Kurtzenacker v. Davis Surveying, Inc.

May 15 2012

DA 11-0440

IN THE SUPREME COURT OF THE STATE OF MONTANA
2012 MT 105

JAMES J. KURTZENACKER, III and
KRISTINE R. KITTLESON,

Plaintiffs and Appellees,

v.

DAVIS SURVEYING, INC. and
KENNETH E. DAVIS,

Defendants and Appellants.

APPEAL FROM: District Court of the Nineteenth Judicial District,
In and For the County of Lincoln, Cause No. DV 09-147
Honorable James B. Wheelis, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

Jean E. Faure, Jason T. Holden; Faure Holden Attorneys at Law, P.C.;
Great Falls, Montana

Douglas C. Allen, Attorney at Law; Shelby, Montana

For Appellees:

Thane P. Johnson; Johnson, Berg & Saxby, PLLP; Kalispell, Montana

Submitted on Briefs: March 14, 2012

Decided: May 15, 2012

Filed:

__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1 Davis Surveying, Inc. (Davis Surveying) and Kenneth Davis (Davis) (collectively

Appellants) appeal from an order of the Nineteenth Judicial District, Lincoln County,

which held Appellants liable for breach of contract and negligence and awarded damages

for misrepresenting the boundaries of Appellees’ property. We affirm in part, reverse in

part, and remand for entry of an amended judgment. We address the following issues:

¶2 1. Did the Appellees have actual or constructive notice of recorded surveys that
correctly defined the boundaries of their property?

¶3 2. Did the District Court err in determining that Appellees were third-party
beneficiaries of a contract for a prior survey?

¶4 3. Did the District Court err in determining Appellees were entitled to damages
based on negligent misrepresentation?

¶5 4. Is there substantial evidence to support the District Court’s determination that
Kenneth Davis is personally liable to Appellees for work done by Davis Surveying, Inc.?

FACTUAL AND PROCEDURAL BACKGROUND

¶6 Kristine Kittleson (Kittleson) and James J. Kurtzenacker, III (collectively

Appellees) own a 9.25 acre tract of land near Troy, Montana. The property is located just

above the Troy Dam, which impounds Lake Creek. The Troy Dam and surrounding

property is owned by Northern Lights, Inc. (Northern Lights), with whom the Appellees

share a common boundary on the western edge of Appellees’ parcel.

¶7 In 1994, a predecessor in title to Northern Lights hired Marquardt Surveying to

perform a retracement survey, which identified the eastern boundary of Northern Lights’

parcel and the western boundary of what would become the 9.25 acre tract of land

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purchased by Appellees. This survey, COS 2287, was filed in 1995 and will be referred

to herein as the 1995 survey.

¶8 In 1997, Davis Surveying conducted two surveys, COS 2530 and COS 2591, for

Stimson Lumber, a predecessor in title to Appellees, and for Plum Creek Management,

respectively. 1 In 1998, Davis Surveying conducted a survey, COS 2634, for Appellees’

immediate predecessor in title, Osprey Bend Partnership (Osprey Bend or the

Partnership). The purpose of the 1998 survey was to combine several parcels into the

9.25 acre tract that Appellees would eventually purchase in 2006. In the 1997 and 1998

surveys, Davis did not survey the western boundary of the subject parcel, but instead

relied upon the 1995 survey done by Marquardt. The 1995, 1997, and 1998 surveys were

all recorded in the records of Lincoln County. All of these surveys appear from the

record to correctly identify the western boundary as well as the southwestern corner of

the 9.25 acre parcel.2

¶9 The Appellees purchased the 9.25 acre parcel on September 12, 2006 from Osprey

Bend. Their warranty deed references the above-mentioned surveys. At trial, the parties

offered very different versions of the events leading up to and following the Appellees’

purchase of the land.

1
The record does not clearly indicate the nature of Plum Creek’s affiliation with the property,
specifically, whether Plum Creek owned an interest in the property, such as timber rights, or was
merely a manager of the property.
2
The District Court’s Findings of Fact, Conclusions of Law and Order includes a statement that
an unspecified “Defendants’ survey” was later found to be inaccurate. We are unsure of the
basis for this statement, but given our resolution of the appeal, it is unnecessary to analyze the
issue further.
3
¶10 Appellees claimed that prior to their purchase of the property, they contacted

Davis Surveying for assistance and that George Clark (Clark), an employee of Davis

Surveying, met them at the property and showed them the boundary lines. They claimed

Clark indicated that the parcel included waterfront property. Appellees alleged that they

relied on Clark’s representation that the parcel included waterfront property in deciding

to make the purchase. They also alleged that Clark represented that the western boundary

was approximately 30 feet further to the west than the true western boundary by placing

marker flags in the wrong locations. They claimed that they relied on these flags when

building on their property and landscaping their yard.

¶11 Appellants responded that they had nothing whatsoever to do with Appellees until

after they had purchased the property, and therefore, Appellees could not have relied on

representations by Clark in deciding to purchase the property. Appellants alleged that

their first interaction with Appellees was when Appellees contacted Davis Surveying

about performing a subdivision health review after the purchase of their property. Clark

and Davis testified that Clark did not go to the Appellees’ property until 2007, a year

after Appellees purchased it, and offered Clark’s work diary as evidence to support their

contention.

¶12 The subject parcel does not include any waterfront area, and the western boundary

as allegedly represented by Clark was incorrect. Appellees asserted that, based on

Clark’s incorrect flagging, they built a garage with an upper apartment, a yard with

landscaping, and a dock with stairs leading thereto. They planned to live in the apartment

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while building a primary dwelling, intending to eventually use the apartment as guest

lodging. Before they built the primary dwelling, they were informed by Northern Lights

that they were trespassing on Northern Lights’ property and needed to remove the stairs,

dock, and part of the lawn. Subsequent surveys performed at the request of Northern

Lights and Appellees both confirmed that Appellees were trespassing and owned no

waterfront property.

¶13 Appellees sued both Davis Surveying and Davis, personally, alleging negligent

misrepresentation, negligence, and breach of contract based on a third-party beneficiary

theory. Appellees asserted it was no longer feasible for them to construct the primary

dwelling, and they are currently living in the apartment above the garage. They claimed

diminished access to their property because the road they formerly used crosses Northern

Lights’ property. They claimed that they “lost” much of their property because it is

encumbered with power company easements. After a bench trial, the District Court held

that both Davis Surveying and Davis were liable for breach of contract under a third-

party beneficiary theory and for negligent misrepresentation, and awarded damages to the

Appellees in the amount of $140,344. Davis Surveying and Davis appeal.

STANDARD OF REVIEW

¶14 We review findings of fact entered after a civil bench trial to determine if they are

supported by substantial credible evidence. We review this evidence in the light most

favorable to the prevailing party and leave the credibility of witnesses and weight

assigned to their testimony to the determination of the District Court. Only a Mile, LLP

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v. State, 2010 MT 99, ¶ 10, 356 Mont. 213, 233 P.3d 320 (citing In re Kelly, 2010 MT

14, ¶ 25, 355 Mont. 86, 224 P.3d 640). “We review a district court’s conclusions of law

in this context for correctness.” Only a Mile, LLP, ¶ 10 (citing DeNiro v. Gasvoda, 1999

MT 129, ¶ 9, 294 Mont. 478, 982 P.2d 1002).

DISCUSSION

¶15 1. Did the Appellees have actual or constructive notice of recorded surveys that
correctly defined the boundaries of their property?

¶16 Appellants argue Appellees had actual and constructive notice of the western

boundary and the southwestern corner of their property because the 1995, 1997, and 1998

surveys were recorded in the records of Lincoln County and were referenced in the 2006

warranty deed transferring the property to Appellees. Citing authorities, Appellants

argue that a purchaser of real property is on constructive notice of all matters properly

recorded, whether or not there is actual knowledge of such matters, and that a purchaser

is on actual notice of all matters referred to in a warranty deed that expressly states that

the conveyance is subject to a survey of record. Therefore, there is no legal basis to

award damages for breach of contract or negligent misrepresentation.

¶17 Appellants are represented by different counsel on appeal and did not raise this

notice issue in the District Court. “We generally refuse to consider arguments raised for

the first time on appeal because ‘it is fundamentally unfair to fault the trial court for

failing to rule on an issue it was never given the opportunity to consider.’” City of

Missoula v. Moore, 2011 MT 61, ¶ 13, 360 Mont. 22, 251 P.3d 679 (citing State v.

LaFreniere, 2008 MT 99, ¶ 11, 342 Mont. 309, 180 P.3d 1161). Because this issue was
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not raised at trial, and the District Court had no opportunity to consider or rule on the

issue, we decline to address it further.

¶18 2. Did the District Court err in determining that Appellees were third-party
beneficiaries of a contract for a prior survey?

¶19 Davis Surveying completed surveys for Stimson Lumber in 1997, for Plum Creek

Management in 1997, and for Osprey Bend Partnership in 1998. The District Court

determined that Appellees were third-party beneficiaries to at least one of the survey

contracts between Davis Surveying and Osprey Bend, on the ground that the survey(s)

were done in contemplation of future sales.3

¶20 Not everyone who may benefit from performance or suffer from nonperformance

of a contract between two other parties is permitted to enforce the contract. Diaz v. Blue

Cross & Blue Shield of Mont., 2011 MT 322, ¶ 18, 363 Mont. 151, 267 P.3d 756 (citing

Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts vol. 13, § 37:7,

29 (4th ed., West 2000)). A stranger to a contract lacks standing to sue for breach of that

contract unless he is an intended third-party beneficiary of the contract. Dick Anderson

3
The Findings of Fact are somewhat contradictory and confusing with regard to the contractual
relationships giving rise to the surveys. The signatures of the Osprey Bend partners are on COS
2591, the 1997 survey, as property owners, but it appears that Plum Creek commissioned the
survey. The relationship between Plum Creek and the Partnership is not disclosed, but we
understand that when the District Court cites to the contract for the 1997 survey for Osprey
Bend, it is referring to the survey commissioned by Plum Creek. Neither party produced a
written contract between Davis Surveying and any of the above-mentioned parties, although it is
evident that such contracts, whether written or not, were performed. The District Court was not
entirely clear as to which contract or contracts between Davis Surveying and the prior
landowners formed the basis for the conclusion that Appellees had obtained third-party
beneficiary status, but our review convinces us that the 1998 contract between Davis Surveying
and Osprey Bend and the 1997 survey commissioned by Plum Creek, for which Osprey Bend
was listed as owner, were such foundational contracts.
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Constr., Inc. v. Monroe Constr. Co., LLC, 2009 MT 416, ¶ 46, 353 Mont. 534, 221 P.3d

675 (citations and quotations omitted). “A plaintiff cannot assume that he is an intended

third-party beneficiary; rather, he must show from the face of the contract that it was

intended to benefit him.” Klingman v. Mont. Pub. Serv. Commn., 2012 MT 32, ¶ 40, 364

Mont. 128, 272 P.3d 71 (citing Diaz, ¶¶ 19, 21). In Harmon v. MIA Serv. Contracts, 260

Mont. 67, 72, 858 P.2d 19, 22-23 (1993), we adopted the following definition of an

intended beneficiary from the Restatement (Second) of Contracts, § 302 (1981):

(1) Unless otherwise agreed between promisor and promisee, a beneficiary
of a promise is an intended beneficiary if recognition of a right to
performance in the beneficiary is appropriate to effectuate the intention of
the parties and either

(a) the performance of the promise will satisfy an obligation of the
promisee to pay money to the beneficiary; or

(b) the circumstances indicate that the promisee intends to give the
beneficiary the benefit of the promised performance.

The Restatement defines an “incidental beneficiary” as “a beneficiary who is not an

intended beneficiary.” Restatement (Second) of Contracts § 302(2). Incidental

beneficiaries have no right to enforce a contract. Ronning v. Yellowstone Co., 2011 MT

79, ¶ 14, 360 Mont. 108, 253 P.3d 818 (citing Restatement (Second) of Contracts § 315).

¶21 In holding that the Appellees were third-party beneficiaries to the survey

contract(s) between Osprey Bend and Davis Surveying, the District Court reasoned that

“although the Plaintiffs themselves were not specifically contemplated as beneficiaries of

a survey, who else but the partnership and its eventual purchasers would benefit?” The

court also found that “[a]ll acts done by agreement between Defendants and the Osprey
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Bend Partnership were done in contemplation of further sales of the property to

purchasers, which necessarily included the Plaintiffs, even though they were not known

to either party when the Defendants performed work for the partnership.” The court cited

to cases from other jurisdictions to support its conclusion that Appellees were members

of a class who were to benefit from the contract(s) between Davis Surveying and the

Partnership.

¶22 The record indicates that the survey(s) done for Osprey Bend were to combine

several tracts of land into a larger parcel. While several of the Osprey Bend partners

testified at trial none of them offered any indication that these surveys were done for the

benefit of any future purchasers. With the possible exception of Plum Creek

Management, whose involvement is evident from the record but not fully disclosed, the

record offers no evidence, and Appellees provided none, that any party but Osprey Bend

was intended to benefit from the survey contracts. The record fails to establish, as

required under the Restatement, that either “the performance of the promise [by Davis

Surveying] will satisfy an obligation of the promisee [Osprey Bend] to pay money to the

beneficiary [Appellees]”; or that “the circumstances indicate that the promisee [Osprey

Bend] intends to give the beneficiary [Appellees] the benefit of the promised

performance.” Restatement (Second) Contracts § 302. Thus, at most, Appellees were

incidental beneficiaries to the survey contracts and have no right of enforcement. As

discussed above, Montana law on this issue is well settled. The District Court’s reliance

on foreign authority was misplaced and would greatly alter our jurisprudence.

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¶23 As a stranger to the survey contracts between Davis Surveying and Osprey Bend,

Appellees lack standing to bring an action for breach of contract. Dick Anderson Constr.,

Inc., ¶ 46. The District Court is reversed on this issue. However, this does not require

reversal of the judgment in favor of Appellees. While the District Court erred in this

reasoning, it reached the right result under Appellees’ negligent misrepresentation claim,

discussed below. “We will not reverse a district court where it reached the right result,

although for the wrong reason.” Ronning, ¶ 8 (citations omitted).

¶24 3. Did the District Court err in determining Appellees were entitled to damages
based on negligent misrepresentation?

¶25 The tort of negligent misrepresentation requires proof of the following elements:

1) the defendant made a representation as to a past or existing material
fact;

2) the representation must have been untrue;

3) regardless of its actual belief, the defendant must have made the
representation without any reasonable ground for believing it to be true;

4) the representation must have been made with the intent to induce the
plaintiff to rely on it;

5) the plaintiff must have been unaware of the falsity of the representation;
it must have acted in reliance upon the truth of the representation, and it
must have been justified in relying on the representation;

6) the plaintiff, as a result of his or her reliance, sustained damage.

Deichl v. Savage, 2009 MT 293, ¶ 19, 352 Mont. 282, 216 P.3d 749.

¶26 The District Court concluded that Appellants/Defendants owed a duty to locate the

boundaries of the property accurately, that they breached this duty, that Appellees

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reasonably relied on Clark’s statements, and that this caused damage to the Appellees.

Appellants argue that Appellees did not prove the elements of negligent

misrepresentation because Appellees’ trial testimony was inconsistent and contradictory

and did not rise to the level of substantial evidence. Appellants argue that the District

Court clearly erred when it found that Clark went to the Appellees’ property in 2006,

prior to purchase of the property, rather than in 2007, subsequent to the purchase.

¶27 The evidence in this case is notable for the clearly contradictory versions

presented about the year in which Clark visited the property. After listening to the

conflicting testimony of Clark and Kittleson, the District Court determined Kittleson to

be the more credible witness. It found that Clark represented to the Appellees that their

western boundary was further to the west than it really is by finding a corner pin and

pacing off the western boundary. The court found that Clark placed flags along this

inaccurate western boundary, although Clark testified that he did not flag the entire

boundary. The District Court found that Clark told the Appellees that he could not find

the southwestern pin because it was likely under water, indicating that a portion of the

property was waterfront.

¶28 These representations by Clark to Appellees, as found by the District Court, were

untrue. Clark did not have a basis for believing these representations to be true because

the surveys done by Davis Surveying had correctly identified the western boundary and

indicated that the parcel did not include any waterfront property. The District Court

found that Appellees relied on Clark’s representations in their decisions to purchase the

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property, make improvements on it, and landscape it. It reasoned that “Plaintiffs’

reliance on Clark’s representation was reasonable, given that he was an employee of the

defendant corporation, which regularly performed surveying and authored plats for

subdivisions and other real estate enterprises.”

¶29 Regarding Clark’s contrary version, the District Court ruled that the “[e]vidence

contradicting the sequence of events found above was not credible. Evidence

contradicting the Plaintiffs’ reliance on Clark and the Defendants was not credible.

Evidence contradicting the reasonableness of Plaintiffs’ reliance on Clark and the

Defendants was not credible.”

¶30 “It is well established that the trial court is in the best position to observe and

judge the credibility of witnesses, [therefore] we do not second guess the district court’s

determination regarding the strength and weight of conflicting testimony.” In re S.R.T.,

2011 MT 219, ¶ 25, 362 Mont. 39, 260 P.3d 177 (internal quotations and citation

omitted). Appellants have emphasized the evidence that was contradictory to the

evidence the District Court found to be credible. However, while the evidence may well

have allowed a different conclusion, our review of the evidentiary record does not

“leave[] this Court with a definite and firm conviction that a mistake has been made.”

Puccinelli v. Puccinelli, 2012 MT 46, ¶ 13, 364 Mont. 235, 272 P.3d 117 (citation

omitted). Likewise, while there was contradictory evidence presented by the parties with

regard to damages, we cannot conclude that the District Court erred in awarding the

damages it found to have been caused to Appellees by the misrepresentation. Therefore,

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we affirm the District Court’s findings of fact and conclusions of law with regard to the

liability and damages of this claim.

¶31 4. Is there substantial evidence to support the District Court’s determination that
Kenneth Davis is personally liable to Appellees for work done by Davis Surveying, Inc.?

¶32 Davis argues there is not substantial evidence in the record to support the District

Court’s determination that he is personally liable to Appellees. Davis cites Gentry v.

Douglas Hereford Ranch, Inc., 1998 MT 182, 290 Mont. 126, 962 P.2d 1205, for the

proposition that a claim of vicarious liability based upon the doctrine of respondent

superior requires there to have been an employment relationship between the tortfeasor,

(here, Clark), and himself. He argues that Clark was an employee of Davis Surveying,

Inc. Appellees respond that Davis committed the tort of negligent misrepresentation by

personally failing to show Kittleson the correct pin location of Appellees’ property and

by continuing to “perpetuate this misrepresentation” by producing and testifying about

Clark’s handwritten diary indicating the days and the year that Clark was on the

Appellees’ property. Appellees also argue that “Davis failed to object or raise at the

District Court . . . the action against Davis individually . . . .” They suggest that because

Davis did not object, this issue is improperly presented for the first time on appeal.

¶33 Under § 26-1-402, MCA, “a party has the burden of persuasion as to each fact the

existence or nonexistence of which is essential to the claim for relief . . . .” It was

Appellees’ burden to put forth evidence to support their claim as to Davis’ personal

liability. Davis denied the allegations of personal liability in his answer to the complaint,

13
see M. R. Civ. P. 8(b), and the issue was tried. Without more, Appellees’ argument that

Davis did not “object” to the claim filed against him individually at trial is ineffectual.

¶34 The claims of Appellees against Appellants were made generally and jointly,

asserting that “[d]efendants had a duty to accurately place the flags and markers” and that

“[d]efendants made representations” concerning the location of the property boundaries

that were inaccurate and therefore breached their duty to Appellees. Appellees made no

separate claim against Davis based upon his role as an officer, director, or shareholder of

the corporation, nor did they assert a claim to pierce the corporate veil to hold Davis

personally liable for the corporation’s obligation.4 Consistent therewith, the District

Court found Davis to be personally liable but entered no findings of fact or conclusions

of law specifically related to Davis’ personal liability. Rather, it entered findings and

conclusions only as to the defendants jointly.

¶35 Our review of the record reveals no evidence on which to hold Davis personally

liable for breach of the duty to Appellees to accurately represent the property boundaries.

Davis did not personally perform the flagging on Appellees’ property, which

misrepresented the boundaries prior to Appellees’ purchase of the property, and he was

not present when it was done. Davis did not otherwise personally make representations

to the Appellees about the property boundaries prior to their purchase. Neither Davis’

4
Appellees offer veil-piercing arguments on appeal, citing Phillips v. Mont. Educ. Assn., 187
Mont. 419, 425, 610 P.2d 154, 158 (1980), for the proposition that “[t]he corporate veil should
not be utilized as a protective device by those who employ corporate power or authority to serve
their own ends.” However, because no such claim was made or tried in the District Court, we
decline to address the issue.
14
production of Clark’s work diary during the course of litigation, in which Clark detailed

his daily work on each surveying job, nor his testimony regarding the dates Clark was at

the property were a “perpetuation of the misrepresentation” by Davis. Davis was merely

testifying and producing evidence to refute the claims of the Appellees. Appellees failed

to offer evidence to carry their burden of proving their claim that Davis was personally

liable. The District Court is reversed on this issue.

¶36 We affirm in part and reverse in part the judgment entered by the District Court.

We remand this matter for entry of an amended judgment in accordance herewith.

/S/ JIM RICE

We concur:

/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ JAMES C. NELSON

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