    the
subordination clause, and then convinced John Kircher that
the document was only a "letter of intent."
     In addition, Mallas allowed John Kircher to sign the
agreement with the provision stating that the "[slellers
represent that they have the requisite authority, includina
Board of Directors' and Shareholders' approval, to sell the
assets as described herein." The evidence shows that Mallas
received a letter from Boyne's headquarters in September,
1985 stating that John Kircher dld not have the requisite
authority to sign a listing agreement to sell the Big Sky
resort properties without the Board of Directors1 approval of
the specific terms.     We fail to see how Mallas, in the
exercise of utmost good faith, could therefore contend that
approximately ten mont.hs later John Kircher nonetheless had
the authority from the Board t-o sell the entire Big Sky
resort properties when John Kircher himself had not seen the
July 18, 1986 agreement until the July 19, 1986 meeting at
the secluded lodge.      In light of the circumstances, a
secluded lodge with no telephone, Mallas knew that John
Kircher was unable to convey to the Boyne headquarters any of
the specific provisions of the contract.
     While Mallas and Frank attempt to argue that the
District Court "forgot" evidence more favorable to them, we
hold that the District Court properly considered all of the
evidence and thus made findings of fact consistent with the
evidence. The trier of facts, and not this Court, is in the
best position to assess the credibility and weight of
conflicting evidence. Mountain West Farm Bureau Mutual Ins.
Co. v. Girton (Mont. 1985), 697 P.2d 1362, 1363, 42 St.Rep.
500, 501. We affirm the District Court's conclusion that the
July 18, 1986 agreement between John Kircher and Nick MalLas
and Bruce Frank is voidable by Boyne.
     Affirmed.
                                    /