Gorski v. Pegg

No. 93-528
IN THE SUPREME COURT OF THE STATE OF MONTANA

I
I WILLIAM GORSKI; KENNETH GORSKI
and PAULA GORSKI, husband and wife,
Plaintiffs, Respondents and
Cross-Appellants,

DONALD E. PEGG and KAY A. PEGG,
husband and wife,

APPEAL FROM: District Court of the Tenth Judicial District,
In and for the County of Fergus,
The Honorable John A. Warner, Judge presiding.

COUNSEL OF RECORD:
For Appellants:
Gregory W. Duncan, Harrison, Loendorf & Poston,
Helena, Montana
For Respondents:
Jon A. Oldenburg, Lewistown, Montana

Submitted on ~ r i e f s : April 27, 1995
Decided: A U ~ U S 5~ 1935
2 ,
Filed:
Justice Fred J. Weber delivered the Opinion of the Court.

This is an appeal from a judgment of the Tenth Judicial
District Court, Fergus County rescinding the Contracts for Deed

between Donald E. and Kay A. Pegg (the defendants) and William

Gorski and Kenneth and Paula Gorski (the plaintiffs! respectively.

Judgment was granted in favor of the plaintiffs and against the

defendants for part of the cost of the properties plus interest at

the rate of 10% per year. The court limited the judgment to the

sale on execution of the lands covered by the Contracts for Deed

and ordered the plaintiffs and defendants to pay their own attorney
fees. We affirm.

The issues on appeal are as follows:
I. Did the District Court err in granting rescission of the

contracts?
11. Did the District Court err in not granting the contracts'

foreclosure in favor of the defendants?

111. Did the District Court err in restricting the judgment

lien and limiting execution of the Judgment rendered to

the subject land only and allowing no deficiency

judgment?

IV. Did the District Court err in not awarding attorney fees and
within the defendants' Canyon Shadows Ranch in Fergus County. The
plaintiffs purchased the parcels as vacation and recreational
property, subject to stated restrictive covenants and agreements.
In 1989, the plaintiffs initiated an action against the
defendants requesting that the court require all parties to abide
by the restrictive covenants; require the defendants to provide
specific improvements to the property; and, in the alternative,
grant rescission or monetary damages. The District Court ordered
the defendants to improve the road accessing the plaintiffs'
property, keep their livestock contained, and apply the restrictive
covenants covering the Canyon Shadows Ranch to all parties. The
District Court also enjoined defendants' further logging on their
property and from further subdivision of the Canyon Shadows Ranch.
The District Court did not grant the plaintiffs' request for
rescission. The decision of the District Court was not appealed.
Plaintiffs sued defendants a second time seeking rescission of
the Contracts for Deed for failure of consideration, and requested
reimbursement of all expenses incurred by the plaintiffs, plus an
award of punitive damages. The defendants contended they had
improved the road and fenced in the livestock as required by the
previous order of the District Court. The plaintiffs contended
that the defendants' actions were insufficient and further stated
that the defendants had threatened the plaintiffs with a gun.
After a non-jury trial, on September 23, 1993, the District
Court found sufficient facts to justify intervention under equity
and to allow for a rescission of the two contracts. The court
ordered the defendants to reimburse the plaintiffs for principal
and interest paid pursuant to the Contracts for Deed and to pay to
the plaintiffs interest on these amounts. The District Court
ordered that the amount of the judgment was limited to what was
recovered at the sale of the subject parcels and a deficiency
judgment after the sale would not be entered. The District Court
further ordered the plaintiffs and the defendants to be responsible
for their own attorney fees and costs.
The defendants appeal the District Court's rescission of the
contracts; and its effective denial of the contracts' foreclosure.
The plaintiffs cross-appeal the District Court's limitation of the
judgment's execution; and its denial of an award to the plaintiffs
of attorney fees, costs, and exemplary damages.
Standard of Review

Our standard of review is set forth in Y A Bar Livestock
Company v. Harkness (Mont. 19941, 887 P.2d 1211, 1213, 51 St.Rep.
1517, 1519, as follows:
This Court reviews the findings of a trial court
sitting without a jury to determine if the court's
findings are clearly erroneous. Rule 52(a), M.R.Civ.P.
A district court's findings are clearly erroneous if they
are not supported by substantial credible evidence, if
the trial court has misapprehended the effect of the
evidence, or if a review of the record leaves this Court
with the definite and firm conviction that a mistake has
been committed. Interstate Prod. Credit Ass'n v. DeSaye
(19911, 250 Mont. 320, 323, 820 P.2d 1285, 1287.
Issue I

Did the District Court err in granting rescission of the
contracts?
Section 28-2-1711, MCA, provides when a party may rescind a
contract :
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, menacc, 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 District Court found that both the defendants and the
plaintiffs were to satisfactorily perform the requirements of the
contracts and concluded that the principles of equity should be
applied. The District Court found:
9. The ranch land purchased by Plaintiffs is some of
the most beautiful, undiscovered land left in Montana.
It is apparent that the land was advertised as, and
Plaintiffs intended to use the land as vacation,
recreation and retirement property. The covenants which
attach to Plaintiffs' Contracts for Deed anticipate
greater development of the area for single family
residences and recreational use. It is clear from
observing the parties' demeanor at the hearings and from
their unwillingness to resolve their differences, that it
would be almost impossible for Plaintiffs to enjoy their
vacaLion property with Defendants as neighbors.
Defendants have made clear [their] desire to use every
available means to avoid providing Plaintiffs with the
recreational opportunity they were purchasing. Any
expectation of enjoyable recreational use of the property
has been destroyed.
10. The consideration for Plaintiffs' investment has
substantially failed as a result of Defendants' acts or
omissions. It would be inequitable to require them to
continue with the purchase. Rescission is justified.
The defendants rely on Polich Trading Co. v. Billings Hudson
Terraplane Co. (1943), 114 Mont. 446, 450, 137 P.2d 661, 663, where
we noted "the right to rescind is dependent, among other things, on
the freedom from fault of the party seeking rescission."
The defendants claimed the plaintiffs' fault was evident in
the District Court's Findings of Fact:
11. Plaintiffs' hands are not entirely clean. They have
occupied the property for in excess [of] ten years, which
occupation has value. They have used the property and
not left it clean and in the same position it was
previously. They have, at least for a substantial period
of time, made little, if any effort to accommodate
Defendants' needs. The [PIlaintiffs accepted the
property with the use covenants, including the change
provisions, as a part of their contract, even though they
did not analyze what such provisions meant. Plaintiffs
bought the property knowing it to be subject to prior
liens. Defendants' entire property, including
Plaintiffs' two parcels, has been mortgaged extensively.
Plaintiffs were at all times aware that Defendants needed
payments from them in order to protect their entire
Canyon Shadows Ranch from foreclosure.
The defendants contend that, under Polich Tradina Co., the
plaintiffs were not without fault and therefore the contracts
cannot be rescinded
Furthermore, the defendants argue they fulfilled their
obligations under the prior court order. These obligations
included adequately improving the road to the plaintiffs' property;
containing their livestock on their own property; and, suspending
all logging and further subdivision of their property. The
defendants argue that they should not be penalized by a rescission
based upon the failure of the plaintiffs' enjoyment of their
property when the defendants had attempted to fully comply with the
order of the court.
The plaintiffs contend that substantial evidence was presented
at trial to support the District Court's rescission of the
contract. The plaintiffs further argue that the District Court
specifically found rescission was the appropriate remedy and this
Court should not disturb that ruling.
The District Court found the defendants had made clear their
desire to use every available means to avoid providing the
plaintiffs with the recreational opportunity they were purchasing,
and as a result any expectation of enjoyable recreational use had
been destroyed. The court further found the consideration for the
plaintiffs' investment had substantially failed as a result of the
defendants' acts; and it would be inequitable to require the
plaintiffs to complete the purchase; and that rescission,
therefore, is justified.
A court can grant complete relief to a party under its powers
of equity. Cate v. Hargrave (1984), 209 Mont. 265, 274, 680 P.2d
952, 957. Rescission is an equitable remedy. 0'Keefe v. Routledge

(1940), 110 Mont. 138, 146, 103 P.2d 307, 310.

We conclude that the District Court's findings are not clearly
erroneous and that such findings are supported by substantial
credible evidence and the District Court did not misapprehend the
effect of such evidence.
In regard to the defendants' claim that the plaintiffs were
also at fault, the general rescission rule set forth in § 28-2-

1711, MCA, provides that a party may rescind "if, through the fault

of the party as to whom he rescinds, the consideration for his
obligation fails in whole or in part . . . . " The defendants
argue that under Polich Tradinq Co., 2-37 P.2d at 663, this Court
stated the general rule for rescission where a contract failed only
in part was that the party seeking rescission must be free from
fault. More specifically, in Polich Tradins Co., we held that "the
plaintiff cannot make his own neglect the basis of an action for
rescission." Polich Tradins Co., 137 P.2d at 663.
It is true that the District Court here found there had been
a substantial, but not complete failure of consideration so the
contracts had failed only in part. While it is true that the
District Court found the plaintiffs' hands not entirely clean, it
was the defendants' acts or omissions which the court found to be
the basis for the rescission. As a result, the holding in Polich
Tradins Co. is not controlling.
We hold the District Court did not err in granting rescission
of the contracts.
Issue I1
Did the District Court err in not granting the contracts'
foreclosure in favor of the defendants?
The defendants contend they had the right to foreclosure under
the contracts because the plaintiffs stopped payments. The
defendants claim they satisfied all of the prerequisites for
foreclosure under Farm Credit Bank of Spokane v. Hill (1993), 266
Mont. 258, 264, 879 P.2d 1158, 1161. As a result, the defendants
contend they were entitled to foreclosure as a matter of law.
The plaintiffs stopped making payments to the defendants in
August of 1991 and initiated this action for rescission in October,
1991. The default notices from the defendants were given to the
plaintiffs in July 1992 and granted the plaintiffs thirty days to
bring the contract payments up to date.
We agree with the District Court that, in accordance with our
holding in Moschelle v. Hulse (1980), 190 Mont. 532, 622 P.2d 155,
the plaintiffs preserved their right to seek rescission even though
they chose not to bring the contract payments up to date. They
were awarded the rescission and could not be considered in default.
As a result, we affirm the conclusions of the District Court that
there was no basis for foreclosure.
The District Court did not err in not granting the contracts'
foreclosure in favor of the defendants.
Issue I11

Did the District Court err in restricting the judgment lien
and limiting execution of the Judgment rendered to the subject land
only and allowing no deficiency judgment?
The District Court concluded as a matter of law that the lien
on real estate owned by the Judgment debtors is to be limited to
the two lots in question. Additionally, the court concluded " [tlhe
right to have execution on and recover the amounts owed pursuant to
this judgment is limited to sale on execution of the [two lots
described in the contract], and a deficiency judgment after said
sale shall not be entered."
The plaintiffs argue that matters of judgment liens and
executions are creatures of statute and well-defined by the
legislature; and that, absent any statutory authority, the District
Court cannot restrict the judgment lien and execution thereunder.
The defendants correctly point out that the court in this case
was operating as a court of equity and not as a court of law. Our
statutes provide:
28-2-1716. Power of court to require party rescinding to
do equity. On adjudging the rescission of a contract,
the court may require the party to whom such relief is
granted to make any compensation or restoration to the
other which justice may require.
Substantial evidence was produced to support the District
Court's finding that neither party was innocent of provoking the
other. Therefore, in its discretion, the court concluded, "to do
equity, Plaintiffs' remedy must be limited." The court found that,
to provide the plaintiffs with a greater remedy, they would be
placed in a better position than they were in to begin with because
they received some, though not all, of the value for which they
bargained. We conclude that the court's findings are not clearly
erroneous and are supported by substantial credible evidence and
that the trial court did not misapprehend the effect of the
evidence.
We hold the District Court did not err in restricting the
judgment lien and limiting execution of the Judgment rendered to
the subject land only and allowing no deficiency judgment.
Issue IV

Did the District Court err in not awarding attorney fees and
costs to the plaintiffs?
The Contracts for Deed provided herein stated the following:
ATTORNEYS FEES AND COSTS AND EXPENSES. In the event of
legal action to construe or enforce the provisions of
 this Contract, the prevailing party shall be entitled to
collect his reasonable Attorney fee, Court Costs and
related expenses from the losing party and the Court
having jurisdiction of the dispute shall be authorized to
determine the amount of such fees, costs and expenses and
enter Judgment therefor. Costs for preparation of this
Agreement shall be borne equally by the parties.

The District Court concluded, "although Judgment is for
Plaintiffs, their remedy is limited by equity. Neither party can

be said to be the prevailing party. Therefore, each party should

pay their own attorney fees, costs and expenses."

The plaintiffs argue, as they did above, their judgment was

incorrectly limited; and so, they were in fact the prevailing

party. Furthermore, there was no substantial evidence to show that
they were not the prevailing party. Therefore, the plaintiffs

conclude they should have received compensation for attorney fees

and costs pursuant to the terms of the contracts.

The defendants contend the plaintiffs should not be awarded

attorney fees and costs because they did not receive 100% of their

prayer and could not be considered the prevailing party. The
defendants refer to Wise v. Sebena (1991), 248 Mont. 32, 808 P.2d

494, where we stated I' [i] cases 'where both parties gain a victory
n

but also suffer a loss,' neither party prevails. Lauderdale v.

Grauman (1986), 223 Mont. 357, 359, 725 P.2d 1199, 1200 (quoting
Parcel v. Myers (1984), 214 Mont. 220, 224, 697 P.2d 89, 91-92)."
Additionally, the defendants refer to the contracts' provision

upon which the plaintiffs base their claim for attorney fees. The
provision begins, "[iln the event of legal actions to construe or

enforce the provisions of this contract . . . . " The defendants
emphasize that the thrust of the plaintiffs' complaint was not to
construe or to enforce the terms of the contracts but to rescind
the contracts. Therefore, the contracts' terms do not apply.
Finally, the defendants argue, and we agree, the issue of
attorney fees is a matter of discretion for the District Court. We
have recognized a district court's general equity powers to make an
injured party whole. We wlll not overturn an award for attorney
fees absent a showing of abuse of discretion. Martin v. Randond
(1981), 191 Mont. 266, 623 P.2d 959. Substantial evidence was
provided to support the District Court's conclusion and the
District Court did not abuse its discretion when it determined no
party prevailed.
We hold the District Court did not err in not awarding
attorney fees and costs to the plaintiffs.
Issue V

Did the District Court err in not awarding exemplary damages?
The defendants argue that the District Court was correct when
it did not award exemplary damages because the court was operating
under the rules of equity and was fashioning a remedy in equity and
the plaintiffs neither had clean hands nor were they the prevailing
party.
The plaintiffs alleged fraud as a basis for the rescission of
the contracts. They argue the District Court's findings satisfy
the elements of actual fraud and the court should have awarded
punitive damages.
The District Court did not find that the plaintiffs had proved
all the elements of fraud. The court further determined that under
principles of equity, the parties were to be restored to status quo
which in turn required reasonable restoration to prior positions.
We conclude the record contains substantial evidence to
support the findings and conclusions of the District Court and the
District Court did not misapprehended the evidence, nor did it
incorrectly apply the principles of equity. We hold the District
Court properly denied exemplary damages.
Pursuant to Section I, Paragraph 3(c), Montana Supreme Court
1988 Internal Operating Rules, this decision shall not be cited as

precedent and shall be published by its filing as a public document
with the Clerk of this Court and by a report of its result to the
West Publishing Company.
Af firmed.

We Concur:
//
,
,-

dTui
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chief ~usyice
Justice Terry N. Trieweiler specially concurring in part and
dissenting in part.
I concur with that part of the majority opinion which affirms
rescission of the parties' contract and the denial of the
counterclaim for foreclosure. I also concur with the majority's

conclusion that there was substantial evidence to support the
District Court's denial of exemplary damages to the plaintiff.
I dissent from that part of the majority opinion which holds
that the District Court can limit the effect of plaintiffs'
judgment lien and limit plaintiffs' rights to execution contrary to
the liens and procedures which are provided for by statute. While
the District Court may have acted within its equitable authority
when it decided whether to allow rescission of the parties'
contract, the damages which it awarded were a legal remedy, and the
methods of enforcing the judgment for those damages are provided
for at law. The district court is not free to ignore statutory law
for the enforcement of judgments based on some omnipotent notion of
equitable power.
Section 28-2-1716,MCA, which is relied on by the majority, is
not applicable to the issue raised by the plaintiffs. While, the
plain language of that provision does allow the district court to
require the party in whose favor rescission is granted to make
compensation to the other party, the compensation anticipated
relates to that which would be necessary to restore the property to
its original condition. Section 28-2-1716,MCA, says nothing about
suspending the statutory law regarding liens and execution in
support of a judgment
The effect of a judgment on the property of the judgment
debtor is set forth by statute at § 25-9-301(2), MCA, which
provides :
From the time the judgment is docketed, it becomes a lien
upon all real propertv of the judgment debtor not exempt:
from execution in the county, owned by the judgment
debtor at the time or which the judgment debtor may
afterward acquire until the lien ceases. Except as
provided in subsection (3), the lien continues for
6 years unless the judgment is previously satisfied.
(Emphasis added.)
Likewise, 5 25-13-501, MCA, specifically provides the extent
to which a judgment debtor's property is subject to execution to
enforce a judgment. It provides in part that:
All goods, chattels, monies, and other property, both
real and personal, or any interest therein of the
judgment debtor, not exempt by law . . . are liable to
execution.
Section 25-13-608, MCA, sets forth that property which is
exempt from execution. Nowhere does it provide for expansion of
the list by judicial decree under cloak of equitable authority.
If the District Court had found that plaintiffs were not
entitled to a return of the full amount of their contract payments,
or if the District Court had found that defendants were entitled to
compensation as a condition to rescission, it could have so
provided. However, having entered judgment for plaintiffs in the
full amount of their contract payments, the District Court was
without authority to ignore Montana's statutory law regarding the
effect of a judgment and its statutory procedures for execution in
support of a judgment.
Furthermore, I conclude that, based on the relief sought and
the relief granted, plaintiffs were the prevailing parties in this
case, and therefore, were entitled to an award of attorney fees and
costs pursuant to the provision in their contract for deed which
provided that "the prevailing party shall be entitled to collect
his reasonable Attorney fee, Court Costs, and related expenses from
the losing party . . . ." (Emphasis added.)
This clearly was an action to construe the contract. Before
the court could award rescission pursuant to § 28-2-1711(2), MCA,
it had to find that the plaintiffs' consideration for entering the
contract failed in whole or in part. Furthermore, where the
language in the contract provides that the district court "shall"
award attorney fees and costs to the prevailing party, there is no
room for discretion. The district court's only function is to
enforce the plain language of the contract.
The fact that plaintiffs were the prevailing party in this
dispute is apparent from our decision in Schmidt v. Colonial Terrace Associates

(1985), 215 Mont. 62, 68-70, 694 P.2d 1340, 1344-45, where we held
that when multiple claims are involved, the party who prevails on
the main issue is entitled to costs. The same rule applies to
attorney fees . In this case, plaintiffs sought rescission,
compensatory damages, and punitive damages. They were awarded
rescission and compensatory damages. The defendants denied that
plaintiffs were entitled to rescission and sought to foreclose

16
pursuant to their contract for deed. Defendants' counterclaim for
foreclosure was rejected by the District Court, and on appeal by
this Court. It is clear that plaintiffs prevailed on the main
issues in controversy and are entitled to their attorney fees and
costs pursuant to the plain language of their contract with the
defendants.
For these reasons, I dissent from the majority's resolution of
Issues III and IV.
 August 25, 1995

CERTIFICATE OF SERVICE

I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:

Gregory W. Duncan, Esq. & John P. Poston, Esq.
Harrison, Loendorf & Poston, P.C.
2225 Eleventh Ave., Ste. 21
Helena, MT 59601

Jon A. Oldenburg, Esq.
Attorney at Law
505 W. Main St., Ste. 309
kwistown, MT 59457-2554

ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA