No. 8 9 - 4 5 1
IN THE SIJPREME COURT OF THE STATE OF MONTANA
CLARENCE A. WIRERG,
Plaintiff and Ap-pellant,
-vs-
17 BAR, INC., H & H ENTERPRISES, INC.,
aka M & M ENTERPRISES, INC., THOMAS J.
MORROW and VIOLET L. MORROW, husband & wife,
the sole stockholders of said corporations,
Defends-nts and Respondents.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable William ,T. Speare, LTudqe presiding.
COUNSEL OF RECORD:
For Appellant:
Robert E. LaFountain, Billings, Montana
For Respondent:
Fred E. Work, Jr., Billings, Montana
Submitted on Briefs: Jan. 4, 1990
Decided: February 23, 1990
Justice Diane G. Barz delivered the Opinion of the Court.
This appeal arises from an order of the District Court for the
Thirteenth Judicial District, Yellowstone County, granting
respondentsv motion for a directed verdict following presentation
of appellant's case in chief. We affirm.
Appellant Clarence Wiberg filed suit on April 24, 1986,
seeking rescission of contract, damages for breach of the implied
covenant of good faith and fair dealing, punitive damages and
specific performance of an alleged oral partnership agreement.
Prior to trial, the District Court granted respondents' motion in
limine excluding evidence of respondent Violet Morrow's forged
endorsement of a check made payable to appellant. Following
presentation of appellant's case in chief, the District Court
granted respondents' motion for directed verdict.
Appellant's first contention on appeal is that the District
Court erroneously granted respondents' motion for directed verdict
in light of the existence of factual disputes. District courts
properly direct verdicts when the non-moving party fails to
establish a prima facie case. Rookhuizen v. Blain's Mobile Home
Court, Inc. (Mont. 1989), 767 P.2d 1331, 1334, 46 St.Rep. 139, 143.
Nonetheless, in so doing, trial courts must review the evidence in
the light most favorable to the non-moving party. Phillip R.
Morrow, Inc. v. FBS Insurance Montana-Hoiness LaBar, Inc. (Mont.
Appellant Clarence Wiberg read an advertisement in the
Billings Gazette seeking a purchaser for the 17 Bar in Billings.
The sellers were represented by a realtor. Appellant had
previously owned and operated a restaurant in Billings. After
operating other businesses and working in other fields, appellant
wanted to return to the restaurant business. Respondents Violet
and Tom Morrow owned 100% of the stock in the 17 Bar, Inc.
Corporate assets included real and personal property and a liquor
license. Both the property and the liquor license were encumbered
by an underlying contract between Morrows and Kenneth Hannen from
whom Morrows had purchased the 17 Bar stock. The terms of this
agreement required that Morrows obtain Hannenfs permission prior
to assignment either of the contract or the corporate assets,
including the liquor license.
In an agreement executed June 3, 1985, appellant and
respondents agreed upon a $1,000,000 selling price for the 17 Bar
and its assets allocated as follows:
Land $ 100,000
Building and Leasehold Improvements 475,000
Liquor License 165,000
Covenant not to compete 15,000
Goodwill 45,000
Furniture, fixtures and equipment 200,000
~1,000,000
Appellant agreed to the following terms regarding payment of
the purchase price:
1. $100,000 to be paid by closing, including $25,000 earnest
money, $25,000 cash on closing date and a $50,000 promissory note
secured by a trust indenture on appellant's home;
2. Appellant to assume respondentsf $195,582.98 obligation
to Hannen at 7% interest, subject to possible increase in interest
to at least 9%;
3. The remaining balance of $704,417.02 represented by a
promissory note secured by a trust indenture on appellant's home,
$10,500 of which was payable within 60 days of closing with the
balance payable in graduated monthly installments over a 20-year
period.
The agreement further allowed for an increase in the interest
rate on the Hannen contract from 7% to 9% or more to facilitate
Hannen's consent to the sale. The agreement contained a provision
requiring that respondents obtain Hannen's written consent to
appellant's assumption of the obligation owed to Hannen. Although
the clause operated as a condition precedent to appellant's
performance of his duties under the agreement, the parties deleted
this provision by crossing it out and initialling the deletion.
The closing took place on June 3, 1985.
Appellant began operating the 17 Bar on June 4, 1985. On June
10, 1985, the parties executed an addendum to their previous
agreement providing that both would share equally the cost of
increased interest on the Hannen contract in excess of 9% and that,
through no fault of the respondents, Hannen's consent to the
transfer had not yet been obtained. Appellant apparently paid only
$52,000 of the one million dollars required by the parties'
contract. Appellant paid $25,000 earnest money, $25,000 at closing
and $2,000 of the first $10,500 payment due pursuant to the
promissory note appellant executed in favor of respondents to
Violet Morrow. Although appellant gave respondents a $50,000 trust
indenture on his home, the realtors handling the sale had
previously attempted to foreclose on a $50,000 trust indenture
given them by appellant. However, appellant testified the equity
in his home was worth only $50,000 and there were two prior
encumbrances as well.
Appellant filed his completed liquor license application along
with respondents' assignment of the 17 Bar license with the
Department of Revenue in June of 1985. Appellant testified that
the DOR denied his application based upon Hannents continuing
security interest in the license. At trial, appellant offered no
documentation of DORts refusal to transfer the license.
Appellant and respondents executed a release of escrow
documents on August 16, 1985. The escrow documents released
included a quitclaim deed and a check. Appellant executed the deed
at the June 3, 1985, closing and, by authorizing its transfer to
respondents transferred all his right, title and interest in the
17 Bar back to respondents. Respondents recorded the quitclaim
deed shortly thereafter. A check in the amount of $527.21 was
payable to Clarence Wiberg.
The parties gave divergent reasons for, in effect, cancelling
their purchase agreement. Appellant alternatively contends the
absence of an escrow account prevented him from making payments
required by the contract and that respondents1 non-performance made
him hesitant to fulfill his own obligations. Respondents testified
that appellant requested the cancellation because he felt incapable
of operating the business successfully.
Respondents permitted appellant to operate the 17 Bar through
September 1, 1985, so that he could benefit from the additional
income generated at fair time. Appellant's records show the 17
Bar's gross income for June, July and August of 1985 was
$89,590.08. Nonetheless, during the period of appellant's
management, the 17 Bar suffered a net loss. After September 1,
appellant discontinued his operation of the 17 Bar.
Appellant contends he and respondents entered into an oral
partnership agreement to operate the 17 Bar until they found a
buyer for the business at which time the parties agreed they would
split any sale proceeds. Respondents claim that whatever oral
agreement the parties may have made, such was barred by the Statute
of Frauds because it involved the sale of real property. Appellant
testified he advertised the 17 Bar for sale in USA Today and
received several responses. These inquiries, introduced into
evidence by appellant, were mailed to him in late September.
Appellant claims he continued to work at the 17 Bar until ejected
from the premises by Violet Morrow in December. Both Morrows
testified appellant quit coming into the business in approximately
October.
From the vast and murky swamp of pleadings and testimony in
this case, we dredge the following contentions. We cast the facts
related to appellant's claims in the light most favorable to him.
Appellant makes two allegations that permeate the remaining issues.
For purposes of brevity, we address these assertions first.
Appellant first contends respondents committed fraud and cites
numerous instances of allegedly fraudulent conduct. Respondents
misrepresented the availability of Hannenlsconsent to the transfer
of the liquor license and assignment of the obligation owing to
him. Respondents led appellant to believe that Hannenls consent
was forthcoming. Counsel for respondents advised appellant to use
a letter from Hannenlsattorney as evidence of Hannenls consent to
transfer of the liquor license in appellant's application for the
liquor license. Respondents failed to show a copy of their Stock
Purchase Agreement with Hannen to appellant. Respondents led
appellant to believe the parties had entered into an oral
partnership. Although provided for in the contract, no escrow
account was ever established at First Interstate Bank.
Notwithstanding a contract provision requiring that respondents
obtain title insurance in the amount of one million dollars, the
actual policy provided coverage only up to $575,000.00.
Actual fraud, within the meaning of this part,
consists in any of the following acts
committed by a party to the contract or with
his connivance with intent to deceive another
party thereto or to induce him to enter into
the contract:
(1) the suggestion as a fact of that
which is not true by one who does not believe
it to be true;
(2) the positive assertion, in a manner
not warranted by the information of the person
making it, of that which is not true, though
he believes it to be true;
(3) the suppression of that which is
true by one having knowledge or belief of the
fact;
(4) a promise made without any intention
of performing it; or
(5) any other act fitted to deceive.
Section 28-2-405, MCA.
Constructive fraud consists in:
(1) any breach of duty which, without an
actually fraudulent intent, gains an advantage
to the person in fault or anyone claiming
under him by misleading another to his
prejudice or to the prejudice of anyone
claiming under him; or
(2) any such act or omission as the law
especially declares to be fraudulent, without
respect to actual fraud.
Section 28-2-406, MCA.
Furthermore, to recover damages for fraud, plaintiffs must
plead and prove the existence of:
1. A representation;
2. Falsity of the representation;
3. Materiality of the representation;
4. Speaker's knowledge of the falsity of the
representation or ignorance of its truth;
5. Speaker's intent that it be relied upon;
6. The hearer's ignorance of the falsity of
the representation;
7. The hearer s reliance on the
representation;
8. The hearer's right to rely on the
representation; and
9. Consequent and proximate injury caused by
the reliance on the representation.
McGregor v. Mommer (1986), 220 Mont. 98, 105, 714 P.2d 536, 540.
Appellant failed to allege or prove the existence of any duty
on the part of respondents or any act or omission considered
fraudulent by law. Therefore, appellant failed to establish a
prima facie case of constructive fraud.
Although we must view the evidence in the light most favorable
to appellant, we are not requiredto ignore uncontradicted evidence
damaging to his case. Appellant first testified that he read none
of the documents executed in connection with his purchase of the
17 Bar, then later conceded he had read each document but
understood none of them. Appellant does not allege respondents
made any assertions which they knew or should have known were
untrue. The agreement quite clearly demonstrates the existence of
respondentst Stock Purchase Agreement with Hannen. It stated in
unequivocal terms that Hannents consent was necessary prior to
assignment of the obligation owed him and transfer of the liquor
license. Appellant agreed to the deletion of a provision requiring
respondents to obtain Hannents consent as a condition precedent to
any requirement that appellant perform. The addendum executed by
all parties on June 10, 1985, clearly set forth the absence of
Hannentsconsent. Appellant does not allege either a denial of his
request to review the Stock Purchase Agreement or that he was
misled as to its existence or material terms contained therein.
Appellant alleges no facts showing misconduct by respondents
in relation to creation of the escrow account. Appellant offers
only the release language in support of his contention that the
escrow account was not created thus leading us to conclude his only
knowledge of any defect came upon cancellation of the entire
transaction. Appellant has further failed to show his right to
rely on the representations of respondents. Appellant is a
businessman. He owned and operated several businesses prior to the
transaction with respondents and has been in the work force for a
number of years. The alleged misstatements made to appellant were
easily verified and rectified by him. Appellant testified that
respondents had not misled him in regard to his purchase of the 17
Bar. Appellant failed to establish a prima facie case of fraud.
The second pervasive issue concerns the failure of
respondents1 consideration. Appellant appears to contend
respondentsf consideration failed because the liquor license was
never transferred to appellant. However, appellant does not claim
the liquor license would never have been his. There is ample
evidence that negotiations between the parties pertinent to
obtaining Hannenfsconsent continued even after closing. Appellant
had every reason to believe acquiring Hannenfsauthorization would
be a somewhat lengthy process. Consideration does not fail merely
because of delay. Appellantls contention in this regard lacks
merit.
At trial, appellant contended that no contract existed between
the parties due to the existence of numerous contingencies. The
only contingency we ascertain is Hannents consent to transfer of
the liquor license and assignment of the obligation due him, and
the related transfer of the liquor license from respondents to
appellant. Both parties agree the liquor license transfer did not
take place and that Hannen's authorization was not immediately
forthcoming. Section 28-2-102, MCA, sets forth the essential
elements of a contract:
(1) identifiable parties capable of contracting;
(2) their consent;
(3) a lawful object; and
(4) a sufficient cause or consideration.
The contract between appellant and respondents contains these
crucial features. Appellant disputes the existence of consent
freely given and sufficient cause or consideration, however, as set
forth above, we found these contentions lacked merit. Appellant
failed to adequately attack the validity of the contract.
Appellant next maintains respondents breached the contract by
their failure to facilitate transfer of the liquor license to him.
We disagree. Testimony of both parties shows respondents were
negotiating said transfer up until cancellation of the transaction.
Respondents at no time indicated the transfer would not take place.
The ~istrictCourt correctly determined that appellants did not set
forth facts proving respondents' breach.
Appellant asserts the District Court erroneously refused to
rescind the agreement. Pursuant to 5 28-2-1711, MCA:
A party to a contract may rescind the same in
the following cases only:
(1) if the consent of the party
rescinding or of any party jointly contracting
with him was given by mistake or obtained
through duress, menace, fraud, or undue
influence exercised by or with the connivance
of the party as to whom he rescinds or of any
other party to the contract jointly interested
with such party;
(2) if, through the fault of the party
as to whom he rescinds, the consideration for
his obligation fails in whole or in part;
(3) if such consideration becomes
entirely void from any cause;
(4) if such consideration, before it is
rendered to him, fails in a material respect
from any cause; or
(5) if all the other parties consent.
The only allegations made by appellant that would entitle him
to rescission are those of fraud and failure of consideration. As
elucidated above, these claims are simply not supported by the
facts of this case. The District Court did not err in concluding
appellant was not entitled to rescission.
Appellant's next specification of error centers around the
District Court's failure to find the parties entered into an oral
partnership agreement. "A partnership is an association of two or
more persons to carry on as co-owners a business for profit."
Section 35-10-201, MCA. Appellant asserts the parties agreed to
jointly operate the 17 Bar until they located a buyer for the
business. Upon sale of the bar, appellant would recover funds he
expended while attempting to purchase the business himself.
We previously held that where purported partners did not hold
property jointly, had unequal control over assets, held no joint
bank accounts and did not file partnership tax returns, no
partnership existed. Matter of Estate of Smith (Mont. 1988), 749
P.2d 512, 516-17, 45 St.Rep. 93, 100. Appellant relinquished his
interest in the real and personal property by quitclaim deed, he
discontinued use of a checking account opened for 17 Bar purposes
and testified that his status at the 17 Bar was more akin to that
of an employee than a partner. Appellant had the burden of proving
the existence of a partnership between himself and Morrows. Smith,
749 P.2d at 515. We hold the evidence of a partnership is
insufficient and that the District Court did not err in ruling that
no partnership existed.
Appellant next contends the District Court failed to address
the issue of respondents1 bad faith. Although respondents may well
have owed appellant a duty to deal with him fairly and in good
faith, in light of our discussion above regarding appellant's
allegations of fraud, we find the District Court did not err in
directing a verdict denying appellant recovery for respondents' bad
faith based on the absence of any breach of duty.
Appellantls final specification of error concerns the
exclusion of certain evidence. Respondent Violet Morrow forged
appellant's endorsement on a check made payable to him.
Respondents contend the proceeds of this check were used to pay 17
Bar bills remaining from appellant's tenure as owner/manager.
Violet Morrow received a deferred imposition of sentence contingent
upon reimbursement of appellant for the amount of the check. We
surmise from the record that reimbursement did in fact take place.
Appellant sought to introduce the forged check as evidence of
respondents1 scheme to defraud him. The District Court granted
respondents1 motion in limine excluding testimony regarding the
forgery as prejudicial. We agree.
We will not reverse the District Court's grant of a motion in
limine absent an abuse of discretion. Wacker v. Park Rural
Electric Co-Operative, Inc. (Mont. 1989), 783 P.2d 360, 361, 46
St.Rep. 1864, 1865. Appellant claims respondents schemed to
defraud him by misrepresenting the transferability of certain
assets of the 17 Bar. The probative value of evidence regarding
Violet Morrow's forgery of appellant's endorsement is outweighed
by its prejudicial nature. Introduction of such evidence would not
tend to prove or disprove that respondents knowingly misrepresented
the truth regarding the transferability of the 17 Bar liquor
license. The District Court properly excluded such evidence.
The District Court captured the flavor and essence of this
case in dismissing the jury:
I believe the jury is entitled to some explanation. The
Court has taken this case away from you, and I have
directed a verdict in favor of the [respondents], and I
am going to now excuse you.
And someday, if you ever have any questions, I will be
glad to answer them, but at this time I think it best
that the jury is now excused, with our thanks.
I don't know. I do know the weather and I do know the
type of case and I do know that you must have had a hard
time following some of it and, in any event, I certainly
do appreciate the fact that you are all here and all
timely and all attentive. It is unusual and, in any
event, you are free to go.
Affirmed.
Justice
We concur: