NO. 83-77
IN THE SUPREME COURT OF THE STATE OF MONTANA
1984
IVAN J. HOEFER and PATRICIA A.
HOEFER,
Plaintiffs and Respondents,
VS.
LISQLBTTE E. WILCKENS,
Defendant and Appellant.
Appeal from:
District Court of the Fourth Judicial ~istrict,
In and for the County of Lake
Honorable Jack L. Green, Judge presiding.
Counsel of Record:
For Appellant:
Murray, Kaufman, Vidal & Gordon, Kalispell, Montana
John R. Gordon argued, Kalispell, Montana
K. M. Bridenstine, Polson, Mt.
For Respondents:
Christian, McCurdy & Wold, Polson, Montana
Matthew H. O'Neill argued, Polson, Montana
Submitted:
Decided:
September 2 9 , 1 9 83
May 3 1 , 1 9 8 4
Mr. Justice Daniel. J. Shea delivered the Opinion of the
Court.
Defendant, Liselotte E. Wilckens, as a codefendant in an
action by plaintiffs, Ivan J. Hoefer and Patricia A. Hoefer,
for slander of title and real estate broker malpractice,
appeals from a Lake County District Court judgment finding
her liable on both counts.
Because the findings are not
supported by substantial evidence, we reverse.
The controversy arises from a real estate transaction
involving a contract for deed, a promj-ssory note, and an
assignment.
The dispute is between the plaintiff purchasers
and the defendants, a real estate broker and agent, who
handled the transaction.
The sellers are not involved.
The purchasers could not pay the entire downpayment and
the broker and agent loaned them the money, taking a 90 day
promissory note in return.
Later, ostensibly to secure the
promissory note, the purchasers gave the broker and agent an
assignment of
purchasing.
their
interest in
the property
they were
When the purchasers failed to pay the promissory
note, the broker recorded the assignment and he and the agent
continued to make payments on the contract.
The purchasers
sued the broker and agent to have the assignment set aside
and sued the broker only for slander of title and broker
malpractice.
In
addition, one of
the purchasers, Ivan
Hoefer, also sued the broker to foreclose a mechanic's lien
for plumbing work he had done on a real estate office and
apartment that the broker was converting from a service
station.
Defendant Young counterclaimed to set aside the
mechanic's lien and for attorney fees.
The trial court set the assignment aside and also held
that plaintiff purchasers had proved slander of title and
broker
malpractice
against
the
broker
and
the
agent.
However, there was no proof that the agent participated in or
even
had
attributed
knowledge
of
the
to the broker.
acts
or
omissions
properly
It appears from the court's
findings and conclusions that the agent was held liable for
slander of title and broker malpractice solely because she
was associated with the broker in the underlying real estate
transaction.
The court seemed to implj-citl-yrecognize the
fact that the agent had not participated in the acts or
omissions of the broker when it assessed punitive damages
only aaainst the broker.
The broker filed a notice of
appeal, but he failed to perfect it.
Rased on the slander of title and broker malpractice
cl-aims, the trial court also ordered that both the broker and
agent must pay the attorney fees the plaintiffs incurred in
prosecuting the case.
The court ordered that the agent could
offset the attorney fees she had to pay against the contract
payments, taxes and assessments she had paid in helping to
keep the payments on the contract for deed current.
The duty
of the agent to pay attorney fees, however, depends on the
validity of the underlying judgment against her for slander
of title and broker malpractice.
findings are
not
supported by
The agent argues that the
substantial evidence, and
further, that she was denied due process by the failure of
plaintiffs to notify
her before trial that she too was
accused of slander of title and broker malpractice.
The
agent further claims that the assignment is valid as to her
as representing a security interest, and that judgment should
have been entered in her favor for the contract payments and
taxes
and
assessments she paid
contract for deed current.
in
helping
to
keep the
On the mechanic's lien issue, the court invalidated the
lien because it was not filed within the statutory deadline,
but entered judgment for plaintiff, Ivan Hoefer, based on an
open account for plumbing services rendered to the broker.
The court also ordered that plaintiff Hoefer must pay the
broker's
attorney fees for defending the mechanic's lien
foreclosure suit.
foreclosure.
Neither
The
party
has
evidence
as to
appealed
the plumbing
from the
services
rendered by plaintiff Hoefer to the broker does, however,
bear on the question of whether the broker kept the agent
informed of the plumbing bill he incurred and refused to pay.
Agent presents two issues.
First, whether there is
substantial evidence to support the judgment against her for
slander of title and broker malpractice.
Second, whether she
was given adequate notice that the purchasers were bringing a
claim against her as well for slander of title and broker
malpractice.
We reverse the judgment against the agent because we
find the substantial evidence issue dispositive.
also determine that the purchasers denied
However, we
the agent due
process by their failure to notify her before trial that they
were seeking judgment against her also for slander of title
and broker malpractice.
We also determine agent Wilckens is
entitled to judgment for the contract payments, taxes and
assessments she paid in keeping the payments on the contract
for deed current.
Although
we
are
concerned
only with
the
facts and
circumstances surrounding agent Wilckens' participation in
the sale, a complete review of the facts will place her
participation in its proper context.
Defendant Young was in 1977, a licensed real estate
broker,
d/b/a Flathead
Lake
Realty
in
Polson, Montana.
Defendant Wilckens was at that time employed by Flathead Lake
Realty as a real estate salesperson.
Young was the only
licensed broker in the company at that time.
The owners, Calvin and Marva Christian, listed. for sale
a ten acre plot with Flathead Lake Realty.
After the agent
showed the site to the purchasers they agreed to purchase it
by
contract for $15,500.
Purchasers, Ivan and Patricia
Hoefer, paid $500 earnest money in July 1977, and agreed to
close
in
August
downpayment.
by
paying
the
$1,500
balance
of
the
Yearly payments under the contract for deed
were $2,011.91.
The
purchasers
did
not
have
the
balance
of
the
downpayment in August so the closing date was extended to
September.
When the purchasers did not have the money aqain
in September, the broker and agent agreed at that time to pay
the
remainder
of
the
commission of $1,500.
downpayment
with
their
combined
The record does not show exactly where
the money was drawn, but it. appears that a cash payment was
made to the sellers from the account of Flathead Lake Realty.
The purchasers then signed a promissory note for the $1,500
advance, payable to Flathead Lake Realty in 90 days.
All the necessary papers were signed by the parties on
September 28, 1977.
Among them was a notice of purchasers'
interest signed by the purchasers, which was to be filed with
the
county
clerk
and
recorder to
interest in the property.
give notice
of
their
The broker had a duty to file this
notice to protect the purchasers' interest, but he failed to
do so.
The agent, on the other hand, assumed that the broker
had filed this notice and she did not learn that he had not
filed it until this dispute arose.
The title company also issued a $15,500 title commitment
to the buyers, to be followed by a title insurance policy.
However, the policy when issued, instead of being in the
names of the purchasers, was in the names of the broker and
a.gent.
Al.though the broker knew this to be the fact, the
agent did not know that she was a named insured on the policy
until this dispute arose.
She always assumed it had been
issued in the names of the purchasers.
After
the
signing
of
the
promissory
note,
another
document, an assignment, entered into the picture.
Before
the promissory note was due, the broker decided that security
was needed on the note, and on or about October 31, 1977, the
purchasers gave the broker and agent an assignment of their
interest i.n the property.
The broker testified that they
discussed the necessity of an a-ssignment as security at the
time the promissory note was
denied this.
having
it
signed, hut the purchasers
The purchasers signed the assignment without
acknowledged,
and
in
fact
there
was
no
acknowledgment jurat on the document when they signed it.
However, after the purchasers had given the signed document
to the broker, the broker taped an acknowledgment paragraph
onto the bot-tom of the a.ssignment document.
document to a notary public.
the
law
He took this
The notary, acting contrary to
(sections 1-5-201, -206, -207, 70-20-106, MCA),
acknowledged the purchasers' signatures in the purchasers'
absence.
When the promissory note fell due in late December 1977,
the broker, in addition to the note, had possession of the
notice of purchasers' interest (which he should have filed
the previous September to protect the purchasers Ynterest) ,
and the illegally acknowledged assignment.
The record does
not disclose whether Flathead Lake Fealty made any demands of
the purchasers to pay the note when it fell due.
However,
six months later, in June 1978, the note was still unpaid.
A
dispute exists as to whether Flathead Lake Realty then made a
demand on the purchasers to pay the note or notified them
that upon failure the assignment would be recorded divesting
the purchasers of their interest in the property.
The broker
testified that he wrote a letter in June to the purchasers
telling them to pay the note within 5 days or that the
assignment would be filed divesting them of their interest in
the property.
evidence.
A
copy of this letter was introduced in
The purchasers, however, testified that they did
not receive this letter.
Although the trial court made no
finding as to whether the broker mailed the letter, the court
did
find that the purchasers did not receive the letter.
In June 1978, the broker recorded the assignment and the
notice of purchasers' interest.
The purchasers were not
aware of this recorded assignment until late summer of 1978.
At that time they noticed someone cutting hay on the land,
and in checking the courthouse records, found the recorded
assignment to the broker and agent.
We digress here to bring the mechanic's lien dispute
into the picture, for it bears on the relationship between
purchaser, Ivan Hoefer, and the broker, Donald Young, and it
tends to show that the agent, Liselotte Wilckens, was not
kept informed that at the same time the broker was obtaining
the assignment from the purchasers, he was also disputing
with purchaser Ivan Hoefer on plumbing work that Hoefer had
done for the broker.
The history of the mechanic's lien litigation started
shortly before the real estate transaction involved here.
Ivan Hoefer, one of the purchasers, is a plumber by trade who
owned the Plumb Shop in Polson.
In August, 1977, before the
parties closed the real estate deal, the broker contracted
with Ivan Hoefer to do plumbing work on an old gasoline
station that the broker was remodeling for an office and an
apartment.
Work was to be done on an open account, time and
material cost basis.
The agent, Liselotte Wilckens, knew
nothing about the details of the plumbing contract between
Hoefer and the broker.
Hoefer started plumbing work in early August 1977, and
worked off and on until completing the work in April 1978.
He billed the broker for $2,221.24, but the broker did not
Pay
Hoefer
plumbing
bill
then
as
promissory note.
due Hoefer.
suggested that
an
offset
the
amount
apply
due
on
the
the
That would have left a balance of $721.72
The broker
remained unpaid.
on
the broker
refused, however, and the bill
As a result, Hoefer filed a mechanic's lien
against the property on which he had worked.
We have already noted the result of the mechanic's lien
foreclosure suit.
The lien was disallowed, but Hoefer was
given a judgment on an open account based on the plumbing he
did
for the broker, and
broker's attorney
foreclosure suit.
Hoefer was ordered to pay
fees for defending the mechanic's
the
lien
We emphasize, however, that agent Wilckens
had no knowledge that the broker still owed Hoefer for a
plumbing bi.1-1,and had no knowledge that Hoefer had filed a
mechanic's lien on the broker's service station property for
plumbing services rendered.
The basis for the slander of title judgment against the
agent is a ruling that the broker and agent acted maliciously
in
obtaining
and
recording the
assignment divesting the
purchasers of their interest in the property.
Although the
evidence supports the judgment against the broker (and the
broker has not appealed), the trial court's findings against
the agent are wholly unsupported by the evidence.
To establish slander of titl-e, purchasers were required
to prove that the agent acted with malice, First Security
Bank of Bozeman
~ 7 .
Tholkes (1976), 169 Mont. 422, 547 P.2d
1328, and without reasonable justification or right.
Rainbow Ranch v. Conklin
1027.
Jumping
(1975), 167 Mont. 367, 538 P.2d
The record clearly establishes that when the agent
asked the broker to record the assignment she assumed she had
the right to protect her interest because the buyers were six
months in default on the promissory note.
The evidence
established no other motive of the agent in asking the broker
to file the assignment.
The evidence with regard to the plumbing contract and
claimed mechanic's
issue.
lien also sheds light on the slander
The agent did not know the details of the plumbing
contract between Hoefer and the broker, and she did not know
that
at
the
time
the
assignment was
recorded
that the
purchaser (Hoefer) had already filed a mechanic's lien on the
broker's property for the plumbing work that he had done.
In
fact, she did not know that the broker still owed Hoefer
money on the plumbing contract.
establish
that
the
broker
was
This evidence tends to
alone
in
charge
of
the
assianment and its filing, and that he did not inform the
agent of the important details or of other factors bearing on
his relationship with the purchasers.
The evidence of the
agent's
involvement establishes
protect what
only
that
she
acted
to
she perceived was her right to record the
assignment after the purchasers were six months in default on
the promissory note.
Such evidence falls far short of
establishing malice.
On the broker malpractice claim, the trial court made
six findings of specific acts or omissions by the broker and
agent constituting broker malpractice.
The findings of the
violations are based largely on the standard of care required
of realtors in Lake County under the Code of Ethics and
Standards
of
Practice
of
the
National
Association
Realtors.
Although the findings may have been appropriate as
of
to the acts or omissions of the broker, they were not as to
the agent.
The findings seem to be based on an implied
assumption that the agent was responsible for all acts and
omissions of the broker, but this is not the case.
First, the trial court found that the broker and agent
concealed the fact that the broker failed to file the notice
of purchasers' interest.
However, the agent testified that
she did not know the broker was required to immediately file
the notice, and further, that she did not know that he had
not done so.
There is no evidence to the contrary.
Second,
the trial court found that the broker and agent concealed the
fact that the title insurance policy had been issued in their
names
instead of
the purchasers' names.
But the agent
testified that she always assumed the policy had been issued
in the purchasers' names.
There is no evidence to the
contrary.
Third, the trial court found that the broker and agent
failed
to
supply
the
purchasers
with
a
copy
assignment, as required by section 37-51-321, MCA.
of
the
However,
the agent was in no position to give the purchasers a copy of
the
assignment because
the
assignment at the same time.
purchasers
did
not
sign the
The agent testified that Mrs.
Hoefer signed the assignment in the presence of the agent,
but Mr. Hoefer was not present.
The agent then turned the
partially signed document over to the broker and the broker
arranged and conducted all the business at the later meeting
when Mr. Hoefer signed the assignment.
to the contrary.
There is no evidence
Clearly, the duty was on the broker to
provide the purchasers with a copy of the assignment, for the
assignment was not complete until Mr. Hoefer signed it in the
presence of the broker.
Fourth, the court found that the acceptance of the
promissory note by the broker and agent from the purchasers
created a conflict of interest that imposed a duty on the
broker and agent to advise the purchasers to seek legal
counsel.
Although this may be true as to the broker, the
agent was
only
a
salesperson at
this time and was not
familiar with the duties of a broker under Montana law, such
as a duty to advise clients to seek legal advice in the event
of a conflict of interest.
Fifth, the trial court found that the broker and agent
had acted to wrongfully divest the purchasers of title by
obtaining and recording the assignment.
While this also may
be true as to the broker, the only evidence in the record is
that
the
agent
acted
only
to
protect
her
interest
in
obtaining payment on the promissory note, and at the time the
assignment was
filed
the
purchasers were
six months
in
default.
No ulterior motives can be attributed to the agent.
She
not
did
know
the
broker's
intent in obtaining and
recording the assignment, and she did not know that the
broker still owed Hoefer for the plumbing bill and that as a
result
Hoefer
had
filed
a
mechanic's
lien
against
the
broker's property.
Sixth and finally, the trial court found that the broker
and agent had altered the assignment document after it was
signed by taping the acknowl-edqment paragraph to the document
and
illegally
presenting
it
to
a
notary
for
an
acknowledgment, and that the notary illegally acknowledged
the purchasers' signatures without requiring their presence.
However, the broker admitted that he alone was responsible
for doing this.
There is no evidence in the record that the
agent knew or approved of what the broker had done.
In summary, the evidence does not support a judgment
against the agent for slander of title or broker malpractice.
In finding the agent liable on both causes of action, the
trial court failed to independently consider and evaluate the
agent's conduct as opposed to the acts and omissions of the
broker.
We are led to assume that the agent was found liable
solely because of her association with the broker.
But
innocent association does not make the agent responsible for
the wrongful acts of the broker.
The Due Process Notice Issue
Although our holding on the substantial evidence issue
disposes of the case, we cannot ignore the procedure by which
the agent was found liable on the claims of slander of title
and broker malpractice.
Without question, the agent had
inadequate notice that the plaintiffs were also seeking a
judgment against her on these claims.
The agent was first notified that such a judgment was
being sought against her while she was being examined as an
adverse witness by the plaintiffs' counsel.
The nature of
the questions brought forth this information.
However, the
agent's counsel did not object to the inquiry into these
matters and should have done so.
Perhaps he did not object
because he did not see that it was important because the
complaint did not seek such relief from the agent.
Perhaps
it was because a conflict of interest existed, in that he
represented both the broker and the agent.
Although
the
the broker
circumstances of
and
agent
retaining the same attorney are not in the record, it is fair
to assume that when he was retained, the broker, the agent,
and the attorney assumed that the only relief being sought
from agent was a nullification of the assignment to which she
was a party.
Had the agent received notice that she also was
charged with slander of title and broker malpractice, the
attorney would most likely have told her that he could not
represent both her and the broker.
Had the agent known of
these facts in advance, she might have of her own volition
retained separate counsel to represent her interests.
Given
these procedural facts, it is not surprising that her counsel
did
not
object
to
the
evidence of
the
agent's
alleged
complicity in the slander and malpractice claims.
The purchasers argue that the agent implicitly consented
to the trial of these issues because the agent's counsel did
not object to questions seeking to establish her complicity
in the wrongful acts of the broker.
questioning
apparent.
broker?
started, a
conflict of
However, once the
interest was
readily
Was the attorney representing the agent or the
If the attorney was paid primarily by the broker, it
would undoubtedly have been in the broker's interest to have
the agent also embroiled in the slander of title and broker
malpractice issues.
Clearly, the attorney may not have been
representing the agent's best interests once he became aware
that the purchasers were seeking judgment against her also
for slander of title and broker malpractice.
Assuming,
furthermore, that no
conflict of
interest
existed, it is not enough that it appears the agent consented
to the trial of the issues; it must also appear that the
agent had adequate notice that the issues would be tried.
Here adequacy of notice is not an issue.
notice at all.
The agent had no
Implied consent to trial of issues not raised
in the pleadings will only be effective where the apparent
consenting party has received adequate notice that new issues
will be raised at trial.
process of law:
It is a fundamental question of due
the right to notice.
Gallatin Trust
&
Savings Bank v. Darrah (1968), 152 Mont. 256, 448 P.2d 734.
Without adequate notice, a party cannot prepare a meaningful
defense.
Raising the issues for the first time during the
cross-examination of
the
party
cannot be
classified
as
adequate notice.
Rights of The Parties
Because of our reversal of the slander of title and
broker malpractice judgment against the agent, the award of
attorney fees against the agent must also fall..
The broker
alone is responsible to pay the purchasers' attorney fees.
The trial court's judgment voiding the assignment is
affirmed.
because
The assignment was at no time a perfected document
of
the
failure
to
acknowledgment on the assignment.
obtain
the
purchasers'
If it were simply an issue
of whether a valid assignment could be enforced bv the broker
and agent as a security device, then section 70-21-102, MCA,
would permit this result, for there are no third parties
involved here, and Montana law requires an acknowledgment
only if the document is to be recorded.
However, Montana has
a specific statute that controls conveyances of real property
by married persons.
Section 70-20-106, MCA, provides:
". . .
No estate in the real property of a married
person passes by any grant purporting to be
executed or acknowledged by such person unless the
grant or instrument is acknowledged by the grantor
in the manner prescribed by 1-5-206 and 1-5-207."
Sections 1-5-206, and -207, MCA, require, among other things,
that the married grantor must appear before the notary to
properly acknowledge the conveyance.
therefore hold
This was not done.
We
that the assignment, even as between the
parties, was invalid and could not convey even a security
interest in the contract for deed to secure performance of
the promissory note signed by the purchasers.
Therefore,
neither the broker nor the agent have a security interest in
the property that is the subject of the contract for deed.
The agent, however, was in good faith in making the
payments on the property that is the subject of the contract
for deed.
For some time now she has made the annual payments
and paid the taxes and a.ssessments as they became due.
is entitled to payment of these items.
She
She is entitled to
judgment for the amounts she has paid.
All other portions of the trial judgment concerning
agent Wilckens and not inconsistent with this opinion are
affirmed.
This cause is hereby remanded to the trial court
with instructions to enter judgment against purchasers and in
favor of agent Wilckens for all amounts she has paid on the
contract and for the taxes and assessments on the property.
This amount shall be reduced by any amounts the agent has
a.ctually received from haying operations on the property.
W Concur:
e
Justices
,,
/'
J u s t i c e Fred J . Weber w i l l file a s p e c i a l c o n c u r r i n g o p i n i o n
later.
Mr.
NO.
83-77
I N THE SUPREME COURT O F THE S T A T E O F MONTANA
1984
IVAN J. HOEFER and P A T R I C I A A .
HOEFER,
P l a i n t i f f s and R e s p o n d e n t s ,
VS
.
L I S O L E T T E E.
WILCKENS,
D e f e n d a n t and A p p e l l a n t .
S p e c i a l C o n c u r r e n c e of M r .
J u s t i c e F r e d J . Weber
M a j o r i t y O p i n i o n handed d o w n :
May 31, 1984
Special C o n c u r r e n c e f i l e d :
* L,*.
- .. /+
,'*
-
,, - ,
Clerk
Mr. Justice Fred J. Weber specially concurs as follows:
While I concur in the majority opinion, I emphasize the
strange requirement for married persons as distinguished from
unmarried persons under section 70-20-106, MCA.
Generally, acknowledgment of an instrument is required
only as a prerequisite to recording of the instrument. Section 70-21-203, MCA.
Unrecorded and unacknowledged instru-
ments are generally valid as between the parties and those
with notice.
Section 70-21-102, MCA.
70-20-106, MCA makes
However, section
these general rules inapplicable to
married persons based upon historical assumptions which are
no longer valid.
At common law, conveyances by married women were void
for lack of contractual capacity.
.
erty S12.73, p. 338, (1952)
I11 American Law of Prop-
The only method of alienation
of a married woman's title wa.s apparently by the judicial
proceedings known as "fine" and "common recovery."
Id.
-
However, this incapacity to contract was to a limited
extent removed by statutes in various jurisdictions which
allowed
conveyances
by
ma.rried
women
under
specified
conditions:
"A number of states require that the acknowledgment
of a married woman, whether as to her own property
or of her dower rights in her husband's property,
be taken separately from her husband. These statutes are intended for the protection of married
women against the undue influence of their husbands
based on the old fable that the male is dominant.
In a conveyance of land by a married woman, her
acknowledgment, under
such
statutes, is an
essential part of the execution. Unless her deed
is
acknowledged
substantially
in
the
mode
prescribed by statute, it is absolutely void
Such [acknowledgment] procedure is judicial in
nature and designed as a substitute for the
proceedings at common law by fine and recovery.
When the certificate shows that a married woman was
examined apart from her husband, and that the
officer explained to her the import and effect of
the deed, and she declared that she freely and
voluntarily executed it and acknowledged it as her
act and deed, the purpose of the law is attained
"
7 Thompson on Real Property S3310, pp.
564-566 (1962) (footnotes omitted).
. . ..
. ..
.
Beyond seeking protection of the married woman's interest,
such acknowledgment proceedings were also intended to secure
a "sure, indefeasible, and unquestionable transfer of her
rights."
1 C.J.S. Acknowledgments 580.
In Montana this acknowledgment requirement for married
women wa,s a.pplied for many years until it was modified in
1975 so as to apply to - married persons.
all
That amendment
was part of a general revision of Montana statutes designed
to eliminate sexual discrimination.
After amendment, the
statute was identical except that it applies to a "married
person" rather than a "married woman."
The acknowledgment requirement originally enacted for a
married woman was based upon some presumed incapacity on her
part.
Because of that faulty foundation, the statute should
have been repealed.
Unfortunately it has now been extended
so that there is a presumed inca.pacity as to both married men
and women.
The
effect
of
the
statute
is
to
unacknowledged conveyance by a married person.
is applied to single persons.
invalidate
an
No such rule
I believe this to be a proper
