No. 90-596
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
THOMAS W. LIDDLE AND CONSTANCE L. LIDDLE,
Plaintiffs and Respondents,
-vs-
JACK H. PETTY, ET AL.,
Defendant and Appellant
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Leif B. Erickson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Marshall Murray and James M. Ramlow; Murray &
Kaufman, Kalispell, Montana.
For Respondent:
Chris Christensen, Attorney at Law, Kalispell,
Montana.
Submitted on Briefs: July 11, 1991
Decided: August 20, 1991
Filed:
Justice John Conway Harri~on~deliuered
the opinion of the Court.
Jack H. Petty appeals from a July 23, 1990, judgment of the
District Court of the Eleventh Judicial District, Flathead County,
Montana, awarding damages to Thomas W. and Constance L. Liddle for
breach of a contract for deed. We affirm.
The issue is whether the District Court erred by holding that
the vendee, Jack Petty, rather than the vendors, Thomas and
Constance Liddle, had materially breached the contract for deed and
that Petty was not entitled to suspend payments.
In 1981 Thomas and Constance Liddle purchased a small farm
located in Flathead County on Highway 2 across from the water
slides. At the time of purchase, the Federal Land Bank of Spokane
held a mortgage on the property, and Liddles assumed liability for
the promissory note secured by the mortgage.
In February of 1985, Liddles sold the real property to Jack
Petty under a contract for deed for $498,000. Petty agreed to pay
$80,000 in cash at the time of closing, to assume the obligation
to the Federal Land Bank of approximately $248,000, and to
compensate Liddles for the $170,000 balance plus interest in five
annual payments beginning January 1, 1987.
According to the terms of the contract, when Liddles received
the $80,000 down payment, they would convey to Petty a twenty-five
acre parcel of land released from the Federal Land Bank mortgage
for development of a recreational vehicle park:
.
18. Release of Acr~aqe. Seller hereby agrees that,
upon payment of the down payment referenced in Paragraph
l(a) above, it will release unto Purchaser that certain
portion of real property being conveyed hereunder (in the
approximate size of 25 acres), which parcel is
specifically described on Exhibit B attached hereto, and
will thereafter cooperate with Purchaser in obtaining a
release of said property from the Federal Land Bank
mortgage referenced in Paragraph 1 (b) above.
Although Petty made the $80,000 down payment, the twenty-five acre
tract was not conveyed to him at that time because the tract had
not been surveyed. The twenty-five acre parcel was surveyed and
the Certificate of Survey was recorded on February 21, 1985.
Because the survey was incorrect, a corrected Certificate of Survey
was recorded on May 20, 1987.
Additional consideration for the release of the twenty-five
acre parcel was the assignment of a security interest in Petty's
retirement fund:
19. Additional Collateral. As additional
collateral and as additional consideration for the
release of the 25-acre parcel just mentioned in the prior
paragraph, Purchaser hereby grants to Seller an
assignment of and security interest in and to this vested
interest in Western Airlines, Pilots' Retirement Income
Plan, Certificate Number 3158. . . .
The parties later learned that terms of the merger of Western
Airlines and Delta Airlines prevented Petty from assigning an
interest in his retirement fund.
In his testimony, Petty also claimed that at the time he
entered into the contract, he had been assured that the property
was unzoned. In relation to zoning, the contract provided:
20. Potential Reduction of Price. The parties
hereto acknowledge that Purchaser intends to use the 25-
acre parcel being released . . . as a recreational
vehicle park. The entire property being conveyed
hereunder is being sold at $498,000.00 under the
assumption that Purchaser can acquire the necessary
zoning approval for a recreational vehicle park on said
released property. ... However, if, after use of due
diligence and the expiration of 30 months subsequent to
the execution of this Agreement, Purchaser fails to
obtain said zoning approval, then, in such case, the
purchase price of $498,000 shall be reduced by $25,000.00
The title insurance failed to reflect the fact that the property
was zoned at the time of sale. Petty was unable to obtain rezoning
of the property allowing him to construct an RV park.
The Contract for Deed provided that if Petty failed to make
any of the payments or failed to comply with any other provision
of the contract, Liddles had to give notice to Petty of default.
If Petty failed to cure the default within 30 days of receiving
notice, Liddles were required to give 30 days further notice. If
Petty could not meet the required payments within 30 days of the
second notice, the entire unpaid balance on the contract, including
principal and interest, became due.
Federal Land Bank notified Petty in September, 1985, that it
would not release the twenty-five acre parcel to Petty until he
brought loan payments current. Petty ceased making payments
altogether in early 1986. On May 27, 1987, Liddles sent Petty a
notice of default alleging that Petty was $27,944.40 in arrears on
the Federal Land Bank mortgage lien, $32,043.84 in arrears on the
payments of interest to Liddles, and had not provided a certified
copy of the fire insurance policy as required by the Contract for
Deed. The notice asked that Petty cure the default.
On June 18, 1987, Petty sent an instruction to the escrow
agent not to close the escrow or to release documents to Liddles
pending further instruction or court order.
Liddles sent a second notice of default on July 13, 1987,
accelerating the entire balance due under the Contract for Deed in
the amount of $170,000. Liddles also requested attorney's fees as
allowed by the Contract for Deed. On December 17, 1987, Liddles
filed this action to enforce their rights under the Contract for
Deed. Defendant counterclaimed, alleging that he was entitled to
rescission and return of his payments on the ground of
misrepresentation by Liddles.
After the action was filed, Farm Credit Bank of Spokane,
successor to Federal Land Bank, foreclosed on the property. On
March 12, 1990, the District Court ruled that the bank was entitled
to a deficiency judgment against Petty and Liddles.
A hearing on this case was held June 4, 1990, before the
District Court sitting without a jury. Mr. Liddle testified that
at the time of closing he was under the impression that all
necessary documents for the transfer of the twenty-five acre tract
had been signed and turned over to Petty. According to Mr. Liddle,
the first time that he became aware that Petty had not received the
deed to the twenty-five acre parcel was in December 1987. Prior
to that date, Petty had not contacted Liddles directly to say that
he needed the deed to the twenty-five acre parcel. Mr. Liddle
testified that he returned the signed deed to the American Abstract
and Title Company in December 1987.
Petty testified that he had not ever received the deed for the
twenty-five acre tract and that release of the twenty-five acre
tract was "paramount to the deal." Petty's testimony contradicted
his answer to interrogatories in which he stated that the deed to
the twenty-five acre parcel was delivered after the defaults were
claimed. Russell E. Harshberger of American Abstract and Title
Company denied receiving in the mail the deed to the twenty-five
acre parcel which he had sent to Liddles in November 1987.
The District Court found in favor of plaintiffs, deducting
$25,000 from the balance of the purchase price owed to Liddles as
provided in the Contract for Deed since Petty was unable to obtain
rezoning of the property. From this judgment, Petty appeals.
I1
The issue is whether the District Court erred by holding that
Petty, rather than Liddles, had materially breached the contract
for deed and that Petty was not entitled to discontinue payments.
According to Petty, he was entitled to suspend payments because
Liddles had materially breached the contract by failing to convey
the deed to the twenty-five acre parcel to him at the time Liddles
received the $80,000 down payment as provided in the Contract for
Deed. Petty claimed that release of the twenty-five acre parcel
was wparamountu to the deal.
Unless the contract provides otherwise, the general rule is
that the vendor need not produce marketable title to real property
sold under an installment contract until the date set for final
payment and tender of the deed. Wise v. Sebena (Mont. 1991), 808
(1985), 217 Mont. 8, 11, 701 P.2d 1388, 1390. If one of the
contracting parties materially breaches the contract, the injured
party is entitled to suspend his performance. Determination of
whether the breach is material is a question of fact. Sjoberg v.
Kravik (1988), 233 Mont. 33, 38, 759 P.2d 966, 969.
A party to a contract may rescind "if, through the fault of
the party as to whom he rescinds, the consideration for his
obligation fails in whole or part." Section 28-2-1711, MCA. In
addition, the party must meet the requirements of 1 28-2-1713, MCA,
which provides in part:
Rescission, when not effected by consent, can be
accomplished only by the use on the part of the party
rescinding of reasonable diligence to comply with the
following rules:
(1) He must rescind promptly upon discovering the
facts which entitle him to rescind if he is free from
duress, menace, undue influence, or disability and is
aware of his right to rescind.
Section 28-2-1713(1), MCA. Therefore, even though a party may be
entitled to rescind a contract, the I1rescinding party must use
reasonable diligence and take action within a reasonable time upon
discovering the facts which entitle him to rescind.I1 Berry v.
Romain (Mont. 1981), 632 P.2d 1127, 1130.
Petty argues that this case is analogous to Sjoberq where the
real estate contract provided for release of an underlying
mortgage. In Sioberq, we upheld the district court's decision that
procuring a release of the underlying mortgage was material to the
contract. Sioberq, 233 Mont. at 39, 759 P.2d at 969. In contrast
to this case, the buyer in Sioberq promptly notified the seller
that he was in default for Zailing to acquire a release of the
underlying mortgage, and the buyer attempted to make payment with
the provision that it be held in escrow. The escrow agent rejected
the payment. When the seller responded by notifying the buyer that
he was in default for past-due payments, the buyer promptly made
the payments within the grace period. Sioberq, 233 Mont. at 35-
37, 759 P.2d at 967-68. In addition, we upheld the district
court's decision that once the release was obtained the buyer was
obligated to recommence payments. Sioberq, 233 Mont. at 39, 759
P.2d at 969.
The District Court found that Petty had not made any payments
to Liddles since February 11, 1985, when Petty had made the down
payment. Petty suspended payments to the Federal Land Bank in
January 1986. The District Court found that Petty had not
requested a deed to the twenty-five acre parcel until May 1987 and
had given no notice of default to Liddles as a result of their
alleged failure to furnish a release. In addition, as the District
Court found, Petty "had a great deal of difficulty in getting the
25-acre parcel released by the Federal Land Bank due to the fact
that he was in default on the mortgage payments within seven (7)
months after having assumed the mortgage obligation.I1 In the
opinion of the District Court, Petty's problem was not the lack of
a deed to the twenty-five acre parcel, but the inability to obtain
rezoning of the twenty-five acre parcel to allow operation of an
RV park.
On the other hand, the District Court found that Liddles had
I1performed in accordance witH allltheterms and conditions of the
Contract for Deed" and had "delivered a deed to the acreage in a
timely fashion after being presented with one by Defendant through
Mr. Harshberger."
Petty was not entitled to suspend performance of the contract
when the failure of consideration was not through the fault of the
other party and when Petty had failed to use "reasonable diligence"
to "rescind promptly upon discovering the facts.I1 Unlike the buyer
in Sjoberq, Petty delayed over two years after the contract was
signed to report to Liddles that he had not received the deed to
the twenty-five parcel and had never given Liddles notice of
default.
This Court cannot set aside findings of fact determined by a
district court sitting without a jury, unless the findings are
"clearly e r r o n e ~ u s , and we must
~~ give Itdue regardw to the
ttopportunity the trial court to judge of the credibility of the
of
witnesses." Rule 52(a), M.R.Civ.P.; Steer, Inc. v. Department of
Revenue (Mont. 1990), 803 P.2d 601, 603, 47 St.Rep. 2199, 2200.
When evidence conflicts, we will not substitute our judgment for
that of the District Court if the findings are supported by
substantial, credible evidence. Lorenz v. Estate of Schilling
(1989), 236 Mont. 82, 84, 768 P.2d 869, 870.
Substantial evidence supports the findings of the District
Court that the lack of a release of the twenty-five acre tract from
the Federal Land Bank is attributable to actions of Petty, rather
than Liddles. Even if receipt of the release or deed to the
twenty-five acre parcel were material, Liddles were not accountable
for the failure to obtain the release.
When the purchase price of property under a contract for deed
is paid in installments, I1defaultin the payment of any installment
is a distinct breach and gives the vendor the right to declare a
forfeiture.!' Wise, 808 P.2d at 498, 48 St.Rep. at 311 (quoting
Suburban Homes Co. v. North (1914), 50 Mont. 108, 145 P.2d 5).
The conclusion of the District Court that Petty Itbreachedthe terms
and conditions of the Contract for Deed without justification, was
not clearly erroneous and was supported by substantial, credible
evidence.
Affirmed .
We concur: