NO. 83-387
IN THE SUPREME COURT OF THE STATE OF MONTANA
1984
ROBERT T. EATON, individually and
d/b/a EATON CONSTRUCTION,
Plaintiff and Respondent,
WILLIAM R. MORSE,
Defendant and Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Stillwater,
The Honorable Nat Allen, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Goetz, Madden & Dunn; James Goetz argued, Bozeman,
Montana
For Respondent :
Gary L. Beiswanger argued, Billings, Montana
-.
Submitted: June 19, 1984
Decided: September 5, 1984
qc i
)
Filed: -
Mr. Justice Frank B. Morrison, Jr. delivered. the Opinion of
the Court.
Judge Nat Allen of the Thirteenth Judicial District
Court, sitting without a jury, entered a judgment awarding
Robert T. Eaton money damages in the amount of $57,024.40
plus costs of $2,341.51 from William R. Morse. Morse
appeals.
Robert T. Eaton filed a civil action against William R.
Morse on October 6, 1981 seeking payment of $56,250. The
complaint alleged that Morse fraudulently appropriated money
for his own use from the settlement proceeds of the "Stran
Steel" case in which Morse, a practicing attorney,
represented Eaton. Eaton amended the complaint to plead
treble damages. Morse's answer denied the essential
allegations and his counterclaim alleged that Eaton received
seventy-five percent of the settlement funds contrary to a
prior written 50/50 attorney fee agreement. Morse claimed
Eaton owed him $56,250 as legal fees and costs. Judge
Allen's judgment favoring Eaton denied ~ o r s e ' scounterclaim
and. denied Eaton treble damages. Morse appeals and Eaton
cross-appeals from the denial of treble damages.
Morse represented Eaton from 1970 until 1981 in a U.S.
District Court civil action against National Steel Products
Company, formerly known as Stran-Steel. The federal trial of
the Stran-Steel case resulted in a verdict for Eaton of over
$400,000. After an appeal to the Federal Ninth Circuit and
thereafter a petition for certiorari to the U.S. Supreme
Court, the case was ultimately remanded and, before retrial,
settled for $225,000.
Morse handled the Stran-Steel matter for Eaton on a
fifty percent contingent fee. While no written evidence of
the initial agreement was produced at the trial by either
party, there is no dispute that their initial written fee
contract provided for a fifty percent attorney's fee after
all expenses incurred by both Morse and Eaton had been paid.
The Eatons signed a formal authorization for Morse to
settle for $225,000 on April 23, 1981. At the time of
settlement, Eaton claims Morse and Eaton orally agreed to
replace their 50 percent of net agreement with a percentage
distribution of the gross settlement amount.
Morse and Eaton decided to cash the $225,000 settlement
check directly from the bank in New York City. On the same
day that Morse received the settlement check he and his wife
drove to Denver, Colorado with Mr. and Mrs. Eaton. The two
couples flew from Denver to New York City on May 10.
Conflicting testimony obfuscates who insisted upon
negotiating the check from the bank upon which it was drawn.
Both Morse and Eaton implied an honest concern that Eaton's
creditors would seize a major portion of the settlement.
(Exhibits introduced at trial revea.led Eaton was over
$400,000 in debt. Security Bank in Billings had a $107,000
judgment against Eaton.) After receiving $225,000 cash from
the bank, Eaton and Morse divided the money, placed it into
their briefcases, and left immediately for Denver. Upon
arrival in Denver, Morse delivered $12,500 cash to Eaton's
wife, Darlene. This left Eaton and Morse each in possession
of $112,500 cash.
The following day, while still in Denver, Morse
purchased a certificate of deposit for $100,000 in the name
of "Wm. R. Morse Office Trust Account" and Darlene Eaton
purchased a similar $100,00 Certificate of Deposit in the
names of her married daughters. Both certificates were for a
term of 30 days, maturing June 12, 1981.
From this point, Eaton and Morse disagree.
Immediately after purchasing the certificates of
deposit, the Eatons and Morses left Denver for Billings. The
Eatons and the Morses each held, separately, $12,500 in cash
of the Stran-Steel settlement. They drove as far as
Sheridan, Wyoming. Eaton claims that about 9:00 a.m. on May
14, while Eaton and Morse were loading luggage in the car,
that Morse presented Eaton with two handwritten and undated
documents. One document was the revised attorney-client fee
agreement which replaced the original fifty percent
arrangement. This agreement provided that twenty-five
percent of the Stran-Steel settlement proceeds went to Morse
and the remaining seventy-five percent belonged to Eaton. The
clear language of this revised fee agreement acknowledged:
"that the above sums have been paid in full in cash from the
sums paid over from the STRAN settlement." The document was
written in Morse's handwriting and was undated. It was
signed by both William R. Morse and Robert T. Eaton. The
other handwritten agreement was a bilateral acknowledgement
of full satisfaction between Morse and Eaton of all accounts
other than Stran-Steel. Its terms provided that Morse
received $10,000 "as payment in full for all legal services
performed for matters other than the Stran-Steel case."
Contrary to Eaton's testimony that the two handwritten
agreements were drafted and signed on May 14 in Sherida.n,
Wyoming, Morse claimed that between May 14 and June 11, an
endless argument continued with the Eatons regarding an
equitable division of the Stran-Steel settlement. Morse
further testified that in order "to get Eaton off his back,"
he drafted and executed the two handwritten documents on June
11, during their second trip to Denver to redeem their
certificates of deposit.
Morse and Eaton agreed that on June 11, 1981 Eaton and
his wife met Morse and his wife in Denver, Colorado. The
following day Morse and Eaton redeemed their $100,000
certificates of deposit.
Following June 12, 1981 Eaton and his wife contend that
they made repeated demands upon Morse for the payment of the
additional $56,250 which they maintain Morse retained
contrary to their revised agreement. The Eatons engaged a
Billings attorney to draft a demand letter to collect that
portion of the Stran-Steel settlement. Their efforts failed.
The Eatons brought this action against Morse to recover the
$56,250 portion of the Stran-Steel settlement which they
contend is rightfully theirs and was never remitted to them.
ISSUES:
1. Whether the District Court erred in considering
parol evidence to vary the terms of unambiguous written
agreements.
2. Whether there exists, under the circumstances of
this case, a fraud exception to the parol evid-ence rule.
3. Whether an agreement that is partially in writing
and partially oral can be properly taken to have altered a
written fifty percent attorney's contingency fee agreement.
4. Whether, in light of a number of clearly erroneous
factual findings on the part of the District Court, the
District Court's verbatim adoption of Plaintiff's proposed
findings constitutes error.
5. Whether the District Court was clearly erroneous in
resolving the dispute in credibility in favor of the
Plaintiff.
6. Whether treble damages are warranted under section
37-61-406 and/or 37-61-407, MCA.
Clarification of the validity of the attorney fee
contracts is fundamental to our discussion of parol evidence.
Appellant claims that the second revised fee agreement
fails for lack of consideration; therefore, the original
fifty percent contract is valid and eliminates respondent's
action to recover the remaining portion of his alleged
seventy-five percent share. We disagree.
Credible evidence substantiates that both appellant and
respondent recognized and acknowledged that neither of them
had an accurate record of the costs and expenses for their
labor and work performed for the extended ten-year
Stran-Steel litigation. There is evidence that both parties
agreed to rescind their origina.1 fifty percent of net
agreement and enter into the second fee contract, based on a
gross 75/25 distribution because of the dispute over costs.
The change from a net to a gross computation to eliminate the
accounting problem is valid consideration for the second
contract. Accounts between appellant and respondent which
were - dispute
in were finally settled by the revised
handwritten contract. Resolution of issues in dispute
constitutes consideration in support of the second fee
agreement. Ramsdell v. Clark (1897), 20 Mont. 103, 49 P.
598. Accordingly, we conclude that the second handwritten
attorney fee agreement is a valid enforceable contract
supported by the requisite elements, including consideration.
The most critical issue is whether the District Court
erred in considering parol evidence to show that Eaton did
not, in fact, receive the agreed upon cash payment from the
settlement proceeds from Morse, which evidence contradicts
the unambiguous terms of their written agreement in which
Eaton acknowledges full payment of all sums in cash.
Appeliant's first three issues are consolidated in the parol
evidence discussion.
Clarity of the issue warrants review of the entire text
of the revised attorney fee agreement, handwritten by Morse
and signed by both Morse and Eaton. The agreement reads:
"Come Now Wm. R. Morse and Robert T. Eaton and
hereby enter into the following agreement:
"Whereas the parties hereto have previously entered
into a written agreement for attorney fees and
expenses in the case of Eaton v. STRAN-STEEL et a1
and companion cases, and
"Whereas a settlement has been reached in the
STRAN-STEEL case in the amount of $225,000.00, and
"Whereas the parties hereto have found it necessary
to adjust and revise their earlier agreements so as
to reach agreement on the above STRAN-STEEL case
settlement,
"Now Therefore the parties agree that the division
of the proceeds of the STRAN-STEEL settlement of
$225,000.00 shall be as follows: the total sum of
$56,250.00 shall be paid to Wm. R. Morse, which sum
shall apply to all expenses and costs expended by
Wm. R. Morse, and shall also include the cost of
all legal fees for associate legal counsel. The
remaining balance of the STRAN-STEEL sum paid in
settlement shall be deemed the property of Robert
T. Eaton.
"It is further agreed that the above sums have been
paid in full in cash from the sums paid over from
the STRAN settlement, and all accounts between the
parties are deemed paid in full."
The primary issue of this appeal focuses on the last
paragraph.
The trial judge permitted Eaton to testify that Morse
retained $112,500 of the settlement funds refusing to remit
the additional $56,250 for a total seventy-five percent to
Eaton commensurate with their revised fee arrangement. On
appeal Morse contends that the parol evidence rule operates
to exclude this extrinsic, oral evidence which alters the
terms of their integrated, written agreement acknowledging
payment of all accounts in cash. Furthermore, Morse argues
that none of the exceptions to the parol evidence rule apply
to the facts before the Court. Appellant specifies tha.t
Eaton's "bald assertion of fraud" does not prevent operation
of the par01 evidence rule since it was not pled with
particularity under Rule 9(b), M.R.civ.P.
The Parol Evidence Rule is embodied in section 28-2-905,
MCA :
"When extrinsic evidence concerning a written
agreement may be considered. (1) Whenever the
terms of an agreement have been reduced to writing
by the parties, it is to be considered as
containing all those terms. Therefore, there can
be between the parties and their representatives or
successors in interest no evidence of the terms of
the agreement other than the contents of the
writing except in the following cases:
"(a) when a mistake or imperfection of the writing
is put in issue by the pleadings;
" (b) when the validity of the agreement is the
fact in dispute.
" (2) This section does not exclude other evidence
of the circumstances under which the agreement was
made or to which it relates, as described in
1-4-102, or other evidence to explain an extrinsic
ambiguity or to establish illegality or fraud.
"(3) The term 'agreement,' for the purposes of
this section, includes deeds and wills a.s well as
contracts between parties."
This Court has said that the term "fraud" includes
constructive fraud. Purcell v. Automatic Gas Distributors,
Inc. (Mont. 1983), 673 P.2d 1246, 40 St.Rep. 1997, 2002.
Section 28-2-404, MCA, states:
"Fraud is either actual or constructive. Actual
fraud is always a question of fact."
We hold that the fraud exception to the Parol Evidence
Rule, section 28-2-905(2), which recites: "This section does
not exclude other evidence ... to establish illegality or
fraud", addresses both actual and constructive fraud.
Breach of the fiduciary relationship between attorney
and client constitutes "constructive fraud":
"Constructive fraud often exists where the parties
to a transaction have a special confidential or
fiduciary relation which affords the power and
means to one to take undue advantage of, or
exercise undue influence over, the other.
"Where a confidential or fiduciary relationship
exists, it is the duty of the person in whom the
confidence is reposed to exercise the utmost good
faith in the transaction, to make full and truthful
disclosures of all material facts, and to refrain
from abusing such confidence by obtaining any
advantage to himself at the expense of the
confiding party. Should he obtain such advantage
he will not be permitted to retain the benefit, and
the transaction will be set aside even though it
could not have been impeached had no such relation
existed, whether the unconscionable advantage was
obtained by misrepresentations, concealment or
suppression of material facts, artifice or undue
influence." 37 Am.Jur.2d Fraud and Deceit $ 15.
Constructive fraud, unlike actual fraud, is not required
to be pled with specificity mandated under Rule 9(b),
M.R.Civ.P. The existence of the fiduciary relationship
between Morse and Eaton is undisputed. Eaton's complaint,
although not artfully drafted, clearly alleges constructive
fraud against Morse based upon his appropriation of money
claimed to be the property of Eaton. Eaton's complaint filed
September 30, 1981, states:
"5. That contrary to the terms of said agreement
between the Plaintiff and Defendant herein, the
Defendant, William R. Morse, has retained the sum
of $112,500.00 (or twice the amount to which he was
entitled under the terms of said agreement) for
himself from said $225,000.00 settlement, has
intentionally and fraudulently appropriated
$56,250.00 to his own use, has never paid or
accounted for said $56,250.00 to Plaintiff herein
although a reasonable time for doing so has long
since elapsed, and despite repeated demands by
Plaintiff has failed and refused and continues to
fail and refuse to return said $56,250.00 to the
Plaintiff herein which is rightfully the
Plaintiff's property."
Further evidence of Eaton's action against Morse in
fraud is the language of the trial court's judgment. Judge
Allen awarded damages to Eaton based upon Morse's act of
deceit. Pertinent Conclusions of Law state:
"5. That the plan of cashing the $225,000.00
settlement check in New York City and the purchasing
of two $100,000.00 Certificates of Deposit in
Denver, Colorado, was all part of a common design
and scheme put into effect by William R. Morse to
permit and allow him to obtain and receive more of
the $225,000.00 settlement proceeds than the
$56,250.00 to which he was entitled.
"7. That, as a result of the deceit practiced by
William R. Morse upon Robert T. Eaton, Robert T.
Eaton has been, at the very least, damaged in the
sum of $56,250 plus $774.40 interest thereon for the
30 days, for a total of $57,024.40 -- allowing
nothing for interest lost on said $57,024.40 from
June 12, 1981, to the present date."
We conclude that Eaton's claim of conduct against Morse,
which constitutes at least constructive fraud, falls within
the ambit of the fraud exception of the par01 evidence rule,
promulgated in section 28-2-905(2), MCA. Oral evidence is
admissible.
The fourth issue presented by appellant is whether the
District Court's verbatim adoption of plaintiff's proposed
findings constitutes error. Appellant contends that the
trial judge simply rubber-stamped the findings submitted by
the respondent and in doing so denied appellant due process.
Wholesale adoption of one party's proposed findings and
conclusions is not in itself automatic basis for vacating a
judgment. In Re the Marriage of Glasser (Mont. 1983), 669
P.2d 685, 688, 40 St.Rep. 1518, 1521. This Court, however,
disapproves of the practice where it is apparent that the
trial court relied too heavily on proposed findings "to the
exclusion of the proper consideration of facts and the
exercise of independent judgment." In Re the Marriage of
Goodmundson (Mont. 1982), 655 P.2d 509, 511, 39 St.Rep. 2295,
2297. It is acceptable procedure in a case where findings
and conclusions are "extensive and detailed" and the court
"explaj-ned its reasons" for adopting the findings of one
party. Glasser, 655 P.2d at 688. There is no explanation of
the trial judge regarding his adoption of the plaintiff's
proposed findings and conclusions.
Appellant only challenges two of a total thirty-one
findings. The two "findings" which appellant contends are
clearly erroneous are:
1. That on April 23, 1981, the date Eaton signed the
settlement agreement, Morse and Eaton orally agreed to
rescind their former fifty percent attorney fee agreement and
enter into a new one; and,
2. That the $225,000 settlement check was ultimately
cashed by the New York City bank - -
as a result - -
of the
insistence - William - Morse.
of R.
Appellant's argument is credible but not grounds for
reversal of the trial court judgment. Erroneous findings of
fact that are not necessary to support the decision of
judgment of the trial court are not grounds for reversal.
Wright v. Wright (1981), 623 P.2d 97, 1 Hawaii App. 581;
Cochrell v. Hiatt (1981), 638 P.2d 1101, 1104, 97 N.M. 256.
Montana case law states the Supreme Court will not
reverse or remand a decision of the district court when the
eventual result in district court must be the same. Kirby
Co. of Bozeman v. Employment Sec. Div. of Montana State
Department of Labor & Industry (Mont. 1980), 614 P.2d 1040,
1043, 37 St.Rep. 1255.
The findings which appellant challenges as erroneous do
not taint the lower court judgment; therefore, their
incorrectness does not provide grounds for reversal.
The fifth issue presented is whether the District Court
erred in resolving the credibility dispute in favor of the
plaintiff.
The evidence in this case is conflicting. Plaintiff's
witnesses gave one version of the facts and defendant's
witnesses testified to another version. The parties argue
that the evidence as a whole supports their version of the
facts.
This Court has often stated the well established rule
governing the scope of our review:
"In making its findings, the District Court must
have chosen to believe plaintiff's version of the
facts concerning the execution of the agreements,
rather than the version presented by defendants.
The weight of the evidence and credibility of
witnesses, where the evidence is conflicting, is a
matter for the trial court's determination in a
nonjury case. " Mont. Farm Service Co. v. Marquart
& Roth (1978), 176 Mont. 357, 361, 578 P.2d 315.
The testimony in this case cannot be reconciled. The
conflict had to be resolved. The District Court's evaluation
of credibility favoring the respondent does not demonstrate
any abuse of judicial discretion.
Appellant's final argument claims that Eaton's
cross-appeal for treble damages does not apply to the facts.
We agree. Section 37-61-406, MCA, applies to deceit
practiced upon the court or the adverse party during the
litigation process. The act of deceit relating to the
present case constitutes the incident upon which the cause of
action is filed. For this reason, section 37-61-406, MCA, is
not statutory grounds to assess treble damages against Morse.
Section 37-61-407, MCA, penalty for delay, is not supported
by substantial credible evidence.
The District Court's judgment is affirmed.
G
We Concur:
Chief Justice
rict Judge, sitting
Mr. Justice John C. Sheehy
Mr. C h i e f J u s t i c e F r a n k I . Haswell:
I concur i n t h e r e s u l t .
ai-.atl:&*&
Chief J u s t i c e