No. 13321
I N THE SUPREME C U T O THE STATE O MONTANA
OR F F
1976
RICHARD J. BAILS and
PATRICIA J. BAILS,
husband and wife,
P l a i n t i f f s and A p p e l l a n t s ,
STAN GAR and ALICE GAR,
husband and w i f e , and
STAN GAR, a s Administrator
of t h e E s t a t e of Dale Gar,
Deceased,
Defendants and Respondents.
Appeal from: District Court of t h e Eighteenth J u d i c i a l D i s t r i c t ,
Honorable W. W. Less l e y , Judge p r e s i d i n g .
Counsel of Record:
For Appellants :
Berg, Angel, Andriolo and Morgan, Bozeman, Montana
Charles Angel argued, Bozeman, Montana
For Respondents:
Hibbs, Sweeney and Colberg, B i l l i n g s , Montana
Rex Hibbs argued, B i l l i n g s , Montana
-
Submitted : October 14, 1976
Decided : DEC 2 8 1976
Filed : L E G 2 8 1976
Mr. J u s t i c e Frank I . Haswell d e l i v e r e d t h e Opinion o f t h e C o u r t .
I n a n a c t i o n by t h e b u y e r s o f a r a n c h a g a i n s t t h e
s e l l e r s f o r damages based on a l l e g e d f r a u d u l e n t r e p r e s e n t a -
t i o n s i n d u c i n g them t o e n t e r i n t o t h e p u r c h a s e c o n t r a c t , t h e
d i s t r i c t c o u r t , G a l l a t i n County, g r a n t e d summary judgment t o
t h e sellers. Buyers a p p e a l .
P l a i n t i f f s a r e R i c h a r d J . B a i l s and P a t r i c i a J . B a i l s ,
h i s w i f e , who c o n t r a c t e d t o p u r c h a s e a r a n c h i n G a l l a t i n County
f o r $750,000 from d e f e n d a n t s S t a n and A l i c e Gar. Bails, a
f a c t o r y worker from Michigan and h i s w i f e , a s c h o o l t e a c h e r ,
had v i s i t e d Montana a few y e a r s ago, l i k e d t h e c o u n t r y , and
had been l o o k i n g f o r p r o p e r t y h e r e s i n c e . Bails contacted
William Richardson, a l i c e n s e d r e a l e s t a t e b r o k e r from S o u t h
Dakota, and asked h i s a i d i n f i n d i n g a r a n c h i n Montana w i t h
a c a r r y i n g c a p a c i t y of 500 cows w i t h c a l v e s .
G a r c o n t a c t e d Richardson and o f f e r e d t h e r a n c h f o r s a l e
t h a t i s t h e s u b j e c t of t h i s a c t i o n . Gar had bought t h e r a n c h
l e s s t h a n a y e a r e a r l i e r b u t wished t o s e l l , i n p a r t b e c a u s e o f
t h e f a i l i n g h e a l t h o f h i s son who d i e d d u r i n g t h e s a l e n e g o t i a -
tions. Gar h i m s e l f d i e d d u r i n g t h e c o u r s e o f t h i s l i t i g a t i o n
a f t e r he had g i v e n h i s d e p o s i t i o n h e r e i n . Richardson, i n h i s
d e p o s i t i o n , s t a t e d t h a t on t h e b a s i s o f t h e n o t e s he t o o k when
G a r t e l e p h o n e d him t h a t Gar t o l d him t h e l a n d would y i e l d 50 t o
80 b u s h e l s o f wheat p e r a c r e and 90 b u s h e l s o f b a r l e y p e r a c r e .
Norman Wheeler, a l i c e n s e d r e a l e s t a t e b r o k e r from
B e l g r a d e , Montana, had t h e l i s t i n g on t h e r a n c h . Wheeler had
e x t e n s i v e knowledge and e x p e r i e n c e i n t h e a r e a i n r e a l e s t a t e
a p p r a i s a l s f o r l e n d i n g i n s t i t u t i o n s , had handled t h e e a r l i e r
s a l e of t h e r a n c h i n q u e s t i o n t o Gar, and had a p p r a i s e d it many
years e a r l i e r . Wheeler responded t o R i c h a r d s o n ' s i n q u i r y by
s e n d i n g a o n e page d e s c r i p t i o n of t h e r a n c h . This brochure
contained all of the representations alleged in the complaint
with the exception of income producing capacity. Apparently
Wheeler and Gar had prepared the brochure. The two real estate
agents agreed to split the commission on the possible sale.
When Bails received the brochure, he flew to Bozeman to
see the land in mid-May, 1974. He rented a car on the evening
of his arrival, drove to the ranch, and Gar gave him a quick
tour of the place. The ranch is near Three Forks, Montan3 in
the Willow Creek area. It consists of bottomland along the
Jefferson River, benchland grazing, a grazing lease on public
land, and about 1,200 acres of dry land grain cropland on the
bench. Bails, in his deposition, stated Gar spoke in very glow-
ing terms of the ranch and told him he could make $50,000 to
$100,000 on grain alone.
The following morning Richardson joined Bails and they
went out to the ranch where Wheeler and Gar gave them another
tour. Bails questioned the dryness, but said they told him the
area was suffering from a drought and that a little rain would
really green it up. Richardson was very enthused and told Bails
the ranch would return income of $100,000 per year, but Wheeler
cut that figure to $80,000. Bails was also very enthused.
Later that morning Bails agreed to buy the place for
$750,000 plus $25,000 for the equipment. Bails signed a "Receipt
and Agreement to Sell and Purchase" and made a payment of $20,000.
Bails was in possession of the ranch for slightly over a month
at the time the formal contract for deed was executed, on July
23, 1974. This was the fifth sale of the ranch in five years,
all by contract for deed.
Within a year Bails became dissatisfied with the ranch
and brought the instant action. Bails brought a similar action
against the two real estate brokers. A third action was brought
by a p r e v i o u s s e l l e r a g a i n s t G a r and B a i l s f o r d e f a u l t o n t h e
c o n t r a c t s f o r deed.
E i g h t d e p o s i t i o n s w e r e t a k e n w i t h a number o f e x h i b i t s
attached. A l l p a r t i e s agreed t h a t t h e d e p o s i t i o n s could be
used i n a l l t h r e e a c t i o n s . The o t h e r two c a s e s have been ap-
p e a l e d b u t n o t y e t h e a r d by t h i s C o u r t .
I n t h e i n s t a n t a c t i o n Gar h a s a l s o c o u n t e r c l a i m e d
a g a i n s t B a i l s f o r d e f a u l t and $150,000 d u e on t h e c o n t r a c t , p l u s
interest. T h i s c o u n t e r c l a i m and B a i l s ' r e p l y a r e n o t i n v o l v e d
i n t h e present appeal.
Following p r e t r i a l d i s c o v e r y , t h e d i s t r i c t c o u r t g r a n t e d
summary judgment t o G a r s o n B a i l s ' c l a i m f o r damages f o r f a l s e
representation. B a i l s a p p e a l s from t h e summary judgment a g a i n s t
him.
The i s s u e s f o r r e v i e w on a p p e a l a r e s t a t e d by p l a i n t i f f
i n t h i s manner:
(1) Whether t h e p l e a d i n g s , d e p o s i t i o n s and r e c o r d s i n
t h i s a c t i o n show t h a t t h e r e a r e a n y g e n u i n e i s s u e s o f m a t e r i a l
f a c t t h e r e b y r e n d e r i n g t h e g r a n t i n g o f a summary judgment i n -
applicable;
( 2 ) Whether t h e p l e a d i n g s , d e p o s i t i o n and r e c o r d s i n
t h i s a c t i o n show t h a t d e f e n d a n t s w e r e e n t i t l e d t o a judgment a s
a m a t t e r o f law.
P l a i n t i f f s claim f i v e s p e c i f i c misrepresentations:
(1) T h a t t h e r a n c h would r a i s e and s u s t a i n 400 a n i m a l
units.
( 2 ) T h a t t h e r a n c h c o n s i s t e d o f a p p r o x i m a t e l y 5,200 deeded
acres.
( 3 ) T h a t t h e r a n c h had 300 a c r e s o f hay l a n d which p r o -
duced 900 t o n s o f hay p e r y e a r .
( 4 ) T h a t t h e r e w e r e 600 a c r e s of c r o p l a n d which produced
21 bushels of grain per acre.
(5) That the property would produce income of at least
$80,000 per year.
A summary judgment can be granted only where the pre-
trial record discloses (1) the absence of any genuine issue of
material fact, and (2) that the moving party is entitled to
judgment as a matter of law. Rule 56(c), M.R.Civ.P. The prin-
ciples of summary judgment under Rule 56(c) are collected and
well stated in Harland vs. Anderson, Mont . , 548 P.2d
613, 33 St.Rep. 363, and we will not repeat them here.
The district court in its order granting summary judgment
cited as controlling law, and the parties seem to agree,that the
following elements are necessary to establish actionable fraud
based on alleged misrepresentation: In Cowan v. Westland Realty
383,
Co., 162 Mont. 379,/512 P.2d 714, the Court stated:
" * * * the plaintiff must prove to make out a
prima facie case of fraud: (1) A representation;
(2) its falsity; (3) its materiality; (4) the
speaker's knowledge of its falsity, or ignorance
of its truth; (5) his intent that it should be
acted upon by the person and in the manner reason-
ably contemplated; (6) the hearer's ignorance of
its falsity; (7) his reliance upon its truth;
(8) his right to rely thereon; and (9) his con-
sequent and proximate injury." See also, Lee
v. Stockman's Nat. Bank, 63 Mont. 262, 207 P. 623.
The district court's order granting summary judgment
did not specify which of the above elements was lacking. Accord-
ingly, we will examine the pretrial records with respect to all
these elements, with emphasis on those raised by the parties in
their briefs and upon oral argument.
One of the principal disagreements of the parties is
whether Bails relied on the alleged representations. The contract
for deed contains the following provision:
"13. Vendees have fully inspected the premises
and are familiar therewith and enter into this
agreement by reason of their own inspection and
judgment and hcknowledge that there are no induce-
ments to purchase said property by reason of any
representations on the part of the Vendors or
persons acting by, through or for said Vendors * * *."
Bails had an opportunity to and did inspect the premises and
made inquiry about the ranch demonstrating that he did not rely
on the alleged misrepresentations. Under such circumstances,
they argue, the above provision should be given full effect
creating an estoppel against Bails' action.
The applicable law has been stated in 37 Am Jur 2d,
Fraud and ~eceit,88, p. 28:
"Fraud vitiates every transaction and all con-
tracts. * * * As a general rule, fraud will
vitiate a contract notwithstanding that it con-
tains a provision to the effect that no repre-
sentations have been made as an induce.nsnt to
enter into it, or that either party shall be
bound by any representation not contained therein,
or a similar provision attenipting to nullify ex-
traneous representations. Such provisions do
not, in most jurisdictions, preclude a charge
of fraud based on oral representations."
The reason for this rule has been stated in Jordan vs.
Nelson, (Iowa 1920), 178 N.W. 544, quoting from Bridger v. Goldsmith,
both
143 N.Y. 424, 38 N.E.,/leading cases from other jurisdictions:
w 4 assume that there is no authority that we are
~
required to follow in support of the proposition
that a party who has perpetrated a fraud upon his
neighbor m a y , n e v e r t h e l e s s , c o n t r a c t with him in the
very instrument by means of which it was perpetrated,
for immunity against its consequences, close his
mouth from complaining of it and bind him never
to seek redress. Public policy and morality are
both ignored if such an agreement can be given
effect in a court of justice. The maxim that
fraud vitiates every transaction would no lonyer
be the rule but the exception.'" Also see 10 A.L.R.
1472 and 97 ALR2d 849.
We have previously held that a similar contract provision
did not preclude proof that prior oral representation was in
fact relied upon. Gogggns v. Winkley, 154 Mont. 451, 465 P.2d
326. Fraud is generally a question of fact for the jury. Section
13-310, R.C.M. 1947; Healy v. Ginoff, 69 Mont. 4 /&, 220 P. 539.
Bails' deposition indicates that he did rely on the
alleged representations. He testified that he believed Gar
and Wheeler were honest and they should know the productive
capacity of the land. Bails had no experience in cattle
ranching. Wheeler was an appraiser of ranches in the area of
many years experience. Gar was a rancher of 40 years exper-
ience who had worked the ranch in question for about one
season. It appears from his depositions that Bails relied on
the interrelated representations as to productivity, carrying
capacity, and income in determining whether the ranch would
produce sufficient profit to meet the large debt requirements
of the five underlying contracts.
We hold, therefore, that the pretrial record is suf-
ficient to establish a genuine issue of material fact on whether
Bails in fact relied on the alleged representations and that the
exculpatory clause in the contract for deed does not estop Bails'
action for fraud as a matter of law.
Another principal contention of Gars is that Bails had
no right to rely on the alleged representations because he in-
vestigated the facts for himself or at the very least the means
were available whereby he could ascertain the truth.
The legal principle involved has been stated by this
Court in Loev. Root, 166 Mont. 150, 156, 531 P.2d 674, quoting
from Lee v. Stockman's Nat. Bank, 63 Mont. 262, 284, 207 P. 623:
"'"When it appears that a party, who claims to
have been deceived to his ~reiudicehas investi-
.
. d
gated for himself, or that the means were at hand
to ascertain the truth * * * of any representations
made to him, his reliance upon such representations,
however false they may have been, affords no ground
of complaint."'"
Also see ~rintodv. Anglo-American Bond Co. 34 Mont. 169,
85 P. 891 and Power & Bros. v. Turner, 37 Mont. 521, 97 P. 950.
In the instant case Bails made two short tours of the
ranch before executing the initial "Receipt and Agreement to Sell
and Purchase" and was in possession of the property for almost
a month before executing the formal contract for deed. How-
ever, the shortcomings of which he complains here concerning
acreage and productivity are not of such a nature that a man
of Bails' experience can be held to have the means at hand to
discover the truth as a matter of law. Their determination might
be held to require experience in ranching on this ranch or in
this particular locality. Bails was inexperienced in ranching
and new to the country. The inference could be drawn that Bails
reasonably assumed the alleged representations were based on the
knowledge of Gar and Wheeler. The pretrial record discloses that
Bails only began to learn of the deficiencies much later after
he had taken soil samples, tried to farm it, talked to neighbors,
and Gar spoke more candidly as they became friends.
The situation here is distinguishable from Lowe where
the physical condition of the hotel premises and its deficiencies
were open and notorious, a superficial inspection would reveal
them, and plaintiff admitted inspecting the premises. The situ-
ation here is generally distinguishable from Grinrod where the
terms of the bonding arrangement were printed on the bonds.
We hold that the pretrial record in the instant case
discloses a genuine issue of material fact concerning Bails'
right to rely on the alleged representations, precluding summary
judgment on this basis.
Another point of contention is whether the party making
the alleged representation knew it was false or was ignorant of
its truth and intended that it be acted upon. This is by defi-
nition a matter of knowledge and intent to be determined in the
light of all the surrounding circumstances and a question of
fact to be determined at the trial. See Cowan v. Westland Realty
Co., 162 Mont. 379, 512 P. 714; Lee v. Stockman's Nat. Bank, supra;
Dunlap v. Nelson, 165 Mont. 291, 529 P.2d 1394.
Here the pretrial discovery considered in the light most
favorable to Bails tends to show that the alleged representa-
tions were false and that Gar and Wheeler knew they were false.
Taking inferences in favor of Bails, as we must, pretrial dis-
covery documents tend to show that they knew the carrying capa-
city of the ranch was nearer to 250 animal units, acreage about
4900 acres, hay production had been 400 tons and that estimates
of income had been much less than $80,000. There is deposition
testimony to the effect that grain yield was much less than 21
bushels per acre and that Gar would know this because he received
one third of the crop from his share cropper tenant.
Defendants did request an admission that the grain yield
for 1975 had been greater than 20 bushels per acre. This was
not answered so it stands admitted by Bails under Rule 36(a),
M.R.Civ.P. However the alleged representation relates to prior
yields and is not confined to the year 1975.
While there is certainly evidence in the record that
indicates that the alleged representations were based on different
conditions and circumstances and upon future improvements on the
premises not then existing, this creates no more than a conflict
in the evidence precluding summary judgment on the elements of
knowledge and intent.
The only argument on materiality of the alleged represen-
tations is whether the difference in acreage is material. With
the average price per acre about $150, an inference is possible
that a difference of 200-300 acres is material.
No issue was raised or argued on consequent and proxi-
mate injury.
In summary, we find that at least as to some of the
alleged representations, there are genuine issues of material
fact on all elements of actionable fraud and that defendants are
not entitled to summary judgment as a matter of law. Accordingly,
summary judgment a g a i n s t B a i l s on h i s e n t i r e c l a i m f o r r e l i e f
must b e and i s v a c a t e d .
T h i s a c t i o n i s remanded t o t h e d i s t r i c t c o u r t f o r f u r -
t h e r proceedings c o n s i s t e n t with t h i s opinion.
Justice
concur:
.................................
Hon. R o b e r t Sykes, d i s t r i c t judge,
s i t t i n g i n place of M r . J u s t i c e
Wesley C a s t l e s .