NO. 92-067
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
PAYNE REALTY AND HOUSING, INC.,
Plaintiff,
-vs-
DEI: 9 ?I992
FIRST SECURITY BANK OF LIVINGSTON,
a Montana corporation,
CLERK OF
,3.ty'
m r ?
SUPAEUE C C ? U l i
Defendant and Appellant, STATE OF MONTANA
and
HARRY JOE BROWN, JR.,
Defendant, Respondent and Cross-Appellant.
APPEAL FROM: District Court of the Sixth Judicial District,
In and for the County of Park,
The Honorable John M. McCarvel, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Sidney R. Thomas, Moulton, Bellingham, Longo
& Mather, Billings, Montana
For Respondent:
Carl A. Hatch, Small, Hatch, Doubek & Pyfer,
Helena, Montana
submitted on Briefs: June 25, 1992
Decided: December 17, 1992
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
This appeal involves a dispute between First Security Bank of
Livingston and Harry Joe Brown over an earnest money deposit. Each
party contends it is entitled to the $50,000 that Brown deposited
with a realtor to secure the purchase of a ranch sold by the bank.
First Security Bank of Livingston appeals from summary judgment
entered in the Sixth Judicial District Court, Park County, Montana,
in favor of Respondent, Harry Joe Brown.
Appellant contends that genuine issues of material fact exist
which preclude summary judgment. We reverse and remand for
resolution of the factual issues.
The sole issue raised by the appellant is:
Did the District Court err when it granted summary judgment in
favor of Respondent and ordered the return of Respondent's earnest
money deposit and the payment of attorney fees?
On August 29, 1988, Harry Joe Brown, Jr. (Brown) approached
Payne Realty (Realtor) in Livingston, Montana. Brown wanted to
purchase land in or near the Paradise Valley. After reviewing a
brochure which described real estate known as the Riverside Ranch,
Brown expressed an interest in the property. Brown arranged to
view the property with the owner of the Riverside Ranch, First
Security Bank of Livingston (Bank). While touring the Riverside
Ranch, Brown was told of another piece of property known as the
Elkhorn Ridge Ranch. The Bank owned this real estate as well.
The Bank and Brown entered into a buy-sell agreement for the
Riverside Ranch on August 29, 1988. The agreement required that
2
Brown deposit $50,000 with the Realtor to insure Brown's compliance
with the agreement. In exchange, the Bank promised to remove the
property from the market for the duration of the buy-sell
agreement. As part of the buy-sell agreement, the Bank agreed to
provide financing for Brown. In addition, Brown received an option
to purchase the Elkhorn Ridge Ranch. Finally, at Brown's request,
the parties agreed on an early closing date, and planned to meet on
October 1, 1988, in New York City to finalize the sale.
After Brown and the Bank President, Bruce Erickson (Erickson),
reached a verbal agreement, the Realtor drafted the written
buy-sell agreement. That same afternoon, Brown returned to the
Realtor's office and "read every wordw of the completed document.
Brown made several changes to the agreement, including the deletion
of two of the three standard remedies available to the seller upon
a default by the buyer. Brown requested that forfeiture of the
earnest money deposit be the only remedy available to the Bank in
the event of Brown's default. Also, according to the Realtor,
Brown requested the deletion of the lines in the buy-sell agreement
that make the buy-sell agreement contingent on the buyer obtaining
third-party financing.
Brown deposited $50,000 with the Realtor. In exchange, the
Bank removed the ranch from the market for the fall season, a prime
marketing time for Paradise Valley property. The Bank also
incurred significant expense in preparing the property for Brown.
The Bank moved the current tenants off the property by buying out
their leasehold interest for approximately $17,000. Further, at
Brown's request, the Bank removed a complex irrigation/sprinkler
system at a cost of $45,000.
On October 1, 1988, Erickson flew to New York City with his
wife to complete the sale. At the closing, Brown informed Erickson
that he was '*disenchantedv*
with the sale. Brown requested a
one-day extension of the closing date, which Erickson granted.
Brown asked for this extension so that his counsel could review the
closing documents, including a mortgage agreement proposed by the
Bank. On October 2, 1988, Brown notified the Realtor, without
notice to Erickson, that he was no longer interested in the
Riverside Ranch purchase and wanted his earnest money deposit
returned. On the same day, Brown asked the Bank for a one-week
extension so that his Montana counsel could review the financing
documents. Erickson granted this second extension as well.
Meanwhile, the Realtor informed the Bank that Brown had contacted
the real estate agency and wanted his deposit returned to him.
On October 4, 1988, the Bank provided Brown with a title
commitment. On October 5, 1988, Brown sent another message to the
Realtor asking again for the return of his money. The Bank did not
hear from Brown on the last scheduled closing date of October 11,
1988. Twenty days after October 11, 1988, the Bank's attorney
received a letter from Brown's attorney requesting the return of
Brown's deposit. Included with the letter was a list of Brown's
objections to the mortgage documents furnished by the Bank.
The Bank's attorney responded by asking whether Brown would be
willing to close the real estate deal if all of his objections were
resolved. Brown's attorney informed the Bank that Brown did not
wish to proceed with the transaction.
Payne Realty and Housing, Inc. initiated this lawsuit on
October 24, 1988, by filing an interpleader action. Payne Realty
asked the District Court to determine whether First Security Bank
of Livingston, the seller of the ranch, or Harry Joe Brown, the
purchaser, was entitled to the money paid by Brown to secure the
ranch sale. Following discovery, Payne Realty was dismissed from
the action and the parties were realigned with Brown as plaintiff
and the Bank as defendant.
On May 23, 1990, District Judge Byron L. Robb granted summary
judgment for the Bank based on an "ordinary, complete and
and Brown s failure to complete the
unambiguous buy-sell agreementu1
sale. The Buyer appealed the judgment to this Court. On March 4,
1991, this Court reversed the ~istrict Court judgment, finding
genuine issues of material fact existed regarding the parties*
intentions about financing terms. Payne Realty and Housing lnc. v. Fint
Securily BankofLivingston (1991), 247 Mont. 374, 807 P.2d 177.
Upon remand to the District Court, Brown disqualified Judge
Robb and District Judge John M. McCarvel assumed jurisdiction of
the case. Brown moved for summary judgment. The Bank moved to
amend its answer and cross-claim. Judge McCawel granted the
Bankusmotion to amend; however, all of the affirmative defenses
set forth in the Bank's amended answer were dismissed when Judge
McCarvel entered summary judgment for Brown on September 23, 1991.
In the District Court opinion, Judge McCarvel reasoned that the
Bank, acting as both lender and seller, did not offer financing
terms consistent with the buy-sell agreement: consequently, the
financing terns were unacceptable to Brown and there was no
"meeting of the minds." The Judge ordered the return of the
earnest money to Brown, together with interest and attorney fees.
The Bank appeals the summary judgment entered by Judge
McCarvel, contending that genuine issues of material fact exist.
Brown cross-appeals the court's refusal to award paralegal fees.
Did the District Court err when it granted summary judgment in
favor of Respondent and ordered the return of Respondent's earnest
money deposit and the payment of attorney fees?
The purpose of summary judgment is to encourage judicial
economy through the elimination of any unnecessary trial. However,
summary judgment is never to be a substitute for trial if there is
an issue of material fact. Reaves v Reinbold (1980), 189 Mont. 284,
.
288, 615 P.2d 896, 898. Summary judgment is proper only when no
genuine issues of material fact exist and the moving party is
entitled to judgement as a matter of law. Rule 56 (c), M.R.Civ.P.
It is well established that the party moving for summary
judgment has the burden of showing a complete absence of any
genuine factual issues. DlAgostino v. Swanson (1990), 240 Mont. 435,
442, 784 P.2d 919, 924; Cereckv. AlbertsonlsInc. (1981), 195 Mont. 409,
411, 637 P.2d 509, 511. To defeat the motion, the nonmoving party
must set forth facts demonstrating a genuine factual issue exists.
OIBagyv. FirstZnterstateBankofMissoula (1990), 241 Mont. 44, 46, 785 P.2d
190, 191. All reasonable inferences that may be drawn from the
offered proof must be resolved in favor of the party opposing
summary judgment. DIAgostino, 784 P.2d at 924; Cereck, 637 P.2d at
511.
As the moving party, Brown must carry the burden of showing a
complete absence of factual issues. The Bank must demonstrate a
factual controversy does exist. As we review the evidence, we will
draw all reasonable inferences in favor of the nonmoving party, the
Bank. If there is any doubt regarding the propriety of the summary
judgment motion, it should be denied. Wzitehawk v. Clark (1989), 238
Mont. 14, 18, 776 P.2d 484, 486-87.
In his motion for summary judgment, Brown makes two arguments:
(1) the buy-sell agreement executed between the parties was not a
binding contract; or in the alternative (2) if the buy-sell
agreement was a binding contract, the Bank breached the contract by
not providing financing that complied with the buy-sell agreement.
In support of its argument on appeal that summary judgment was
inappropriate because factual controversies exist, the Bank
disputes Brown's two contentions and raises four claims of its own.
The Bank disputes that (1) the buy-sell agreement was a valid and
binding contract: and (2) that Brown breached the binding buy-sell
agreement when he refused to complete the purchase. Additionally,
the Bank argues: (1) Brown manufactured reasons not to close and
therefore prevented the Bank's performance; (2) Brown breached the
covenant of good faith and fair dealing; (3) based on his
representations and behavior, Brown was estopped from objecting to
the closing of the transaction; and (4) Brown committed negligent
misrepresentation regarding his intentions.
The only way that the District Court could properly grant
summary judgment to Brown is by determining that, based on the
submitted record, (1) Brown prevailed on the first of his two
arguments or that he prevailed on his second argument; and (2) that
Brown can establish there are no factual issues related to the
Bank's claims.
This is the second time that this lawsuit has come before this
Court. When determining whether summary judgment is appropriate,
"the papers supporting movant's position are closely scrutinized,
while the opposing papers are indulgently treated, in determining
whether the movant has satisfied his burden." Koberv. Stewart (1966),
148 Mont. 117, 122, 417 P.2d 476, 479. In viewing the record in
the light most favorable to the nonmoving party, the Bank, we
conclude that material factual issues exist and that these issues
must be resolved at trial before the earnest money is properly
awarded.
EXISTENCE OF CONTRACT
The Bank presented facts sufficient to establish that the
parties entered into a valid and binding buy-sell agreement. The
Bank refers the court to the buy-sell agreement itself. At the top
of the agreement it reads: ''This is a legally binding contract."
As required by the terms of the agreement, Brown deposited $50,000
8
with the Realtor to insure his promise to complete the sale. In
exchange, the Bank removed the property from the market for the
duration of the buy-sell agreement. This exchange of consideration
is sufficient to create a binding contract. Wendy 1s of Montana v. Larsen
(1982), 196 Mont. 525, 529, 640 P.2d 464, 466. Subsequent
submission of a mortgage agreement which did not conform with the
terms of the buy-sell agreement may be evidence that there was no
"meeting of the minds" at the time that the buy-sell agreement was
signed; however a variation in terms does not establish that fact
as a matter of law. An equally plausible explanation is that the
variation in terms was inadvertent.
BREACH OF CONTRACT
In Brown's second argument, he contends that if the buy-sell
agreement was binding, the Bank breached the contract when the Bank
would not provide financing terms that complied with the buy-sell
agreement. In support of his argument, Brown submitted to the
court: (1) his own affidavit alleging that the Bank was
"intractablett changing terms and that in proposal after proposal
on
the Bank refused to provide financing that was consistent with the
buy-sell agreement; (2) an affidavit by Brown's attorney alleging
that he had tried, on behalf of Brown, to negotiate acceptable
changes in the proposed note and mortgage but was unable to obtain
any agreement with the Bank; and (3) a post-closing letter from
Brown's attorney to the Bank's attorney indicating that either
there was no meeting of the minds or the Bank refused to go forward
with the sale on the terms set forth in the buy-sell agreement.
9
The Bank raised a question of fact, in regard to Brown's
second contention that the Bank breached the contract, by supplying
the court with evidence that Brown, rather than the Bank, was the
breaching party. Bank affidavits suggest the Bank intended to
amend nonconforming financing terms to conform with the terms of
the buy-sell agreement; yet, Brown did not wish to proceed with the
transaction. Drawing inferences fromthe affidavits most favorable
to the Bank, a fact-finder could find that the Bank was willing to
provide financing consistent with the buy-sell agreement if Brown
would identify the problem and agree to perform his part of the
contract.
BANK'S CLAIMS
The Bank asserts four claims. First, the Bank correctly
asserts that a disputed factual issue exists concerning whether
Brown manufactured reasons not to complete the purchase, thereby
preventing the Bank's performance of the buy-sell agreement. Bank
President, Bruce Erickson, testified in his affidavit that when
Brown requested changes in the mortgage terms, the Bank
accommodated Brown's requests by amending terms at variance with
the buy-sell agreement. For example, the Bank agreed to Brown's
demand that the deficiency judgment clause be removed from the
mortgage.
Erickson supplied the court with evidence indicating that at
the closing scheduled for October 1, 1988, Brown told the Bank he
had become 'disenchanted1' with the property. Erickson testified
that the Bank made numerous attempts to ascertain the nature of
10
Brown's objections to the completion of the sale, but that both
Brown and his attorney refused to identify or discuss objections at
the closing on October 1, 1988, or at any of the subsequently
scheduled meetings.
Erickson testified that the Bank granted an extension of the
October 1, 1988, closing date to Brown so that his counsel could
review the financing documents; and that Brown contacted the
Realtor on October 2, 1988, without notice to the Bank, and
demanded the return of the earnest money. Brown contacted the
Realtor again on October 5, 1988, asking for the return of the
earnest money.
The Bank did not hear from Brown on the last scheduled closing
date of October 11, 1988. Brown did not indicate to the Bank his
objections to the financing documents until nearly three weeks
after three closing dates had passed. On October 31, 1988, twenty
days after the final closing date, Brown's attorney finally wrote
to the Bank and listed Brown's objections to the mortgage terms.
The Bank's attorney, Sid Thomas (Thomas), testified that he
responded to the letter from Brown's attorney and asked:
"[a]ssuming all of the items in your letter are resolved, is he
[Brown] still willing to proceed with the transaction?" Thomas
testified that Brown's attorney indicated Brown was unwilling to
proceed.
The Bank President testified by affidavit that the Bank at all
times I'stood ready, willing and able to complete the transaction
upon the terms set forth in the buy-sell agreement," and that the
Bank was willing to accommodate any of Brown's reasonable concerns.
Despite the Bank's efforts to answer Brown's needs, Brown refused
to complete the purchase.
The Bank's legal assertion is correct: it is well-settled in
Montana that one cannot prevent performance of a contract and then
avail oneself of its non-performance . WilliamsBros. Construction v. Vaughn
(l98l), 193 Mont. 224, 227, 631 P.2d 688, 690. Brown cannot object
to the completion of the sale and refuse to discuss his objections
with the Bank, and then claim that the Bank would not perform.
Second, there is a disputed factual issue regarding whether
Brown breached the covenant of good faith and fair dealing. A
party can breach the covenant of good faith and fair dealing
without breaching any express term in the contract by failing to
deal honestly in fact and failing to observe reasonable commercial
standards of fair dealing in the trade. Story v. City of Bozeman ( 1990),
242 Mont. 436, 450, 791 P.2d 767, 775. If a party breaches the
covenant of good faith and fair dealing, it constitutes a breach of
the contract itself. Story, 791 P.2d at 775.
The Bank alleges that a significant factual dispute exists
concerning whether Brown had good faith intentions to complete the
sale. A reasonable inference from Erickson's testimony is that the
Bank was "ready, willing, and ablev1 accommodate Brown's concerns
to
and amend the inconsistent terms (i.e., conflicting assumption of
mortgage clause and #'due on sale" clause) to bring the closing to
fruition. Brown did not raise objections, but indicated that he
did not wish to proceed with the transaction. Drawing inferences
from these facts in a light most favorable to the Bank, we
determine that the Bank has raised an issue of disputed fact as to
Brown's good faith intentions.
Third, there is a genuine issue of material fact concerning
the Bank's claim of promissory estoppel. The Bank asserts that, by
his words and actions, Brown was estopped from raising objections
to the completion of the purchase.
To establish promissory estoppel in Montana, the following
elements must be present:
(1) a promise clear and unambiguous in its terms; (2)
reliance on the promise by the party to whom the promise
is made; (3) reasonableness and foreseeability of the
reliance; and (4) the party asserting the reliance must
be injured by the reliance.
Keesun Partners v. Ferdig Oil Co., Inc. (1991), 249 Mont. 331, 339, 816
P.2d 417, 422.
The Bank contends that by entering into the buy-sell
agreement, signing the agreement, and insisting on an early
closing, Brown lead the Bank to believe he would close the
transaction. Brown's actions and representations caused the Bank
to incur substantial expenses in preparing the property for Brown.
The Bank moved the current tenants off the property, by buying out
their leasehold interest for approximately $17,000. Further, at
Brown's request, the Bank removed a complex irrigation/sprinkler
system at a cost of $45,000.
In a case similar to ours, the Connecticut Supreme Court held
that a purchaser's obligation to perform would not be excused on
13
the basis of a failure to obtain financing on purchaser's terms
when sellers had evicted tenants and had taken the property off the
market in reliance upon the purchaser's promise to close. Lodav.
H.K Sargeant & h s o c . Inc. (Conn. l982), 448 A. 2d 812. The Bank in our
case has established there is a factual dispute with regards to its
claim of promissory estoppel.
Based on the record he submitted to the court, we conclude
that Brown has not established an absence of factual issues with
regard to his allegation that the buy-sell agreement was not
binding; or that if the contract was binding, the Bank was the
breaching party. The Bank has submitted evidence from the record
that factually disputes Brown's two claims.
We further conclude that there are factual issues regarding
the Bank's claims that Brown (1) prevented the Bank from performing
the contract; (2) breached the covenant of good faith and fair
dealing; (3) should be estopped from avoiding his obligation under
the contract; and (4) negligently misrepresented his intentions.
The parties have offered contradictory evidence about how
willing the Bank was to revise nonconforming terms to complete the
real estate transaction. It is not clear whether Brown wished to
abandon the contract or whether the Bank refused to tender
financial terms consistent with the buy-sell agreement. Because
there are contradictory facts on material issues, we hold that
Summary Judgment is inappropriate.
In light of our holding above, we will not address the issue
concerning the exclusion of paralegal fees raised by Brown on this
appeal. The order of the District Court is reversed and remanded
for resolution of the factual issues.
We concur:
Justices
I respectfully dissent. I would affirm. By virtue of the
terms of the buy-sell agreement and the Bank's breach thereof,
Brown is entitled to return of his $50,000 earnest money. The Bank
failedto perform in accordance with the buy-sell written agreement
as to a material clause. This is uncontroverted and there is no
issue of fact relative to this breach.
The Bank also added material clauses to the mortgage which
were not contained in the agreement, all of which was to the Bank's
benefit. These clauses included a default and the balance due on
death of Brown, a default and the balance due when the Bank deems
itself insecure, and also giving the Bank a lien on any personal
property attached to the land.
The buy-sell agreement provided as to financing as follows:
$1,000,000.00 payable as follows
$ 50,000.00 earnest money to be applied at closing
$ 200,000.00 as additional cash down payment payable on
or before closing
$ 750,000.00 balance of the purchase price will be paid
at closing as follows: First Security Bank
to carry a note mortgage over 10 years, interest rate to
be prime rate plus -0- with a cap rate of 12%, no cap on
floor, & no points. Buyer to pay monthly payments.
Prime rate is fixed by City Bank of New York. Said
mortgages are assumable on sale of all, or if in part,
pro rata on acreage basis.
At closing, the Bank breached the buy-sell agreement by
presenting a mortgage containing a clause relative to sale of the
property in contradiction with the wording of the buy-sell
agreement. This agreement provided the mortgage was assumable by
the later buyer upon sale of all, or if sale in part, pro rata on
an acreage basis. The Bank's mortgage contained the "due on sale"
clause:
DUE ON SALE - CONSENT BY LENDER. Lender may at its
option, declare immediately due and payable all sums
secured by this mortgage upon the sale or transfer,
without the Lender s prior written consent, of all or any
part of the Real Property, or any interest in the Real
Property.
This "due on sale" clause in effect changed the wording of the
agreement that the mortgage would be assumable on sale. As a
matter of law and fact the Bank violated the buy-sell agreement by
giving itself the option to accelerate the balance if it does not
give prior written consent to the sale. The Bank has never
presented the buyer with financing documents which comply with the
buy-sell agreement, even though that would cure the deficiency
here.
The Bank breached the buy-sell agreement and the buyer is
entitled to a refund of the $50,000 earnest money and attorney
.
f
fees
Justice