Plaintiff and. espondent,
-vs-
LD K VIK FRIEDA
Defendan
strict Court
of the eem Judicial District,
ounty of Silver
norable AraoLd Olsen, Judge presi
Gorette, Smith, lman & A11e ickelson r
Butte [ tana
r. Justice John Conway Harrison delivered the Opinion of the
court.
ants/appellants, Donald and Frie a Rravik, appeal
a District Court decision favoring plaintiff/respondent
eonard Sjoberg. T r i a l w a s h e l d w i t h 0 t a jury on
1987 in the Second Judicial District, Silver Bow County. The
District Court awarded Sjoberg 3,100 in damages, $3
costs, and for attorney's fees. e affirm in part and
reverse in part.
On ay 30, 0 Sjoberg and the Krav s signed a
"contract for sale of real property and escro agreement."
The land consists of approximately forty acres and is located
adison County. As buyer, Sjoberg agreed to pay $52,500
00 as a down pay Afterward, pa ents were to
be made in fifteen annual installments of $5,456, with the
first payment on May I, 19 The agreed interest rate
10% per annum on the unpaid balance.
The fort acres which was ject of the sale was
part of far land owned by the Kraviks. The Kraviks land,
g these forty acres, was encum ortgage
John Hancock Insurance Company, The mortgage had
been duly recorded and Sjoberg entered the rchase agreement
nowing the mortgage existed, The purchase agreement
included a specific clause a dressing the eventual release of
the Hancock mortgage:
The yer enters into this agree
erstanding that the
escribed is subject
to a mortga John Hancock Mutual
Life Insurance Corn recorde at book
o&gage Records of
nit, on April 3,
Buyer agrees that the seller shall
not cause said mortgage to be release
ecord until the sel ers obtain at 1
250,000 in sales 0 land of which the
above real estate is a part or within one
2
year from the date of t
Upon such event. the seller
be filed a partial satisfaction of said
mortgage to t above described real
property.
The parties agreed to an amendment to the above contract
on June 12, 1980. dment provided t at after the
Hancock mortgage , the Kraviks would su
their contract interest to one acre so that the one acre
would be free of both the Hancock mortgage an the Kravik
contract. e express purpose of the a. endment was to allow
mortgage financing.
Sjoberg made his first payment on the forty acres in
1981 without incident. Sjoberg wrote a
letter to B nald Kravik stating that Kravik was to have t
Hancock mortgage released ay 31, 1 according to the
terms of their o inal contract. Kravik was not
able to obtain t release and failed to do so until ril
1986.
nuary 15, 1982, Sjoberg purchase an additional
twenty acres from the Kraviks for the price of $19,200, with
1,000 a a down payment.
fifteen annual installments
interest rate was 10% per annum. The first
made ay 1, 82 and the remainin payments were to occur on
e first day of each year thereafter. This contract also
contained a clause specifically the Hancock
as very similar to the clause in the first
contract between Sjo2ae.rg and t Specifically, the
clause in the second contract stated:
he yer enters into this agree t with
he nowledge and understanding at the
real property above described is a
portion of a larger tract of Land
consisting of approximately 1,515 acres
which is to a mortgage to the
John utual Life Insurance
3
Company, recorded at book 257, pages
73Q-738 o f the ortgage Records of
Madison County f ontana, on April 3,
Approximately 49 reS of the
r tract have been ivided into
ler acreage tracts, e land herein
being sold is one of these acreage
tracts. The sellers in the process
of selling the subdivi acreage tracts,
sales of the acrea r within 1
satisfaction of
subdivided acreag shall place
the same of record.
Qn April 20, 198 S jober 's attorney sent a letter to
the raviks stating that the Kraviks ere in default of the
contract entered aY 30, 1980 for the forty acre tract. The
letter explained that default occurre because the raviks
failed to obtain the release of the Hancoc mortgage on
31, 1981 as romised in the contract ed that the
Kraviks cure the default within the time provided in the
agreement. The agreement provided that if the buyer
defaulted, the sellers could terminate t after
written notice, but only if t e buyer did not cure the breach
within sixty days after the notice. ough the agreement
did not expressly contempla in the event of a
y the sellers, it appears that Sjsberg"s attorney was
addressing this sixty day grace period and ernanding tha
Kraviks obtain a release of the Hancock mortgage wi
ty day period fo lowing the written notice and
O n aY 1, erg did not make an
either of the two contracts entered.
Sjoberg attempted t ake p ent an
revision t the escrow ag
in escrow and not actually deliver the payment. Under those
terms I the escrow agent rejected the payment. Also on June
Sjoberg's at orney sent a Letter to the Kraviks
notifyir_g them that they ere in e contract for
the purchase of the twenty acre tract because the aneock
mortgage WEtS not released. stated that the
agreement entere on January 15, d that "when there
is at least 250,000 in sales of these acreage tracts or
within one year, seller shall obtain a full satisfaction of
mortgage p . . " Although the letter did not specify the
reason for breach, one year had not passed since the date of
the allegation must have been that
raviks had at least
their totah acreage. The letter demanded that the raviks
mortgage release within the time provided in the
contract.
82, an attorney for the Kraviks wrote a
Letter to stating Sjoberg was in default on the
failing to make pa ents when they were due.
joberg responded by making the payments within the specified
grace period of sixty
Sjoberg filed a lawsuit agains the Kraviks April 7,
1983 and alleged they both contracts an
him in the amount of the total sale price of the two
tracts of land. Sjoberg has stated he deposited the 1983
ments en both tracts in a ank account pending the o
o further payments have been made
contracts. On April 11, 1986, the Kraviks obtained the
release on e Hancock mortgage as a result of ano
awslait. The Kraviks then sent Sjoberg a n tice of def
failed to render any
Court staye all
efault pending
A bench trial was held ay 20, 1987. laintiff Sjoberg
alleged he had intended to construct a house and develop a
horse farm on the property, but as unable to obtain any
5
financing for the because of the Hancock
mortgage. The District Court found that the
materially breached the contracts by failing to obtain a
release of the Hancock mortgage, Sjoberg claimed a number of
damages including loss of profits an good will regarding f-he
horse farm which the District Court denied because they were
too speculative. the District Court id award
Sjoberg damages totaling $43110Q, erg claimed to
have sustained due to a general increase in COStiS of
construction of various buildings, equipment, power, wells,
and a horse trailer and truck, The District Court also
awarded attorney"s fees in the amount of and costs of
Tn. he District Court's final judgment, it found
there was a total. of $56,529.38 remaining on t
balances due an owing under both contracts, and that the
total amount awar to Sjoberg wa herefore,
the District Court concl_uded that upon Sjoberg paying the
difference, both contracts wout be paid in Full
and the obligations of all. parties fulfille
efendants/appellants, the Kraviks, appeal and raise
ressed as follows:
1 . Did the Kraviks' failure to obtain a release of the
Hancock mortgage constitute a reach of the contract w
entitled Sjoberg to stop payments?
a. . Were e damages awarded Sjoberg correctly
calculated?
3. as the Kraviks' appeal been rendered moot?
1 . Breach of the contract.
The viks admit they were unable to obtain a timely
release of the ortgage as pro in both contracts, The
releases were not obtaine until April. 11, 1986, and un
the terms of the contracts the release should have been
obtained no later than ay 31, 1981 for the forty acre tract
an January 15, 1983 for the twenty acre tract. The Rraviks
6
maintain, however, that their reac was not a breach whit
constituted default and was not sufficient enough to allow
Sjoberq to stop payments. they contend that
Sjoberg's sole remedy was to continue with the payments and
sue for whatever damages he incurred.
If a contracting party materially reaches the contract,
the injured party is entitled to sus end his performance, and
the determination of whether a material breach exists is a
question of fact. E. Farnsworth, Contracts, 5 8.16 (1982).
The contracts included specific provisions directing the
mortgage release. The District Court found that "the
specific purpose of the provision . o . was to allow Sjoberg
to have the property free o f the mortgage and subject only to
the purchase contract so that he could obtain financing to
begin to develop the property as a horse ranch.'" The
District Court concluded breach was a
ateriai. reach. e agree with the District Court ecause
the Kraviks reach substantially effected the purpose of the
contract. Sjoberq probably woul. not have entered the
contract had he known the mortgage would not be released. We
hold that the Kraviks" breach was material and constituted a
ition entitling Sjoberg to stop his payments under the
contracts.
The raviks contend that this holding ould conflict
with the rule that under an installment sales contract the
seller oes not have to produce mar itle until the
date set for final payment and ten Scheitlin
V. R & D 731 P.2d 1 3 8 8 , 2390,
St.Rep. 986, 1933) r
However, this ecision does not
run contrary to this rule because the parties specifically
agreed the mortqaqe would be release no later than one year
after the contracts were entered.
3
2. GE
This action was co enced when Sjo erg filed a complaint
in the District Court alleging breach of the two real. estate
contracts because the John Hancock Insurance Company release
had not been obtained within a year. He sought total damages
of 71,700, Sjoberg thus chose to stan e contract an
to seek damages for its breach.
In their answer to the complaint, Kraviks tendered a
third defense and counter claim in which they agreed that
under the te s of the contracts they were to deliver
marketable title in the sellers; and they could not do so
because they were unable to secure the release from the John
Hancock utual Life Insurance Company; that obtaining the
release was not possible and that the Kraviks were ready,
willing and able to restore to Sjoberg all payments made
him nder his contracts and y reason of the doctrine of
mutuality of remedy, sought to rescind the contracts and
restore the parties to their status at the time of en
into the contracts. No other pleadings were thereafter filed
in the nature of supplementary plea
hile the action was pending, riE of 1986 through
another litigation, e release of the property from the
mortgage of John ancock e Insurance was obtaine
On May 16, Kraviks served notices of default upon
for each of the contractsp on the ounds that no
payments had been ma berg to keep t contracts in
effect. Upon receipt of e default notices, counsel for
erg went to court ained a stay of default on the
contracts until fur&he f the court.
In its findings and conclusions, the District Court
found that the provision in the contracts requiring the John
Hancock PSutua.1 Li e insurance Company releases was material
t0 he contracts, at the Kraviks' failure to produce
such releases constituted a material breac of the contracts.
8
It concluded t erefore that sjo erg's obligation to ake
payments ceased on the failure of the raviks to obtain the
mortgage releases e The court however further found that
Sjoberg was obligated to pay under the contracts co encing
e payments due in May of 49 (?, but that no interest
accrue on the contracts between the date of the last
payment in 1982 and May 1988 because of the Kraviks' material
breach.
The District Court also found that Sjo rg was damaged
through the Kraviks' breach in the sum of for the
increase costs of building a house I other
outbuildings; 10,000 for the increased costs of r&asing a
tractor, plow and irrigation equipment; for the
increased costs of obtaining power to the pump and igging
wells; and $13,500 or the increase costs of obtaining a
horse trailer and appropriate truck. rict Court
foun al amount of damages was 43,100.
The findings of the District Court are not clearly
erroneous, Rule 52(a), M.R.Civ.P., and the app ication of
legal principles to the fact situation by the District Court
is proper.
The court did award attorney's fees in the sum of
to Sjoberg based up n the reci 28-3-704,
MCA, and the folio ing in the contracts:
In the event the Sell must resort to
legal action to remove Buyer from the
premises, or seek ret he property,
after Default and the Buyer
hereby specifically a pay all the
court costs and reasonable attorney fees
incurred by t e Seller in such action.
Neither of the parties are entitled to attorney's fees
in this action. While Kraviks breached the contracts by not
ing the John Hancock releases, Sjoberg also breached
the contracts when he did not begin making pay ents on the
contracts when he ecame obligated to do so in May of 1986.
9
e hold it would be inequitab e to award attorney's fees 01
costs to either party in this case.
3 . ~OOT~~§S
In its judgment, the District Court offset the amounts
due to the Xraviks under the contracts with the amounts it
found as damagesp attorney*s fees and costs awarded to
Sjoberg leaving a net of 3,885.?8. The judgment provided
that upon ayment of that sum to the escrow older, the
escrow holder was to deliver the escrow documents, inclu
the warranty deed to Sjober at which time the contracts
would be deeme paid in full and the obligations of all the
parties fulfilled. During the pendency of this appeal,
Sjoberg has made that payment to he escrow holder and now
claims that the cause is moot because the terms of the
judgment have been fulfilled by him.
Because we have found that Kraviks are entitled to
effective relief on appeal, we ds not find the judgment to be
moot. See artin Development Company v. Keeney Construction
ont. 19851, 703 P.2d 143, 147, 14 , 42 St.Rep. 752,
757 ‘ 75%.
. CONCLUSION
Accordingly, we affirm in part and reverse in part the
judgment of the District Court. the etermination
of the District Court that the sum of 56,529.38 is due to
the Kraviks from Sjoberg as principal due and owing on both
contracts. ould additionally xeeeive interest on
at the rate of 10% per annum from May 16, 1986
date of the judgment appealed from. We affirm the
findings of the District Court that Sjoberg is entitled to
ges from the Rraviks in the sum of 43,100, and agree
that this sum may be offset against the principal balance
on the contracts of Sjoberg to Rraviks as of the date o said
judgment. Thereafter Kraviks are entitled to receive
judgment interest at the rate of 10% per an um on the net
10
principal amount due from and after the ju gment date unt
paid. (Post judgment interest shall not include interest on
interest.) We determine that neither party is entitled to
attorney's fees and costs in this action. We remand this
cause to the District Court for such further proceedings as
may be necessary to reverse the elivery of the warranty eed
from the escrow holder to Sjoberg until such time as the
amounts due under this opinion are f y paid.
:ef Justice
/