Wortman v. Griff

No. 82-56
IN THE SUPREME COURT OF THE STATE OF MONTANA
1982

RICHARD A. WORTMAN and ANN F. WORTMAN,
Plaintiffs and Appellants,

GARY J. GRIFF, GERALD J. CAPLAN,
CONSERVATIVE INVESTORS GROUP, and
FIRST SECURITY BANK OF LIVINGSTON,
Defendants and Respondents.

Appeal from: District Court of the Eighteenth Judicial District,
In and for the County of Gallatin
Honorable W. W. Lessley, Judge presiding.
Counsel of Record:
For Plaintiffs:
Nash & Nash, Bozeman, Montana
Cordell Johnson, Helena, Montana
For Defendants:
Gene I. Brown, Bozeman, Montana
IIuppert & Swindlehurst, ~ivingston,Montana

Submitted on briefs: July 15, 1982
Decided: October 4, 1982

Filed:

Clerk
Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e O p i n i o n of t h e C o u r t .

This action a r o s e o u t of two a g r e e m e n t s by t h e p l a i n t i f f s
with Gary Griff and Gerald Caplan, as individuals, and with

C o n s e r v a t i v e I n v e s t o r s Group, a California corporation, f o r two
p a r c e l s of land. A t r i a l was h e l d i n t h e D i s t r i c t C o u r t of t h e
Eighteenth Judicial District. In its d e c i s i o n , the District

Court found that the contracts were separate and distinct

a g r e e m e n t s , and t h a t p l a i n t i f f had d e f r a u d e d t h e d e f e n d a n t cor-
poration. From t h i s j u d g m e n t , p l a i n t i f f a p p e a l s .
The d e f e n d a n t s , Griff and C a p l a n , who are o f f i c e r s and the
sole shareholders of the defendant corporation, contacted the
p l a i n t i f f about purchasing the property i n question. They became

aware of t h e p r o p e r t y t h r o u g h a n ad i n t h e W a l l S t r e e t J o u r n a l .
A f t e r r e c e i p t of a b r o c h u r e on t h e l a n d and some i n i t i a l phone

contact with the p l a i n t i f f , R i c h a r d Wortman, t h e d e f e n d a n t , f l e w
t o Montana from C a l i f o r n i a t o l o o k a t t h e land i n mid-November
1977. After t a k i n g a walking t o u r of the property, which was
subdivided into ten-acre tracts, and then conducting nego-
tiations, it was a g r e e d t h a t d e f e n d a n t s , G r i f f and C a p l a n , would

p u r c h a s e l o t s one t h r o u g h s i x and t h e h o u s e l o c a t e d on l o t o n e as
i n d i v i d u a l s and t h e c o r p o r a t i o n would p u r c h a s e l o t s s e v e n t h r o u g h

thirteen. This agreement was entered into despite the
defendants' knowledge that some of the l o t s were l o c a t e d in a

floodplain, because it was alleged plaintiff said there were
building sites outside the floodplain on every lot.
A l t h o u g h t h e r e is e v i d e n c e t h a t t h e l o t s i n b o t h p a r c e l s were
not of equal value, it was a g r e e d to a l l o c a t e one-half of the
total price to each contract. It was also agreed in both
contracts t h a t t h e p u r c h a s e r was to pay t h e t a x e s on t h e l a n d .
T h i s was n o t done and p l a i n t i f f had t o p a y t h e t a x e s to p r e v e n t a

t a x l i e n f r o m b e i n g imposed upon t h e l a n d . However, a n a t t e m p t

was made t o r e i m b u r s e t h e p l a i n t i f f f o r s a i d t a x e s b u t he r e f u s e d

the check. It should also be noted that despite the nego-

t i a t i o n s , n e i t h e r c o n t r a c t r e f e r s to t h e o t h e r .
 The corporate defendant stopped making its semi-annual

p a y m e n t s , as r e q u i r e d b y t h e c o n t r a c t i n March 1 9 8 1 . The i n d i v i -
dual defendants attempted to make their payment on lots one

t h r o u g h s i x , which was r e f u s e d by t h e p l a i n t i f f . The p l a i n t i f f ' s

contend t h a t t h e c o n t r a c t s are not s e p a r a t e b u t c o n s t i t u t e one
agreement, and therefore the d e f e n d a n t s are i n d e f a u l t on t h e
w h o l e and t h e i r r i g h t s i n a l l t h e p r o p e r t y s h o u l d be t e r m i n a t e d .

D e f e n d a n t s on t h e o t h e r hand a n s w e r e d b y c o n t e n d i n g t h a t t h e
t w o c o n t r a c t s a r e s e p a r a t e and d i s t i n c t . The c o r p o r a t e d e f e n d a n t
also counterclaimed asking f o r r e s c i s s i o n because p l a i n t i f f had

misrepresented lots seven through thirteen as having building
sites on them, when in fact such lots were located in a
floodplain and no such sites existed on some of them.

T h e r e are f o u r i s s u e s r a i s e d on a p p e a l :
1. Whether the District Court erred i n granting the non-
resident corporate defendant's counterclaim for rescission?

2. Whether the District Court's finding of fraud is sup-
p o r t e d by s u b s t a n t i a l e v i d e n c e ?
3. Whether t h e c o u r t e r r e d in failing to c o n s t r u e t h e two
c o n t r a c t s as o n e ?

4. Whether a t t o r n e y fees should have been awarded to the
prevailing party?

The i s s u e o f w h e t h e r t h e D i s t r i c t C o u r t s h o u l d h a v e g r a n t e d
the nonresident corporate defendant I s counterclaim for
rescission is t h e m o s t e a s i l y r e s o l v e d . A p p e l l a n t s claim t h a t

the corporation cannot assert its counterclaim for rescission
a g a i n s t them. They c i t e s e c t i o n 3 5 - 1 - 1 0 0 4 ( 1 ) , MCA, which p r o h i -
b i t s a c o r p o r a t i o n n o t a u t h o r i z e d to do b u s i n e s s i n Montana from
s u i n g i n t h e c o u r t s of t h i s s t a t e , i n s u p p o r t of t h i s c o n t e n t i o n .
However, t h e c o r p o r a t i o n i n t h i s s i t u a t i o n was n o t i n s t i t u t i n g a
suit. They were m e r e l y d e f e n d i n g t h e a c t i o n b r o u g h t a g a i n s t them

by plaintiffs, which they have a right to do under section

35-1-1004(2), MCA. The c o u n t e r c l a i m is j u s t o n e a s p e c t o f the
d e f e n s e which t h e y are e n t i t l e d t o r a i s e and c a n t h e r e f o r e be
brought.

The n e x t i s s u e t o be a d d r e s s e d is w h e t h e r t h e r e is s u b s t a n -
t i a l c r e d i b l e e v i d e n c e to s u p p o r t t h e f i n d i n g of fraud. There
are nine elements which must be established to prove fraud.

These are:
"1. A representation;

"2. F a l s i t y of t h e r e p r e s e n t a t i o n ;

"3. M a t e r i a l i t y of t h e r e p r e s e n t a t i o n ;

" 4 . S p e a k e r ' s k n o w l e d g e of t h e f a l s i t y of t h e
r e p r e s e n t a t i o n o r i g n o r a n c e of i t s t r u t h ;
"5. Speaker's intent it should be relied
upon ;
" 6 . The h e a r e r ' s i g n o r a n c e of t h e f a l s i t y of
the representation;
" 7 . The h e a r e r ' s r e l i a n c e on t h e r e p r e s e n t a -
tion ;
" 8 . The hearer's right to rely on the
r e p r e s e n t a t i o n ; and
" 9 . C o n s e q u e n t and p r o x i m a t e i n j u r y c a u s e d b y
t h e r e l i a n c e on t h e r e p r e s e n t a t i o n . " Van
E t t i n g e r v. P a p p i n ( 1 9 7 6 ) , 1 8 0 Mont 1, 1 0 , 5 8 8
P.2d 9 8 8 .
The D i s t r i c t C o u r t i n t h i s case believed t h a t a l l of said

e l e m e n t s were p r e s e n t as is e v i d e n c e d by its finding of fact
number e i g h t s t a t i n g t h a t t h e p l a i n t i f f f r a u d u l e n t l y r e p r e s e n t e d

l o t s s e v e n t h r o u g h t h i r t e e n and i t s c o n c l u s i o n of l a w number o n e
stating that rescission was proper due to fraud.

Appellants raise two major contentions in this regard.

Firstly, t h e y c o n t e n d t h a t b e c a u s e t h e d e f e n d a n t s had t h e o p p o r -

t u n i t y t o i n v e s t i g a t e t o see w h e t h e r t h e r e were a c t u a l l y b u i l d i n g
sites on the lots, and that since they did not they cannot
complain. But, this is n o t the case. I n J e n k i n s v. Hillard
(1982), 647 P.2d 354, 39 St.Rep. 1156, this Court stated:
"Van - g e r and -
- E t t i- n Lowe d o n o t s t a n d f o r t h e
.
p r o p o s i t i o n t h a t a b u y e r m u s t assume a s e l l e r
o r h i s a g e n t is l y i n g when t h e b u y e r is t o l d a
p l a u s i b l e e x p l a n a t i o n f o r a d e f e c t and w h a t is
r e q u i r e d to c u r e t h e d e f e c t . The K a n s a s
Supreme C o u r t h a s e x p r e s s e d t h e l i m i t a t i o n s
t h a t need t o be p l a c e d on t h e Van E t t i n g e r and
Lowe cases:

" ' T h e t r e n d o f t h e d e c i s i o n s of t h e c o u r t s of
t h i s and o t h e r s t a t e s i s t o w a r d s t h e j u s t
 d o c t r i n e t h a t w h e r e a c o n t r a c t is i n d u c e d by
f a l s e r e p r e s e n t a t i o n s as t o m a t e r i a l e x i s t e n t
f a c t s , w h i c h are made w i t h t h e i n t e n t t o
d e c e i v e , and upon which t h e p l a i n t i f f r e l i e d ,
i t is no d e f e n s e , t o t h e a c t i o n f o r r e s c i s s i o n
o r f o r damages a r i s i n g o u t of t h e d e c e i t , t h a t
t h e p a r t y t o whom t h e r e p r e s e n t a t i o n s were
made m i g h t , w i t h d u e d i l i g e n c e , h a v e d i s c o -
v e r e d t h e i r f a l s i t y , and t h a t h e made n o
searching inquiry into facts . I 11

N o r d s t r o m v . Miller ( 1 9 8 0 ) , 227 Kan. 591 6 0 5
P.2d 5 4 5 , 5 5 3 , q u o t i n g Speed v . H o l l i n g s w o r t h
( 1 8 9 4 ) , 54 Kan. 4 3 6 , 4 4 0 , 38 P. 4 9 6 , 497.
"Opportunity to i n s p e c t i n i t s e l f is n o
d e f e n s e to p o s s i b l e w i l l f u l m i s r e p r e s e n t a t i o n s
t h a t , b e c a u s e of t h e i r p l a u s i b i l i t y , p r e c l u d e
f u r t h e r i n v e s t i g a t i o n . S e e a l s o , S c h e c h t e r v.
B r e w e r (Mo. 1 9 6 1 ) , 3 4 4 S.W.2d 7 8 4 , and Lumby
v . Doetch ( 1 9 7 9 ) f
2 0 0 , 36 S t . R e p . 1683:"-
Mont . , 6 0 0 P.2d
- 3 9 ~ t . ~ g p ; - . a1160.
t
Secondly, they contend that because you can build on a

floodplain if regulations are m e t or that the lots could be
r e a r r a n g e d so a b u i l d i n g s i t e e x i s t s on e a c h t h a t t h e y a r e n o t

liable. However, this is not the case as neither of these

s i t u a t i o n s h a s a n y t h i n g to do w i t h t h e representation t h a t the
D i s t r i c t Court must have determined t h e p l a i n t i f f to h a v e made,
that t h e r e were building sites o u t s i d e the f l o o d p l a i n on e a c h

lot.
A s t h i s C o u r t h a s s t a t e d on p r e v i o u s i n n u m e r a b l e o c c a s i o n s a

d e c i s i o n o f t h e D i s t r i c t C o u r t w i l l n o t be o v e r t u r n e d w h e r e t h e r e

i s s u b s t a n t i a l c r e d i b l e e v i d e n c e to s u p p o r t i t . Lumby v . Doetch

(1979), 600 P.2d 2001 36 St.Rep. 1684. I n making a deter-
mination on the issue of substantial evidence this Court is
g u i d e d b y a number o f p r i n c i p l e s . T h e s e a r e most c o n c i s e l y set

o u t i n Lumby w h e r e t h i s C o u r t s t a t e d :
" I n r e s o l v i n g t h i s i s s u e , w e are guided by a
number o f p r i n c i p l e s established by t h i s
Court. The c r e d i b i l i t y o f w i t n e s s e s and t h e
w e i g h t t o be g i v e n t h e i r t e s t i m o n y a r e matters
f o r the District Court's determination i n a
n o n j u r y case. C o r s c a d d e n v . Kenney ( 1 9 7 7 ) ,
Mont . 572 P.2d 1 2 3 4 , 1 2 3 7 , 34
S t .Rep. 1533;-1-577. Thus, i n examining t h e
s u f f i c i e n c y o f t h e e v i d e n c e , w e m u s t view t h e
same i n a l i g h t most f a v o r a b l e t o t h e p r e -
v a i l i n g p a r t y , and w e w i l l p r e s u m e t h e f i n d -
i n g s and j u d g m e n t b y t h e D i s t r i c t C o u r t are
correct. H e l l i c k s o n v. B a r r e t t M o b i l e Home
T r a n s p o r t , I n c . ( 1 9 7 3 ) , 1 6 1 Mont. 4 5 5 , 4 5 9 ,
507 P.2d 5 2 3 , 5 2 5 . W w i l l not overturn the
e
findings and c o n c l u s i o n s o f t h e D i s t r i c t
 C o u r t u n l e s s t h e r e is a d e c i d e d p r e p o n d e r a n c e
o f t h e e v i d e n c e a g a i n s t them, and when t h e
evidence f u r n i s h e s reasonable grounds f o r d i f -
ferent conclusions, the f i n d i n g s of the
D i s t r i c t C o u r t w i l l n o t be d i s t u r b e d . Morgen
a n d Oswood C o n s t . C o . v . B i g Sky o f Mont.
( 1 9 7 6 ) , 1 7 1 Mont. 2 6 8 , 2 7 5 , 557 P.2d 1 0 1 7 ,
1021. The b u r d e n o f proof is on t h e
appellant. Schuman v . S t u d y Com'n of
Yellowstone Cty. (1978 ) , .
Mont - .- , 5 7 8
P.2d 2 9 1 , 2 9 2 , 3 5 S t . R e p . 3 8 6 , 3 8 8 . " 600 P.2d
a t 202.

I n examining this record i n l i g h t of these principles and

d e s p i t e t h e many c o n f l i c t s i n t h e e v i d e n c e r e l a t i n g t o t h e a b o v e

enumerated nine elements of fraud, we cannot overturn the
District Court s decision, as t h e r e is s u b s t a n t i a l c r e d i b l e e v i -
dence i n the record to s u p p o r t its f i n d i n g t h a t f r a u d e x i s t e d .
The third issue raised on a p p e a l concerns whether the two
c o n t r a c t s be t w e e n t h e p l a i n t i f f and t h e i n d i v i d u a l d e f e n d a n t s and

the plaintiff and t h e c o r p o r a t e d e f e n d a n t s h o u l d be c o n s t r u e d as
one. As noted above, the District Court found them to be
separate.

A corporation h a s a s e p a r a t e and d i s t i n c t i d e n t i t y from i t s
stockholders. Monarch F i r e I n s u r a n c e C o . v. Holmes ( 1 9 4 2 ) , 1 1 3

I l o n t . 3 0 3 , 3 0 8 , 1 2 4 P.2d 9 9 4 . Appellants urge t h a t t h i s s e p a r a t e

i d e n t i t y be d i s r e g a r d e d , as G r i f f and C a p l a n and t h e c o r p o r a t i o n

a r e o n e and t h e same, and t h e c o n t r a c t s be c o n s t r u e d as o n e u n d e r
s e c t i o n s 28-3-301 and 28-3-203, MCA. However, t h e g e n e r a l r u l e
s e t down by t h i s C o u r t i n Monarch F i r e I n s u r a n c e Co. v . Holmes,

s u p r a , as t o d i s r e g a r d i n g a c o r p o r a t e i d e n t i t y is:
" I . .. a c o r p o r a t i o n r e t a i n s i t s s e p a r a t e and
d i s t i n c t i d e n t i t y w h e r e i t s s t o c k is owned
p a r t l y or e n t i r e l y by a n o t h e r c o r p o r a t i o n a s
w e l l as w h e r e it is owned by n a t u r a l p e r s o n s . '
( 1 8 C . J . S . , C o r p o r a t i o n s , sec. 5 , p. 3 7 5 . )
B e f o r e t h e c o r p o r a t e c l o a k w i l l be d i s r e g a r d e d
it must a p p e a r n o t o n l y t h a t t h e c o r p o r a t i o n
i s c o n t r o l l e d and i n f l u e n c e d b y o n e or a f e w
p e r s o n s , b u t , i n a d d i t i o n , it is n e c e s s a r y to
demonstrate t h a t t h e c o r p o r a t e cloak is u t i -
l i z e d a s a s u b t e r f u g e t o d e f e a t p u b l i c con-
v e n i e n c e , t o j u s t i f y wrong, or to p e r p e t r a t e
fraud. ( 1 8 C. J. S . , C o r p o r a t i o n s , s e c . 6 ,
p. 378.) Under t h e i d e n t i t y t h e o r y it m u s t
a p p e a r f r o m t h e e v i d e n c e and m u s t be s u f -
f i c i e n t l y a l l e g e d t h a t t h e s u b s i d i a r y cor-
p o r a t i o n is a mere c r e a t u r e o f t h e p a r e n t ,
h a v i n g n o s e p a r a t e b u s i n e s s e x i s t e n c e and
s e r v i n g a s a mere b u s i n e s s c o n d u i t of t h e
 p a r e n t s ( I n re Muncie P u l p C o . , 2 C r , 139
Fed. 5 4 6 ) o r a mere d e p a r t m e n t o f t h e p a r e n t
( I n t e r s t a t e T e l . Co. v . B a l t i m o r e & 0 . T e l .
C o . , C. C . , 5 1 Fed. 4 9 ) .

" I n People ex rel. Studebaker Corp. v.
G i l c h r i s t , 244 N.Y. 1 1 4 , 1 5 5 N.E. 6 8 , 7 1 , it
is s a i d : ' Bef ore " t h e c o r p o r a t i o n p e r s o n a "
may be i g n o r e d , t h e e v i d e n c e m u s t show t h a t
" t h e s u b s i d a i r y is n o t l e f t w i t h a n y autonomy"
. .. P r o c t o r & Gamble C o . v . Newton, s u p r a
[D.C. 289 F e d . 1 0 1 3 1 ) and t h a t t h e p a r e n t ,
t h o u g h i n f o r m s p e a k i n g and a c t i n g t h r o u g h
a n o t h e r , is o p e r a t i n g t h e b u s i n e s s d i r e c t l y
f o r i t s e l f .' ( S e e , also, Erickson v. Revere
E l e v a t o r C o . , 1 1 0 Minn. 4 4 3 , 1 2 6 N.W. 1 3 0 . ) "
1 1 3 Mont. a t 308.
I n the present case t h e r e is a c o n f l i c t in the two s i d e s '

versions as t o how and a t whose u r g i n g the terms of these two
c o n t r a c t s came i n t o b e i n g . The Wortmans claim t h a t t h e y s o l d
t h e l a n d t o G r i f f and C a p l a n as i n d i v i d u a l s . They m a i n t a i n t h a t
the separate c o n t r a c t s were made at the request of Griff and
C a p l a n , t o them i n d i v i d u a l l y and to t h e c o r p o r a t i o n . Thus, they

claim t h a t it is o n e c o n t r a c t e v i d e n c e d b y t w o i n s t r u m e n t s and a

default on either half constitutes a default on the whole.
On t h e o t h e r h a n d , t h e r e s p o n d e n t s c o n t e n d t h a t t h e c o n t r a c t s
a r e s e p a r a t e and d i s t i n c t . They claim t h e c o n t r a c t s were drawn
by the plaintiffs1 attorney at the plaintiffs1 direction, and

t h a t n e i t h e r c o n t r a c t r e f e r s to t h e o t h e r . F i n a l l y and u n e q u i v o -

cally they point out that both contracts are c l e a r and unam-

b i g u o u s on t h e i r f a c e .
Where s u c h a c o n f l i c t e x i s t s , a s p r e v i o u s l y p o i n t e d o u t , t h i s

Court can o n l y look to see i f the lower c o u r t ' s f i n d i n g s and

c o n c l u s i o n s are s u p p o r t e d b y t h e r e c o r d . Matters o f the credi-
bility of testimony are left for the District Court's deter-
m i n a t i o n , Lumby v . D o e t c h , s u p r a .
I n t h i s case, t h e c o n t r a c t s s p e a k f o r t h e m s e l v e s . They a r e
clear and unambiguous on their faces. Neither makes the
s l i g h t e s t reference to t h e o t h e r . The l a w o f Montana is t h a t

where t h e l a n g u a g e is c l e a r and u n a m b i g u o u s o n i t s f a c e , i t is

t h e d u t y o f t h e c o u r t t o e n f o r c e it a s t h e p a r t i e s made i t , Ryan

v. Board of County C o m m i s s i o n e r s ( 1 9 8 0 ) , 6 2 0 P.2d 1 2 0 3 , 1 2 0 7 , 37
St.Rep. 1 9 6 5 , Madison F o r k Ranch v . L & B Lodge P o l e T i m b e r

P r o d u c t s ( 1 9 8 0 ) , 615 P.2d 9 0 0 , 37 S t . R e p . 1468. The p a r t i e s h e r e
a r e n o t t h e same a s a p p e l l a n t s c o n t e n d , because although t h e r e

may be some e v i d e n c e i n t h e r e c o r d t o support disregarding the
c o r p o r a t i o n ' s s e p a r a t e i d e n t i t y , based on t h e r u l e enumerated in
Monarch F i r e I n s u r a n c e C o . , s u p r a , t h e r e is a l s o e v i d e n c e i n t h e

r e c o r d m i t i g a t i n g a g a i n s t t h e a p p l i c a t i o n of t h a t r u l e . W e find

t h i s mitigating e v i d e n c e s u b s t a n t i a l and t h u s cannot interfere
w i t h t h e d e c i s i o n of t h e D i s t r i c t C o u r t .

The final issue raised on appeal, by the respondents is

w h e t h e r t h e y s h o u l d h a v e b e e n awarded a t t o r n e y ' s f e e s as t h e p r e -

vailing party. The c o n t r a c t s b o t h p r o v i d e t h a t :
" I n t h e e v e n t of l e g a l a c t i o n to r e g a i n
p o s s e s s i o n or t o e n f o r c e t h e r i g h t s of a n y
p a r t y t o t h i s a g r e e m e n t , i t is u n d e r s t o o d t h a t
t h e p r e v a i l i n g p a r t y s h a l l be e n t i t l e d t o a
r e a s o n a b l e a t t o r n e y ' s f e e to be f i x e d by t h e
C o u r t i n s u c h act i o n ; "
T h i s language i n i t s e l f i s c l e a r and u n a m b i g u o u s , and t h e c o u r t

s h o u l d h a v e e n f o r c e d i t as made by t h e p a r t i e s , Ryan v. Board of

County Commissioners, 620 P.2d a t 1207. This Court has pre-
v i o u s l y u p h e l d s u c h a n award o f a t t o r n e y ' s f e e s by t h e D i s t r i c t
C o u r t where the contract f a i r l y provided for them. Hares v.

N e l s o n ( 1 9 8 1 ) , 637 P.2d 1 9 , 38 S t . R e p . 2036.
The j u d g m e n t 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 and t h i s case

is remanded for further proceeding

W e concur: