KRONE v MCCANN

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No. 81-67 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 MAXINE KRONE, et al., Plaintiffs and Respondents, REX T. McCANN, DOROTHY G. McCANN and SUPERIOR HOMES, INC., Defendant and Appellant. Appeal from: District Court of the Fourteenth Judicial District, In and for the County of Musselshell Honorable LeRoy L. McKinnon, Judge presiding. Counsel of Record: For Appellant: Hibbs, Sweeney, Colberg, Jensen & Koessler, Billings, Montana William Jensen argued, Billings, Montana For Respondents: Craig Buehler argued, Montana Legal Services, Lewistown, Montana Submitted: Decided: Filed: MAR 10 19821 Y' 1 e Clerk October 27, 1981 Lflr. J u s t i c e Gene B . U a l y d e l i v e r e d t h e O p i n i o n of t h e C o u r t . T h i s i s a n a p p e a l of a n a d v e r s e judgment i n a land c o n t r a c t a c t i o n e n t e r e d by t h e c o u r t s i t t i n g w i t h o u t a j u r y i n t h e F o u r t e e n t h J u d i c i a l D i s t r i c t , County of M u s s e l s h e l l . Respondents brought t h i s a c t i o n t o reform a c o n t r a c t for deed between the respondents its president, Homes, Inc., tary, Dorothy Rex T . McCann. G. and appellants, McCann, Appellants Superior its secre- and cross-claimed for damages a r i s i n g o u t o f t h e l o s s o f u s e o f a c a b i n l o c a t e d on t h e l a n d s o l d and f o r e x e m p l a r y damages f o r t h e r e s p o n d e n t s ' d o g s c h a s i n g c a t t l e owned by t h e McCanns. Trial was from J a n u a r y 22 judgment had the for to by the court January 24, respondents, sitting 1980. without The court held that the contract NcCann Rex for deed. must jury entered h o l d i n g t h a t o v e r r e a c h i n g by Hex IrlcCann amounteu t o f r a u d u l e n t p r a c t i c e s , reformed a and t h e c o u r t The D i s t r i c t reimburse the Court a l s o respondents for m o n i e s g i v e n t o a t h i r d p e r s o n who was recommended by McCann t o b u i l d a house f o r t h e respondents. Lastly, Court who granted respondents, Montana $10,000 Legal as Services, reasonable NcCanns and S u p e r i o r Homes, I n c . , the District represented attorney fees. the 'The appeal. Maxine Krone i s a widow w i t h two s o n s i n t h e i r e a r l y twenties. The McCanns a r e r e a l t o r s d o i n g b u s i n e s s t h r o u g h Superior Homes, family. Rex McCann i s t h e p r e s i d e n t and m a j o r of Inc., Superior Homes secretary-treasurer a corporation and Dorothy owned by McCann the McCann stockholder is . the B r y a n Krone f i r s t c o n t a c t e d t h e McCanns t h r o u g h a n ad n i n t h ~ewspaper. On December 3 1 , 1 9 7 5 , Rex FlcCann showed t h e K r o n e s s e v e r a l p a r c e l s of l a n d i n t h e B u l l M o u n t a i n s . In mid-June of 1976 Rex McCann again Krones p a r c e l s of l a n d i n t h e Bull Mountains. of the parties differed told the Krones about i n buying. interested McCann considerably a sixty-acre the the The t e s t i m o n y a s t o what Rex McCann The D i s t r i c t represented t h a t showed parcel Court sixty-acre they found parcel were that had a Rex cabin which h e wanted t o u s e f o r a b o u t t h r e e m o n t h s u n t i l h e f i x e d up a n o t h e r c a b i n on a d j a c e n t p r o p e r t y . The D i s t r i c t C o u r t a l s o found t h a t Rex McCann r e p r e s e n t e d t h a t t h e p r o p e r t y had three good wells, furnish papers made of found, the that he would waters from "that it suitable appears for human surveyed or No t e s t s were e v e r wells. the it have showing t h e b o u n d a r i e s . however, f u r n i s h water and The that District none of consumption the Court wells although the o n e w i t h t h e pump i s s a t i s f a c t o r y f o r s t o c k w a t e r . " Maxine purchased the testified the property i f transaction. sell Krone that she would the have t h e c a b i n was n o t i n c l u d e d i n t h e R e x McCann t e s t i f i e d t h a t h e n e v e r cabin with not l a n d s i n c e he u s e d intended t o i t a s a head- quarters for h i s r e a l e s t a t e business. Maxine Krone decided to purchase the sixty-acre p a r c e l and t o l d PlcCann t h a t s h e w a n t e d t o b u i l d a h o u s e f o r herself and h e r s o n s on t h e p r o p e r t y . McCann recommended a man named Neal Warnes t o b u i l d h e r h o u s e . The kcCanns and N e a l Warnes had a m e e t i n g w i t h Maxine Krone a t h e r h o u s e i n Billings i n mid-June, 1976. Discussions ensued concerning how much money Maxine Krone s h o u l d t r y t o y e t a s a downpayment on h e r h o u s e i n o r d e r t o make t h e downpayment for the B u l l M o u n t a i n s p r o p e r t y and t o pay Warnes f o r b e g i n n i n g work on a new h o u s e . Maxine Krone t e s t i t i e d t h a t a t t h e mid-June meeting s h e was u n s u r e o f w h e t h e r t o c o n t r a c t w i t h Warnes t o b u i l d her house. i t was o n l y upon Rex McCann's She s t a t e d t h a t guarantee of Warnes' Warnes. The reliability District Court that found she that agreed to hire McCann Rex had a s s u r e d t h e Krones t h a t " h e had a man, Mr. hrarnes" and t h a t Maxine Krone relied upon this assurance when she hired Warnes and a d v a n c e d money t o him. Maxine Krone s o l d h e r home i n B i l l i n g s and on J u l y 1 5 signed a buy-sell agreement f o r t h e B u l l Mountains land t h a t c o n t a i n e d t h e c a b i n and t h r e e w e l l s . The b u y - s e l l agreement c o n t a i n s a p a r a g r a p h i n which s e l l e r , McCann, made s e v e r a l reservations. The p e r t i n e n t s e c t i o n f o l l o w s : "Subject t o reservations, easements for e g r e s s and i n g r e s s and u t i l i t i e s o f r e c o r d , and r e s e r v i n g t o t h e s e l l e r a n e a s e m e n t f o r i n g r e s s and e g r e s s and u t i l i t i e s t o t h e e x i s t i n g c a b i n and o v e r and a c r o s s t o r e a c h other properties. The s e l l e r r e t a i n s t h e g r a s s and g r a z i n g p r i v i l e a g e s [ s i c ] u n t i l 1 [ s i c ] t h e l a n d is f e n c e d and u s e d f o r a g r i c u l t u r a l or grazing purposes. By i n s t a l l i n g a w a t e r t a n k n e a r t h e boundy [ s i c ] , i n s t a l l i n g a motor on t h e e x i s t i n g pump and p a y i n g f o r t h e e l e c t r i c i t y , t h e s e l l e r may u s e t h e w a t e r from s a i d w e l l . " Maxine Krone c l a i m s t h a t t h e a b o v e p a r a g r a p h was n o t contained i n the buy-sell a g r e e m e n t when s h e s i g n e d i t on J u l y 1 5 , 1976. Rex McCann s i g n e d the buy-sell r e p r e s e n t a t i v e f o r S u p e r i o r Homes, I n c . McCann and Rex McCann s i g n e d on J u l y 1 5 a s s a l e s On J u l y 2 0 , D o r o t h y as sellers. The D i s t r i c t C o u r t made no f i n d i n g s o f f a c t a s t o t h e b u y - s e l l After using U-Haul signing the buy-sell trailers, moved her agreement, belongings agreement. Maxine K r o n e , to the Bull Mountains property. She discovered that Neal War n e s had done n o t h i n g t o w a r d t h e c o n s t r u c t i o n o f h e r h o u s e e x c e p t d i g a hole for the belongings, foundation. Needing a place to s t o r e her s h e a s k e d Warnes t o b u i l d h e r a b a r n , which h e iiid w i t h t h e use of s a l v a g e d lumber. The s t o r a g e s h e d o r b a r n was t h e e x t e n t o f t h e work d o n e by N e a l Warnes f o r Maxine Krone i n t h e summer o f 1976. Maxine Krone p a i d Warnes and a p e r s o n h e employed a t o t a l o f $3,456.15. them to Thereafter, get Warnes discussions with to Krone work McCanns, went on to ner the McCanns house. Warnes would asking After call Krone these several t i m e s t o a s s u r e h e r h e would g e t b u s y b u i l d i n g h e r h o u s e . Warnes Krone disappeared brought suit Krone was n e v e r against reimbursed in September him. for 1976, and He d e f a u l t e d t h e money Maxine but Maxine she paid to him had an s i n c e Warnes was judgment p r o o f . The interest District in Krone's found agreement it f e a s i b l e f o r a g r e e m e n t made land. Court Because of that with McCann Rex Warnes t h e Krones McCannls a s s u r a n c e s because their t o purchase and the the benefit he r e c e i v e d f r o m t h e a g r e e m e n t b e t w e e n Warnes and Maxine K r o n e , and because Krone D i s t r i c t Court relied on McCannls assurances, f o u n d Rex McCann p e r s o n a l l y liable the for the $ 3 , 4 5 0 Krone had p a i d t o Warnes. A c o n t r a c t f o r d e e d was s i g n e d by t h e K r o n e s and t h e PlcCanns on August Mountains land. 21, which they for the sale of the Bull The K r o n e s m a i n t a i n t h a t t h e s i g n i n g t o o k place a t the cabin, signed it. 1976, Then, signed, t h a t t h e y r e a d a c o n t r a c t f o r d e e d and Rex McCann g a v e thinking them t h e y were two more c o n t r a c t s c o p i e s of the first contract they read. receive a copy The K r o n e s September 'The Krones a l s o c l a i m t n a t t n e y d i d n o t of the say t h a t because contract until they did not they look it thought September at was the the 24, 1976. contract one they took place in had already read. The their McCanns realty claim office in that the signing Bill.ings, in the presence n o t a r y p u b l i c whose name i s on t h e c o n t r a c t . also claim that a copy of the contract of at the The McCanns was g i v e n to the Krones a t t h a t t i m e . The District Court concluded that the proof was i n s u f f i c i e n t t o draw any c o n c l u s i o n s a s t o p l a c e o r c i r c u m stances surrounding t h e signing of the contract. The K r o n e s s t a y e d i n t h e c a b i n on t h e B u l l M o u n t a i n s l a n d u n t i l t h e f i r s t p a r t o f November when t h e y p u r c h a s e d a m o b i l e home. since it They d i d n o t u s e t h e w e l l s f o r d r i n k i n g w a t e r appeared consumption. In the sixty-acre that the water was unfit for human The w e l l s were n e v e r t e s t e d f o r p u r i t y . s p r i n g of 1977, c a t t l e were t r a c t by a man named brought to the Al.exander who s a i d h e had b o u g h t t h e g r a z i n g r i g h t s t o t h e l a n d from Rex McCann. The K r o n e s t r i e d t o p r e v e n t A l e x a n d e r from g r a z i n g h i s c a t t l e o n t h e l a n d and c h a s e d t h e cows away At this time they contacted Rex from t h e i r McCann mobile about the home. grazing r i g h t , and t h e y w e r e t o l d t o r e a d t h e i r c o n t r a c t . When t h e y r e a d their contract, n o t t h e a g r e e m e n t t h e y had s i g n e d . they believed i t was The D i s t r i c t C o u r t f o u n d t h a t they then discovered f o r t h e f i r s t time t h a t t h e s e l l e r had r e s e r v e d a l l g r a z i n g u n t i l . t h e p r o p e r t y was f e n c e d , served use o f the only well in operation for re- stock water, and o w n e r s h i p o f the cabin. The K r o n e s m a i n t a i n t h a t t h e y d i d n o t know of t h e s e r e s e r v a t i o n s u n t i l t h e s p r i n g of 1 9 7 7 and believed that they had purchased the cabin concluded that with the land. The actions District were practices. to Court "overreaching" and Rex amounted to McCann's fraudulent The c o n t r a c t f o r d e e d was r e f o r m e d by t h e c o u r t exclude all reservations made by the 1YcCanns. I4cCanns w e r e o r d e r e d t o p r o v i d e u s e a b l e w a t e r the wells, The from o n e o f and t h e i r u s e o f t h e c a b i n was l i m i t e d t o t h r e e months. Rex McCann was r e q u i r e d t o r e i m b u r s e Maxine Krone for monies the required to boundaries. advanced pay for Finally, the t o Narnes. cost of t h e McCanns The a respondents survey to and S u p e r i o r were establish Homes w e r e r e q u i r e d t o pay a r e a s o n a b l e a t t o r n e y f e e t o Montana L e g a l S e r v i c e s of $10,000. While d i s c u s s i o n of appellants raise six issues for review, t h e two main i s s u e s r e s o l v e s t h i s c a s e . main i s s u e i s s i m p l y w h e t h e r a The t h e r e is s u b s t a n t i a l c r e d i b l e evidence t o support the D i s t r i c t Court's f i n d i n g s t h a t Rex McCann made c e r t a i n r e p r e s e n t a t i o n s and s u c h r e p r e s e n t a t i o n s amounted t o f r a u d . The s e c o n d i s s u e i s w h e t h e r t h e McCanns s h o u l d be l i a b l e f o r t h e m o n i e s Maxine Krone p a i d t o Neal Warnes. Since t h e r e is not s u b s t a n t i a l evidence t o support a f i n d i n g of f r a u d and s i n c e t h e r e i s n o t h i n g on t h e r e c o r d t o show a p a r t n e r s h i p by e s t o p p e l b e t w e e n Rex McCann and N e a l Warnes, t h e judgment of t h e D i s t r i c t C o u r t m u s t be r e v e r s e d . The appellants confront t h a t t h e a d m i s s i o n of the fraud i s s u e by arguing p a r 0 1 e v i d e n c e by t h e D i s t r i c t C o u r t was error since fraud was not successfully proven. The respondents maintain that it is the prerogative of the factfinder to decide the existence of the misrepresentations and fraud, and that such findings must be upheld on appeal since they are supported by substantial evidence. The appellants' objection to the use of parol evidence could be resolved rather easily by looking to the language of section 28-2-905(2), MCA, which provides that there can be no parol evidence of the terms of an agreement between the parties except: "to establish illegality or fraud." Here, the oral representations of Rex McCann were used to establish overreaching or fraud. There remains, however, the basic question: Was there substantial evidence to support the finding of fraud? We have emphasized in the past that it is the province of the District Court to determine whether perpetrated on an innocent purchaser. is in the best position to weigh assess the credibility of witnesses Imperial Cattle Co. (1981), 996, 38 St.Rep. 306, 310. fraud has been "The Distr ict Court the factors involved, . . .I ' - Mont. -, Dolson Co. v. 624 P.2d 993, We have also noted the difficulty in showing fraud, since it cannot be proven easily by direct evidence. Mont . See Montana Nat'l Bank v. Michels (1981), , 631 P.2d 1260, 38 St.Rep. 334. We have further emphasized that the evidence pre- sented must support findings by the District Court of the following nine requisite elements of fraud: "1. A representation; "2. Falsity of the representation; "3. Materiality of the representation; "4. Speaker's knowledge of tne falsity of the representation or ignorance of its truth; "5. Speaker's upon; intent it should be relied "6. The hearer's ignorance of the falsity of the representation; "7. The hearer's reliance on the representation; "8. The hearer's right to rely on the representation; and "9. Consequent and proximate injury caused by the reliance on the representation." Van Ettinger v. Pappin (1978), 180 Mont. 1, 588 P.2d 988, 994, 35 St.Rep. 1956, 1961, and cases cited therein. Here, giving all legal presumptions to the District Court, we fail to find substantial credible evidence of these elements present in the record. Clearly we could not reverse the District Court on this issue unless there is a clear preponderance findings. of the against the court's Spencer v. Robertson (1968), 151 Mont. 507, 445 P.2d 48; Smitn v. Krutar 459. evidence Here, the (1969), 153 Mont. preponderance of the 325, 457 P.2d evidence does not support a finding of fraud. In Cowan v. Westland Realty Company (1973), 162 Mont. 379, 512 P.2d 714, after looking carefully at the record, we found that indeed a certain representation was not made by the defendant. presumed, but evidence. In Cowan we noted that fraud can never be must "Good be proved faith will by a preponderance always be presumed suspicion of fraud is not sufficient." of the and mere Cowan, 512 P.2d at 716, citing Reilly v. Maw (1965), 146 Mont. 145, 405 P.2d Here, McCann was found to have made the represontations that the property had three good wells, a cabin, and t h a t h e would e i t h e r nave t h e p r o p e r t y p a p e r s showing t h e b o u n d a r i e s The wells have surveyed or furnish . ne -- v e r been t e sted. is There no showing on t h e r e c o r d t h a t McCannls r e p r e s e n t a t i o n t h a t t h e w e l l s w e r e "good" was f a l s e . I t was o n l y shown that just o n e w e l l had a pump and t h e o t h e r s d i d n o t . Maxine Krone t e s t i f i e d t h a t s h e t h o u g h t t h e c a b i n was transferred would t o them w i t h t h e p u r c h a s e o f t h e p r o p e r t y . have b e l i e v e d s h e owned the cabin as of She August 26, 1 9 7 6 , when s h e p u r p o r t e d l y r e a d a c o n t r a c t f o r d e e d d i f f e r e n t from t h e one i n e v i d e n c e . in a verified plaintiff being complaint, However, on O c t o b e r 6 , r e n t e d by h e r in Billings, large enough to owned by plaintiffs." 1976, six the the weeks fully after c a b i n was Montana, the of the all Maxine the closing on purported this of the Krone, McCann's--this However, and r e s i d e d i n a t h a t s a i d c a b i n was n o t accommodate Rex the D i s t r i c t Court. question . . [Maxine Krone] moved h e r b e l o n g i n g s from t h e home c a b i n owned by t h e s a i d Rex McCann; that ". Maxine Krone s t a t e d : 1976, the belongings on October property, 6, swore was n o t d i s c u s s e d by goes representation directly by Rex to the McCann during contract negotiations. L a s t l y , Hex McCann was f o u n d t o h a v e r e p r e s e n t e d t h a t he would f u r n i s h p a p e r s showing t h e b o u n d a r i e s o f t h e l a n d . 'The r e s p o n d e n t s do n o t c l a i m t h a t t h i s was t h e r e p r e s e n t a t i o n made; that the r a t h e r , r e s p o n d e n t s c l a i m t h a t McCann r e p r e s e n t e d f e n c e s were the boundaries. I n Van Ettinger P a p p i n , s u p r a , we s t a t e d : "'When i t a p p e a r s t h a t a p a r t y , who c l a i m s t o h a v e been d e c e i v e d t o h i s p r e j u d i c e , h a s i n v e s t i q a t e d f o r h i m s e l f o r t h a t t h e means were a t hand t o a s c e r t a i n t h e t r u t h of . .. v. a n y r e p r e s e n t a t i o n s made t o him, h i s r e l i a n c e u p o n s u c h r e p r e s e n t a t i o n s made t o h i m , however f a l s e t h e y may h a v e b e e n , a f f o r d s no g r o u n d of c o m p l a i n t . I II 588 P.2d a t 9 9 4 , q u o t i n g Lee v, S t o c k m e n ' s N a t ' l Bank ( 1 9 2 2 ) ; 63 Mont. 262, 284, 207 P. W , 630. (CitaL2.3 t i o n s omitted. ) . . Here, t h e Krones c o u l d have e a s i l y t e s t e d t h e w e l l s , o r s e e n t h a t t h e r e were n o t pumps on two o f t h e t h r e e w e l l s . A l s o , t h e Krones c o u l d have d i s c o v e r e d t h e a c t u a l b o u n d a r i e s of their l a n d by l o o k i n g t o a 1 9 7 2 s u r v e y , n e i g h b o r , Mrs. Ollis, or t a l k i n g t o a who knew t h e a c t u a l b o u n d a r y was n o t the fence l i n e . The record, c o n c l u s i o n by therefore, t h e D i s t r i c t Court does not support t h a t McCann's the representa- t i o n s amounted t o f r a u d . The s e c o n d i s s u e o f w h e t h e r Rex McCann s h o u l d be h e l d l i a b l e for t h e m o n i e s Maxine Krone p a i d t o N e a l Warnes c a n be d i s c u s s e d summarily s i n c e t h e r e is n o t h i n g i n t h e r e c o r d to show a p a r t n e r s h i p by N e a l Warnes. estoppel between Rex McCann and The o n l y f a c t s i n t h e r e c o r d which a r e c l a i m e d t o g i v e r i s e t o a p a r t n e r s h i p by e s t o p p e l w e r e : ( 1 ) McCann s a i d he knew of a p e r s o n who c o u l d b u i l d a h o u s e f o r K r o n e s ; ( 2 ) McCann i n t r o d u c e d Maxine Krone t o Warnes; ( 3 ) McCann a n d Warnes d i s c u s s e d a t K r o n e ' s h o u s e how much downpayment she s h o u l d t r y t o g e t f o r s e l l i n g h e r h o u s e i n o r d e r t o make t h e downpayment f o r t h e l a n d and pay Warnes h i s i n i t i a l money; (4) McCann said Warnes was reliable; and ( 5 ) Warnes was g o i n g t o b u i l d a g r e e n h o u s e f o r t h e McCanns. These f a c t s a r e i n s u f f i c i e n t t o e s t a b l i s h a p a r t n e r s h i p by e s t o p p e l neither in an under s e c t i o n 35-10-368, MCA. T h e r e was t h e r e p r e s e n t a t i o n t h a t Warnes worked " a s a p a r t n e r existing partnership" with McCann, nor can that i n f e r e n c e be drawn from t h e r e c o r d . As t h i s discussion indicates, s u b s t a n t i a l c r e d i b l e e v i d e n c e of the kind to render the McCanns we a r e unable t o f i n d f r a u d or liable any e v i d e n c e o f in the defaulted t r a n s a c t i o n b e t w e e n t h e K r o n e s and N e a l Warnes. The judgment of t h e c a u s e i s remanded W concur: e A hief C Justice Justices !2&+ t h e D i s t r i c t C o u r t is r e v e r s e d , to the District Court to and establish Justice John C. Sheehy, dissenting: I dissent. I would affirm the award of damages except that I would not hold the defendants chargeable with the Waarnes charges in connection with home construction, and I would reduce the attorney fees by one-half. Justice

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