Hayes v. Hartelius

NO. 84-370
IN THE SUPREME COURT OF THE STATE OF MONTANA
1985

JOHN HAYES and COLLEEN HAYES,
Plaintiffs and Appellants,
-VS-

CHAIJNING HARTELIUS,

Defendant and Respondent.

APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable John 14. McCarvel, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Charles M. Cruikshank, 111, Great Falls, Montana

For Respondent:
Gregory 0 Morgan, Bozeman, Montana
.

Submitted on ~riefs: Jan. 24, 1985
Decided: April 9 , 1985

Filed: J ,,*,
+7.
... J
,

Clerk
Mr. J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e O p i n i o n o f t h e
Court.

Plaintiff appeals from a judgment of the District

Court, Eiqhth J u d i c i a l District, Cascade County. In that

judgment t h e c o u r t found a s f o l l o w s : (1) P l a i n t i f f s b r e a c h e d

a c o n t r a c t with defendant f o r t h e purchase o f r e a l property

and consequently may not recover partial payment made

pursuant to the contract. (2) Plaintiffs cannot recover

money from d e f e n d a n t on t h e b a s i s o f u n j u s t e n r i c h m e n t o r on

the basis that Hartelius holds money for plaintiffs as a

constructive trustee. (3) S e c t i o n 70-25-101 ( 4 ) , MCA o f the

Montana S e c u r i t y Deposit Act does n o t apply t o t h i s case.

P l a i n t i f f s and d e f e n d a n t w e r e good f r i e n d s . Channing

Hartelius represented John and Colleen Hayes, as their

a t t o r n e y on s e v e r a l o c c a s i o n s , and s o c i a l i z e d w i t h J o h n Hayes

on numerous o t h e r o c c a s i o n s . I n 1978 H a r t e l i u s had h i s h o u s e

up f o r s a l e and p l a i n t i f f s e x p r e s s e d a n i n t e r e s t i n b u y i n g

it. The p r i c e o f t h e h o u s e was $59,900. Hartelius suggested

an a r r a n g e m e n t whereby plaintiffs would pay $10,000 down,

assume a t r u s t d e e d b a l a n c e o f $48,310.08 due F i r s t Federal

S a v i n g s and Loan o f G r e a t F a l l s , and s i g n a p r o m i s s o r y n o t e

for $1,589.92. P l a . i n t i f f s agreed t o t h i s arrangement b u t

because o f t h e i r poor c r e d i t r a t i n g , F i r s t Federal r e f u s e d t o

allow them to assume the loan. Despite this obstacle

p l a i n t i f f s remained e a g e r t o buy t h e h o u s e and d e f e n d a n t was

w i l l i n g t o f i n d a way t o s e l l i t t o them. P l a i n t i f f s assured

d e f e n d a n t t h a t w i t h i n one o r two y e a r s t h e y would b e a b l e t o

s e c u r e f i n a n c i n g t o assume t h e b a l a n c e on t h e l o a n t o F i r s t

Federal. Consequently, t h e p a r t i e s worked o u t a n a g r e e m e n t

whereby d e f e n d a n t would r e m a i n l i a b l e on t h e t r u s t i n d e n t u r e

and make t h e payments t h e r e o n , w h i l e p l a i n t i f f s would make
e q u a l payments t o d e f e n d a n t a s t h e t r u s t i n d e n t u r e payments

became due. To m e m o r i a l i z e t h i s arrangement t h e d e f e n d a n t

p r e p a r e d a l e a s e and a s s i g n m e n t agreement. The agreement was

f o r two y e a r s s u b j e c t t o renewal a t t h e m u t u a l agreement o f

the parties, and p r o v i d e d t h a t once a y e a r p l a i n t i f f s would

s e e k a p p r o v a l t o assume t h e l o a n o r would s e e k r e f i n a n c i n g a t

another institution. Plaintiffs refused to sign the

agreement because they had expected a contract f o r deed,

which d e f e n d a n t c o u l d n o t p r o v i d e b e c a u s e o f an a c c e l e r a t i o n

clause in the trust indenture with First Federal. But

d e s p i t e t h e r e b e i n g n o t h i n g i n w r i t i n g between t h e p a r t i e s ,

p l a i n t i f f s moved i n t o t h e house on August 15, 1978 and on

August 27, 1978 p a i d d e f e n d a n t $10,000 down and a g r e e d t o pay

on t h e p r o m i s s o r y n o t e . T h e r e a f t e r , p l a i n t i f f s made monthly

payments o f $475 t o d e f e n d a n t , who a p p l i e d t h e payments t o

the trust indenture. In addition, p l a i n t i f f s p a i d on t h e

$1,589.92 n o t e i n $50.89 monthly i n s t a l l m e n t s . From August

1978 t o A p r i l 1982 p l a i n t i f f s o c c u p i e d t h e h o u s e , i n s u r e d it

i n t h e i r name, c l a i m e d t h e i n t e r e s t on t h e bank l o a n a s a t a x

deduction, and o p e r a t e d a b e a u t y shop on t h e p r e m i s e s . In

October and November of 1979, the monthly payments were

returned by the bank for non-sufficient funds (NSF) .
Defendant s e n t a l e t t e r t o p l a i n t i f f s i m p l o r i n g them t o make

t h e payments good and on t i m e . P l a i n t i f f s did so f o r several

months t h e r e a f t e r , b u t from May t h r o u g h August of 1980, t h e y

p a i d o n l y $250. O August 4 , 1980, d e f e n d a n t s e n t p l a i n t i f f s
n

a n o t i c e o f d e f a u l t on b o t h t h e n o t e and t h e l e a s e agreement.

Plaintiffs acknowledged the debt and made payment of

$2,166.56, which defendant accepted. Shortly thereafter

however, c h e c k s f o r September and November 1980 and February

and March 1981, w e r e r e t u r n e d NSF. N o payment was made i n
December o f 1980 o r J a n u a r y o f 1981. On J u n e 29, 1981, t h e

bank g a v e n o t i c e o f d e f a u l t t o d e f e n d a n t on t h e May a n d J u n e

payments and assessed l a t e charges of $253.87. After the

August, 1981 payment was not made, defendant notified

p l a i n t i f f s t h a t h e was $ 2 , 2 2 9 p a s t d u e o n t h e d e b t and t h e

bank had a c c e l e r a t e d . P l a i n t i f f s were g i v e n t h e o p p o r t u n i t y

t o c o n t i n u e occupancy on a r e n t a l a g r e e m e n t o f $550 p e r month

i f payment was b r o u g h t c u r r e n t . They w e r e a d v i s e d t h a t t h e y

would have t o pay o r move by O c t o b e r 1 5 , 1981. On O c t o b e r

26, 1981, p l a i n t i f f s s e n t a p a r t i a l payment and r e q u e s t e d a

l e a s e a.greement. On November 11-, 1981, t h e y began t o make

r e n t a l payments o f $550 a month. A l e a s e a g r e e m e n t was s e n t

t o p l a i n t i f f s b u t was n e v e r r e t u r n e d signed. I n February,

1982, p l a i n t i f f s m i s s e d t h e i r r e n t payment a n d w e r e s e n t a

notice of termination of tenancy. In April of 1982

plaintiffs vacated leaving the house in considerable

disrepair. To the end, even after plaintiffs hired an

a t t o r n e y i n c o n t e m p l a t i o n o f t h i s l a w s u i t , d e f e n d a n t remained

willing to sell the house if plaintiffs could secure

financing to talce him out of the loan to First Federal.

P l a i n t i f f s could not s e c u r e f i n a n c i n g , however, and b r o u g h t

t h i s a c t i o n t o r e c o v e r t h e i r down payment.

The f o l l o w i n g i s s u e s a r e p r e s e n t e d :

(1) Whether t h e p l a i n t i f f s e n t e r e d i n t o a c o n t r a c t w i t h

defendant f o r t h e s a l e o f d e f e n d a n t ' s house?

(2) Whether the statute of frauds prevents that

c o n t r a c t , i f i f e x i s t s , from b e i n g e n f o r c e d ?

(3) Whether an unsatisfied condition precedent

p r e v e n t e d a l e a s e a g r e e m e n t from becoming a s a l e s a g r e e m e n t ?

( 4 ) Whether t h e Montana R e s i d e n t i a l L a n d l o r d and T e n a n t

Act o f 1977, s e c t i o n s 70-24-101, e t seq., o r 70-25-101, et
seq., relating to the residential tenants' securtiy deposits,
apply to this case?
This case demonstrates once again that it is not wise
for friends to engage in a business deal. If the deal goes
sour, so, often, does the friendship. Hartelius had a house
to sell and plaintiffs wanted to buy it. The problem was
that plaintiffs had such a bad credit rating that they could
neither assume Hartelius' loan nor otherwise get financing.
Consequently, Hartelius made plaintiffs an offer that
amounted, if accepted, to an indirect assumption of the loan.
Hartelius would continue to pay the bank if plaintiffs would
pay Hartelius. This was an offer only a friend would make,
since Hartelius remained liable on the loan if plaintiffs
should fail to pay. The plaintiffs fairly jumped to accept
the offer. They moved into the house, made a downpayment of
$10,000, and agreed to pay on a promissory note, all before
any part of the agreement was reduced to writing. When
Hartel-ius drew up a lease and assignment, plaintiffs refused
to sign it because it was not a contract for deed. They
continued to occupy the house, however, and made good and
timely payments in accordance with the agreement for over a
year.
There is no question but that the parties made a
contract for the purchase of the Hartelius home. They made
an oral agreement which was further consented to by conduct.
According to section 28-2-501 (I), MCA, consent is
communicated "by some act or omission of the party
contracting by which he intends to communicate it or which
necessarily tends to such communication." Further, section
28-2-503(l), MCA, states that if a party performs the
conditions of a proposal or accepts the consideration offered
with a proposal, then that party has accepted the proposal.
In addition, section 28-2-503(2), MCA states that a person
who voluntarily accepts the benefits of a transaction,
consents to the obligations arising from it, assuming he
knows, or ought to know, the facts pertaining to the
transaction. Without doubt, plaintiffs communicated their
consent to defendant's proposal by moving into the house,
making a downpayment, and thereafter making monthly payments.
They performed the conditions of the proposal by making the
payments, and they accepted the consideration offered by
moving into the house. Since they accepted the benefits of
the transaction, they also consented to its obligations.
It needs to be emphasized that plaintiffs did not
consent, by their conduct, to the terms of the lease
agreement drawn up by Hartelius. The evidence shows that
plaintiffs refused to sign the lease agreement and made that
refusal plain to the defendant. Further, the evidence shows
that defendant knew that the plaintiffs thought that the oral
agreement of August 1978, pursuant to which plaintiffs moved
into the house and paid $10,000 down, was a contract for
deed. By their refusal to sign, plaintiffs made clear that
they would accept a contract for deed, but not a lease. By
accepting payments, by not objecting to the plaintiffs'
continued occupation of the house, and by not attempting to
revoke or rescind when plaintiffs refused to sign the lease,
defendant Hartelius consented to the plaintiffs'
interpretation of the oral agreement: that it was a contract
for deed.
Section 28-2-102, MCA states the four elements
essential to the existence of a contract. In this case there
is no question that there are identifiable parties capable of
c o n t r a c t i n g , t h a t t h e r e i s a l a w f u l o b j e c t and t h a t t h e r e i s

consideration. The o n l y q u e s t i o n i s whether o r n o t t h e r e was

consent. The f a c t s c l e a r l y i n d i c a t e an o f f e r , an a c c e p t a n c e ,

and mutual consent t o the s a l e of defendant's house. We

hold, t h e r e f o r e , t h a t t h e p a r t i e s entered i n t o a c o n t r a c t f o r

t h e s a l e of r e a l property.

Plaintiffs argue that, even if there were a valid

c o n t r a c t between t h e p a r t i e s , i t i s u n e n f o r c e a b l e due t o t h e

s t a t u t e of frauds. The s t a t u t e of frauds i s codified in

s e c t i o n s 28-2-903 and 70-20-101, MCA. S e c t i o n 28-2-903(1) ( d )

s t a t e s t h a t "an agreement f o r t h e l e a s i n g f o r a l o n g e r p e r i o d

than 1 year o r f o r t h e s a l e of r e a l property" i s i n v a l i d i f

n o t i n w r i t i n g and s u b s c r i b e d t o by t h e p a r t y t o b e c h a r g e d .

S e c t i o n 70-20-101, MCA s t a t e s t h a t r e a l p r o p e r t y c a n n o t be

transferred unless there is a writing signed by the

transferor. Taken a l o n e , t h e s e s t a t u t e s would r e n d e r t h i s

c o n t r a c t unenforcea.ble s i n c e no w r i t i n g was s i g n e d by e i t h e r

party.

There are two reasons, however, why the statute of

frauds does not apply to this case. First, the parties

admitted t h e e x i s t e n c e of a c o n t r a c t . This Court has taken

t h e p o s i t i o n on s e v e r a l o c c a s i o n s t h a t it w i l l n o t a l l o w t h e

s t a t u t e of f r a u d s , t h e o b j e c t o f which i s t o p r e v e n t f r a u d ,

t o be used t o accomplish fraudulent purposes. Ryckman v .

Wildwood, I n c . ( 1 9 8 2 ) , 197 Mont. 154, 641 P.2d 467; H i l l s t r o m

v. Gosnay (Mont. 1980), 614 P.2d 466, 37 St.Rep. 1087;

Farmers E l e v a t o r Co. o f Reserve v. Anderson ( 1 9 7 6 ) , 170 Mont.

175, 552 P.2d 63. In t h i s case, it would b e a f r a u d on t h e

d e f e n d a n t t o a l l o w p l a i n t i f f s t o admit t o t h e c o n t r a c t , and

then a l l o w them t o a v o i d i t s o b l i g a t i o n s by a s s e r t i n g t h e

s t a t u t e of frauds. W e r e f u s e t o countenance such a r e s u l t .
 Second, defendant Hartelius has performed on the
contract to his detriment. The principle of part performance
as an exception to the statute of frauds is recognized in
sections 70-20-102 and 30-11.-111, MCA. The same principle
has long been recognized by this Court. See Dyksterhouse v.
Doornbos (1977), 172 Mont. 461, 564 P.2d 1293; Epletviet v.
Solberg (1946), 119 Mont. 45, 169 P.2d 722; Cobban v. Hecklew
(1902), 27 Mont. 245, 70 P. 805. In Epletviet we held that
where one party to an oral contract has performed in reliance
thereon, it would be a fraud to allow the other party to set
up the statute of frauds as a justification for repudiating
the contract. " [Elquity will regard [such a] case as being
removed from the operation of the statute and will enforce
the contract by decreeing specific performance of it, or by
granting other appropriate relief." Epletviet, 119 Mont. at
57, 169 P.2d at 729. In the present case, defendant withheld
his property from the market for four years, reli-nquished
possession of it for four years, and permitted plaintiffs to
claim a tax deduction on the interest payments to First
Federal. He did these things to his detriment and in
reliance on the contract. After such part performance, to
all-ow the statute of frauds to defeat the contract would
itself be fraud on Hartelius. We will not permit the statute
of frauds to be so used.
The plaintiffs contend that an unsatisfied condition
precedent in the lease agreement prevents the lease agreement
from becoming a sales agreement. As previously noted, we
find no 1-ease agreement in this case. Defendant wrote up a
lease and assignment agreement but plaintiffs refused to sign
it because it was not a contract for deed. Defendant did not
insist that plaintiffs sign the lease agreement. Instead, he
acquiesced to the oral purchase agreement. Since there was
not consent to the lease agreement, its terms do not
determine the existence of the sales contract. The sales
contract was formed without relation to the proposed lease
agreement. Therefore, whether or not there is an unsatisfied
condition precedent in that document is of no relevance to
the disposition of this case. Additionally, since we find
that the parties did not enter into a lease, neither the
Montana Landlord Tenant Act, nor Montana statutes relating to
tenants' security deposits, apply to this case.
In conclusion, we find that plaintiffs and defendant
entered into an oral contract for the sale of real property.
The statute of frauds does not render this contract invalid.
Plaintiffs breached the contract by not making timely and
sufficient payments. Defendant did not obtain any money from
plaintiffs by wrongful means. As the District Court i?oted,
defendant demonstrated the soul of patience and practiced
considerable restraint. Therefore, there is no equitable
basis by which plaintiffs can recover partial payment made
under the contract. In addition, it is the rule in Montana
that a purchaser, under an oral agreement for the sale of
real estate, cannot recover partial payments on the purchase
price if the seller remains willing and able to carry through
with the agreement. Perkins v. Allnut (1913), 47 Mont. 13,
130 P.2d 1. Defendant has at all times been willing and able
to perform on the contract. He should not be forced to
disgorge the payments made thereon.
We affirm the judgment of the District Court.
We concur: