NO. 83-65
I N THE SUPREME C U T O THE STATE O F M N A A
O R F OTN
1984
RAY E. EHLY,
P l a i n t i f f and Respondent,
D R T Y V. CADY, BRUCE M. CADY,
OOH
and CASSANDRA JOANNE CADY,
Defendants and A p p e l l a n t s ,
and
JAMES A. USSIN, d/b/a U BAR S REAL ESTATE,
Defendant, Cross-Claimant, and Respondent.
Appeal from: D i s t r i c t Court of t h e Fourteenth J u d i c i a l D i s t r i c t
I n and f o r t h e County o f Meagher
Honorable Nat A l l e n , Judge p r e s i d i n g .
Counsel o f Record:
For A p p e l l a n t s :
Hooks and Budewitz, Townsend, Montana
P a t r i c k F. Hooks a r q u e d , Townsend, Montana
Moore, R i c e , O'Connell & R e f l i n g , Bozeman, Montana
For Respondents:
McDougal, Meloche, Love & E c k i s , E l Cajon, C a l i f o r n i a
Lynn McDougal a r g u e d , ( E h l y ) , E l Cajon, C a l i f o r n i a
Huppert & S w i n d l e h u r s t , P.C., L i v i n q s t o n , Montana
Crowley, Haughey, Hanson, Toole & D i e t r i c h , B i l l i n g s , Montana
George D a l t h o r p e a r g u e d , (USSIN), B i l l i n g s , Montana
Submitted: I'lay 2 4 r 1984
Filed: duki 2 8 1984
Clerk
Mr. Chief Justice Frank I. Haswell delivered the Opinion of
the Court.
Dorothy, Bruce and Cassandra Cady appeal judgments
entered in the District Court of the Fourteenth Judicial
District, Meagher County, in favor of Ray Ehly and James
Ussin. We affirm in part and reverse in part.
Ehly filed a complaint seeking specific performance of a
buy/sell agreement executed by the Cadys and him, an immedi-
ate preliminary restraining order restraining the Cadys from
selling, encumbrancing or transferring the property involved,
a hearing on the merits of the case, and $500,000 in general
and special damages. The preliminary injunction was granted
on September 15, 1981. An amended complaint filed October 8,
1981, sought additional relief in the form of reformation of
the contract and exemplary damages. A second amended com-
plaint added James Ussin, the Cadys' realtor, as a defendant
and a prayer for $500,000 in damages from Ussin in the event
the court found that the Cadys were excused because of
Ussin's conduct.
Ussin cross-claimed in his answer against the Cadys,
alleging entitlement to his commission. The Cadys, in re-
sponse, made affirmative claims against Ehly and Ussin.
Before the trial, Ehly abandoned his claim for specific
performance. A nonjury trial was held July 26 through 30,
1982. At the conclusion of Ehly's case-in-chief, the Dis-
trict Court granted the Cadys' motion to dismiss Ehly's claim
for punitive damages and the injunction was vacated.
The District Court filed findings of fact and conclu-
sions of law on October 26, 1982, and adopted virtually
verbatim Ehly's and Ussin's proposed findings and conclu-
sions. Ussin was awarded his commission and judgment against
the Cadys a.nd Ehly on the various other claims. The Cadys
filed a notice of appeal of the Ussin judgment on November
15, 1982.
By judgment entered November 18, 1982, Ehly was awarded
approximately $245,000 j-n damages from the Cadys and his
attorney fees and expenses. A notice of appeal of this
judgment was filed on December 8, 1982.
After a hearing held December 8, 1982, the District
Court filed supplemental findings and conclusions regarding
attorney fees and expenses. Ehly was allowed almost $52,000
in attorney fees and $350 in additional costs. Final judg-
ment was entered on January 19, 1983, a-nd the Cadys appeal
the judgments in favor of Ehly and Ussin.
The Cadys own a livestock ranch located in Meagher
County of approximately 10,000 acres. The property was
I-isted for sale with James Ussin, d/b/a U Ba.r S Real Estate,
early in April 1981. According to the listing agreement, the
selling price was $2,250,000, 5 percent of which Ussin was to
receive as a commission "upon effecting a sale of the whole
or any part of said property."
Bruce Cady holds a college degree in accounting, as well
a.s one in psychology. Dorothy Cady received a business
decree a.nd has done graduate work in business educa.tion.
Bruce Cady worked as an accountant before he became a farmer,
and Dorothy Cady worked as a legal secretary.
Ray Ehly, a. contractor from California, was interested
in buying a Montana ranch for investment and tax purposes.
Ehly was shown the Cady ranch in early April 1981 by Ussin.
Ehly's first two offers of $2,100,000 and $2,220,000 were
summarily rejected by Cady as not providing the full purchase
price. Ehly decided he wanted to make a final offer to the
Cadys in person, so he arranged a meeting with Ussin in
Harlowton on April 20, 1981. Ehly met Ussin and another
realtor, Lewis, in Harlowton. As they were driving toward
the Cady ranch, they stopped to prepare a written offer. As
they were typing an earnest money receipt and agreement to
sell and purchase in one of the vehicles, Ussin advised Ehly
that Cady would not accept his offer of $2,230,000, but that
Ussin would be willing to reduce his commission by $20,000 to
make a sale. Ehly and Ussin did not work out the details of
the commission reduction at that time, but agreed that the
offer to Cady should read $2,250,000 and Ussin's reduction
should make up the difference between what Ehly would pay and
what Cady would get. Ehly signed the agreement which quoted
a $2,250,000 purchase price, and provided a check for
$100,000 earnest money.
Upon arrival at the Cady ranch, the parties discussed
the agreement for approximately two hours. Following the
discussion, Ehly left the Cady ranch to attend a wedding and
the Cadys, Ussin and Lewis drove to Lewistown to meet with
Marvin Stephens, the Cadys' accountant. Stephens first met
with the Cadys, and later the realtors joined the meeting.
For three to four hours the agreement was discussed and after
certain changes were made, the Cadys signed and initialed the
agreement. On April 21, 1981, Ehly agreed to the changes
made at the Lewistown meeting.
The agreement provided that Ehly pay $370,000 (including
the $100,000 earnest money) as a downpayment upon closing of
the chattel sale. He was to pay $50,000 on November 1, 1981,
and $350,000 on January 8, 1982. Title to the livestock and
other ranch chattels was to be transferred in May 1981, but
title to the property was not to be transferred until January
1982, to facilitate Ehly's income tax plans. It was known by
the Cadys that Ehly was purchasing the ranch at least par-
tially for income tax reasons.
Ehly also agreed to transfer to the Cadys ten acres of
land in the Gallatin Valley, with a value of $75,000. Ehly
would assume a $60,000 mortgage on the Cady property and
would be ready to pay $200,000 cash if the Cadys needed the
money to make a tax-free exchange. There was no issue as to
Ehly's ability to fulfill. his obligations under the
agreement.
The Cadys insisted that their attorney, Leonard
McKinney, prepare the closing documents. When Ehly received
the documents prepared by McKinney, Ehly's attorney, Jim
McLean reviewed them and found that they contained terms
substantially different from those in the April 20 agreement.
On May 11, 1981-, McLean informed McKinney about the discrep-
ancies and stated that Ehly was prepared to close the sale as
soon as accurate documents were prepared.
In anticipation of the sale, Ehly purchased livestock
and ranch equipment. He arranged with Cady to place the
livestock and equipment on the ranch, as well as to have his
son and daughter-in-law move from California to the ranch.
He also hired a ranch manager.
On May 15, 1981, at a meeting attended by the parties in
Lewistown, Ehly was given another set of closing documents.
These also did not comply with the April 20 agreement. While
discussing the agreement and sale of the ranch, Bruce Cady
became angry and left the room. Testimony at trial indicated
that before leaving the room, Cady made a comment about his
not wanting to comply with the April 20 agreement and about
there being no sale unless it was done his way.
After a break, Cady returned to the meeting and the
parties discussed the release clause of the agreement, which
reads as foll-ows:
"Buyer may request a release of a parcel of land
for building purposes. Seller shall grant said
release if buyer will pay the sum of $1,000.00 per
acre for said release.
"Principal payment shall apply towards the
$1,000.00 per acre. Buyer shall have the right to
release 320 acres as of the date of closing of the
real property."
As the Cadys were interpreting the language differently
from Ehly, discussion was conducted and the differences were
resolved. After agreeing that any release of land according
to the above clause be limited to 320 acres, in no more than
three parcels of not less than 40 acres each which would not
affect the "economic integrity of the ranch," the meeting
ended. This interpretation of the clause was not consistent
with Ehly's initial interpretation, but he was eager to
complete the sale and agreed. with the Cadys' interpretation.
On May 20, 1981, Ehly received a third set of documents
which did not accurately reflect the terms of the April 20
agreement or the clarification of the release clause agreed
upon at the May 15 meeting. Stephens withdrew the documents
and promised to send Ehly the proper papers by June 1. Ehly
did not receive any papers on June 1. On June 2, the parties
met at the Cady ranch. Cady stated that he would not sell
the ranch according to the buy/sell agreement and produced a
list of new demands and terms on which he would sell.
One of the new terms was transfer of the title to the
real property in 1981, rather than 1982, thus destroyi.ng
Ehl-y's planned income tax advantages. Cady claimed that such
transfer was required to maintain the cattle grazing permits
Cady held to Forest Service land adjacent to the Cady ranch.
The Cadys claimed that Forest Service regulations prevented
the transfer of the grazing permits to Ehly unless Ehly
acquired title to the chattels and to the land in the same
year.
By letter dated June 3, 1981, Carl Fager, a Forest
Service official informed Cady that, although a buyer usually
satisfies the permit requirements by taking title to the base
property and the chattels in the same year, alternatives
existed. Ehly could (1) buy the livestock and execute a
contract to purchase the real property; (2) not use the
permits for one year; or (3) delay transfer of the title to
the livestock until November 1981, when the grazing season
ended. Ehly was willing to take any of these alternatives,
but the Cadys demanded that both the livestock and land be
transferred in 1981. Such a sale would cause Ehly to lose
substantial investment tax credit on his income taxes.
At the end of another meeting on June 5, Ehly's attorney
was to prepare a contract based on the April 20 buy/sell
agreement as modified by the June 5 agreements. McLean
drafted the contract and on June 12, Ehly signed it and.
attached a check for the remainder of the downpayment
($270,000) and a deed for the Gallatin Canyon property. The
Cadys refused to sign the contract, and this suit was filed
July 2, 1982.
Following a nonjury trial, the District Court found that
the Cadys had refused to recognize the validity of the April
20 huy/sell agreement, but that they had partially performed
the agreement by accepting, through Ussin, the $100,000
earnest money, by allowing Ehly's son to move onto the ranch,
and by allowing Ehly to place livestock on the ranch. They
had, by their conduct, led Ehly to believe that they intended
to fulfill their obligations under the agreement, causing
Ehly to make expenditures and incur damages.
The District Court also found that the Cadys received at
least one verbal offer of $2,500,000 for the ranch from
another party and that they attempted to defeat the April 20
agreement so they could take advantage of the verbal offer.
The court further found that the executed agreement did not
jeopardize the Forest Service grazing permits, given the
existence of alternatives.
The court concluded that the April 20 agreement was a
valid enforceable contract upon which Ehly could sue for
nonperformance. The Cadys understood the contract at the
time of execution, and there was a meeting of the minds then
and after the May 15 meeting. According to the District
Court, the release clause was unambiguous and constituted a
peripheral part of the contract because it was optional.
Ehly was at all times ready, willing and able to perform his
obligations, but the Cadys breached the contract by failing
to perform. Thus, Ehly was entitled to the damages reason-
ably foreseeable and proximately caused by the Cadys' breach.
As to Ussin, the District Court found that, through the
efforts of Ussin and Lewis, U Bar S Real Estate performed its
obligations under the listing agreement. It found that Ussin
was not guilty of any wrongful act making him liable to
either Ehly or Cady for any of the requested relief. It
concluded that although Ussin did not tell the Cadys about
the commission reduction agreement with Ehly, he acted in the
Cadys' interest and did not violate any fiduciary duty owed
them. Ussin was, therefore, entitled to his commission.
This appeal considers the following issues:
1. Was a valid and enforceable contract formed on April
20, 1981?
2. Was the agreement, if valid, impossible to perform
given the limited methods by which the grazing permits could
be transferred?
3. Were the damages allowed by the District Court
properly computed and based on substantial evidence?
4. Is Ussin entitled to his real estate commission?
April 20 Agreement
The Cadys contend that there was no enforceable contract
between the parties. Because the parties never agreed as to
the meaning of the release clause and because Ehly never
agreed to pay the $2,250,000 asking price, there was no
meeting of the minds. As an alternative, the Cadys contend
that Ehly breached the contract by not rendering the payment
on May 15 as agreed.
Ehly claims that the earnest money receipt and agreement
to sell and purchase, signed by the parties on April 20,
constituted an enforceable contract. He states that the
evidence shows that the Cadys voluntarily signed the docu-
ment, with ample opportunity to review it, and were fully
capable of understanding the terms and t.he importance of
their obligations.
As to the release clause, Ehly maintains that the lan-
guage was not ambiguous. If ambiguous, the ambiguity should
not have defeated the contra.ct, as the cl-ause was not a
material provision of the contract but collateral to the
central subject matter. The Cadys' interests could not have
been harmed by exercise of the clause. In addition, any
ambiguities, in the April 20 agreement were cured during the
May 15 meeting. The agreement reached then cleared up any
differences in interpretation of the clause and the consent
by the Cadys on May 15 ratified the April 20 agreement.
Ussin's contentions are basically the same as Ehly's
with regard to this issue. He claims a valid contract was
formed, based on mutual consent to the terms and agreement on
May 15 to the interpretation of the release clause. Ussin
also contends that an agreement was reached as to the pur-
chase price, as evidenced by the April 20 agreement stating
that Ehly was obligated to pay $2,250,000. Ehly properly
tendered performance of the contract, given his readiness,
willingness a.nd ability to perform once the proper closing
documents were provided.
The District Court's finding that the April 20 buy/sell
agreement signed by the Cad.ys and EhJ-y was an enforceable
contract is supported by substantial evidence. It is undis-
puted that the Cadys were capable of understanding the lan-
guage of the agreement and were cognizant of their choice not
to sell the property. It is also undisputed that there was
much discussion of the agreement on April 20 before the Cadys
signed the document.
The buy/sell agreement contained the essential elements
of a contract: identifiable parties capable of contracting;
their consent; a lawful object; and a sufficient cause or
consideration. Section 28-2-102, MCA. The Cadys raise an
issue as to their consent to the contract based on the asser-
tions that (1) the full purchase price was not to be paid by
Ehly, and (2) the release clause of the contract was ambigu-
ous, leaving the parties with varying interpretations.
First, the fact that Ehly and Ussin made an agreement to
reduce Ussin's commission did not affect Ehly's obligation
under the written agreement to pay the purchase price of
$2,250,000. In the end the Cadys would receive the same
amount of money as if Ehly were to pay the full $2,250,000,
as the reduction i.n Ussin's commission would not reduce the
net selling price to be paid to the Cadys.
Second, the language of the release clause must be
interpreted by a court according to general contract rules.
An interpretation which will make the contract lawful, opera-
tive, definite, reasonable and capable of being carried into
effect is favored. Section 28-3-201, MCA. And the language
is to govern the interpretation if it is clear and does not
involve an absurdity. Section 28-3-401, MCA.
Here we are concerned with the followi.ng language:
"Buyer may request a release of a parcel of land
for building purposes. Seller shall grant said
release if buyer will pay the sum of $1,000.00 per
acre for said release.
"Principal payment shall apply towards the
$1,000.00 per acre. Buyer shall have the right to
release 320 acres as of the date of closing of the
real property."
Initially, the language appears unambiguous as to what
the rights of the parties are with regard to releasing a
portion of the property. There was testimony as to the vary-
ing interpretations of the clause by the Cadys, but they are
not substantiated by evidence of misrepresentation by the
realtors or Ehly. Furthermore, the evidence clearly shows
that the differing interpretations were expressed during the
Kay 15 meeting and that during that meeting, an agreement was
reached as to how the clause should be interpreted.
Section 28-2-304, MCA, provides that a "contract which
is voidable solely for want of due consent may be ratified by
a subsequent consent." The Cadys' claim that there was no
consent to the contract based on varying interpretations of
the release clause cannot stand given the evidence that the
parties reached an agreement May 1 5 .
As to the alleged breach of the contract by Ehly, the
District Court's finding is also supported. The evidence
clearly shows that the parties initially planned to execute
the closing documents on May 1 5 . On that date, Ehly received
a second set of documents which did not conform to the April
20 agreement. He expressed his willingness and ability to
perform as soon as conforming documents were delivered.
After receiving another set of erroneous documents and anoth-
er meeting, Ehly drew up a contract, signed it, and sent it
to the Cadys with the remainder of the downpayment. In
essence, Ehly's nonpayment on May 15 was not due to a lack of
desire or ability to perform, but was due to the absence of
the conforming documents promised by the Cadys.
According to Rule 52 (a), M.R.Civ.P., the District
Court's findings regarding the existence of an enforceable
contract is affirmed, since the findings are not clearly
erroneous.
I1
Impossibility of Performance
The Cadys claim that the April 20 agreement was impossi-
ble to perform because it would endanger transfer of the
Forest Service grazing permits. Any transfer of the title to
the land to facilitate transfer of the permits would not be
according to the April 20 agreement.
Ehly and Ussin maintain that any of the three alterna-
tives described earlier, as allowed by Forest Service
regulations, would have been consistent with the April 20
agreement, and without risk or detriment to the Cadys'
interests.
The burden rested with the Cadys to prove that impossi-
bility existed, and they must have demonstrated that they did
everything within their powers to perform the contract.
Miller v. Titeca (Mont. 1981), 628 P.2d 670, 38 St.Rep. 853;
Smith v. Zepp (1977), 173 Mont. 358, 567 P.2d 923. The Cadys
did not meet their burden here, as they did not show that
they took every action they could to perform the contract.
Rather, they rejected any of the alternatives available for
transferring the grazing permits and insisted that title to
the land be transferred in 1981. That was the one alterna-
tive which was inconsistent with the April 20 agreement, in
terms of facilitating Ehly's plan to realize a tax credit.
The District Court's finding that the contract was not
impossible to perform because of t.he grazing permit require-
ments is affirmed.
Damages
A. Tax losses and benefits
General dama.ges in the amount of $183,080 were awarded
by the District Court as income tax damages allegedly suf-
fered by Ehly because of the breach of contract. The figure
was arrived at by Ehly's accountant by first computing his
federal and. Ca1.i.fornia tax obligations, then subtracting the
depreciation on the ranch chattels, had they been bought. By
claiming investment tax credits, he would have allegedly
saved $80,688 in income taxes for 1981. Ehly then added an
amount for the taxes he would have to pay on the damage award
if he were successful in getting the award, coming up with a
total of $181,321 due him. The District Court awarded him
$183,080 on this basis.
The Cadys contend that the award was improper because
(1) the loss of tax benefit wa.s not foreseeable by the Ca.dys
as damages for breach of the contract; (2) Ehly failed to
mitigate his damages by purchasing similar property; and (3)
the damage award was derived from and based on speculation,
rather than ascertainable figures.
Ehly claims that the loss of tax savings was foreseeable
by the Cadys as they knew that Ehly's main reason for buying
the ranch was to obtain tax savings. In response to the
claim that he should have mitigated his da.mages by purchasing
similar property, Ehly contends that (1) the Cady ranch is a
unique and remarkable piece of property, which could not be
replaced easily and (2) it w a s too late in the year (1981)
for Ehly to search and negotia.te for another piece of
property.
Generally, the measure of damages in a breach of con-
tract case is:
". . . the amount which will compensate the party
aggrieved for all the detriment which was proxi-
mately caused thereby or in the ordinary course of
things would be likely to result therefrom. Damag-
es which are not clearly ascertainable in both
their nature and origin cannot be recovered for a
breach of contract." Section 27-1-311, MCA.
Certainty exists when evidence provides a reasonable basis
for determining a specific amount. Cremer v. Cremer Rodeo
Land and Livestock Co. (Mont. 1981), 627 P.2d 1199, 38
St.Rep. 574; Smith v. Zepp (19771, 173 Mont. 358, 567 P.2d
923.
An examination of section 27-1-311, MCA, above, will
reveal two kinds of damages recoverable for breach of
contract. Damages "for all the detriment caused thereby"
include all damages which in the ordinary and natural course
of things are proximately caused by the breach itself. These
damages are the natural result of the breach. Damages under
the statute may also be recovered "which in the ordinary
course of things would be likely to result therefrom." Our
court, and courts everywhere, recognize this provision as
permitting recovery for consequential damages within the
contemplation of the parties when they entered into the
contract, and such as might naturally be expected to result
from its violation. Myers v. Bender (1913), 46 Mont. 497,
508, 129 P. 330, 333. These damages are the contemplated
result of the breach.
All damages for breach of contract, whether natural or
contemplated, are subject to limitations of causation, cer-
tainty and foreseeability. They must be clearly ascertain-
able in their nature and origin. Section 27-1-311, MCA.
They must be reasonable. Section 27-1-302, MCA.
We regard Ehly's gain of investment tax credit upon
performance of the contract as within the contemplation of
the parties and reasonably foreseeable. Ehly made no secret
that a tax savings was one of his objectives in buying the
property. The failure of the Cadys to perform their obliga-
tions under the contract negated the possibility of Ehly
claiming the investment tax credits. It follows that the
Cadys' nonperformance was the legal cause of the lost oppor-
tunity. This lost tax opportunity can be measured in dollars
and cents as Ehly's accountant demonstrated. The original
contract called for performance within a specific tax year:
the ranch chattels upon which the tax credit were based were
to be transferred in 1981. The tax credit was calculated on
the basis of Ehly's tax liability for that year. In order to
provide Ehly with the benefit of his bargain, we uphold the
$80,688 damages based on his lost investment tax savings.
These damages were reasonably foreseeable and ascertainable.
Ehly also requested and received additional damages to
offset taxes he claimed he would have to pay on the award.
Ehly requested $181,321 so that when taxes based on his
projected state and federal total tax rate of 55.5 percent
were subtracted, his net return would be $80,688.
We appreciate the concern of Ehly's counsel that his
client be made whole. We also realize that the damages for
breach of contract will potentially be considered taxable
income. However, we know of no authority, nor has counsel
provided us with any, whereby an award for lost tax savings
may be ballooned in anticipation of additional taxation. We
decline to create such precedent in this case. The addition-
al monetary relief was erroneously granted.
B. Interest and expenses
The District Court also awarded Ehly prejudgment inter-
est at the ra.te of 10 percent on: (1) Ehly's federal and
state income tax obligation; (2) the $100,000 earnest money;
and (3) Ehly's capital expenditures on the ranch.
The District Court awarded Ehly expenses incurred after
the lawsuit was filed and losses related to the legal action
and not related to the legal action.
As for Ehly's claim for interest, section 27-1-211, MCA,
applies:
"Every person who is entitled to recover damages
certain or ca-pable of being made certain by calcu-
lations and the right to which is vested in him
upon a particular day is entitled also to recover
interest thereon from that day except during such
time as the debtor is prevented by law or by the
act of the creditor from paying the debt."
Here, the interest on the earnest money of $100,000 is
all that should be allowed as prejudgment interest. Interest
should then be allowed on the judgment amount according to
section 27-1-211, MCA. Prejudgment interest should be 6
percent per annum, according to section 31-1-106, MCA, and
interest on the judgment should be 10 percent per annum,
according to section 25-9-205, MCA.
The award for Ehly's refiling and postfiling expenses
exceeded the amounts allowed by law. Section 25-10-101, MCA,
outlines when costs are allowed to a plaintiff and section
25-10-201, MCA, states what costs are allowable. The cost of
depositions not used during trial a.s evidence or for impeach-
ment are not allowed. Lovely v. Burroughs Corporation
(1974), 165 Mont. 209, 527 P.2d 557.
Ehly claimed as expenses capital expenditures made in
anticipation of the sale of the ranch, such as the purchase
of livestock. He also claimed various travel expenditures
based on his trips from California, his son and daughter-in-
law's move from California and the wages paid to his son to
manage the ranch. Some of these do not fall within the
allowable costs as they would not have been chargeabl-e to the
Cadys had the contract been performed.
The portion of these expenses which should be allowed is
any loss suffered by Ehly as a result of capital expenditures
made from the time the buy/sell agreement was signed on April
20, 1981, to the time of breach by the Cadys. The breach
occurred after June 12, 1981, when Ehly tendered performance
by drawing up a contract, signing it, and sending it, with
the remainder of the downpayment, to the Cadys. The losses
occurred because of Ehly's reliance on the buy/sell agreement
and include the wages paid to Ehly's son as payment to insure
care of the cattle and other livestock, listed as capital
expenditures.
C. Attorney fees
After denying the Cadys' motion to abate the proceedings
to determine attorney fees, the District Court held a hearing
and heard testimony on the issues. A notice of appeal to
this Court of the Ussin judgment had been filed previously
and a notice of appeal of the Ehly judgment was filed the
same day the hearing was held. Ehly was awa.rded $51,979.65
in attorney fees.
The Cadys claim that the attorney fees were improperly
awarded as there was no provision in writing for attorney
fees nor is there a ~tatute which applies to a.llow them.
They also contend that, according to case law, the District
Court had no jurisdiction at the time of the hearing on this
issue, as the case had been appealed to this Court.
Ehly contends that the court specifically retained
jurisdiction to determine attorney fees. And Ehly claims
that this case is an exception to the general rule regarding
allowance of attorney fees in that the fees were a necessary
and incidental cost of obtaining rightful possession of
property.
The attorney fees should not have been allowed. It is a
well-settled rule that absent contractual or statutory grant,
a.ttorney fees are not allowable as costs or as an element of
damages. Foy v. Anderson (1978), 176 Mont. 507, 580 P.2d
114. The case urged as applicable here involved a lessee
attempting to take possession of the leased property. After
stating the above rule of law, this Court stated:
". . . This rule precludes recovery of attorneys'
fees paid in an action for breach of contract, as a
part of the damages for the breach. However, the
small amount here claimed is not for attorneys'
fees in the sense in which that term is used in the
above rule; it is but an amount paid out, inciden-
tally to attorneys, in plaintiff 's attempt to get
possession of the land covered by his contract, and
under a proper showing that such payment is an
element of compensatory damages, is to be treated
as one of the legal. consequences of the original
wrongful act. " (Citations omitted.) Smith v.
Fergus County (1934), 98 Mont. 377, 384, 39 P.2d
193, 195.
There was no evidence in this case that Ehly's claim for
attorney fees should be allowed as compensatory damages and,
thus, they should not be allowed a.t all.
Ussin's Commission
The Cadys contend that the 1a.nguage in the listing
agreement between U Bar S Real Estate and them precludes
payment of Ussin's commission, as there was no sale of the
property. The pertinent language reads:
"The Owner agrees to pay to the broker out of the
first pa.rt of the purchase price, upon effecting
the sale of the whole or any part of the property,
as compensation for services 5% of the purchase
price. "
They argue that the two cond.itions of agreement., that there
be a sale and that the purchase price be paid, were not
fulfilled.
In this case, there was not only a listing agreement,
but. a clause in the buy/sell agreement which stated:
"For valuable consideration I/we agree to sell and
convey to the purchaser the above described proper-
ty on the terms and conditions hereinabove stated
and agree to pay to above named agent a commission
amounting to 5 percent of the above mentioned
selling price for services rendered in this
transaction."
The Cadys breached this portion of the buy/sell agreement by
not paying Ussin the stated commission "for services ren-
dered." According to the agreement, Ussin is entitled to his
commission and the obligation must be met.
In Diehl & Associates, Inc. v. Houtchens (19771, 173
Mont. 372, 377-379, 567 P.2d 930, 933-935; this Court stated:
"It is generally accepted law that a real esta.te
broker is entitled to commissions when he has, in
pursuance of his employment and within the time
specified in the contract of employment, procured a
purchaser able, ready and will-ing to purchase the
seller's property on the terms and conditions
specified in the contract of empl.oyment. Roscow v.
Bara, 114 Mont. 246, 135 P.2d 364; 12 Arn.Jur.2d
921, Brokers Section 182. When the broker procures
a buyer who makes a counteroffer or agrees to terms
at variance to the terms specified in the employ-
ment contra.ct, the seller has the option of accept-
ing or rejecting the counteroffer. If the seller
accepts the counteroffer of the procured buyer, the
seller is legally obligated to pay commissions to
the broker, either under the terms of the contract
of employment or the mutually agreed terms of a
contract for sale.
"The broker's ability to recover commissions is
premised on the broker's ability to accomplish what
he undertook to do in his contract of employment.
32 A.L.R.3d 321, section 2. The broker is not
entitled to compensation for unsuccessful efforts
under his contract of employment, irrespective of
how great his efforts were or how meritorious his
services. Roscow v. Bara, supra. It is generally
necessary to refer to the specific terms of the
particular employment contract in order to deter-
mine whether or not the broker's duties have been
performed.
"We note the distinction between a brokerage con-
tract which requires a broker to merely find a
purchaser and a brokerage contract which requires a
broker to sell, make or effect a sale. In the
first case the broker earns his commission when he
procures a buyer able, ready and willing to pur-
chase on the seller's terms. A broker employed to
sell or effect a sale does not earn his commission
until he completes the sale. Completion of the
sale, where real property is involved, amounts to
payment of the purchase price and conveyance of
title. O'Neill v. Wall, 103 Mont. 388, 62 P.2d
672. "
In Diehl, this Court found a breach by the buyer of the
buy/sell agreement which defeated a sale. Since there was no
sale, the realtor was not entitled to a commission.
In the subsequent case of Associated Agency of Bozeman,
Inc. v. Pasha (Mont. 1981), 625 P.2d 38, 43, 38 St.Rep. 344,
348-349, this Court stated the following:
"We acknowledge that this Court had stated that a
broker empl-oyed to 'sell or effect a sale' and
exchange (as is the case here) does not earn his
commission until the purchase price is paid, title
is conveyed and the sale is completed. See Diehl
and Associates, Inc. v. Houtchens (1977), 173 Mont.
372, 567 P.2d 930. In an expansion of this hold-
ing, however, we must also conclude that a broker
is still entitled to his commission even if the
sale is not completed if a rea.dy,willing and able
buyer is procured and the failure to consummate was
solely due to the wrongful acts or interference of
the seller. See Taylor v. Gaudy (1980), 46 0r.App.
235, 611 P.2d 336; Fender v. Brunken (Colo.App.
1.975), 534 P.2d 347; Red Carpet Real Estate of
Aloha, Inc. v. Huygens (1974), 270 Or. 860, 530
P.2d 46; see also Ellsworth Dobbs, Inc. v. Johnson
(1967), 50 N.J. 528, 236 A.2d 843. . . ."
The Court went on to find the real-torentitled to his commis-
sion, on the ground (not pertinent here) that the listing
agreement allowed for payment of the commission in the event
of wrongful termination by the buyer.
In this case, both the listing agreement and the lan-
guage from the buy/sell agreement assume that the real estate
commission would be paid when a sale was effected. The
District Court properly found. that a sale would have been
consummated had the Cadys not wrongfully refused to comply
with the buy/sell agreement. Thus, according to Associated
Agency, supra, Ussin is entitled to his commission on this
basis also.
The Cadys also contend that Ussin is not entitled to a
commission because he breached a fiduciary duty owed by him
to the Cadys. The commission reduction agreement between
Ussin and Ehly was not communicated to the Cadys; the Cadys
assert tha.t this was a breach of Ussin's fiduciary duty.
They cite Nardi v. Smalley (Mont. 1982), 643 P.2d 228, 39
St.Rep. 606, and First Trust Co. v. McKenna (Mont. 1980), 614
P.2d 1027, 37 St. Rep. 1026, as describing the appropriate
standard for a broker-seller relationship.
Ussin claims that he exercised good faith in trying to
help the Cadys sell the ranch and that he breached no fiduci-
ary duty owed to the Cadys by reducing his commission. He
distinguishes fee-splitting arrangements, which have been
declared void by some courts, from the commission reduction
agreement in this case. He argues that the agreement was
between Ehly and Ussin and thus did not affect the Cadys. He
points out that the Cadys did not testify that they would not
have signed the April 20 agreement had they known about Ussin
and Ehly's agreement.
The fiduciary duty owed to a seller by a broker is
discussed in Nardi and First Trust - supra. These cases
Co.,
stand for the propositions that the fiduciary duty is
breached if (1) a seller is foiled or deceived by the con-
tract or does not understand the contract, or (2) full dis-
closure of al-1 pertinent facts is not made by the broker.
Neither of the cases are completely on point with this case.
Arguably there was a breach of Ussin's duty to inform
the Cadys of pertinent facts. More importantly, though, the
Cadys have failed to prove any damage resulting from the
failure to inform. As noted earlier, the Cadys would not
have suffered monetarily or otherwise from the agreement
between Ehly and Ussin. Ehly obligated himself to the
$2,250,000 purchase by signing the buy/sell agreement. The
flow of money to the Cadys would still be the same. Thus,
there was arguably no prejudice suffered, and Ussin should
not be denied his commission on this basis.
The District Court properly limited Ussin ' s commission
to $92,500, according to Ehly a.nd Ussin's agreement.
We affirm the judgment of the District Court in favor of
Ehly and Ussin; we remand the case for recalculation of
Ehly's damages in accordance with Part I11 of this opinion.
Each party shall bear his or her own costs of appeal.
%&ce., 9d-&&4q
Chief Just'ice
We concur:
Justices
Mr. Justice John C. Sheehy, concurring and dissenting:
I concur with nearly all that is said in the foregoing
opinion, but its otherwise excellent content is flawed by
determining the loss of an investment tax credit in this case
by Ehly as reasonably foreseeable. As to that item of
damages, I dissent.
Loss of investment tax credit by reason of Ehly's breach
fails here as an item of damages because it does not meet the
tests of causation, certainty and foreseeability. Cady did
not cause Ehly's income tax liability; his income tax
liability arose from the fact that Ehly was making money in
other places. The loss of investment tax credit is not an
item of damages clearly ascertainable in nature and origin.
The loss would depend on tax laws which frequently change,
the taxpayer's circumstances, and a myriad of other
possibilities. The injection of tax consequences as damages
in such case as this present a quagmire. The District Court
here was forced to consider possible tax shelters,
exemptions, and complex tax laws which vary in result from
year to year a.nd from taxpayer to taxpayer. This case, in
effect, turned from an action for breach of contract to a tax
case. The District Court had to consider the tax laws for
the year of the breach, 1981., and in awarding additional
damages to cover possible taxes on the judgment award, the
tax laws in the year of the trial. It should be a matter of
judicial notice that there can be no certitude, even as to a
single taxpayer, as to the income tax consequences of a
breach of contract for the purchase and sale of a farm ranch.
No certain method of mitigating such tax loss could be
produced by the defense to reduce the claimed damages.
The first example of uncertainty is the fact that if
Ehly had gained an interest in this property, even on a small
downpayment in 1.981, he would have no investment tax credit
available. It was necessary for him not to take title until
1982. He never engaged in farming or ranching the Cady
property so there can be no certainty as to whether Ehly
would or would not have made a profit on the Cady ranch.
Although the accountant in reaching the damage figure to
which he testified on behalf of Ehly took into account a
Montana income tax return, Ehly had never filed a Montana
income tax return. The depreciation schedule propounded by
the accountant on behalf of Ehly included 90 miles of fence
at replacement cost, $270,000, although the existing fences
were not replaced. The depreciation projections also took
into account the projected building of four dams and their
estimated cubic yardage and cost. The dams did not exist at
the time of trial. Although Ehly had agreed to buy from Cady
cow/calves at $600 per pair, the accountant used the figure
of $800 per pair for his depreciation schedules, the highest
price at which cattle had been sold in 1981. The accountant
used $411 per yearling in his depreciation schedule, although
the price to Ehly would have been $350 apiece. The total
result of t.he accountant's testimony was that on the purchase
price of $2,250,000, Ehly would have claimed total
depreciation of $1,523,000.
The accountant's testimony is the basis for the court's
award of damages for loss of investment tax credit. I insist
that the testimony is too vague, uncertain and speculative to
be accorded any relevance. For that reason, I would disallow
the damages claimed on that item.