No. 02-118
IN THE SUPREME COURT OF THE STATE OF MONTANA
2002 MT 301
KING RESOURCES, INC., and BERT E. ARNLUND,
Plaintiffs and Appellants,
v.
JOHN OLIVER, d/b/a GEMSTONE DEVELOPMENT GROUP,
Defendant and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Gregory R. Todd, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Rodd A. Hamman, Calton, Hamman & Wolff, P.C., Billings, Montana
For Respondent:
John R. Christensen, Travis W. Kinzler, Brown Law Firm, P.C., Billings,
Montana
Submitted on Briefs: June 20, 2002
Decided: December 12, 2002
Filed:
__________________________________________
Clerk
Justice Terry N. Trieweiler delivered the Opinion of the Court.
¶1 The Plaintiffs, King Resources, Inc., and Bert E. Arnlund,
filed a complaint in the District Court for the Thirteenth Judicial
District in Yellowstone County in which they alleged that the
Defendant, John Oliver, breached the terms of a real estate
Buy/Sell Agreement and requested that the District Court award
damages. Oliver counterclaimed that Arnlund and King Resources
breached the Buy/Sell Agreement and committed bad faith and fraud.
Arnlund and King Resources filed a motion for partial summary
judgment. The District Court granted the motion in part and
dismissed Oliver’s counterclaim, and denied the motion in part and
dismissed Appellants’ complaint. King Resources and Arnlund appeal
the decision of the District Court. We reverse the order of the
District Court.
¶2 We address the following issues on appeal:
¶3 Did the District Court err when it struck paragraphs 4 and 5
from the Buy/Sell Agreement?
¶4 Did the District Court err when it concluded that paragraphs 4
and 5 were conditions concurrent that were mutually breached by the
parties and dismissed Arnlund’s complaint?
FACTUAL AND PROCEDURAL BACKGROUND
¶5 Oliver approached Arnlund, the president of King Resources,
Inc., in the spring of 2000 with a proposal that Arnlund purchase
Lot 2, Block 1 of the Sharptail Subdivision in Yellowstone County.
The property consisted of seventy-two acres of undeveloped land
outside of Billings, Montana, which Oliver intended to develop as
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an industrial park and call the Sapphire Business Subdivision.
Oliver’s option to purchase the land was about to expire and he
proposed that appellants pay $2,500,000 cash and transfer a
$500,000 apartment building to Oliver so he could purchase the
property. Oliver proposed to immediately repurchase the central
twenty-two acres for $2.1 million by contract for deed. Oliver
also agreed to develop the property and advance the first $60,000
of development costs. A Buy/Sell Agreement was executed on May 18,
2000, followed by an addendum on June 21, 2000, which was
superceded by another addendum on July 17, 2000 (Second Addendum).
¶6 The terms of the Second Addendum, which are central to this
controversy, provide for a contract for deed in paragraph 4 and a
development agreement in paragraph 5. It states in part:
4. Seller [Oliver] and/or assigns, agrees to buy back
from King Resources, Inc., and close on the center
22 +/- acres, known as lot A, of the property
within 30 days of closing. . . . The purchase shall
be on a contract for deed with a purchase [sic] of
two million one hundred thousand dollars
($2,100,000.00) with One hundred thousand
($100,000.00) dollars down on the date of closing
on this contract for deed and the balance plus
interest of 1% over prime adjusted monthly
amortized over 20 years, in monthly payments with
the first payment being due 30 days after closing
the contract . . . Closing on this contract for
deed shall be done within 30 days of closing of the
original purchase.
5. Within 30 days of the closing of this sale, Buyers
[Arnlund and King Resources] and Seller agree to
enter into a development agreement with John Oliver
to be the subdivision project administrator with
authority over the day to day development and
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marketing of the subdivision. . . . Oliver agrees
to pay up to $60,000 to complete the engineering
and other work to complete the approval and filing
of the subdivision with those funds . . . A breach
of the contract for deed as described in paragraph
4 shall also be a breach of the development
agreement giving Buyers the right to terminate the
development agreement. In the event the parties
cannot come to terms on a development agreement
within 30 days of the date of closing, this
paragraph shall be null and void and the Buyers
shall be entitled to make other arrangements for
the property.
¶7 Arnlund tendered $2,500,000 and the apartment building to
Oliver and the sale closed when the Second Addendum was completed
on July 17, 2000. In the meantime, Oliver was to draft a
development agreement and Arnlund was to draft the contract for
deed for final execution.
¶8 A draft of the contract for deed was sent to Oliver on July
28, 2000. A first draft of the development agreement was delivered
to Arnlund on August 16, 2000. At Oliver’s request, changes were
made to the contract for deed and a signed copy of the final
contract for deed was tendered on August 31, 2000, along with a
revised development contract. Arnlund was aware of the fact that
Oliver had encountered difficulty securing financing for repurchase
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and proposed Oliver sign a promissory note in place of the $100,000
down payment that was past due.
¶9 Oliver assured Arnlund he was capable of performing on the
project by way of electronic facsimile on September 20, 2000, but
did not include the contract for deed or development agreement.
The fax attributed the delay in signing the documents to
negotiations and the parties’ attorneys. Oliver relayed that the
project was moving forward and asked for Arnlund’s continued
patience.
¶10 Arnlund’s September 21, 2000, letter in response clarified
that he was not concerned about the delay in signing the documents,
rather he was concerned with Oliver’s ability to perform the
contract, his failure to make the $100,000 down payment, and his
ability to make the monthly payments due pursuant to the contract
for deed. Another offer was made to accept a promissory note for
$100,000 plus interest until Oliver could secure financing. In the
letter, Arnlund requested a date by which Oliver would be able to
perform his obligation and indicated that if the contract for deed
was not signed and the down payment made, Arnlund would terminate
the contract for deed and development agreement.
¶11 In a letter dated October 5, 2000, Oliver stated he was unable
to proceed with the project because the development agreement had
not been signed by Arnlund and that until the agreement was signed,
Oliver could not sign or perform on the contract for deed. A copy
of the development agreement was enclosed for Arnlund to sign and
return to Oliver. Arnlund would not sign the agreement because
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Oliver had failed to sign the contract for deed and still had not
made the $100,000 down payment.
¶12 Arnlund confirmed an October 17, 2000, telephone conversation
with Oliver in a letter dated October 18. According to the letter,
Oliver indicated that he could not secure financing or perform the
contract for deed. Arnlund confirmed that he would not sign the
development agreement absent Oliver’s signature on the contract for
deed. He also stated that he would proceed without Oliver if
necessary.
¶13 Oliver confirmed that he would not be able to perform the
contract for deed on October 19, 2000, and ensured Arnlund he would
facilitate a smooth transition for management of the project and
sign any documents necessary to transfer management
responsibilities. Oliver notified all parties involved in the
project that he was being released from further responsibility and
that the project had been turned over to Arnlund and King
Resources. As promised, Oliver facilitated a smooth transition and
turned over the necessary engineering, architectural and other
intellectual property. Arnlund took the necessary steps to
continue with the project from that point forward.
¶14 Arnlund and King Resources filed a complaint on November 21,
2000, and alleged that Oliver breached the terms of the real estate
Buy/Sell Agreement. Oliver filed an answer and counterclaim,
denying any breach and alleging breach by the Plaintiffs as well as
bad faith and fraud. Arnlund and King Resources moved for partial
summary judgment on August 15, 2001. They asked the court to
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dismiss Oliver’s counterclaim and determine that Oliver breached
the terms of the Buy/Sell Agreement.
¶15 Following oral argument, the District Court issued its Order
on November 7, 2001, and Judgment on January 14, 2002. The
District Court concluded that there were no issues of material fact
and that paragraphs 4 and 5 of the agreement were conditions
concurrent, which were mutually breached by the parties.
Consequently, both paragraphs were stricken from the agreement and
all claims and counterclaims were dismissed with prejudice.
STANDARD OF REVIEW
¶16 This Court reviews an appeal of summary judgment de novo.
Motarie v. Mont. Joint Refuse Disposal (1995), 274 Mont. 239, 242,
907 P.2d 154, 156. We apply the same Rule 56, M.R.Civ.P., criteria
applied by the district court. Bruner v. Yellowstone County
(1995), 272 Mont. 261, 264, 900 P.2d 901, 903. Rule 56,
M.R.Civ.P., provides that:
the judgment sought shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment
as a matter of law.
¶17 The party moving for summary judgment has the initial burden
of establishing the absence of genuine issues of material fact.
Bruner, 272 Mont. at 264, 900 P.2d at 903. If that burden is met,
the burden shifts to the nonmoving party to raise a genuine issue
of material fact by more than mere denial or speculation. Bruner,
272 Mont. at 264, 900 P.2d at 903. Once a court determines that no
genuine factual issues exist, it must determine whether the moving
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party is entitled to judgment as a matter of law. Bruner, 272
Mont. at 264, 900 P.2d at 903.
¶18 The construction and interpretation of a written agreement are
questions of law. Eschenbacher v. Anderson, 2001 MT 206, ¶ 21, 306
Mont. 321, ¶ 21, 34 P.3d 87, ¶ 21. We review a district court’s
conclusions of law to determine whether the court’s interpretation
is correct. Eschenbacher, ¶ 21.
DISCUSSION
ISSUE 1
¶19 Did the District Court err when it struck paragraphs 4 and 5
from the Buy/Sell Agreement?
¶20 Arnlund and King Resources contend that the District Court
erred when it struck paragraphs 4 and 5 from the Second Addendum of
the Buy/Sell Agreement. They argue that the terms of the contract
were not ambiguous and there was no dispute over their meaning.
Therefore, the District Court was required to apply the terms of
the contract to the facts and enforce the contract as written. The
District Court ordered that paragraphs 4 and 5 be stricken from the
Second Addendum to the Buy/Sell Agreement because of its conclusion
that the parties mutually breached the agreement.
¶21 A court has no authority to insert or delete provisions of a
contract where the contract’s provisions are unambiguous.
Eschenbacher, ¶ 24. An ambiguity exists when the contract taken as
a whole is reasonably subject to two different interpretations.
Keeney Const. v. James Talcott Const. Co., 2002 MT 69, ¶ 12, 309
Mont. 226, ¶ 12, 45 P.3d 19, ¶ 12 (citation omitted). Whether a
contract is ambiguous is a question of law that a court must
8
decide. Keeny Const., ¶ 12 (citation omitted). Where the terms of
a contract are clear and unambiguous the duty of the court is to
apply the language as written to the facts of the case, and decide
the case accordingly. Marco and Co., LLC v. Deaconess/Billings,
1998 MT 26, ¶ 16, 287 Mont. 293, ¶ 16, 954 P.2d 1116, ¶ 16
(citation omitted).
¶22 Paragraph 4 provides that, within thirty days of closing,
Arnlund was to prepare a contract for deed and Oliver was to
repurchase the central 22+/- acres of the property pursuant to the
terms of the Buy/Sell Agreement and contract for deed. Paragraph 5
provides that Oliver was responsible for drafting a development
agreement within thirty days of closing, that he would be
responsible for initial development fees, that a breach of the
contract for deed by Oliver gave Arnlund the right to terminate the
agreement, and that if the parties could not come to terms on a
development agreement within thirty days Arnlund was entitled to
make other arrangements for the property.
¶23 While Oliver proposes that the paragraphs are concurrent
obligations which were mutually breached, he does not argue that
they were ambiguous or reasonably subject to two interpretations.
Neither did the court conclude that the paragraphs were ambiguous.
We conclude that paragraphs 4 and 5 are unambiguous and that the
District Court incorrectly deleted the paragraphs from the Second
Addendum to the Buy/Sell Agreement. Therefore, we apply the terms
of the contract as written to the undisputed material facts.
ISSUE 2
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¶24 Was the District Court correct when it concluded that
paragraphs 4 and 5 were conditions concurrent that were mutually
breached by the parties and dismissed Arnlund’s complaint?
¶25 Arnlund and King Resources maintain that the District Court
erred when it concluded that the parties mutually breached the
Buy/Sell Agreement. They argue that they performed when $3,000,000
was paid to Oliver for the property, the contract for was deed
signed and Arnlund offered to sign the development contract when
Oliver was ready to make the past due down payment and sign the
contract for deed. They maintain that the court erred when it
concluded paragraphs 4 and 5 were conditions concurrent because the
covenants are not mutually dependant. In either case, Arnlund and
King Resources contend that they performed by purchasing Lot 2 and
were always ready and able to perform the development contract,
while Oliver was unable and unwilling to perform his obligation.
¶26 “Conditions concurrent are those conditions which are mutually
dependant and are to be performed at the same time.” Section 28-1-
404, MCA. An agreement is mutual and dependant where performance
by one party is conditioned on, and subject to, performance by the
other. 17A C.J.S. Contracts § 361(a) (1999). Independent
covenants are conditions that bind a party notwithstanding the
refusal or inability of the other party to perform. 17 C.J.S
Contracts § 361(a).
¶27 The District Court concluded that “The express language of the
Buy/Sell Agreement does not make one [paragraph] more important
than the other. Paragraphs 4 and 5 of the second addendum to the
Buy/Sell Agreement are conditions concurrent.” We note that the
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District Court’s Order and Memorandum inaccurately quote the
determinative language of paragraph 5 of the Second Addendum.
Paragraph 5 states in part: “A breach of the contract for deed as
described in paragraph 4 shall also be a breach of the development
agreement giving Buyers the right to terminate the development
agreement. . . .” The District Court restated that language as
follows: “A breach of the contract for deed as described in
paragraph 4 shall also be a breach of the development agreement. .
. .” It is not clear whether the omission is a typographical
error, or if the court misapprehended the terms of the contract.
¶28 In either case, we conclude the development agreement was
dependant upon Oliver’s performance of the contract for deed and
the express language of the contract indicates that the contract
for deed was more important than the development contract.
Furthermore, we conclude that nothing in paragraph 4 suggests that
the contract for deed, or repurchase of the 22 acres by Oliver was
conditioned upon the development contract. The thirty day time
provision in paragraph 4 clearly protects Arnlund and establishes
the time of performance for Oliver. The only condition Oliver’s
obligation was subject to was completing the sale, which occurred
when Arnlund tendered $2,500,000 and the apartment building, and
the Second Addendum was executed.
¶29 On the other hand, the development agreement was subject to
two conditions. The development agreement could be terminated by
Arnlund if Oliver breached the contract for deed and paragraph 5,
which included the development agreement, was void if the parties
could not reach an agreement within thirty days. This indicates
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that the development agreement was not material to, or a condition
to, the Buy/Sell Agreement or Oliver’s obligation to execute a
contract for deed and repurchase the central 22+/- acres of Lot A.
¶30 As we stated above, a court is not authorized to insert or
omit terms of a contract where a contract is unambiguous. Arnlund
and Oliver are both sophisticated businessmen and were both
represented by counsel while negotiating the terms of the Buy/Sell
Agreement and the Second Addendum. The addition of paragraph 5 to
the Second Addendum indicates that the parties’ negotiated their
respective obligations and contemplated that Oliver would be the
project manager after closing. However, nothing in paragraph 4 or
5 indicates that the addition of paragraph 5 made Oliver’s
obligation to sign a contract for deed and repurchase the central
22+/- acres of Lot A conditional. If the parties intended to make
the performance of the contract for deed and the development
agreement mutually dependant, they could have included language in
the contract that permitted Oliver to terminate the contract for
deed or refuse to repurchase the central 22+/- acres of Lot A if
Arnlund breached the development agreement. They did not. We
conclude that paragraphs 4 and 5 were not mutually dependent
concurrent obligations. Therefore, even if Arnlund breached his
obligation to execute the development agreement pursuant to
paragraph 5, it did not excuse Oliver from performing pursuant to
paragraph 4. Oliver’s obligation to execute the contract for deed
and repurchase the central 22+/- acres of Lot A was independent of
paragraph 5.
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¶31 Irrespective of whether the paragraphs 4 and 5 were mutually
dependent, the facts demonstrate that Arnlund was always ready and
willing to sign the development agreement. He refused to do so
because Oliver would not sign the contract for deed. This is not a
case of which came first, the chicken or the egg? Arnlund paid
Oliver $2,500,000 and transferred an apartment building to Oliver
pursuant to the Buy/Sell Agreement. Arnlund submitted the first
draft of the contract for deed in late July and the final draft was
prepared and signed on August 31. It is apparent that any
obligation to submit the final contract for deed earlier was
waived. Oliver did not tender a signed final development agreement
until October 5, 2000, Oliver failed to make the $100,000 down
payment, Oliver did not take advantage of Arnlund’s offer to accept
a promissory note for $100,000 when he could not secure financing,
and Oliver failed to sign the contract for deed that was given to
him on August 31, 2000. The facts indicate that Oliver breached
his obligation to repurchase before Arnlund even had the
opportunity to sign a final development agreement.
¶32 This Court has held that where a party to a contract
materially breaches a contract, the injured party is entitled to
unilaterally suspend his performance. Liddle v. Petty (1991), 249
Mont. 442, 446, 994 P.2d 1066, 1068. We conclude that Oliver’s
failure to make the $100,000 down payment as promised and failure
to sign the contract for deed tendered on August 31 were material
breaches of the Buy/Sell Agreement that occurred before a
development agreement was even available for execution. This
clearly permitted Arnlund to suspend performance of the development
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agreement. Therefore, we hold that the District Court erred when
it concluded the parties mutually breached the terms of the
contract and dismissed Arnlund’s complaint.
¶33 We reverse the District Court and remand this case for further
proceedings to determine the damages Arnlund and King Resources
incurred as the result of Oliver’s breach of the Buy/Sell
Agreement.
/S/ TERRY N. TRIEWEILER
We Concur:
/S/ JAMES C. NELSON
/S/ W. WILLIAM LEAPHART
/S/ PATRICIA COTTER
/S/ JIM RICE
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