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No. 01-001
IN THE SUPREME COURT OF THE STATE OF MONTANA
2001 MT 309
RIVERVIEW HOMES II, LTD., a Montana Limited Partnership,
Plaintiff and Appellant,
v.
JIM CANTON, a/k/a JAMES CANTON, and "all other persons,
unknown claiming or who might claim any right, title, estate or
interest in or lien or encumbrance upon the real property described
in the complaint adverse to Plaintiff's ownership or any cloud upon
Plaintiff's title thereto, whether such claim or possible claim be present
or contingent,"
Defendant, Counter-Claimant, Third Party Plaintiff, and Respondent,
v.
MICHA PROPERTIES, INC., and JON WEMPLE, Individual and
as Agent for RIVERVIEW HOMES II, LTD., and MICHA PROPERTIES,
INC.,
Third Party Defendants.
APPEAL FROM: District Court of the Twenty-First Judicial District,
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In and for the County of Ravalli,
The Honorable Jeffrey H. Langton, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
W. Arthur Graham, Sullivan, Tabaracci & Rhoades, P.C., Missoula, Montana
For Respondent:
Susan Ridgeway, Attorney at Law, Missoula, Montana
Milton Datsopoulos, Datsopoulos, MacDonald & Lind, Missoula, Montana
Submitted on Briefs: August 30, 2001
Decided: December 31, 2001
Filed:
__________________________________________
Clerk
Justice Terry N. Trieweiler delivered the Opinion of the Court.
¶1 The original Plaintiff, Riverview Homes II, Ltd., filed this action in the District Court
for the Twenty-First Judicial District in Ravalli County to quiet title to a twenty-acre
parcel pledged by the Defendant, Jim Canton, as security in the event Canton breached his
contractual obligation to complete a proposed subdivision and construct a man-made lake.
The District Court found that Canton breached the contract, yet concluded the contract
remedy violated the Montana Subdivision and Platting Act and was an unenforceable
liquidated damages provision. The District Court subsequently awarded Riverview
monetary damages in the amount of $92,046 plus interest and attorney fees. Riverview
appeals both the District Court's conclusion that the contract remedy was void as a matter
of law and, in the alternative, the amount of damages awarded. We affirm the judgment of
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the District Court.
¶2 The following issues are presented on appeal:
¶3 1. Did the District Court err when it concluded the contract remedy provision violated
the Montana Subdivision and Platting Act?
¶4 2. Did the District Court err when it concluded the contract remedy provision was an
unenforceable liquidated damages provision?
¶5 3. Did the District Court err in its calculation of the amount of monetary damages?
FACTUAL BACKGROUND
¶6 On September 3, 1993, Riverview Homes II, a limited partnership, and Jim Canton, an
individual, entered into a contract for the sale and purchase of real property. Pursuant to
the terms of the contract, Riverview agreed to purchase three lots in a previously approved
and platted subdivision known as River Bend No. 1, and six one-acre lots in a proposed
subdivision located in an adjacent twenty-acre tract to be called River Bend No. 2. Neither
the six lots nor the twenty-acre tract had been submitted for county review and approval at
the time the parties entered the contract. The contract provided for a purchase price of
$279,000. Riverview paid $82,500 prior to closing, and $77,500 at closing. The remaining
balance of $119,000 was to be paid upon Canton's completion of the River Bend No. 2
subdivision and the construction of a man-made lake within that subdivision. These
contractual obligations were to be completed by May 1, 1994, with the remaining balance
to bear interest at nine percent until that date. The parties later agreed to extend the
deadline for completion to November 1, 1994.
¶7 The contract for deed set forth remedies available to Riverview in the event Canton
failed to obtain final plat approval for River Bend No. 2 or complete the man-made lake.
Paragraph 6 of the contract for deed provided:
Additional Security: The SELLER hereby grants BUYER an assignment of
BUYER'S interest for security purposes only and a Quitclaim Deed on the twenty
(20) acres described on Exhibit "B". The security shall give the BUYER a priority
position subject only to the first priority position identified in Section 7 of this
Agreement on said twenty (20) acre parcel until such time as the SELLER
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completes all necessary state and county requirements and obtains the recordation of
the new proposed River Bend No. 2 subdivision including the additional six (6) lots
as described on page 1 of this agreement. The parties hereto agree that Seller's
completion of said state and county requirements and the requirements contained in
this agreement shall be valued at Two Hundred Thousand Dollars ($200,000.00). In
addition, SELLER shall complete the man-made lake which SELLER is in the
process of building.
Paragraph 6 was supplemented with Paragraph 23:
DEFAULT BY SELLER: Time is of the essence and should SELLER be unable to
complete the construction of the man-made lake prior to May 1, 1994, the BUYER,
at BUYER'S option, may consider such a failure a default of SELLER by providing
written notice of such default to SELLER stating that SELLER shall have thirty (30)
days from the mailing of said notice in which to cure said default, by completing the
construction of the man-made lake as required herein. In the event the SELLER fails
to cure said default within said time period, the BUYER, at BUYER'S option, may
commence foreclosure proceedings on the property previously described and given
to BUYER as security for compliance of SELLER'S obligation. Further, in the event
of default, at the BUYER's option, the BUYER may record the Quitclaim Deed or
foreclosure upon the assignment of BUYER's interest for security purposes.
Together, the contract provisions permitted Riverview to either commence foreclosure
proceedings or record the quitclaim deed to the twenty-acre parcel as the remedy in the
event of Canton's breach. The twenty-acre parcel included property subject to the purchase
agreement but other property as well.
¶8 On August 13, 1997, Riverview sent Canton a notice of default. In September of 1997,
Riverview received from escrow the deed conveying the twenty-acre tract from Canton to
Riverview. Riverview attempted to record the deed, but the Ravalli County Clerk and
Recorder refused to file it because such transfers required subdivision approval. In
October of 1998, Riverview commenced a quiet title action to receive title to the twenty-
acre parcel, based on the contract remedy provision.
¶9 Following a four-day trial, the District Court entered its Findings of Fact, Conclusions
of Law and Order on March 23, 2000. It concluded that Canton had breached his
contractual obligation to complete the subdivision and construct the man-made lake.
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However, the District Court declared the contract remedy void because it violated § 76-3-
302, MCA, of the Montana Subdivision and Platting Act. Furthermore, it concluded that
the parties' valuation of the requirements that the seller was obligated to complete was an
unenforceable liquidated damages provision.
¶10 The District Court then ordered a hearing to determine the appropriate amount of
monetary damages to be awarded to Riverview for Canton's breach of contract. The
hearing was held on July 6, 2000. After hearing expert testimony on damages, the District
Court awarded $92,046 to Riverview, plus interest and attorney fees. The award was based
on "scenario one" as testified to by Canton's expert witness, Steve Hall, a licensed and
certified appraiser. Under scenario one, the District Court assumed that the lots would
have been received by Riverview as of November 1, 1994, and sold as bare lots without
homes. After determining the amount of net profit and accounting for present value, the
District Court arrived at the $92,046 award.
¶11 On September 14, 2000, the District Court entered its final judgment in favor of
Riverview, with the addition of attorney fees in the amount of $42,500. Riverview filed a
Notice of Appeal on September 27, 2000, from the District Court's judgment. Specifically,
it contends that the agreed upon contract remedy was enforceable, and, in the event it was
not, that the District Court failed to award monetary damages in an amount which
compensates Riverview for all of the detriment actually caused by Canton's default.
Canton filed a cross-appeal of the District Court's order which was subsequently
withdrawn.
STANDARD OF REVIEW
¶12 The standard of review of a district court's conclusions of law is whether the court's
interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (1995), 271
Mont. 459, 469, 898 P.2d 680, 686. The standard of review of a district court's findings of
fact is whether those findings are clearly erroneous. Daines v. Knight (1995), 269 Mont.
320, 324, 888 P.2d 904, 906.
DISCUSSION
ISSUE 1
¶13 Did the District Court err when it concluded the contract remedy provision violated
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the Montana Subdivision and Platting Act?
¶14 Riverview contends that the transfer of the twenty-acre parcel pledged by Canton as
security for his contractual obligations does not violate the Montana Subdivision and
Platting Act. The Act generally requires that all transfers of land comprising less than 160
acres undergo subdivision plat review prior to transfer. See §§ 76-3-104, -301, -302,
MCA. However, pursuant to § 76-3-201(1)(b), MCA, certain divisions of land are
exempted:
Exemption for certain divisions of land. (1) Unless the method of disposition is
adopted for the purpose of evading this chapter, the requirements of this chapter
may not apply to any division of land that:
...
(b) is created to provide security for construction mortgages, liens, or trust
indentures; . . . .
Riverview contends that the security provision in the contract was, in effect, a
"construction lien" as contemplated in § 76-3-201(1)(b), MCA. It relies on the definition
of "lien" found at § 71-3-101(2), MCA, of the general lien statute, as well as the definition
of "construction" from Webster's dictionary. Section § 71-3-101(2), MCA, provides in
pertinent part:
A "lien" is a charge imposed in some mode other than by a transfer in trust upon
specific property by which it is made security for the performance of an act.
Because the twenty-acre parcel was given as security in part for Canton's obligation to
construct a man-made lake, Riverview argues a construction lien was created, and § 76-3-
201(2), MCA, of the Montana Subdivision and Platting Act was applicable. Therefore, the
District Court erred in its interpretation of the law.
¶15 The District Court concluded that despite Canton's agreement to pledge interest in the
land, the twenty-acre parcel was not transferable pursuant to § 76-3-302, MCA, and failed
to qualify for any applicable exceptions. The Court explained:
[I]t would be contrary to good public policy to allow parties to evade the provisions
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of the Subdivision and Platting Act by simply contracting to create divisions of land
such as this for purposes other than to provide security for construction mortgages, a
recognized exemption provided by law.
¶16 Given the specificity of the exemption under § 76-3-201(2), MCA, we must decide
whether a "construction lien" existed, not whether a general "lien" existed pursuant to § 71-
3-101(2), MCA. To enforce a construction lien, one must satisfy the requirements
applicable to construction liens found in Title 71, Chapter 3, Part 5, MCA. Only those who
furnish services or materials pursuant to a real estate improvement contract may claim a
construction lien. § 71-3-523, MCA. Furthermore, certain steps are required to perfect and
enforce construction liens, such as notice pursuant to § 71-3-531, MCA, and recordation
pursuant to § 71-3-535, MCA. Riverview neither furnished services or materials to Canton
for completion of the man-made lake, nor satisfied any other requirement applicable to
construction liens in Title 71, Chapter 3, Part 5, MCA. Therefore, Riverview's
construction lien theory lacks merit.
¶17 Riverview contends that the exemption for "construction mortgages, liens, or trust
indentures" is not limited to construction liens as defined in Title 71, Chapter 3, Part 5,
MCA. We disagree. If it is not a construction lien as defined by statute, it is a general lien
pursuant to § 71-3-101(2), MCA. General liens are looked upon with disfavor. Reiter v.
Reiter (1989), 237 Mont. 220, 222, 772 P.2d 314, 315. In the absence of an express
agreement to give a lien, as is the case here, a general lien "can be claimed only as arising
from dealings in particular trades or businesses in which the existence of a general lien has
been recognized by judicial decisions or where a custom to that effect can be established
by evidence." Reiter, 237 Mont. at 222, 772 P.2d at 315 (quoting Deitchman v. Korach
(Ill. App. Ct. 1947), 71 N.E.2d 367, 369). In Reiter, we refused to recognize a general lien
for breach of contract to provide equity in land. 237 Mont. at 222, 772 P.2d at 315. We
similarly decline to recognize a general lien in this case.
¶18 Accordingly, we affirm the District Court's conclusion that the twenty-acre parcel was
not a transferable parcel pursuant to § 76-3-302, MCA, of the Montana Subdivision and
Platting Act, and failed to qualify for any applicable exception.
ISSUE 2
¶19 Did the District Court err when it concluded the contract remedy provision was an
unenforceable liquidated damages provision?
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¶20 The District Court first concluded that the twenty-acre parcel was not transferable
because of the Montana Subdivision and Platting Act. Given that conclusion, the District
Court then reexamined the contract for another possible method to determine the
appropriate amount of damages. Upon that examination, the Court noted the following
language in Paragraph 6:
The parties hereto agree that Seller's [Canton's] completion of said state and county
requirements and the requirements contained in this agreement shall be valued at
Two Hundred Thousand Dollars ($200,000.00).
It then concluded: "This would appear to constitute a contractual provision by which the
amount of damage to be paid for breach of Canton's obligations was determined in
anticipation of his possible breach, i.e., a liquidated damages provision." Given that
determination, the District Court analyzed the provision as a liquidated damages provision
in light of § 28-2-721, MCA. Section 28-2-721, MCA, provides:
When provision fixing liquidated damages valid. (1) Every contract by which the
amount of damage to be paid or other compensation to be made for a breach of an
obligation is determined in anticipation thereof is to that extent void, except as
expressly provided in subsection (2).
(2) The parties to a contract may agree therein upon an amount which shall be
presumed to be an amount of damage sustained by a breach thereof when, from the
nature of the case, it would be impracticable or extremely difficult to fix the actual
damage. [Emphasis added.]
¶21 Riverview contends that the provision in Paragraph 6 is not a liquidated damages
provision, because the parties did not agree on the amount of compensation or damages to
be paid by Canton to Riverview. Therefore, § 28-2-721(1), MCA, does not apply. We
agree. The provision sets forth a value for Canton's completion of certain tasks, it does not
give Riverview the right to collect $200,000 from Canton. However, neither did
Riverview contend that it should be awarded the $200,000 amount set forth in Paragraph
6. Therefore, the District Court's discussion regarding liquidated damages was not
essential to the resolution of the parties' claims and we move on to its actual award of
damages.
ISSUE 3
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¶22 Did the District Court err in its calculation of the amount of monetary damages?
¶23 After concluding that the contract remedy was void as a matter of law, the District
Court held a hearing to determine the actual damages suffered by Riverview as a result of
Canton's breach.
¶24 Riverview asserts that the amount of expectancy damages awarded by the District
Court was insufficient to compensate Riverview for all the detriment actually caused by
Canton's breach. It contends that the District Court failed to account for the profit that
Riverview would have received from the sale of lots with homes, as opposed to bare lots.
¶25 The District Court carefully considered three methods for calculating damages. With
"scenario one," the Court looked to the contractual assumptions of the parties and added
an assumption that the lots would have been received by Riverview as of November 1,
1994, and sold as bare lots without homes. From that assumption, the Court determined
that Riverview's losses ranged from $92,046 to $120,445, depending on whether a 12 or
14 percent rate of return was realized. The District Court based its award of damages on
scenario one, and awarded $92,046. Neither party gave serious consideration to scenario
two as a viable damage alternative.
¶26 Riverview contends that "scenario three" was the appropriate measure of damages. In
scenario three, the Court would consider the future value of the money Riverview paid to
Canton, and from which it received no benefit. At closing, Riverview had paid Canton
$160,000 of the $279,000 purchase price. From that $160,000, $84,500 was for the three
lots in River Bend No. 1. The remaining $75,500 was paid in anticipation of the
completion of the subdivision and the construction of the man-made lake. Therefore,
Riverview contends that since September 3, 1993, Canton reaped the benefits of the
$75,500 without fulfilling its obligations. As a result, Riverview claims that it is entitled to
the original $75,500, plus a reasonable return on that investment to the time of the hearing.
That amount would be $143,586 at 12 percent or $187,884 at 14 percent.
¶27 For breach of an obligation arising from a contract, the appropriate measure of
damages is the amount which will compensate the party aggrieved for all the detriment
which was proximately caused thereby or in the ordinary course of things would likely
result therefrom. § 27-1-311, MCA. Damages which are not clearly ascertainable in both
their nature and origin cannot be recovered for a breach of contract. § 27-1-311, MCA.
Furthermore, no person can recover a greater amount of damages for a contract breach
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than would be gained by full performance unless a greater recovery is specified by statute.
§ 27-1-303, MCA.
¶28 In contract actions, lost profits will be allowed only if the loss is proven with a
reasonable degree of certainty. 22 Am Jur. 2d Damages § 624 (1988). Lost profits may be
awarded if the loss is shown to be the "natural and direct result of the act of the defendant"
and if the loss is not speculative. Topco, Inc. v. State Dept. of Highways (1996), 275 Mont.
352, 361, 912 P.2d 805, 810. The prohibition against speculative profits applies to the
uncertainty about "whether the loss of profits is the result of the wrong and whether such
profit would have been derived at all." Topco, 275 Mont. at 352, 912 P.2d at 810-11
(quoting Olson v. Parchen (1991), 249 Mont. 342, 348, 816 P.2d 423, 427). In this case,
no evidence was presented regarding lost profits attributable to Riverview's inability to
sell developed lots. Riverview opted not to introduce evidence establishing the size of the
houses to be built, the quality of the houses, or other relevant features which would impact
lost profits. Riverview has the burden to prove such lost profits, and failed to do so.
Instead, Riverview opted to argue that establishing such profits was impossible.
¶29 After review of the record, we agree that scenario one is the most appropriate measure
of damages. If the contract had been fully performed, Riverview would have had six bare
lots, approved as a subdivision by the appropriate government entities, and a man-made
lake. Because of Canton's breach, Riverview had neither. Given the lack of evidence
presented, the District Court was left with limited options for determining damages, and
found the "most reasonable estimate of damages" given the scenarios presented. Scenario
one best accounts for the expectations of the parties at the signing of the contract. In
determining expectancy damages and lost profits, this Court has not previously used the
future value of held monies as an appropriate measure of damages, and we decline the
opportunity to do so here. Because there is substantial evidence to support the District
Court's finding that scenario one is the most reasonable measure of damages, we conclude
that the District Court did not err.
¶30 As a final matter, Canton requests this Court to award his costs and attorney fees
incurred on appeal as the prevailing party pursuant to the contract. The contract provides:
In case suit or action is instituted to enforce compliance with any of the terms,
covenants or conditions of this Agreement, there shall be paid to the prevailing party
in such suit or action such sum as the Court may adjudge as reasonable attorney's
fees and, in the event any appeal is taken from any judgment or decree in such suit
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or action, the prevailing party on such appeal likewise shall recover from the other
party costs and reasonable attorney's fees on such appeal.
Therefore, Canton, as the prevailing party on appeal, is entitled to costs and attorney fees.
We remand to the District Court for a determination of those costs and fees.
¶31 Accordingly, we affirm the judgment of the District Court and remand for further
proceedings consistent with this opinion.
/S/ TERRY N. TRIEWEILER
We Concur:
/S/ KARLA M. GRAY
/S/ JIM REGNIER
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
Justice Patricia O. Cotter respectfully dissents.
¶32 I believe the District Court erred when it concluded that the contract remedy provision
violated the Montana Subdivision and Platting Act. Accordingly, I would have granted the
plaintiff's request to quiet title to the twenty-acre parcel pledged by Canton as security in
the event Canton breached his contractual obligations.
¶33 Section 76-3-201(1)(b), MCA, exempts from subdivision regulations, divisions of
land that are ". . . created to provide security for construction mortgages, liens, or trust
indentures . . . ." The majority concludes that the word "lien" must be construed to mean a
"construction lien." I disagree. The statute references "construction mortgages" and "liens"
separately; nowhere does it mention "construction liens." The majority then goes on to say
it will not recognize a general lien, absent an express agreement to give a lien in the first
place. Here, there was an express agreement to give a lien, as "lien" is defined at § 71-3-
101(2), MCA, in Paragraph 23 of the Contract for Deed. The seller expressly gave the
buyer a quit-claim deed on the twenty acres, as and for security for performance of an act,
and gave the buyer the option to commence foreclosure proceedings on the property
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should he default. I would give Riverview Homes the benefit of these contractual
provisions negotiated between the parties.
¶34 The introductory language of § 76-3-201(1), MCA, allows a lien to be exempted from
the provisions of the chapter "[u]nless the method of disposition is adopted for the purpose
of evading this chapter . . . ." There was no finding by the District Court that the parties
purposely intended to evade the requirements of the subdivision chapter. Therefore, I
would conclude that a valid lien was created, that the lien was not intended to evade the
subdivision requirements, and that the plaintiff had the right to quiet title to the twenty-
acre parcel pledged by Canton as security. I would therefore find that the contract remedy
did not violate the Montana Subdivision and Platting Act, and would order remand for
purposes of quieting title to the twenty-acre parcel in the name of Riverview Homes. I
would accordingly not reach issues two or three.
/S/ PATRICIA COTTER
Justice Jim Rice joins in the foregoing dissent of Justice Cotter.
/S/ JIM RICE
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