No. 14947
IN THE SUPREME COURT OF THE STATE OF MONTANA
MONTANA WILLIAMS DOUBLE DIAMOND,
a Montana Corporation,
Plaintiff and Appellant,
VS.
ROYAL VILLAGE, INC., a Montana Corporation,
Defendant and Respondent.
Appeal from: District Court of the Eighteenth Judicial District,
County of Gallatin,
Honorable W. W. Lessley, Judge presiding.
Counsel of Record:
For Appellant:
Goetz and Madden, Bozeman, Montana
William Madden argued, Bozeman, Montana
For Respondent:
Bolinger, Higgins and Andes, Bozeman, Montana
Hal Bolinger argued, Bozeman, Montana
Submitted: February 25, 1980
Decided: MA? :2 1981)
Filed:
MC" .Q@g
id'-
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the Court.
Montana Williams Double Diamond Corporation appeals from
a judgment issued pursuant to a show cause hearing in Gallatin
County District Court, declaring that the Corporation forfeited
all rights under contracts entered into with Royal Village,
Inc. and ordering the cancellation of all such contracts
together with an accompanying note and mortgage given to the
Corporation by Royal Village, Inc.
Montana Williams Double Diamond Corporation (hereafter
referred to as Montana Williams) is a Montana corporation
whose principal business is a real estate sales business under
the fictitious and unregistered name of Double Diamond Properties.
Double Diamond Properties is operated by Lillian E. Williams,
a real estate broker licensed under Montana law.
In November 1977, Wallace Diteman, a construction con-
tractor, approached Lillian Williams concerning his interest
in purchasing property for a subdivision development. Through
her brokerage efforts, Diteman later purchased an approximate
300 acre parcel west of Belgrade, Montana, in the name of
Royal Village, Inc. (hereafter referred to as Royal Village).
It was agreed that the commission owing on the purchase "would
be deferred and picked-up somewhere along the way." Subsequently
two attempts were made to pay the deferred commission but the
various agreements fell by the wayside.
Meanwhile, Royal Village began developing the Royal
Village subdivision consisting of approximately 268 lots.
Royal Village estimated 1.2 million dollars was necessary
for required improvements. Royal Village was never success-
ful at financing the construction project. In the fall of
1978, Royal Village approached Montana Williams with a plan
to generate working capital. Montana Williams entered into
an agreement dated September 29, 1978, agreeing to purchase 137
-2-
lots from Royal Village for the total sum of $748,663.04
payable as follows: earnest money of $3,946.70, consisting
of the sum of $2,700 plus a credit for title insurance of
$1,246.70; down payment of $266,053.30 payable on the date
of closing; and the balance of $478,663.04 together with
interest at the rate of 10% from September 15, 1978, was to
be paid in two installments, one of $230,000.50 toward
principal and interest on or before December 1, 1978, and
the balance of the principal and accrued interest on or
before December 1, 1983. The date of closing was designated
as September 15, 1978.
As part of the same transaction, Diteman and Double
Diamond Properties entered into an exclusive real estate
listing agreement giving Double Diamond the sole right to sell
the lots in Royal Village Subdivision, exclusive of the lots
included in Phase I, for a period of five years. No sales
were ever consummated.
In order to accomodate the cash generation function of
the contract, the agreement provides in paragraph 2(H) for
partial releases of lots for payments under the purchase contract.
Pursuant to paragraph 2(G) of the contract for sale, five lots
set forth on Exhibit A to the contract were to be released
upon payment of the closing amount. Release of the remaining
132 lots, listed on Exhibit B of the contract was to be,
according to paragraph 2(H), upon payments on the principal
balance due at the rate of 77 cents per square foot for each
lot proposed to be released. Deeds for these 132 lots were
to be deposited with an escrow agent who was to deliver such
deeds to the purchaser upon determination that the rate for
the lot sought to be released had been paid. In the event
of Montana Williamst breach, Royal Village was entitled under
paragraph 5, to forfeit Montana Williamst interest under the
-3-
agreement by giving the notices therein required. However,
any lots previously released would not be subject to for-
feiture.
Additionally, Royal Village warranted it would obtain
FHA, VA and HUD approvals of the subdivision. To insure this
warranty, Royal Village executed a note and mortgage on the
remaining lots to Montana Williams in the sum of $748,663.04
to insure Montana Williams that the improvements would be
made on the lots being purchased by them.
Neither party performed the contract as written. The
payments to be made, the warranty deeds to be delivered and
the escrow agent to become involved were never made or
designated for the reason that of the $266,053.30 payment due
at the time of closing, only $41,823.52 (being the full proceeds
from the sale of the five lots set forth in Exhibit A to the
contract) was paid. Nevertheless, upon receipt of the money,
Royal Village released all five Exhibit A lots by delivery
of deeds and mortgage releases. Following execution of the
purchase contract, Royal Village also released Exhibit B lots
sold to third party purchasers by delivering deeds and bank
releases directly from Royal Village to the third party
purchasers.
Overall, Montana Williams sold 12 of the 137 lots to
third party purchasers for cash. Of the remaining lots,
Montana Williams sold 120 on contracts for deed to third party
purchasers. For payments received under these contracts,
Royal Village released three lots by delivery of warranty
deeds and releases of mortgage.
The sales by Montana Williams to third party purchasers
generated $238,378 in cash. All was paid to Royal Village
even though Montana Williams was entitled to keep a portion
as commissions under paragraph 2(E) of the contract for sale.
-4-
By taking into account credits for title insurance, closing
fees and some real estate commissions paid by Montana Williams,
a total of $250,362.24 has been paid by Montana Williams
under the contract.
The parties developed differences on how to salvage
the operations when it became apparent Montana Williams could
not pay the December installment. In February 1979, Montana
Williams requested Royal Village to release as many lots as
paid for by the $238,378.31 so as to free those lots for
further marketing. Considering the 12 lots already released,
Montana Williams asserted it was entitled to at least 31 lots.
Royal Village refused the demand and then served Montana
Williams with two 15 day notices of default as provided for
under the contract. The notices gave Montana Williams a total
of 30 days to bring all payments current or forfeit all its
contractual rights.
As a result, Montana Williams filed this cause for a
declaration of its rights under the contracts on March 22,
1979. After a show cause hearing on April 17 and 18, 1979,
the District Court issued findings of fact and conclusions
of law on May 4, 1979. The court determined that Montana
Williams had forfeited all its contractual rights by failing
to make timely payments. The District Court's May 7, 1979
judgment cancelled all agreements between the parties and
cancelled the note and mortgage given to secure Royal Village's
express warranty. This appeal followed.
The following issues are set forth for our review:
(1) Whether the District Court erred in ruling that
the appellant is not entitled to have any additional lots
deeded to it?
-
(2) Whether the District Court erred in not declaring
the respondent legally bound by the contracts entered into
between appellant and third party purchasers?
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(3) Whether the District Court erred in cancelling
the note and mortgage?
(4) Whether the District Court erred in cancelling
the real estate exclusive agency agreement?
(5) Whether the District Court erred by granting
respondent's motion to add additional parties-plaintiff to
this action?
(6) Whether the appellant is entitled to its attorney
fees pursuant to paragraph 8 of the contract?
Appellants' primary contention on this appeal is that
they are entitled to the release of additional exhibit B
lots under the release provision of the real estate sales
contract, on a waiver theory. It is asserted that respondents
waived appellants' admitted default in making the payments
due under the terms of the contract, by accepting sums sub-
sequent to the closing of the contract and by releasing deeds
to exhibit B lots which by the wording of the contract were
not to be released until payment of the full closing amount.
Appellants also submit that the sanctions provided for under
the forfeiture provisions of the contract were not utilized
with the celerity that is required under Montana law.
Although it is true that Montana case law supports the
proposition that a vendor's option to declare or assert a
forefeiture for default in payment must be exercised promptly,
Suburban Homes Co. v. North (1914), 50 Mont. 108, 118, 145
P. 2, 5; Hansen v. Transamerica Ins. Co. (1978), Mont .
, 573 P.2d 663, 666, 35 St.Rep. 55, 58-59, it is also true
that such a waiver does not compel the vendor to keep the
contract open indefinitely. On the contrary, the essence
of the waiver is merely that there cannot be a forfeiture
without the giving of a preliminary warning which in turn
implies notice of an intent to forfeit if payment is not made
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within reasonable time. The vendor waives such a right
only for the time being and can only terminate the contract
after he has given the purchaser suitable notice and a
reasonable time to pay. Suburban Homes, 50 Mont. at 118,
145 P. at 5.
In the present case, assuming arguendo there did exist
a suspension of the right of forfeiture due to respondents'
indulgence, it was only temporary and was restored by the
respondents giving to the purchaser the 30 day grace period
and subsequent 15 day notices required by paragraph 5 of the
contract. As a result, respondents are precluded from
asserting rights under the contract based on waiver.
The forfeiture provision of the contract states in
pertinent part:
". .
. The Purchaser hereby agrees that in the
event that the said forfeiture is exercised and
it fails to perform as herein agreed,. . . that
all of its rights, title, interest and equity
in said premises are forever forfeited. Provided,
however, that as to any lots previously released
and conveyed to the Purchaser as herein provided,
there shall be no forfeiture and purchaser shall
be entitled to retain such lots."
No contest is presented as to those lots "previously'released
and conveyed to the purchaser." However, appellants' assertion
of entitlement to additional lots depends on a dead instrument.
Light v. Zeiter (1950), 124 Mont. 67, 71, 219 P.2d 295, 297.
As was their choice pursuant to the purchasers' default,
respondents chose to serve the required notices that terminated
the contract. The contract being at an end, the appellants
cannot now sue upon it as though it was still in force.
Appellants assert as grounds for their second issue of
review that it is evident from both the contract of sale and
the manner in which appellants and respondents performed it
that the contracts entered into between appellants and
individual third party purchasers constitute a joint venture
between appellants and respondents making them jointly
bound. This issue was not presented to the District Court
and as such cannot be raised for the first time on appeal.
Northern Plains v. Board of Natural Resources (1979), 594 P.2d
297, 309, 36 St.Rep. 666, 680; Spencer v. Robertson (1968),
151 Mont. 507, 511, 445 P.2d 48, 50-51.
Appellants' next two issues concern the real estate
exclusive agency agreement and-respondents'note and mortgage
given as security for that warranty. Appellants contend these
instruments constitute covenants severable from the contract
for sale and as such survive the termination of the contract.
The District Court's findings of fact nos. 12 and 13
respectively find these instruments executed as part of the
same transaction. These findings will not be disturbed on
appeal unless respondents present substantial evidence to
refute these findings. Knight and Co. v. Manaras (1979),
Mont . - 603 P.2d 675, 676, 36 St.Rep. 2148, 2150A.
, Respondents
have failed to refute satisfactorily these findings. After
examining the record this Court finds that the evidence indeed
leads to the factual con~:iusion that the execution of these
documents was achieved pursuant to but one transaction. As a
result, we find this contention without merit.
Appellants' next allegation of error concerns findings
of fact no. 2 which reads in pertinent part:
"That plaintiff corporation had not filed its
annual report for the year 1978 at the time this
action was commenced, and Lillian E. Williams,
Joseph F. Williams, and David L. Farrand should
be named as additional parties plaintiff,. . ."
The District Court denied appellants' post-trial motion to
amend its findings on this point. During the hearing on the
post-trial motions, appellant correctly informed the Court
that section 15-811, R.C.M. 1947, the statute used to impose
personal liability upon the directors of a corporation for all
debts and judgments of the corporation where it failed to
file an annual report, had been repealed by section 143,
Chap. 300, Laws of 1967. Section 15-22-125, R.C.M. 1947,
now section 35-1-1103, MCA, is essentially a replacement
statute which changes the nature of the sanction from personal
liability to imposition of misdemeanor criminal sanctions upon
the corporation.
The evidence is substantial to allow Lillian E. Williams
and Double Diamond Properties to be named as additional
parties plaintiff. The real estate exclusive agency agree-
ment was signed on behalf of Double Diamond Properties
by Lillian E. Williams, a duly licensed Montana real estate
broker, as was the contract for sale of real property.
However, the addition of Joseph F. Williams and David
L. Farrand does not seem to be substantiated by the record.
As a result they should be dismissed as parties to this action.
Appellants' last issue requesting attorney fees pursuant
to paragraph 8 of the contract, is also dismissed since they
were not the successful party in this litigation.
The decision of the District Court is affirmed as modified
in accordance with this opinion.
Justice
We Concur:
Chief Justice
, .
Justices