No. 13252
I N THE SUPREPIE COURT OF THE STATE OF MONTANA
J U N I O R W. TSCHACHE a n d
ELIZABETH A. TSCHACBE,
husband and w i f e ,
P l a i n t i f f s and Respondents,
CLARENCE L. BARCLAY a n d
GLADYS BARCLAY, h u s b a n d
and w i f e ,
Defendants and A p p e l l a n t s .
Appeal from: D i s t r i c t Court of t h e Eighteenth J u d i c i a l
District
H o n o r a b l e Gord-on R. B e n n e t t , J u d g e p r e s i d i n g
Counsel of Record:
For Appellants:
B e n n e t t a n d B e n n e t t , Bozeman, Montana
Lyman H. B e n n e t t I11 a r g u e d a n d Lyman B e n n e t t , Jr.
a r g u e d , Bozeman, Montana
For Respondents :
L a n d o e , Gary a n d P l a n a l p , B o z e n a n , Montana
R o b e r t P l a n a l p a r g u e d , Bozeman, hlontana
Submitted: J a n u a r y 1 0 , 1977
Decided: -
. 2
W6
Filed: &fiY 2:i
M r . J u s t i c e Daniel J . Shea d e l i v e r e d t h e Opinion o f t h e Court.
S e l l e r s a p p e a l from a judgment e n t e r e d i n t h e d i s t r i c t c o u r t ,
G a l l a t i n County, by t h e t r i a l judge s i t t i n g without a j u r y , allowing
buyers t o t e r m i n a t e t h e i r amended c o n t r a c t f o r deed under a con-
t r a c t u a l r i g h t of r e s c i s s i o n and o r d e r i n g s e l l e r s t o r e t u r n a l l
money p a i d on t h e purchase p r i c e .
S e l l e r s sued buyers t o t e r m i n a t e t h e i r r i g h t s under t h e
c o n t r a c t and buyers countersued, a s k i n g f o r r e s c i s s i o n of t h e
contract. S e l l e r s r a i s e f o u r i s s u e s on appeal: (1) They were
f r a u d u l e n t l y induced i n t o e n t e r i n g t h e amended c o n t r a c t f o r deed;
(2) buyers a r e bound t o perform t h e c o n t r a c t under t h e d o c t r i n e
of e s t o p p e l ; ( 3 ) t h e d i s t r i c t c o u r t improperly refused testimony
t h a t would show t h e circumstances under which s e l l e r s e n t e r e d i n t o
an agreement t o p l a c e t h e c o n t r a c t f o r deed i n escrow; and (4)
buyers f a i l e d t o completely r e s t o r e s e l l e r s t o t h e i r p o s i t i o n p r i o r
t o the contract.
S e l l e r s a r e Clarence and Gladys Barclay; buyers a r e J u n i o r
and E l i z a b e t h Tschache. On December 24, 1971 t h e p a r t i e s e n t e r e d
i n t o a c o n t r a c t f o r deed f o r approximately 8 1 a c r e s of land l o c a t e d
i n G a l l a t i n County. Buyers intended t o subdivide t h e land and s e l l
l o t s f o r houses o r t r a i l e r homes, The c o n t r a c t provided, however,
t h a t t h e buyers could t e r m i n a t e t h e c o n t r a c t and recover a l l money
p a i d on t h e purchase p r i c e , i f they determined w i t h i n two y e a r s
t h e land could n o t be developed. Buyers p a i d $15,000 a s a down
payment and l a t e r p a i d two annual i n s t a l l m e n t s of $8,000 each. The
d i s p u t e h e r e c e n t e r s around an amended c o n t r a c t f o r deed signed
by t h e p a r t i e s a t o r n e a r t h e end of t h e e x p i r a t i o n of t h e f i r s t
2 year contract.
Buyers conducted e x t e n s i v e t e s t s on t h e land and discovered
problems w i t h zoning, sewage d i s p o s a l and f l o o d p l a i n r e g u l a t i o n s .
A s a r e s u l t , t h e i r p r e l i m i n a r y p l a t s were n o t approved. I n 1973
they sought a bank loan t o pay t h e annual i n s t a l l m e n t due on
December 15. The bank o f f i c i a l s knew buyers could n o t o b t a i n approval
of t h e i r development p l a n s and accordingly r e q u e s t e d , b e f o r e g r a n t i n g
t h e l o a n , t h a t buyers f i r s t o b t a i n a new c o n t r a c t extending t h e
r i g h t t o t e r m i n a t e t h e t r a n s a c t i o n and p l a c e i n escrow w i t h t h e
bank a warranty deed running t o t h e buyers.
On December 24, 1973 t h e p a r t i e s d i d s i g n a n amended c o n t r a c t
f o r deed, which gave buyers two more y e a r s t o t e r m i n a t e t h e t r a n s -
a c t i o n , a n d an escrow agreement. I n February 1974, s e l l e r s d e p o s i t e d
t h e amended c o n t r a c t f o r deed and t h e warranty deed i n escrow.
However, buyers f a i b d t o pay t h e annual i n s t a l l m e n t due on December
1 5 , 1974 and s e l l e r s on February 28, 1975 s e n t them a n o t i c e of
default. Buyers responded by invoking t h e r e s c i s s i o n agreement i n
t h e c o n t r a c t , and on March 18, 1975 they s e n t t h e r e s c i s s i o n n o t i c e
t o s e l l e r s , claiming t h e land could n o t be developed because of
f l o o d p l a i n r e s t r i c t i o n s and because i t s e l e v a t i o n and s o i l condi-
t i o n s precluded proper drainage.
S e l l e r s f i r s t c l a i m t h e buyers f r a u d u l e n t l y induced them t o
e n t e r i n t o t h e amended c o n t r a c t f o r deed. Although t h e c o n t r a c t
i s d a t e d December 24, 1973, s e l l e r s maintain i t was n o t executed
u n t i l l a t e i n February 1974, a t about t h e time t h e warranty deed and
escrow agreement were signed. S e l l e r s t h e n argue buyers concealed
from them t h e f a c t t h e l o c a l planning board on February 14, 1974
r e j e c t e d b u y e r s ' s u b d i v i s i o n p l a n s , and a l s o concealed t h e f a c t t h e
bank r e q u i r e d a new c o n t r a c t b e f o r e i t would l o a n money t o buyers.
S e l l e r s maintain buyers had a l r e a d y decided t h e land could n o t be
developed and sought t h e new c o n t r a c t s o l e l y t o revive t h e i r
r i g h t t o terminate t h e t r a n s a c t i o n which expired on December 24,
1973, under t h e f i r s t c o n t r a c t . However, t h e d i s t r i c t c o u r t
found c o n t r a r y t o t h e s e contentions.
The d i s t r i c t c o u r t found t h e amended c o n t r a c t f o r deed was
executed on December 24, 1973, p r i o r t o t h e r e j e c t i o n of buyers'
subdivision plans i n February 1974. F u r t h e r , t h a t s e l l e r s were
well aware of buyers' d i f f i c u l t i e s i n developing t h e land and signed
t h e new c o n t r a c t t o allow buyers more time t o solve t h e problems.
The d i s t r i c t c o u r t found no proof of fraud. I n Cowan v. Westland
Realty Co., 162 Mont. 379, 383, 512 P.2d 714, t h i s Court s a i d :
"This Court has s t a t e d many times t h a t i t s
function on appeal i s t o determine whether t h e r e i s
s u b s t a n t i a l evidence t o support t h e f i n d i n g s of t h e
d i s t r i c t court. This Court w i l l n o t r e v e r s e t h e
f i n d i n g s of t h e t r i a l c o u r t unless t h e r e i s a c l e a r
preponderance of t h e evidence a g a i n s t such f i n d i n g s .
[ C i t i n g cases. 1"
Contrary t o s e l l e r s ' claim on appeal, one of s e l l e r s (Mr.
Barclay) t e s t i f i e d t h e p a r t i e s did execute t h e amended c o n t r a c t
f o r deed on December 24, 1973, and a t t h a t time buyers t o l d him
they were having t r o u b l e s a t i s f y i n g flood p l a i n r e g u l a t i o n s . There
was s u b s t a n t i a l testimony buyers continued t h e i r e f f o r t s t o formu-
l a t e an acceptable plan f o r subdivision i n 1974. They s e n t t h e i r
n o t i c e t o rescind more than one year a f t e r they executed t h e amended
c o n t r a c t f o r deed and t h i s was done only a f t e r buyers t r i e d t o
f o r f e i t s e l l e r s ' r i g h t s under t h e c o n t r a c t .
S e l l e r s contend buyers d i d not t e l l them t h e bank required an
amended c o n t r a c t f o r deed before i t would loan more money t o buyers
t o make t h a t y e a r ' s annual i n s t a l l m e n t . However, t h e r e i s testimony
i n t h e record t h a t one of t h e buyers so informed s e l l e r s . Moreover,
even assuming non-disclosure of t h i s f a c t from t h e s e l l e r s , i t was
n o t m a t e r i a l t o t h e c o n t r a c t u a l r e l a t i o n s h i p between t h e p a r t i e s and
cannot serve a s a b a s i s f o r fraud. Ray v. Divers, 72 Mont. 513, 234 a
The s e l l e r s next claim t h a t buyers, by t h e a c t of signing t h e
escrow agreement and p u t t i n g t h e c o n t r a c t i n escrow (a departure
and
from t h e f i r s t c o n t r a c t ) , accepted t h e land/are estopped t o a s s e r t
otherwise. S e l l e r s r e l y on s e c t i o n 93-1301-6(3), R.C.M. 1947, which
provides :
"Whenever a p a r t y h a s , by h i s own d e c l a r a t i o n , a c t ,
o r omission, i n t e n t i o n a l l y and d e l i b e r a t e l y led another
t o b e l i e v e a p a r t i c u l a r t h i n g t r u e , and t o a c t upon such
b e l i e f , he cannot, i n any l i t i g a t i o n a r i s i n g out of such
d e c l a r a t i o n , a c t , o r omission, be permitted t o f a l s i f y it."
The 1971 and 1973 c o n t r a c t s provided t h a t upon buyers' acceptance
of t h e land, s e l l e r s were t o convey t h e land t o a bank a s a t r u s t e e .
S e l l e r s admit signing t h e escrow agreement without reading i t ,
b u t i n s i s t buyers misled them i n t o believing, t h e escrow agreement
was r e a l l y t h e t r u s t arrangement s e t f o r t h i n t h e c o n t r a c t s . Then,
they contend, when buyers asked t o put t h e warranty deed and amended
c o n t r a c t f o r deed i n escrow "according t o t h e contract" they thought
they were doing i t according t o t h e t r u s t arrangement and t h i s c o n s t i -
t u t e d an acceptance of t h e c o n t r a c t . S e l l e r s claim an e s t o p p e l based
on t h e s e f a c t s .
The d i s t r i c t c o u r t found t h a t s e l l e r s possessed a copy of t h e
amended c o n t r a c t f o r deed and t h e o r i g i n a l escrow agreement f o r
"a considerable length of time and had ample opportunity t o examine
them". S e l l e r s d i d n o t e x p l a i n why they f a i l e d t o read t h e escrow
agreement and amended c o n t r a c t f o r deed, o t h e r t h a n . t h e i r r e l i a n c e
on buyers' a l l e g e d r e p r e s e n t a t i o n s . Such r e l i a n c e was u n j u s t i f i e d .
Estoppel has no a p p l i c a t i o n where t h e "'means of knowledge of both
p a r t i e s i s equal"'. Colwell v. City of Great F a l l s , 1 1 7 Mont. 126,
139, 157 P.2d 1013.
S e l l e r s next claim t h e c o u r t improperly excluded s e l l e r s '
o f f e r e d testimony they signed t h e warranty deed and escrow agreement
s o l e l y i n r e l i a n c e on t h e buyers' r e p r e s e n t a t i o n t h a t t h e instruments
would e s t a b l i s h t h e t r u s t described i n t h e amended c o n t r a c t f o r
deed. While par01 evidence i s generally excluded under s e c t i o n
93-401-13, R.C.M. 1947, t h i s s t a t u t e provides exceptions f o r i t s
admission, and s t a t e s i n p e r t i n e n t p a r t :
"But t h i s s e c t i o n does not exclude o t h e r evidence
of t h e circumstances under which t h e agreement was made,
o r t o which i t r e l a t e s , a s defined i n s e c t i o n 93-401-17,
o r t o e x p l a i n an e x t r i n s i c ambiguity, o r t o e s t a b l i s h
i l l e g a l i t y o r fraud. The term agreement includes deeds
and w i l l s , a s w e l l a s c o n t r a c t s between p a r t i e s . TI
Section 93-401-17, R.C.M. 1947, provides:
"For t h e proper c o n s t r u c t i o n of an instrument,
t h e circumstances under which i t was made, including
t h e s i t u a t i o n of t h e s u b j e c t of t h e instrument, and
of t h e p a r t i e s t o i t , may a l s o be shown, so t h a t t h e
judge be placed i n t h e p o s i t i o n of those whose language
he i s t o i n t e r p r e t . I I
I f fraud had been properly pleaded s e l l e r s should have been
allowed t o o f f e r t h e testimony, which was t o show t h a t t h e s e
instruments c o n s t i t u t e d an acceptance of t h e land under t h e d o c t r i n e
of estoppel. But, when t h e question came up during t r i a l and t h e
c o u r t excluded t h e evidence, only a f e e b l e e f f o r t was made t o make
an o f f e r of proof a s t o what fraud s e l l e r s would attempt t o prove.
S e l l e r s made no e f f o r t e i t h e r before, during, o r a t t h e conclusion
of t h e t r i a l , t o amend t h e i r pleadings a s required by Rule 15, M.R.Civ.P.
There being no fraud pleaded, s e l l e r s were n o t e n t i t l e d t o present
evidence on t h i s theory. Rule 8(a) and Rule 9 ( b ) , M.R.Civ.P.
Notwithstanding s e l l e r s ' f a i l u r e t o comply with t h e s e pleading
requirements however, they s t i l l were permitted t o t e s t i f y t h a t
buyers t o l d them t h e escrow agreement and warranty deed should be
executed "according t o t h e contract." This testimony was s u f f i c i e n t
t o put s e l l e r s ' theory of fraud and e s t o p p e l i n t h e record
before t h e d i s t r i c t c o u r t , and under t h e s e circumstances r e f u s a l
t o allow t h e testimony would be harmless e r r o r . Hackley v. Waldorf-
Hoerner Paper Co., 149 Mont. 286, 425 P.2d 712; Kraft v. Pattyn,
135 Mont. 574, 342 P.2d 1060. F u r t h e r , even though s e l l e r s were
n o t e n t i t l e d t o pursue t h e i r claim of f r a u d , t h e d i s t r i c t c o u r t
made a s p e c i f i c f i n d i n g t h e r e was no fraud.
S e l l e r s ' f i n a l claim of e r r o r i s t h a t buyers d i d not r e s t o r e
everything of value t o t h e s e l l e r s a s i f t h e c o n t r a c t had n o t
been made, even though they o f f e r e d t o do so i n t h e i r n o t i c e of
rescission. S e l l e r s claim buyers removed t h e top s o i l from f o u r
o r f i v e a c r e s without t h e consent of s e l l e r s , and l e f t t h e land
so rough it was even d i f f i c u l t t o d r i v e over i t with a t r a c t o r .
O t h e o t h e r hand, buyers a l l e g e d they removed only e a r t h and g r a v e l
n
l y i n g beneath t h e top s o i l and then replaced and reseeded t h e
t o p s o i l , with t h e acquiescence of s e l l e r s .
This c o n f l i c t i n testimony c r e a t e d a question of f a c t within
t h e province of t h e d i s t r i c t c o u r t t o resolve. The d i s t r i c t c o u r t
judge saw and heard t h e witnesses t e s t i f y and was i n a s u p e r i o r
p o s i t i o n t o evaluate t h e i r c r e d i b i l i t y . Richardson v. Howard Motors
Inc., 163 Mont. 347, 516 P.2d 1153. The d i s t r i c t c o u r t adopted
t h e buyers' v e r s i o n of t h e f a c t s and found no cornpensable damage
had been done t o t h e land. W f i n d no e r r o r .
e
W a f f i r m t h e judgment of t h e d i s t r i c t c o u r t .
e
We Concur:
Chief J u s t i c e