No. 84-495
IN THE SUPREME COURT OF THE STATE OF MONTANA
1985
JOHN FORSYTHE and BETH TINNEY,
Plaintiffs and Appellants,
DII ELKINS , DIANE ELKINS, CLARENCE
Ai
HENDON, an d MICHAEL HENDON,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Ravalli,
The Honorable James B. Wheelis, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Sol & Wolfe, Missoula, Montana
For Respondents :
Persson & Weber, Hamilton, Montana
Submitted on Briefs: Feb. 14, 1985
Decided: May 13, 1985
ljrk <"4S3
Filed:
Clerk
Nr. Justice John C. Sheehy delivered the Opinion of the
Court.
Appeal by John Forsythe and Beth Tinney
(Forsythe-Tinney) from an order and judgment of the District
Court, Fourth Judicial District, Ravalli County, denying
Forsythe-Tinney rescission of an agreement to purchase an
interest in real property, and further denying their petition
to quiet title in them as owners of an equitable interest in
certain real property in Ravalli County and from that portion
of the judgment determining money damages between the
parties.
Dan Elkins cross-appeals from the judgment of the
District Court, awarding to Forsythe-Tinney punitive damages
in the sum of $1,000 and attorney fees.
On September 8, 1980, Dan Elkins and Diane Elkins,
husband and wife (Elkins), entered into a written contract
for deed with Gerald Raley and Debra L. Raley, of Victor,
Montana, for the purchase by Elkins from Raley of certain
real estate located in R.avalli County, Montana, for a total
purchase price of $53,000. The purchase price was to be paid
in installments, $1-4,000 on the execution of the contract,
$11,900 due September 5, 1982, with interest at 10 percent
per annum, and $27,100 at the rate of $250 per month until
the purchase price and accrued interest was fully paid but in
any event the entire balance to be paid in full on January
20, 1989.
Prior to the execution of the written contract with
Raleys, El-kins had entered into an oral contract with
Forsythe-Tinney respecting the purchase. Under their oral
agreement, the written contract for the purchase of the real
estate would be executed in the names of Elkins as the
purchasers. Elkins would make the first payment of $14,000
and the second payment of $11,900 plus interest due on
September 5, 1982. Forsythe-Tinney would make the monthly
payments of $250, and the final payment due on January 20,
1989. When Forsythe-Tinney had paid one-half of the purchase
price, their names would be entered on the records of Ravalli
County as co-purchasers of the Raley property. Both
Forsythe-Tinney and Elkins would have the right to occupy
trailer residences on the premises.
In November 1981, the son-in-law and daughter of the
Elkins, Clarence Hendon and Michael Lou Hendon (Hendon) moved
a trailer home onto the real property that was being
purchased. Their residency on the property was apparently
with the consent of all the parties.
When the payment of September 5, 1-982 came due, Elkins
were unable to make the payment. With accrued interest, the
needed sum was approximately $15,000. Some conversation had
occurred between Elkins and Forsythe-Tinney as to whether
Forsythe-Tinney would contribute one-half of the $15,000
payment. Forsythe-Tinney approached a Ravalli County bank
and apparently obtained authorization for a $7,500 loan, but
the loan was never completed. It appears that at the same
time, the Hendons were going to contribute the other $7,500,
but the condition of the bank in lending the money to
Forsythe-Tinney was that Forsythe-Tinney's name would have to
be placed on record as a contract purchaser; apparently no
offer was made by Forsythe-Tinney to place the Hendon name on
the record as a contract purchaser. Nothing came of that
possible arrangement.
It developed therefore that Hend-ons made the
approximately $15,000 payment due in September 1982. They
made the payment after receiving from Elkins a written
assignment for contract for deed from Elkins to Hendons
covering all of Elkins' record interest in the contract of
purchase with the Raleys. However, in making the written
assignment to Hendons, Elkins reserved a life estate to
themselves and to the survivor of them. There is no record
of consent by Forsythe-Tinney to the assignment by Elkins to
Hendons, nor to the reservation by Elkins of a life estate in
themselves.
In addition to recording the assignment of the contract
interest, Elkins and Hendons sent copies of the assignment to
the escrow holder under the Raley contract for deed and a
warranty deed for delivery by the escrow holder to Hendons
when the Raley contract was fully paid.
At the time of the writ-ten assignment by Elkins to
Hendons, Forsythe-Tinney had made the monthly payments of
$250 in due time, and in fact had prepaid those payments
through November 1982. After the written assignment to
Hendons, Forsythe-Tinney refused to make further payments
under the contract for deed although they continued in
possession of their residence trailer on the property. At
the time of the refusal, Forsythe-Tinney requested Hendons to
refund to Forsythe-Tinney all amounts they had previously
paid on the contract.
On February 8, 1983, Hendons caused a notice of eviction
to be served upon Forsythe-Tinney. The notice of eviction
precipitated a complaint in District Court filed by
Forsythe-Tinney against the Elkins and the Hendons in which
Forsythe-Tinney prayed for judgment returning to them the
$6,377 they had paid on the contract, for title to the
property to be quieted to include their names as owners of
record, for exemplary damages from the defendant, and for
other relief not important here.
After the complaint was filed and while the litigation
was pending, Forsythe-Tinney determined that El-kins
mistakenly had cut off the water from the well to the
Forsythe-Tinney trailer. In November 1983, Elkins did
disconnect the sewer septic system servicing the
Forsythe-Tinney trailer.
The District Court in its judgment in the case
determined that Forsythe-Tinney were not entitled to
rescission of their agreement with Elkins because they had
not tendered their return of the claimed interest in the real
property and had remained in occupancy on the property; that
they were not entitled to specific performance because they
did not offer to pay one-half of the amounts owed by Elkins
on the Raley contract; that the assignment by Elkins to
Hendons was not a fraudulent conveyance; that no false
statements were made to Forsythe-Tinney by any of the
defendants; that Forsythe-Tinney were not entitled to recover
any damages on the theory of unjust enrichment; that
Forsythe-Tinney owed Elkins $945.96; that the equity of
Forsythe-Tinney in the contract of purchase should be equal
to the amount of principal paid by the plaintiffs and not the
interest paid thereon and the value of any improvements
placed on the real property by the plaintiffs; and that the
defendants be entitled to set off against those damages a
reasonable rental for plaintiffs' use of the property from
the inception of the oral agreement in the amount of $6,377.
The District Court also found that Forsythe-Tinney were
entitled to recover $1,000 punitive damages, and attorney
fees (claimed to be $4,900) from Dan Elkins.
Forsythe-Tinney has appealed from the judgment of the
District Court as aforesaid, and Dan Elkins has
cross-appealed from the award of punitive damages and
attorney fees.
Forsythe-Tinney raise issues that the District Court ' s
findings of fact contradict the evidence, that plaintiffs
should have been awarded rescission of their contract with
Elkins, that the court should have imposed a constructive or
resulting trust on the defendant Elkins and upon the
defendant Hendons, and that the court erred in offsetting a
rental value against the plaintiffs' payments. Dan Elkins
argues that the District Court should. not have awarded
punitive damages against him and the award of attorney fees
against him was in error.
The District Court accepted the proposed findings of
fact submitted by Elkins and Hendons nearly in toto, which
accounts for the curious result that in effect the District
Court's findings deemed Forsythe-Tinney the breaching party
in this case.
At the time of the assignment by Elkins to Hendons,
Forsythe-Tinney had fully performed their obligations under
their contract with Elkins. They were not in default. In
fact they had prepaid the monthly payments to November 1982.
Nothing in the oral agreement between Forsythe-Tinney on
the one hand, and Elkins on the other, precluded either party
from assigning his interest under the oral agreement. If a
contract contains a provision for non-assignment by any of
the parties, an assignment against such non-assignability
clause precludes the establishment of privity between an
alleged assignee and the other party. Rother-Gallagher v.
Montana Power Company (1974), 164 Mont. 360, 522 P.2d 1226.
However, in the absence of a non-assignable clause, either
party may generally make an assignment of rights under the
contract. In Re Seiffert (D.C. Mont. 1926), 18 F.2d 444.
In the ordinary course, an assignment by a purchaser of
his interest in the contract for deed to an assignee who
assumes the obligations of the contract has the effect of
placing the assignee in the shoes of the assignor and making
him liable for claims arising out of the contract.
Massey-Ferguson Credit Corporation v. Brown (1977), 173 Mont.
253, 567 P.2d 440. At the least, upon the assignment here,
Hendons became primarily liable for the discharge of the
obligations under the Raley contract, and his assignor,
Elkins, became secondarily liable. Kintner v. Harr (1965),
146 Mont. 461, 408 P.2d 487. Moreover, since Hendons took
the assignment of the Raley contract with notice of the oral
agreement between Elkins and Forsythe-Tinney, Hendons took
the assignment subject to whatever rights in the property
Forsythe-Tinney may then have had by virtue of the oral
agreement with Elkins.
Thus if this were an ordinary assignment, Hendons would
stand in the shoes of Elkins, and if Forsythe-Tinney
continued to perform their obligations under the oral
agreement, Hendons would have the duty to add the names of
Forsythe-Tinney to the record title of the property when
Forsythe-Tinney had paid one-half or more of the purchase
price under the Raley contract. In other words, after the
assignment, if it were in the usual course, when the Raley
contract and the oral contract were fully performed,
Forsythe-Tinney and Hendons would each be tenants in common
of undivided shares in the real property purchased.
However, Elkins did not make an assignment to Hend.ons in
the usual course. Elkins reserved to themselves life estates
in the property subject to the assignment. By so doing,
Elkins made it impossible for Hend.ons, as assignee, to
deliver the quality of title to Forsythe-Tinney that had been
bargained for in the oral agreement. If Forsythe-Tinney
continued to perform the oral agreement, under the state of
t.he record title, Hendons would be a-ble to make
Forsythe-Tinney tenants in common on the property purchased,
but it would be subject to life estates. Unless
Forsythe-Tinney consented, and there is no showing of consent
here, it was impossible for Hendons, after the assignment, to
deliver the same quality of title to the real property to
Forsythe-Tinney if they had performed their portion of the
oral contract after the assignment. At the point of the
assignment under the circumstances of this case therefore,
Elkins had breached the oral agreement by putting it out of
his power, and out of Hendons' power, to deliver the kind of
title that Forsythe-Tinney had agreed to purchase.
It is true that one may agree as vendor to sell. property
to another as vendee when the vendor does not in fact have
the title in hand that he agrees to convey to the vendee.
The rule is not iron-clad, however, and where during the time
that the contract is executory, the vendor puts it out of his
power to deliver the title which he contracted to sell, there
is no reason why the vendee may not resort to his remedy of
rescission.
". . . On the other hand, while a vendee may not
complain of defects or encumbrances which are
within the power of the vendor in due time to
remove, he should not be expected to proceed with
the contract where the fact develops that there are
defects or encumbrances, the removal of which rests
on mere hope and conjecture, as where, in the
acquisition of title, the vendor must necessarj-ly
be wholly dependent on the will and volition of a
third party. " Vendor - Purchaser
- - and 241, 77
Am.Jur.2d 414.
In this case, Hendons ability, upon complete performance
by Forsythe-Tinney, to convey the nature and quality of title
that had been agreed to be conveyed in the oral agreement was
outside of Hendons' power because of the life estates in
third parties to the oral agreement (though the third parties
were original parties before the assignment clouded. the title
to be conveyed). In those circumstances, Forsythe-Tinney had
a right to rescission.
The assignment by Elkins reserving a life estate to
themselves constituted a material alteration of the oral
agreement to which Forsythe-Tinney had not consented. See
~ipinski v. Title Ins. Co. (Mont. 1982), 655 P.2d 970, 39
St.Rep. 2283. The legal effect of the alteration of a
contract is to extinguish the right of the defaulting party
to require all the executory obligations of the contract as
against the party who does not consent and the party altering
the contract cannot maintain an action on the contract in
either its original or altered form; while the nonconsenting
party loses no right and is not required to rescind or
repudiate the contract as it actually is made. Smith v.
Barnes (1915), 51 Mont. 202, 149 P. 963. However,
Forsythe-Tinney in this case, by filing an action to recover
the amounts which they had paid on the oral- contract in
effect asked for rescission of the contract.
In this case, Forsythe-Tinney had paid $6,377 under the
oral agreement. The District Court determined that it would
allow Forsythe-Tinney credit only for the equity that the
payments had purchased, and without credit for interest that
Forsythe-Tinney had paid in performance. This was an
improper limitation on the damages sustained by
Forsythe-Tinney. If we regard the breach of Elkins and
Hendons to be one of contract, the measure of damages is the
amount which will compensate the party aggrieved for all the
detriment that was proximately caused thereby. Section
27-1-311, MCA. If we regard. the situation as a breach of an
a-greement to convey an estate of real property, the damages
are considered to be the price paid and expenses incurred in
connection with the contract. Section 27-1-314, MCA. In
this case, the payments made by Forsythe-Tinney relieved to
that extent, including interest, any payments that were
required to be made under the Raley contract by Elkins. On
breach or rescission, Forsythe-Tinney should be able to
recover the monies they had paid on the contract with
interest thereon from the date of the breach, 5 27-1-314,
MCA .
Further with respect to damages, the District Court
allowed an offset against Forsythe-Tinney's interest based on
the reasonable value of their occupation of the real property
from the commencement of the oral agreement. However, the
possession by Forsythe-Tinney was pursuant to the oral
agreement between them and Elkins that each would have the
right to occupy the property. On rescission, however,
Forsythe-Tinney lost the right to occupy the property, and
Elkins and Hendons would be entitled to an offset for the
reasonable rental value of the property occupied by
Forsythe-Tinney from and after the date of service of the
notice to quit served upon them, on February 8, 1982.
Although the object of S 28-2-1-716, MCA, requiring one
rescinding a contract to make compensation or restoration, is
to place the other party in status quo, absolute and literal
restoration is not required, it being sufficient if
restoration is such as is reasonably possible or as may be
demanded by the equities of the case. O'Keefe v. Routledge
(1940), 110 Mont. 138, 103 P. 2d 307. It is not always true
that a plaintiff remaining in possession waives his right to
rescission. Rinio v. Kester (19351, 99 Mont. 1, 41 P.2d 405.
Under the equities of this case, it is not necessary that
Forsythe-Tinney be charged with the rental value of the
property from the first date of their occupation to the time
when the notice to quit was served upon them.
The additional issue raised by Forsythe-Tinney that the
District Court should have awarded more money on debts owed
to them is foreclosed by Rule 52 (a), that such find-ingsmust
be clearly erroneous.
With respect to the cross-appeal by Elkins, the finding
and conclusion of the District Court that Forsythe-Tinney
were entitled to exemplary damages in the sum of $1,000 for
the wrongful cutting off of the sewer services is founded on
evidence in the record and may not be set aside by us unless
clearly erroneous. Rule 52 (a), M.R.Civ.P. We do not find
the court to be in error on this point. Punitive damages may
be awarded without a finding of actual damages. Lipinski,
supra. With respect to the award of attorney fees to
Forsythe-Tinney, there exists no agreement between the
parties for the payment of attorney fees. The measure and
mode of compensation of attorneys is left to the agreement,
express or implied, of the parties. Section 25-10-301, MCA.
No legal reason appears for the award of attorney fees to
Forsythe-Tinney in this case.
Accordingly, this cause is remanded to the District
Court with instructions to enter judgment thereon in favor of
Forsythe-Tinney and against Elkins and Hendons in the sum of
$6,377, with interest at the legal rate from and after
February 8, 1982; that the court find and ascertain a
reasonable rental value as an offset against said amounts
owing to Forsythe-Tinney for the occupation of the premises
from and after February 8, 1982; that the award of $1,000 in
punitive damages to Forsythe-Tinney be affirmed, and the
award of attorney fees to Forsythe-Tinney from Dan Elkins be
reversed and vacated. Costs of appeal to Forsythe-Tinney.
\
Justice
We Concur: