No. 14712
I N THE SUPREME COURT O T E STATE O M N A A
F H F OTN
1979
J A Y STOVALL and JUANITA STOVALL,
P l a i n t i f f s and &nts,
-vs-
LILLWWATT, DAN HARDY and FERN HARDY,
t
I '
D e f e n d a n t s and * ~ & e l l & t s .
Appeal from: D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
Honorable C h a r l e s Luedke, J u d g e p r e s i d i n g .
Counsel o f Record:
For Appellants:
Hibbs, Sweeney and C o l b e r g , B i l l i n g s , Montana
Maurice R. C o l b e r g , J r . , a r g u e d , B i l l i n g s , Montana
F o r Respondents:
Freeman and M a r t i n , H a r d i n , Montana
L a u r e n c e R. M a r t i n a r g u e d , H a r d i n , Montana
Submitted: September 1 8 , 1979
Decided: 4 ~ f2
i 1384
- - --
Filed: - .-
Mr.J u s t i c e D a n i e l J. Shea d e l i v e r e d t h e Opinion of t h e
Court.
The S t o v a l l s , p l a i n t i f f s below, a p p e a l from a judgment
and o r d e r of t h e Big Horn County D i s t r i c t C o u r t d e n y i n g t h e i r
r e q u e s t f o r s p e c i f i c performance of an o p t i o n t o p u r c h a s e
c l a u s e c o n t a i n e d i n a l e a s e which t h e S t o v a l l s had e n t e r e d
i n t o w i t h L i l l i a n I . Watt. Defendant L i l l i a n W a t t a l s o c r o s s -
a p p e a l s from a n award t o t h e S t o v a l l s of $9,600 i n damages f o r
h e r b r e a c h of agreement t o convey t h e r e a l p r o p e r t y i n v o l v e d .
The t r i a l c o u r t d e t e r m i n e d t h a t d e f e n d a n t s Dan M. Hardy and
F e r n A. Hardy had s u p e r i o r e q u i t a b l e c l a i m s t o t h e p u r c h a s e o f
t h e l a n d i n v o l v e d as a r e s u l t of a l e a s e o p t i o n t o p u r c h a s e
agreement which t h e y a l s o had e n t e r e d i n t o w i t h d e f e n d a n t
Lillian W a t t .
The e s s e n t i a l c o n t e n t i o n o f t h e S t o v a l l s i s t h a t t h e
t r i a l c o u r t abused i t s d i s c r e t i o n by n o t g r a n t i n g t h e i r
c l a i m f o r s p e c i f i c performance o f t h e o p t i o n t o p u r c h a s e c l a u s e
c o n t a i n e d i n a l e a s e d a t e d March 3 , 1969. The p r i m a r y con-
t e n t i o n of d e f e n d a n t Watt i n h e r c r o s s - a p p e a l s e e k i n g t o a v o i d
damages awarded t o t h e S t o v a l l s , i s t h a t t h e s t o v a i l lease
had no i n c e p t i o n i n f a c t and t h a t t h e l e a s e was a l s o s u b j e c t
t o a c o n d i t i o n p r e c e d e n t t h a t t h e Hardys v a c a t e t h e l a n d i n v o l v e d ,
and t h a t t h e Hardys n e v e r d i d v a c a t e t h e l a n d .
The problems began w i t h t h e d e a t h o f Edmund A n d r e t t
who owned t h e p r o p e r t y i n q u e s t i o n u n t i l h i s d e a t h i n J u n e
1966. A n d r e t t had p r e v i o u s l y used C . D. Wolfe o f Farm and
Ranch Management Co. o f B i l l i n g s t o a c t a s h i s a g e n t i n l e a s i n g
t h e land involved. Through a c o n t i n u i n g s e r i e s o f l e a s e s
t h e Hardys had l e a s e d t h e l a n d from t h e agency s i n c e 1951.
The problems began when t h e l e a s i n g agency d e a l t d i r e c t l y w i t h
t h e Hardys a f t e r t h e d e a t h of Edmund A n d r e t t b u t where L i l l i a n
W a t t d e a l t , through her attorney, p r i m a r i l y , with t h e S t o v a l l s .
-2-
Lillian Watt, an elderly Seattle, Washington resident,
became the owner of the property involved by virtue of a
decree of distribution entered on July 18, 1967. The property
was then subject to an existing Hardy lease. She retained
Missoula attorney, Dwight N. Mason, to handle her affairs
concerning the property. During all of the proceedings or
transactions in relation to the land, she had never gone to
see the land in this state located in Big Horn County. The
Hardy lease was to expire on March 1, 1968. Prior to this
time, however, Lillian Watt and the Hardys were disputing
lease rental payments. For some reason, Lillian Watt believed
that the Hardy lease had expired and that the Hardys were in
default on rental payments. For this reason, she contacted
attorney Mason and asked him to find a new tenant. Unknown
to Lillian Watt or to attorney Mason, however, the leasing
agency managed by Wolfe, had entered into a renewal lease
with the Hardys on March 1, 1968. This lease was recorded
on November 22, 1969. The problem became complicated then
because attorney Mason had, pursuant to Lillian Watt's
instructions, found another tenant for the farmland and
entered into a lease and purchase option with the Stovalls.
The following circumstances led to the Stovall-Lillian
Watt lease option to purchase agreement. Attorney Mason
wrote a letter to the father of Jay Stovall and solicited
him as a tenant. Jay Stovall's father had died however, and
the letter was passed along to Jay Stovall, who was ranching
property adjacent to the ~illianWatt property occupied by
the Hardys. Jay Stovall and his wife met with attorney Mason
in Missoula in early February 1969, and expressed their
interest in leasing the property. Mason told the Stovalls
t h a t L i l l i a n W a t t would b e r e c e p t i v e t o a n o f f e r t o l e a s e
t h e l a n d i n v o l v e d b e c a u s e s h e was t h e n h a v i n g problems w i t h
t h e Hardys and d i d n o t want t o c o n t i n u e l e a s i n g t o them.
A f t e r r e t u r n i n g home, t h e S t o v a l l s s e n t a w r i t t e n o f f e r f o r
lease t e r m s , n e g o t i a t i o n s e n s u e d , and f i n a l l y a t t o r n e y Mason
p r e p a r e d a l e a s e d a t e d March 3 , 1969 and L i l l i a n Watt and
t h e S t o v a l l s s i g n e d it. T h i s l e a s e was r e c o r d e d on September
22, 1969, a month b e f o r e t h e Hardys r e c o r d e d t h e i r l e a s e from
t h e l e a s i n g agency managed by Wolfe.
The S t o v a l l l e a s e was f o r a t h r e e y e a r term s t a r t i n g
March 3 , 1969 and i t a l s o i n c l u d e d a p r e f e r e n t i a l r i g h t o f
renewal and an o p t i o n " t o m e e t t h e p u r c h a s e p r i c e o f f e r e d "
i n t h e e v e n t o f any s a l e d u r i n g t h e t e r m o f t h e l e a s e . Another
clause recited t h a t ". . . p o s s e s s i o n t h e r e o f t o be g i v e n a s
soon as p r e s e n t t e n a n t ( t h e Hardys) v a c a t e s same . . ." The
Hardy lease a l s o c o n t a i n e d a n o p t i o n t o p u r c h a s e c l a u s e s i m i l a r
t o t h a t contained i n t h e S t o v a l l lease. Although t h e S t o v a l l s
knew t h a t t h e Hardys w e r e occupying t h e l a n d a t t o r n e y Mason
t o l d them t h a t i f any problem a r o s e a s t o p o s s e s s i o n t h a t h e
would e v i c t t h e Hardys and p l a c e t h e S t o v a l l s on t h e l a n d a s
the tenants.
Problems e r u p t e d a l m o s t immediately because o f t h e two
competing l e a s e s and c l a i m s made by t h e r e s p e c t i v e p a r t i e s .
Upon r e c e i v i n g a s i g n e d copy o f t h e i r lease t h e S t o v a l l s
immediately proceeded t o c l a i m p o s s e s s i o n of t h e l a n d . They
r e b u i l t some f e n c e s , opened up g a t e s , and moved t h e i r c a t t l e
from a d j o i n i n g l a n d o n t o t h e L i l l i a n Watt p r o p e r t y . his
s p a r k e d a c t i o n by t h e Hardys, who w e r e occupying t h e l a n d .
They moved t h e c a t t l e o f f t h e p r o p e r t y and l o c k e d t h e g a t e s .
These a c t s t r i g g e r e d a series o f communications between a t t o r n e y
Mason, t h e Hardys, L i l l i a n W a t t , and Wolfe, t h e manager o f
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t h e l e a s i n g agency who had s i g n e d t h e lease w i t h t h e Hardys.
From t h e s e communications i t w a s l e a r n e d t h a t t h e Hardys
w e r e n o t a c t u a l l y i n d e f a u l t on t h e r e n t a l payments, and t h a t
t h e Hardys had e n t e r e d i n t o t h e March 1, 1968 renewal l e a s e
w i t h a g e n t Wolfe. The Hardys had p a i d t h e r e n t a l money t o
a g e n t Wolfe.
Wolfe t h e n t r i e d t o s e t t l e t h e r e n t s w i t h L i l l i a n Watt
on March 2 1 , 1969, b u t s h e r e j e c t e d h i s o f f e r , r e t u r n e d h i s
c h e c k , and t o l d Wolfe t h a t s h e would n o t a c c e p t any r e n t from
t h e Hardys f o r 1969. On A p r i l 5 , 1969 L i l l i a n W a t t w r o t e t o
a t t o r n e y Mason and t o l d him s h e would n o t r a t i f y t h e Hardy
lease. L i l l i a n Watt and a t t o r n e y Mason t h e n s u g g e s t e d a
compromise agreement between t h e competing lessees whereby
t h e Hardys would be a l l o w e d t o have t h e c r o p l a n d t h r o u g h t h e
1969 c r o p s e a s o n and t h e S t o v a l l s would u s e t h e g r a z i n g l a n d .
The S t o - ~ a l l s i d n o t need t h e g r a s s u n t i l f a l l , and t h e y f e l t
d
t h a t under customary p r a c t i c e t h e Hardys would, i n any e v e n t ,
be e n t i t l e d t o t h e 1969 c r o p which t h e Hardys had p l a n t e d .
I t a p p e a r s however, t h a t n e i t h e r t h e Hardys n o r t h e S t o v a l l s
e v e r s p e c i f i c a l l y a g r e e d t o t h i s compromise arrangement. In
any e v e n t , t h e a t t i t u d e o f L i l l i a n W a t t toward t h e Hardys
changed markedly a f t e r s h e d e c i d e d t o l e t t h e Hardys s t a y
on t h e p r o p e r t y t h r o u g h 1969.
Although s h e a p p a r e n t l y b e l i e v e d a t t h a t t i m e t h a t t h e
Hardys d i d n o t have a v a l i d lease, ~ i l l i a n
Watt a c c e p t e d t h e
g r a z i n g r e n t a l from t h e Hardys. I n September 1969, L i l l i a n
Watt d e c i d e d t o s e l l t h e p r o p e r t y , and i n J u n e 1970, s h e s o l d
t h e p r o p e r t y t o t h e Hardys. A s a r e s u l t of t h i s s a l e t o t h e
Hardys, t h e S t o v a l l s f i l e d s u i t s e e k i n g s p e c i f i c performance
from L i l l i a n W a t t , and t h a t t h e y w e r e e n t i t l e d t o p u r c h a s e t h e
l a n d r a t h e r t h a n t h e Hardys.
I n e n t e r i n g i t s o r d e r denying s p e c i f i c performance t h e
t r i a l c o u r t d e t e r m i n e d t h a t L i l l i a n Watt had r e l i e d i n good
- 5-
f a i t h on a t t o r n e y Mason's a d v i c e , and t h a t o u t o f t h i s
r e l i a n c e flowed a series o f f a c t u a l and l e g a l misapprehen-
sions. The t r i a l c o u r t d e c i d e d t h a t under t h e t o t a l c i r -
cumstances of t h e c a s e , e q u i t y would n o t p e r m i t t h e S t o v a l l s
t o o b t a i n t h e p r o p e r t y by s p e c i f i c performance a g a i n s t L i l l i a n
W a t t , and t h a t damages awarded a g a i n s t L i l l i a n Watt, would,
under t h e c i r c u m s t a n c e s , be t h e p r o p e r remedy. Under s e c t i o n
27-1-415(4), MCA, s p e c i f i c performance w i l l n o t be e n f o r c e d
a g a i n s t a p a r t y t o a c o n t r a c t i f h i s a s s e n t was g i v e n under
t h e i n f l u e n c e of mistake, misapprehension, o r s u r p r i s e .
S p e c i f i c performance, w i l l n o t , f u r t h e r m o r e , be g r a n t e d i n
a s i t u a t i o n i n which t h e t o t a l c i r c u m s t a n c e s d e m o n s t r a t e t h a t
i t would produce a h a r d s h i p o r i n j u s t i c e . S e i f e r t v. S e i f e r t
( 1 9 7 7 ) , 173 Mont. 501, 504, 568 P.2d 155, 157.
H e r e t h e Hardys w e r e n o t d e l i n q u e n t on t h e i r l e a s e
payments and always b e l i e v e d t h e y had a v a l i d l e a s e . Lillian
Watt a c c e p t e d t h e Hardys' r e n t a l payments b e f o r e s h e d e c i d e d
t o s e l l t h e property, although she c l a i m s she d i d n o t thereby
r a t i f y t h e Hardy l e a s e p r e v i o u s l y e x e c u t e d by a g e n t Wolfe.
A t t o r n e y Mason s e n t l e t t e r s t o b o t h t h e Hardys and t h e S t o v a l l s
s o l i c i t i n g o f f e r s f o r t h e p u r c h a s e of t h e p r o p e r t y , and t h e
Hardys responded by making an o f f e r t o p u r c h a s e t h e p r o p e r t y .
T h i s s a l e w a s mnsl-m.ated by r e c o r d i n g a deed on J u n e 3 , 1970.
To g r a n t s p e c i f i c performance t o t h e S t o v a l l s would be
t o d e p r i v e t h e Hardys o f p r o p e r t y which t h e y had c o n t i n u o u s l y
l e a s e d , farmed and o p e r a t e d s i n c e t h e e a r l y 1 9 5 0 ' ~ ~ t h e n
and
l a t e r decided t o purchase. The t r i a l c o u r t made no f i n d i n g s
t h a t t h e Hardys w e r e o p e r a t i n g ir?. bad f a i t h . There can be no
d o u b t t h a t s p e c i f i c performance g r a n t e d t o t h e S t o v a l l s
would work a h a r s h r e s u l t upon t h e Hardys who w e r e a c t u a l
o c c u p a n t s of t h e l a n d f o r many y e a r s . Nor can w e i g n o r e
t h e f a c t t h a t L i l l i a n Watt had s u b s t a n t i a l l y changed h e r
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p o s i t i o n by conveying t h e p r o p e r t y t o t h e Hardys and t h e r e -
f o r e s h e was i n no p o s i t i o n t o convey t h e l a n d t o t h e S t o v a l l s .
W e c a n n o t s a y , moreover, t h a t t h e d e n i a l o f S t o v c l l s
r c q u e s c f o r s p e c i f i c performance o p e r a t e s as h a r s h l y upon
them. They n e v e r had p o s s e s s i o n of t h e p r o p e r t y and made no
l e a s e r e n t a l payments under t h e l e a s e t h e y had s i g n e d w i t h
Lillian W a t t . Although t h e S t o v a l l s l a t e r w r o t e a l e t t e r t o
L i l l i a n Watt and a t t o r n e y Mason s t a t i n g t h a t t h e y would m e e t
t h e $20,000 o f f e r e d by t h e Hardys and made a r r a n g e m e n t s f o r
s u c h f i n a n c i n g , t h e y made no payments toward a p u r c h a s e p r i c e .
I n b a l a n c i n g t h e e q u i t i e s i t i s c l e a r t h a t t h e t o t a l circum-
s t a n c e s f a v o r t h e r e s u l t r e a c h e d h e r e by t h e t r i a l c o u r t .
W e note furthermore, t h a t t h e t r i a l c o u r t awarded damages
a g a i n s t L i l l i a n W a t t f o r h e r b r e a c h of t h e agreement w i t h t h e
S t o v a l l s , and t h e S t o v a l l s had t h u s been made whole.
I n c o n t e n d i n g t h a t s h e s n o u l d n o t have t o r e s p o n d i n
damages t o t h e S t o v a l l s , L i l l i a n Watt c o n t e n d s t h a t t h e
S t o v a l l l e a s e w a s s u b j e c t t o a condition precedent t h a t t h e
Hardys v a c a t e t h e p r o p e r t y , which e v e n t n e v e r o c c u r r e d . She
t h u s c o n t e n d s t h a t t h e lease d i d n o t i n f a c t commence and t h u s
no l i a b i l i t y c a n a c c r u e f o r any b r e a c h o f t h e agreement p e r -
m i t t i n g t h e S t o v a l l s t h e r i g h t t o m e e t t h e purchase p r i c e
o f f e r e d by anyone else. Such a c o n t e n t i o n , however, f l i e s
i n t h e f a c e o f t h e c l e a r Lmguage o f t h e l e a s e i t s e l f which
p r o v i d e d t h a t t h e t e r m w a s t o s t a r t "Three Years from and
a f t e r t h e s a i d 3 r d day o f March, 1969." H e r contention i s ,
moreover, i n c o n s i s t e n t w i t h t h e c i r c u m s t a n c e s s u r r o u n d i n g i t s
e x e c u t i o n and w i t h h e r c o n d u c t i n r e l a t i o n t o t h e l e a s e a f t e r
i t s execution.
A t t h e t i m e she signed t h e l e a s e with t h e S t o v a l l s ,
L i l l i a n Watt and a t t o r n e y Mason had u n f r i e n d l y f e e l i n g s toward
t h e Hardys, and it i s c l e a r t h e y d i d n o t want them t o c o n t i n u e
-7-
i n possession. I n d e e d , u n t i l l i t i g a t i o n a p p e a r e d imminent,
L i l l i a n W a t t c o n s i s t e n t l y o p e r a t e d on t h e a s s u m p t i o n t h a t
t h e S t o v a l l l e a s e was v a l i d and s h e and h e r a t t o r n e y had
made e f f o r t s t o p l a c e t h e S t o v a l l s i n p o s s e s s i o n . Further-
more, n e i t h e r s h e n o r h e r a t t o r n e y e v e r contended t h a t t h e
S t o v a l l l e a s e was i n v a l i d a t t h e t i m e when t h e S t o v a l l s w e r e
p r e s s i n g h e r and a t t o r n e y Mason f o r i n f o r m a t i o n on o t h e r b i d s
s o t h a t t h e S t o v a l l s c o u l d d e c i d e whether o r n o t t o m e e t any
b i d s t h a t had been made. A t t o r n e y Mason f i r s t p u t f o r t h t h e
t h e o r y t h a t t h e S t o v a l l l e a s e was c o n d i t i o n e d upon t h e Hardys
v a c a t i n g t h e p r o p e r t y o n l y a f t e r t h e s a l e t e r m s t o t h e Hardys
had been a g r e e d upon and a t t o r n e y s f o r t h e Hardys had made a
r e l e a s e of t h e S t o v a l l l e a s e , a t i t l e requirement. The
t r i a l c o u r t s p e c i f i c a l l y found t h a t t h e S t o v a l l l e a s e w i t h
L i l l i a n W a t t was n o t c o n d i t i o n e d upon t h e Hardys f i r s t v a c a t i n g
t h e property. S u b s t a n t i a l c r e d i b l e evidence supports t h i s
finding.
Under s e c t i o n 27-1-314, MCA, i f t h e breaching p a r t y
o p e r a t e s i n bad f a i t h , t h e measure of damages i s t h e
d i f f e r e n c e between t h e a g r e e d p r i c e and t h e v a l u e of t h e
e s t a t e a t t h e t i m e of t h e b r e a c h , p l u s e x p e n s e s p r o p e r l y
incurred i n preparing t o e n t e r t h e land. The e v e n t s h e r e
c l e a r l y d e m o n s t r a t e t h a t L i l l i a n Watt, d i r e c t l y , and i n d i r e c t l y
t h r o u g h h e r a t t o r n e y , a c t e d i n a f a s h i o n c o n s t i t u t i n g bad f a i t h .
By September 1969, L i l l i a n W a t t had d e c i d e d t o s e l l t h e
p r o p e r t y and had informed a t t o r n e y Mason of h e r d e c i s i o n . By
t h i s t i m e s h e had a l r e a d y s i g n e d t h e l e a s e agreement w i t h t h e
Stovalls. A t t o r n e y Mason's l e t t e r t o t h e S t o v a l l s on September
1 5 , 1969, informed them t h a t t h e p r o p e r t y was f o r s a l e and
s o l i c i t e d an o f f e r . L a t e r , on October 1 6 , 1969, t h e S t o v a l l s
s e n t a l e t t e r t o L i l l i a n Watt reminding h e r of t h e l e a s e
agreement, t h e i r r i g h t t o t a k e p o s s e s s i o n , and t h e o p t i o n
t o p u r c h a s e p r o v i s i o n i n t h e lease. In t h i s respect the
S t o v a l l s r e q u e s t e d i n f o r m a t i o n a s t o any o f f e r which L i l l i a n
Watt r e c e i v e d s o t h a t t h e S t o v a l l s c o u l d d e c i d e w h e t h e r o r
n o t t o m e e t t h e o f f e r and e x e r c i s e t h e i r r i g h t s under t h e
lease. I n r e s p o n s e L i l l i a n Watt w r o t e t o t h e S t o v a l l s on
October 27, 1969 and t o l d them t h a t s h e d i d n o t know w h e t h e r
a t t o r n e y Mason had r e c e i v e d any b i d from t h e Hardys, b u t
s h e a s s u r e d t h e S t o v a l l s t h a t t h e y would most c e r t a i n l y be
c o n s u l t e d and g i v e n a chance t o m e e t t h e b i d .
Nothing t r a n s p i r e d u n t i l J a n u a r y 1970 when a t t o r n e y Mason
w r o t e i d e n t i c a l l e t t e r s t o t h e S t o v a l l s and t h e Hardys s o l i c i t i n g
o f f e r s f o r t h e property. The H a r d y ' s a t t o r n e y responded w i t h
an o f f e r o f $20 p e r a c r e , making $19,200 t h e t o t a l o f f e r . The
S t o v a l l s responded by t e l e p h o n i n g b o t h L i l l i a n Watt and a t t o r n e y
Mason and asked t o d e t e r m i n e what b i d t h e y would need t o m e e t
i n o r d e r t o e x e r c i s e t h e i r o p t i o n under t h e l e a s e agreement.
But n e i t h e r L i l l i a n Watt n o r a t t o r n e y Mason gave a f o r t h r i g h t
answer t o t h e S t o v a l l s . L i l l i a n Watt r e f e r r e d t h e S t o v a l l s
t o a t t o r n e y Mason and a t t o r n e y Mason r e f e r r e d t h e S t o v a l l s t o
Lillian W a t t . A t t h i s point, t h e S t o v a l l s could not o b t a i n
anything d e f i n i t e .
Sometime l a t e r , L i l l i a n Watt mentioned a f i g u r e of
$20,000 t o t h e S t o v a l l s , and i n r e s p o n s e t h e S t o v a l l s w r o t e
b o t h L i l l i a n W a t t and a t t o r n e y Mason a s k i n g f o r t h e e x a c t
f i g u r e which t h e y had t o meet i f t h e y w e r e t o e x e r c i s e t h e i r
option. N e i t h e r L i l l i a n W a t t ror a t t o r n e y Mason responded t o
the Stovalls' request. Furthermore, a t t h e t i m e t h e S t o v a l l s
had w r i t t e n t h i s l e t t e r , a t t o r n e y Mason had a l r e a d y d e c i d e d
t o a c c e p t t h e Hardy o f f e r and i n f a c t t h e a t t o r n e y f o r t h e
Hardys had a l r e a d y t e n d e r e d a 10 p e r c e n t down payment and a
-9-
c o n t r a c t f o r deed t o a t t o r n e y Mason. Mason, however,
never disclosed t h i s information t o t h e S t o v a l l s although
it d o e s a p p e a r t h a t h e t o l d t h e S t o v a l l s of t h e $20,000 o f f e r
made by t h e Hardys.
A s a r e s u l t o f t h e S t o v a l l s l e a r n i n g of t h e $20,000
o f f e r by t h e Hardys, t h e S t o v a l l s on March 27, 1970 s e n t
l e t t e r s t o b o t h L i l l i a n Watt and a t t o r n e y Mason a d v i s i n g
them t h a t t h e y would m e e t t h i s $20,000 b i d and e x e r c i s e t h e i r
o p t i o n under t h e lease. But n e i t h e r L i l l i a n Watt n o r a t t o r n e y
Mason responded t o t h e l e t t e r s . F u r t h e r m o r e , L i l l i a n Watt
and a t t o r n e y Mason f a i l e d t o r e t u r n numerous phone c a l l s
t o them by t h e S t o v a l l s i n r e l a t i o n t o t h e p r o p e r t y i n v o l v e d .
B e f o r e t h e Hardys s i g n e d t h e p u r c h a s e agreement, t h e i r
a t t o r n e y examined t h e a b s t r a c t s and found a d e f e c t i n t i t l e ,
namely, t h e S t o v a l l lease w i t h t h e o p t i o n t o p u r c h a s e
p r o v i s i o n , which had been r e c o r d e d on September 2 2 , 1969. As
a r e s u l t of t h i s , L i l l i a n Watt s i g n e d a l e t t e r of i n d e m n i t y t o
p r o t e c t t h e Hardys from any damages which might f l o w a s a
r e s u l t of any a c t i o n b r o u g h t by t h e S t o v a l l s i n r e l a t i o n t o
t h e property involved. L i l l i a n W a t t a l s o a g r e e d t o pay any
l e g a l f e e s i n c u r r e d i n r e l a t i o n t o such a c t i o n b r o u g h t by
the Stovalls.
W e cannot say, i n l i g h t of a l l t h e s e circumstances,
t h a t L i l l i a n W a t t ' s c o n d u c t , b o t h p e r s o n a l l y , and t h r o u g h
h e r a t t o r n e y , was less t h a n bad f a i t h i n r e l a t i o n t o t h e
dealings with the Stovalls.
The damages awarded h e r e a r e c l e a r l y w i t h i n t h e l i m i t s
o f s e c t i o n 27-1-314, MCA. Damages w e r e e s t a b l i s h e d by a
simple process. L i l l i a n W a t t s o l d t h e 960 a c r e s t o t h e
Hardys a t a p r i c e o f $20 p e r a c r e . J o e Cormier, a l o c a l
r a n c h e r f a m i l i a r w i t h t h e market c o n d i t i o n s f o r l a n d s a l e s ,
t e s t i f i e d t h a t t h e L i l l i a n Watt l a n 2 was c o n s e r v a t i v e l y w o r t h
-10-
$30 an a c r e . Cormier had made a s a l e of h i s own r a n c h l a n d
a t a b o u t t h e s a m e t i m e as L i l l i a n W a t t s o l d h e r p r o p e r t y t o
t h e Hardys. Cormier r e c e i v e d a p r i c e of $35 p e r a c r e f o r
comparable l a n d , b u t t h a t was i n c o n j u n c t i o n w i t h a r a n c h
s a l e i n v o l v i n g a l a r g e q u a n t i t y of deeded l a n d , p l u s l e a s e s .
The t r i a l c o u r t found t h a t t h e L i l l i a n Watt p r o p e r t y w a s
r e a s o n a b l y w o r t h $30 p e r a c r e . There i s no r e c o r d , however,
of any e x p e n s e s i n c u r r e d by t h e S t o v a l l s p r e p a r a t o r y t o
entering t h e land t o take possession. There i s t e s t i m o n y
t h a t one-half m i l e o f f e n c e was r e b u i l t , b u t no a t t e m p t was
made t o i t e m i z e t h e c o s t s o r e x p e n s e s s o i n c u r r e d .
I t i s c l e a r , t h e r e f o r e , t h a t t h e measure of damages i s
($30)
t h e d i f f e r e n c e between t h e v a l u e p e r a c r e / a s found by t h e t r i a l
($20)
c o u r t , and t h e a c t u a l c o n t r a c t p r i c d , which i s $10 p e r a c r e .
A c c o r d i n g l y , t h e t r i a l c o u r t w a s c o r r e c t i n e n t e r i n g judgment
a g a i n s t L i l l i a n Watt f o r t h e amount o f $9,600 and c o s t s .
The judgment o f t h e D i s t r i c t C o u r t i s a f f i r m e d .
W e Concur:
Chief J u s t i c e
u Justices
Justice John C. Sheehy dissenting:
I concur in part and dissent in part from the foregoing
opinion.
The statute under which the District Court granted the
the
judgment in the sum of $9,600 to/Stovalls was section 17-306,
R.C.M. 1947, now section 27-1-314, MCA, which provides:
"The detriment caused by the breach of an agree-
ment to convey an estate in real property is
deemed to be the price paid, and the expenses
properly incurred in examining the title and
preparing the necessary papers, with interest
thereon; but adding thereto, - - -of bad
in case -
faith, the difference between the price agreed
to be paid and the value of the estate agreed
to be conveyed, at the time of the breach, and
the expenses properly incurred in preparing to
enter upon the land." (Emphasis added.)
The District Court confined itself to that statute in
determining damages. When one examines the language of
section 27-1-314, MCA, above, one sees that damages thereunder
can take two forms and two determinations: (1) a return of
monies paid and expenses incurred in document preparation;
and, (2) if bad faith - present the difference between the
is
price agreed upon and the value of the estate agreed to be
conveyed at the time of the breach.
Under the first portion of section 27-1-314, MCA, the
District Court found that no damages had been proved, since
no purchase price had been paid and there was no evidence
relating to document preparation or other expenses. In con-
nection with the second determination, the District Court found
bad faith on the part of Lillian Watt, and on that basis awarded
the damages stated above.
The District Court found that the conduct of Lillian Watt
in refusing to recognize the option agreement as having any
validity was bad faith "admittedly because of the guidance
of [her attorney]." The District Court further found that
-12-
Lillian Watt was not guilty of fraud or misrepresentation,
and it did not find that she had unclean hands as against the
Stovalls. The controlling element as far as the District
Court is concerned is that Lillian Watt, through the advice
of her counsel, took the position that the Stovall lease was
not a binding lease because the condition precedent, "possession
thereof to be given as soon as present tenant vacates same
. . ." never occurred. The District Court found that Lillian
Watt's position that the lease was not binding until the
possession transferred was not asserted at the time the Stovalls
were pressing Mason and Lillian Watt for information on the
bids so they could exercise the option, and that "it was not
until after the sale to the Hardys had been agreed upon and
Hardys attorney made a release of the Stovall lease a title
requirement, that Mason put forth the theory that the Stovall
lease was conditioned upon Hardy vacating."
This determination by the District Court however, does
not square with the written evidence of the case. In the
time when attorney Mason was soliciting bids from the Hardys
and the Stovalls, between January 1970 and March 27, 1970,
the latter date being when the Stovalls indicated they would
meet the $20,000 bid, attorney Mason solicited the bids from
both parties to avoid "cutthroat action". It also appears
that when the facts of the dual leases became known to all
the parties, that the attorney wrote both to Hardy and
Stovall suggesting that they share the lease, one to take
the lease for farm purposes, and the other to have the
grazing privileges after the farming was completed in the
fall. Indeed, on April 5, 1969, nearly - -
a year before the
- -to Hardys was consummated, Lillian Watt had written to
sale
her attorney "the lease to the Stovalls was contingent upon
the Hardys moving off the place, and no money has changed
hands . . ." I think the evidence is clear that the contention
-13-
that Stovall had a conditional lease was not an afterthought
on the part of Lillian Watt, but her view of the legal
status of the Stovall lease all along. While such legal
position may have been mistaken, when we consider her actions
from the aspect of bad faith, she cannot be characterized as
a miscreant.
This brings us to a consideration of what constitutes
"bad faith" in connection with an award of damages under
section 27-1-314, MCA. It is a term that cannot be defined
with scientific precision. It has been held that "good
faith" is that ordinarily exhibited by a seller who is
unable to perform through no fault of his own; while "bad
faith" is that s.hown by a seller who refuses to perform
though able to do so. Charles County Broadcasting Co.,
Inc. v. Meares (Md. 1973), 311 A.2d 27, 31. As applied to
an insurer under an insurance policy it is said that "bad
faith" embraces more than negligence and imports dishonest
purpose or conscious wrongdoing. Simpson v. Motorists
Mutual Insurance Company (7th Cir. 1974), 494 ~ . 2 d
850, 853.
Cal.2d 499,
Although in Rasmussen v. Moe (1956), 1381 292 P.2d 226, 229,
it was held that the negligence of a vendor which put him in
a position of being unable to perform his contract was
sufficient to show bad faith, it has also been held in
California that in general bad faith extends beyond fraud or
dishonesty and embraces unfair dealings; it often denotes a
deliberate refusal to perform without just or reasonable
cause. County of Inyo v. City of Los Angeles (Cal. 1978),
144 Cal.Rptr. 71, 77, 78 Cal.3d 82. A refusal to perform
without just cause or excuse is sufficient to constitute bad
faith according to Brandolino v. Lindsay (Cal. 1969), 75
Cal.Rptr. 56, 60, 269 Cal.2d 319.
I would hold that before bad faith may be found as to a
vendor who refuses to perform an agreement to convey real estate,
such bad faith must be based upon some motive of self-interest
or ill will toward the other party. Those elements are
lacking entirely here. The refusal to perform has not bene-
fited Lillian Watt. In fact, the evidence indicates that the
property which she agreed to sell had a value at the time of
the trial of $157,000. While that is not a factor to be
considered, since section 27-1-314, MCA requires the value to
be determined as of the time of the breach, it does indicate
that she was not motivated by self profit or self-interest in
refusing to convey the property to Stovalls. Nor can it be
said from the evidence that her decision was based upon ill
will toward Stovall. She made her decision apparently
because she recognized that the Hardys had farmed her properties
since the 1950's and had acted in good faith in making their
lease payments and procuring a new lease from the agent of
her predecessor in ownership. Of course, she had received no
monies of any kind under the Stovall lease. Therefore since
her actions do not constitute bad faith in the premises, the
award of damages against her on that ground should be reversed.
Nothing I say here should be taken to mean that in a
proper case a prospective vendee or option holder is precluded
from recovering damages not only under section 27-1-314, MCA,
but also under section 27-1-311, MCA. Section 27-1-311 is the
general statute on the measure of damages for breach of
contract, and incorporates the ancient principle of Hadley
v. Baxendale (1854), 9 Exch. 341, 156 Eng. Reprint 145; Laas
v. Mont. Hwy. Comm'n. et al. (1971), 157 Mont. 121, 131, 483
P.2d 699.
The general rule is that the measure of damages in a
contract breach is the amount which will compensate the
party aggrieved for all the detriment proximately caused
thereby or which in the ordinary course of things will be
likely to result therefrom. Section 27-1-314, MCA, is not
necessarily exclusive. Wiseman v. Holt (1973), 163 Mont.
387, 517 P.2d 711. But this case was tried under the theory
that extra damages were recoverable on the ground of bad
faith and on that ground I would determine that the award of
damages against Lillian Watt must fall.
Accordingly, I concur in the majority opinion that
specific performance is not applicable here but I dissent to
the affirmance of the judgment against Lillian Watt in favor
of the Stovalls.
................................
Justice