No. 80-62
I N THE SUPREME COURT OF THE STATE OF MONTANA
1980
MANAGEMENT, I N C . ,
P l a i n t i f f and A p p e l l a n t ,
-vs-
MASTERSONS, I N C . , a n d G I B MASTERSONS, J R . ,
RUTHERFORDS PJWSEMENT, I N C . , and FRED
RUTHERFORD, R & R LEASING, e t a l . ,
Defendants and Respondents.
Appeal from: D i s t r i c t C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t . ,
I n a n d f o r t h e County of G a l l a t i n ,
The H o n o r a b l e W. W. L e s s l e y , J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appellant:
Landoe, Brown, P l a n a l p , K o m m e r s & L i n e b e r g e r , Bozeman,
Montana
For Respondents:
DrysdaLe, McLean, S c r e n a r & Cok, Bozeman, Montana
Submitted on B r i e f s : August 1, 1980
Decided: &C{J"-~-'-"L < /7J0
Filed: 55~
8 -
M r . J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion o f t h e
Court .
T h i s i s a n a p p e a l from t h e judgment of t h e D i s t r i c t
C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t , G a l l a t i n County,
which found p l a i n t i f f b r e a c h e d a c o n t r a c t , committed f r a u d
and damaged p r o p e r t y .
W e s h a l l c o n s i d e r t h r e e i s s u e s on t h i s a p p e a l :
1. Whether t h e D i s t r i c t C o u r t e r r e d i n f i n d i n g t h a t
t h e September 21, 1978, b u y - s e l l a g r e e m e n t was a n o v a t i o n o f
t h e May 1 2 , 1978, agreement.
2. Whether t h e D i s t r i c t C o u r t e r r e d i n f i n d i n g t h a t
t h e September 2 1 , 1978, b u y - s e l l a g r e e m e n t f a i l e d b e c a u s e of
t h e n o n f u l f i l l m e n t of a c o n d i t i o n precedent of obtaining
f i n a n c i n g f o r t h e p u r c h a s e of r e a l p r o p e r t y .
3. Whether t h e D i s t r i c t C o u r t e r r e d by n o t i n t e r p r e t i n g
the subject t o financing clause t o include reasonable t e r m s .
P l a i n t i f f , Management, I n c . , b r o u g h t s u i t f o r damages
a g a i n s t defendant Mastersons, Inc., and o t h e r s f o r b r e a c h of
c o n t r a c t , i n t e r f e r e n c e w i t h c o n t r a c t r i g h t s and f r a u d .
D e f e n d a n t s r e s p o n d e d w i t h a d e n i a l of a l l a l l e g a t i o n s and
c o u n t e r c l a i m e d f o r damages t o p r o p e r t y , improper r e p a i r and
fraud. T r i a l was c o n d u c t e d w i t h o u t a j u r y . A judgment was
r e n d e r e d i n f a v o r of d e f e n d a n t s on b o t h t h e c o m p l a i n t and
t h e counterclaim. P l a i n t i f f a p p e a l s from t h e judgment.
T h r e e l a n d s a l e s c o n t r a c t s f o r a l o t i n West Yellow-
s t o n e , Montana, a r e a t i s s u e i n t h i s a p p e a l . A commercial
o f f i c e s t r u c t u r e known a s t h e S c o o t e r B u i l d i n g and a s m a l l
r e n t a l c a b i n a r e on t h e p r o p e r t y . The f i r s t c o n t r a c t be-
tween p l a i n t i f f , a s b u y e r , and Y e l l o w s t o n e Amusement, I n c . ,
c o n s i s t i n g of d e f e n d a n t M a s t e r s o n s , I n c . , and d e f e n d a n t
R u t h e r f o r d Amusements, I n c . , a s s e l l e r , was s i g n e d on May
1 2 , 1978. Under t h e t e r m s of t h e c o n t r a c t , p l a i n t i f f a g r e e d
t o p u r c h a s e t h e p r o p e r t y f o r $65,000 p l u s 1 0 p e r c e n t i n t e r -
e s t , w i t h t h e p u r c h a s e p r i c e due August 1 2 , 1978. Because
of heavy snow t h e S c o o t e r B u i l d i n g had been damaged, s o
between May 1 2 and September 1 2 , 1978, p l a i n t i f f e f f e c t e d
r e c o n s t r u c t i o n and r e p a i r . Monty N e v i l l e , t h e p r i n c i p a l
agent f o r p l a i n t i f f , t e s t i f i e d t h a t a t t h a t time he d i d n o t
have t h e p r e s e n t a b i l i t y t o pay f o r t h e p r o p e r t y , b u t h e
s o u g h t t o r e p a i r t h e b u i l d i n g and r e s e l l o r l e a s e it.
P l a i n t i f f was u n a b l e t o pay Yellowstone Amusements, .
Inc., when t h e o b l i g a t i o n became due on August 1 2 , b u t
N e v i l l e informed Gib M a s t e r s o n s , a g e n t f o r Yellowstone
Amusement, I n c . , t h a t he would g i v e him a check when he
r e c e i v e d t h e f u n d s from Empire F e d e r a l S a v i n g s and Loan i n
L i v i n g s t o n , Montana. T h e r e a f t e r , Neville gave Mastersons a
p o s t d a t e d check w i t h d i r e c t i o n s t o h o l d i t a few d a y s b e f o r e
cashing it. M a s t e r s o n s d i d s o , b u t t h e check was r e t u r n e d
f o r i n s u f f i c i e n t funds.
I n t h e meantime, N e v i l l e had informed d e f e n d a n t Ray
Carkeek t h a t t h e b u i l d i n g was a v a i l a b l e f o r s a l e . He also
informed Carkeek t h a t t h e b u i l d i n g was a p p r a i s e d a t $211,000,
t h a t t h e r e was a l e a s e on one-half of t h e b u i l d i n g , t h a t
Empire S a v i n g s and Loan would f i n a n c e t h e t r a n s a c t i o n and
t h a t t h e r e were o n l y two c l a i m s a g a i n s t t h e p r o p e r t y . At
some p o i n t w i t h i n t h i s t i m e frame, N e v i l l e t o r e down a
r e n t a l c a b i n on t h e p r o p e r t y . The f a c t s a r e i n d i s p u t e a s
t o whether o r n o t he had M a s t e r s o n s ' a p p r o v a l t o do t h i s .
On September 21, 1978, t h e second c o n t r a c t f o r t h e
p r o p e r t y was e n t e r e d i n t o w i t h Gib M a s t e r s o n s and p l a i n t i f f ,
a s s e l l e r s , and d e f e n d a n t s Carkeek, R o b e r t Dye, Lewis
Robinson, and R o b e r t R u s s e l l , a s b u y e r s , a g r e e i n g t o pur-
c h a s e t h e p r o p e r t y f o r $125,000. The c o n t r a c t was s u b j e c t
t o two t y p e d p r o v i s i o n s : f i r s t , that the entire contract
was s u b j e c t t o d e f e n d a n t s b e i n g a b l e t o s u c c e s s f u l l y o b t a i n
f i n a n c i n g from ~ m p i r eF e d e r a l S a v i n g s and Loan, L i v i n g s t o n ,
Montana; and second, t h a t t h e s e l l e r s a g r e e d t o h o l d b u y e r s
h a r m l e s s a g a i n s t any and a l l c l a i m s a g a i n s t t h e p r o p e r t y .
The c o n t r a c t was t o be c l o s e d on November 1, 1978, w i t h
d e f e n d a n t Mastersons r e c e i v i n g $65,000. Defendant Dye
proceeded i n t o n e g o t i a t i o n s w i t h Empire and was r e f u s e d
financing. Defendants a l s o d i s c o v e r e d t h a t N e v i l l e had n o t
mentioned s e v e r a l o t h e r c l a i m s a g a i n s t t h e p r o p e r t y . De-
f e n d a n t s a t t e m p t e d t o n o t i f y N e v i l l e of t h e f a i l u r e of t h e
c o n t r a c t p r o v i s i o n , b u t b e c a u s e N e v i l l e was on a h u n t i n g
t r i p , t h e y p l a c e d a l e t t e r i n h i s d o o r which he found upon
h i s r e t u r n on October 29. Defendant Robinson c o n t a c t e d
d e f e n d a n t Mastersons and a d v i s e d him of t h e b u y e r s ' i n t e n t i o n
t o c a n c e l t h e c o n t r a c t f o r f a i l u r e of a c o n d i t i o n p r e c e d e n t .
On November 2, 1978, d e f e n d a n t M a s t e r s o n s s o l d t h e
p r o p e r t y under a t h i r d c o n t r a c t t o t h e p a r t n e r s h i p of de-
f e n d a n t s Dye, Robinson and R u s s e l l , known a s Block ~ s s o c i a t e s .
P l a i n t i f f took no p a r t i n t h e t h i r d c o n t r a c t .
The D i s t r i c t C o u r t found a n o v a t i o n of t h e f i r s t con-
t r a c t and t h a t p l a i n t i f f had, i n f a c t , b r e a c h e d t h e second
c o n t r a c t and was i n d e f a u l t of b o t h c o n t r a c t s .
P l a i n t i f f argues t h a t t h e novation d i d i n f a c t occur,
b u t d i s a g r e e s t h a t t h e f i r s t c o n t r a c t was s t i l l b i n d i n g .
P l a i n t i f f c l a i m e d t h a t d e f e n d a n t Gib M a s t e r s o n s , a s a g e n t f o r
Yellowstone Amusement, I n c . , c o n s e n t e d t o a new d e b t o r when
h e e n t e r e d i n t o a b u y - s e l l agreement on September 2 1 , 1978,
with p l a i n t i f f , a s sellers. Carkeek, Dye, ~ o b i n s o n ,and
R u s s e l l were b u y e r s . By t h a t agreement d e f e n d a n t M a s t e r s o n s ,
a s a g e n t f o r Yellowstone Amusement, I n c . , was a c c e p t i n g t h e
promise o f Carkeek and t h e o t h e r s t o pay $125,000. Plaintiff
i n s i s t s t h a t by a c c e p t i n g t h a t promise from d e f e n d a n t s , i t
was d i s c h a r g i n g h i s d e b t owed t o Yellowstone Amusement, I n c .
I n o t h e r words, t h e o b l i g a t i o n s between t h e o r i g i n a l p a r t i e s
a s found i n t h e May 1 2 , 1978, agreement w e r e e x t i n g u i s h e d
and a new o b l i g a t i o n was c r e a t e d which i s t h e b a s i s of t h e
nova t i o n .
W e do n o t a c c e p t p l a i n t i f f ' s argument. W e f i n d no
novation. The p a r t i e s e n t e r e d i n t o a c o n t r a c t on May 1 2 ,
1978. The c o n t r a c t c a l l e d f o r a payment on t h e c o n t r a c t on
August 1 2 , 1978. P l a i n t i f f d e f a u l t e d on September 21, 1978.
Defendant Mastersons informed p l a i n t i f f of h i s d e f a u l t .
P l a i n t i f f f u r t h e r attempts t o s a t i s f y the contract obligation
a l s o f a i l e d when h e gave d e f e n d a n t M a s t e r s o n s , a s a g e n t f o r
Yellowstone Amusement, I n c . , a check which was r e t u r n e d
marked " i n s u f f i c i e n t f u n d s . " The o r i g i n a l May 1 2 , 1978,
contract stated i n part: " I f t h e e n t i r e sum i s n o t p a i d t h e n
t h i s c o n t r a c t s h a l l be i n d e f a u l t . " A t t h e time, t h e c o n t r a c t
was n o t p a i d and p l a i n t i f f was i n d e f a u l t . In a frantic
a t t e m p t t o f o r e g o t h e e f f e c t s of d e f a u l t of t h e c o n t r a c t ,
p l a i n t i f f attempted t o sell t h e property t o another party--
d e f e n d a n t s Carkeek, Dye, R u s s e l l and Robinson, t h e r e b y
c l a i m i n g a n o v a t i o n and a d i s c h a r g e of t h e o r i g i n a l c o n t r a c t .
"'Novation' i s t h e s u b s t i t u t i o n of a new o b l i g a t i o n f o r
a n e x i s t i n g one." S e c t i o n 28-1-1501, MCA. "Novation i s
made by t h e s u b s t i t u t i o n o f : (1) a new o b l i g a t i o n between
t h e same p a r t i e s w i t h i n t e n t t o e x t i n g u i s h t h e o l d o b l i g a -
tion." S e c t i o n 28-1-1502, MCA.
" I n o r d e r t o e f f e c t a n o v a t i o n t h e r e must be a
c l e a r and d e f i n i t e i n t e n t i o n on t h e p a r t of a l l
concerned t h a t such i s t h e p u r p o s e of t h e a g r e e -
ment, f o r i t i s a w e l l - s e t t l e d p r i n c i p l e t h a t
n o v a t i o n i s n e v e r t o be presumed; t h e p o i n t i n
e v e r y c a s e , t h e n , i s , d i d t h e p a r t i e s i n t e n d by
t h e i r arrangement t o e x t i n g u i s h t h e o l d d e b t o r
o b l i g a t i o n and r e l y e n t i r e l y on t h e new, o r d i d
t h e y i n t e n d t o keep t h e o l d a l i v e and merely
a c c e p t t h e new a s f u r t h e r s e c u r i t y , and t h i s
q u e s t i o n of i n t e n t i o n must be d e c i d e d from a l l
of t h e c i r c u m s t a n c e s . " Harrison v. Fregger
( 1 9 3 0 ) , 88 Mont. 448, 453, 294 P . 372, 373.
W e f i n d no s u b s t i t u t e d c o n t r a c t . The new agreement i s n o t a
s u b s t i t u t e d c o n t . r a c t o p e r a t i n g a s a n immediate d i s c h a r g e . We
f i n d t h i s by t h e r e a s o n a b l e i n t e r p r e t a t i o n of t h e i n t e n t of
t h e p a r t i e s a s found i n t h e r e c o r d .
" T h e r e i s no d i s c h a r g e by n o v a t i o n when a c r e -
d i t o r mere1.y a c c e p t s a payment made by a t h i r d
p e r s o n o r a s s e n t s t o t h e assumption of t h e d e b t
by such a t h i r d p e r s o n . If the transaction
r e a s o n a b l y a p p e a r e d t o him a s one t h a t would
g i v e him a d d i t i o n a l s e c u r i t y , and n o t a wholly
new and s u b s t i t u t e d o b l i g o r , t h e r e i s no a s s e n t
by him t o s u c h a s u b s t i t u t i o n and t h e r e i s no
d i s c h a r g e by n o v a t i o n . " Corbin on C o n t r a c t s ,
S1298 a t 2 2 4 ( 1 9 6 2 ) .
Defendant M a s t e r s o n s was t h e o r i g i n a l o b l i g e e . Plaintiff
defaulted. The o r i g i n a l c o n t r a c t was b r e a c h e d f o r nonpayment.
Defendant Mastersons s i m p l y wanted h i s money f o r t h e b u i l d -
i n g and p r o p e r t y . He d i d n o t want t o s u b s t i t u t e t h e c o n t r a c t
with another person. P l a i n t i f f i s a r e a l e s t a t e broker. He
a t t e m p t e d t o s e c u r e a d d i t i o n a l b u y e r s f o r t h e p r o p e r t y when
he was i n d e f a u l t and induced d e f e n d a n t M a s t e r s o n s by a l l o w i n g
p l a i n t i f f t o e n t e r t h e b u y - s e l l agreement of September 21,
1978, a s a s e l l e r . However, i n t h e e n d , t h e b u y - s e l l a g r e e -
ment f a i l e d t o e f f e c t u a t e a b i n d i n g c o n t r a c t . There was no
substituted contract. The D i s t r i c t C o u r t found t h a t t h e
c o n d i t i o n p r e c e d e n t of o b t a i n i n g f i n a n c i n g f o r t h e p r o p e r t y
was n o t f u l f i l l e d , t h e r e f o r e r e n d e r i n g t h e second c o n t r a c t
n u l l and v o i d . The o r i g i n a l o b l i g o r was n e v e r d i s c h a r g e d .
F a i l u r e t o e f f e c t u a t e a second c o n t r a c t r e s u l t e d i n no
contract. Without a second c o n t r a c t , t h e r e c a n be no nova-
tion.
P l a i n t i f f a r g u e s t h a t t h e D i s t r i c t C o u r t e r r e d by
f i n d i n g t h a t t h e s u b j e c t t o f i n a n c i n g c l a u s e was a c o n d i t i o n
p r e c e d e n t and w i t h o u t f i n d i n g t h a t d e f e n d a n t s had t o make
reasonable e f f o r t t o secure financing, thereby, allowing the
d e f e n d a n t s t o g e t o u t of t h e September 21, 1978, c o n t r a c t .
W disagree.
e The b u y - s e l l agreement s p e c i f i c a l l y
s t a t e d t h a t " t h i s o f f e r i s s u b j e c t t o f i n a n c i n g a t Empire
F e d e r a l S a v i n g s and Loan, L i v i n g s t o n , Mt."
"A c o n d i t i o n p r e c e d e n t i s a f a c t o r e v e n t which
t h e p a r t i e s i n t e n d must e x i s t o r t a k e p l a c e
b e f o r e t h e r e i s a r i g h t t o performance. A
c o n d i t i o n i s d i s t i n g u i s h e d from a promise i n
t h a t i t c r e a t e s no r i g h t o r d u t y i n and of it-
s e l f b u t i s m e r e l y a l i m i t i n g o r modifying
factor. If the condition i s not f u l f i l l e d , the
r i g h t t o e n f o r c e t h e c o n t r a c t d o e s n o t come
i n t o e x i s t e n c e . " W i l l i s t o n , A T r e a t i s e on t h e
7 -
- o
Law-f C o n t r a c t s , 5663 a t 12673rd e d . 1 9 6 1 ) .
"A c o n d i t i o n p r e c e d e n t i s one which i s t o be
performed b e f o r e some r i g h t d e p e n d e n t t h e r e o n
a c c r u e s o r some a c t dependent t h e r e o n i s p e r -
formed." S e c t i o n 28-1-403, MCA.
B e f o r e any p a r t y t o an o b l i g a t i o n c a n r e q u i r e a n o t h e r
p a r t y t o perform any a c t under i t , he must f u l f i l l a l l
c o n d i t i o n s p r e c e d e n t t h e r e t o imposed upon h i m s e l f and must
be a b l e and o f f e r t o f u l f i l l a l l c o n d i t i o n s c o n c u r r e n t s o
imposed upon him of t h e l i k e f u l f i l l m e n t by t h e o t h e r p a r t y
e x c e p t a s p r o v i d e d by s e c t i o n 28-1-407, MCA.
The D i s t r i c t C o u r t p r o p e r l y found t h a t t h e f a i l u r e t o
o b t a i n t h e n e c e s s a r y f i n a n c i n g f o r t h e p u r c h a s e from Empire
F e d e r a l S a v i n g s and Loan i n L i v i n g s t o n , Montana, r e n d e r e d
t h e c o n t r a c t of September 2 1 , 1978, a n u l l i t y . The p r o -
vision is specific. Under t h e c i r c u m s t a n c e s of t h i s c a s e ,
t h e e f f o r t s of d e f e n d a n t s t o o b t a i n t h e f i n a n c i n g were
reasonable. P l a i n t i f f represented t o defendants t h a t i n
f a c t he had a commitment f o r f i n a n c i n g a t Empire F e d e r a l
S a v i n g s and Loan. Testimony from t h e bank o f f i c e r i n d i c a t e d
t h a t no commitment was made. F u r t h e r , d e f e n d a n t s went t o
L i v i n g s t o n t o make a p p l i c a t i o n f o r t h e l o a n b u t were i n -
formed by t h e l o a n o f f i c e r t h a t he would n o t make a l o a n i n
West Yellowstone, Montana, t o anybody and t h a t i t w a s f u t i l e
a t t h a t p o i n t i n t i m e t o make an a p p l i c a t i o n f o r a l o a n .
P l a i n t i f f had no money. P l a i n t i f f had no a c c e s s t o
money--he was p u r e l y s p e c u l a t i n g on t h e p r o p e r t y , and he
embarked on a h i g h l y s p e c u l a t i v e v e n t u r e i n hope t h a t some
l e n d i n g i n s t i t u t i o n would g i v e him t h e money, o r i n hope
t h a t he c o u l d somehow f i n d a buyer f o r h i s p r o p e r t y . Plain-
t i f f d i d n o t p u t one c e n t o f h i s own money i n t o t h i s b u i l d i n g .
P l a i n t i f f attempted t o salvage a loosely-held f i n a n c i a l
gamble by making r e p r e s e n t a t i o n s t o o t h e r s a s an inducement
t o purchase t h e property. There was no l o a n . There was no
commitment f o r a l o a n . There was no l e a s e n o r a commitment
f o r a l e a s e on t h e p r e m i s e s . I n t h e end when t h e c a r d s w e r e
c a l l e d , p l a i n t i f f came up empty-handed. P l a i n t i f f was
o b l i g a t e d t o make payment. He f a i l e d t o do s o . H e attempted
t o make a n o t h e r p a r t y l i a b l e f o r h i s nonpayment and, t h e r e b y ,
extinguish h i s original obligations--this too f a i l e d .
Although t h e D i s t r i c t C o u r t e r r e d i n c o n c l u d i n g t h a t a
n o v a t i o n had o c c u r r e d , w e f i n d s u b s t a n t i a l e v i d e n c e and
p r o p e r a p p l i c a t i o n of law t o uphold t h e awarding of damages
f o r t h e b r e a c h of t h e May 1 2 , 1 9 7 8 , c o n t r a c t .
Af f irmed.
Justice
W e concur:
/