MANAGEMENT INC v MASTERSONS IN

Annotate this Case

Download PDF

No. 80-62 I N THE SUPREME COURT OF THE STATE OF MONTANA 1980 MANAGEMENT, I N C . , P l a i n t i f f and A p p e l l a n t , -vsMASTERSONS, I N C . , a n d G I B MASTERSONS, J R . , RUTHERFORDS PJWSEMENT, I N C . , and FRED RUTHERFORD, R & R LEASING, e t a l . , Defendants and Respondents. D i s t r i c t C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t . , I n a n d f o r t h e County of G a l l a t i n , The H o n o r a b l e W. W. L e s s l e y , J u d g e p r e s i d i n g . Appeal from: C o u n s e l o f Record: For Appellant: Landoe, Brown, P l a n a l p , K o m m e r s & L i n e b e r g e r , Bozeman, Montana For Respondents: DrysdaLe, McLean, S c r e n a r & Cok, Bozeman, Montana Submitted on B r i e f s : Decided: Filed: 55~ 8 - August 1, 1980 &C{J"-~-'-"L < /7J0 M r . J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion o f t h e Court . T h i s i s a n a p p e a l from t h e judgment of t h e D i s t r i c t C o u r t of t h e E i g h t e e n t h J u d i c i a l D i s t r i c t , G a l l a t i n County, which found p l a i n t i f f b r e a c h e d a c o n t r a c t , committed f r a u d and damaged p r o p e r t y . W e s h a l l c o n s i d e r t h r e e i s s u e s on t h i s a p p e a l : 1. Whether t h e D i s t r i c t C o u r t e r r e d i n f i n d i n g t h a t t h e September 21, 1978, b u y - s e l l a g r e e m e n t was a n o v a t i o n o f t h e May 1 2 , 1978, agreement. Whether t h e D i s t r i c t C o u r t e r r e d i n f i n d i n g t h a t 2. t h e September 2 1 , 1978, b u y - s e l l a g r e e m e n t f a i l e d b e c a u s e of t h e n o n f u l f i l l m e n t of a c o n d i t i o n precedent of obtaining f i n a n c i n g f o r t h e p u r c h a s e of r e a l p r o p e r t y . Whether t h e D i s t r i c t C o u r t e r r e d by n o t i n t e r p r e t i n g 3. the subject t o financing clause t o include reasonable t e r m s . P l a i n t i f f , Management, I n c . , b r o u g h t s u i t f o r damages a g a i n s t defendant Mastersons, Inc., and o t h e r s f o r b r e a c h of c o n t r a c t , i n t e r f e r e n c e w i t h c o n t r a c t r i g h t s and f r a u d . D e f e n d a n t s r e s p o n d e d w i t h a d e n i a l of a l l a l l e g a t i o n s and c o u n t e r c l a i m e d f o r damages t o p r o p e r t y , improper r e p a i r and fraud. T r i a l was c o n d u c t e d w i t h o u t a j u r y . A judgment was r e n d e r e d i n f a v o r of d e f e n d a n t s on b o t h t h e c o m p l a i n t and t h e counterclaim. P l a i n t i f f a p p e a l s from t h e judgment. T h r e e l a n d s a l e s c o n t r a c t s f o r a l o t i n West Yellows t o n e , Montana, a r e a t i s s u e i n t h i s a p p e a l . A commercial o f f i c e s t r u c t u r e known a s t h e S c o o t e r B u i l d i n g and a s m a l l r e n t a l c a b i n a r e on t h e p r o p e r t y . The f i r s t c o n t r a c t be- tween p l a i n t i f f , a s b u y e r , and Y e l l o w s t o n e Amusement, I n c . , c o n s i s t i n g of d e f e n d a n t M a s t e r s o n s , I n c . , R u t h e r f o r d Amusements, I n c . , 1 2 , 1978. and d e f e n d a n t a s s e l l e r , was s i g n e d on May Under t h e t e r m s of t h e c o n t r a c t , p l a i n t i f f a g r e e d t o p u r c h a s e t h e p r o p e r t y f o r $65,000 p l u s 1 0 p e r c e n t i n t e r e s t , w i t h t h e p u r c h a s e p r i c e due August 1 2 , 1978. Because of heavy snow t h e S c o o t e r B u i l d i n g had been damaged, s o between May 1 2 and September 1 2 , 1978, p l a i n t i f f e f f e c t e d r e c o n s t r u c t i o n and r e p a i r . Monty N e v i l l e , t h e p r i n c i p a l agent f o r p l a i n t i f f , t e s t i f i e d t h a t a t t h a t time he d i d n o t have t h e p r e s e n t a b i l i t y t o pay f o r t h e p r o p e r t y , b u t h e s o u g h t t o r e p a i r t h e b u i l d i n g and r e s e l l o r l e a s e it. P l a i n t i f f was u n a b l e t o pay Yellowstone Amusements, Inc., . when t h e o b l i g a t i o n became due on August 1 2 , b u t N e v i l l e informed Gib M a s t e r s o n s , a g e n t f o r Yellowstone Amusement, I n c . , t h a t he would g i v e him a check when he r e c e i v e d t h e f u n d s from Empire F e d e r a l S a v i n g s and Loan i n L i v i n g s t o n , Montana. T h e r e a f t e r , Neville gave Mastersons a p o s t d a t e d check w i t h d i r e c t i o n s t o h o l d i t a few d a y s b e f o r e cashing it. M a s t e r s o n s d i d s o , b u t t h e check was r e t u r n e d f o r i n s u f f i c i e n t funds. I n t h e meantime, N e v i l l e had informed d e f e n d a n t Ray Carkeek t h a t t h e b u i l d i n g was a v a i l a b l e f o r s a l e . He also informed Carkeek t h a t t h e b u i l d i n g was a p p r a i s e d a t $211,000, t h a t t h e r e was a l e a s e on one-half of t h e b u i l d i n g , t h a t Empire S a v i n g s and Loan would f i n a n c e t h e t r a n s a c t i o n and t h a t t h e r e were o n l y two c l a i m s a g a i n s t t h e p r o p e r t y . At some p o i n t w i t h i n t h i s t i m e frame, N e v i l l e t o r e down a r e n t a l c a b i n on t h e p r o p e r t y . The f a c t s a r e i n d i s p u t e a s t o whether o r n o t he had M a s t e r s o n s ' a p p r o v a l t o do t h i s . On September 21, 1978, t h e second c o n t r a c t f o r t h e p r o p e r t y was e n t e r e d i n t o w i t h Gib M a s t e r s o n s and p l a i n t i f f , a s s e l l e r s , and d e f e n d a n t s Carkeek, R o b e r t Dye, Lewis Robinson, and R o b e r t R u s s e l l , a s b u y e r s , a g r e e i n g t o purc h a s e t h e p r o p e r t y f o r $125,000. t o two t y p e d p r o v i s i o n s : The c o n t r a c t was s u b j e c t f i r s t , that the entire contract was s u b j e c t t o d e f e n d a n t s b e i n g a b l e t o s u c c e s s f u l l y o b t a i n f i n a n c i n g from ~ m p i r eF e d e r a l S a v i n g s and Loan, L i v i n g s t o n , Montana; and second, t h a t t h e s e l l e r s a g r e e d t o h o l d b u y e r s h a r m l e s s a g a i n s t any and a l l c l a i m s a g a i n s t t h e p r o p e r t y . The c o n t r a c t was t o be c l o s e d on November 1, 1978, w i t h d e f e n d a n t Mastersons r e c e i v i n g $65,000. Defendant Dye proceeded i n t o n e g o t i a t i o n s w i t h Empire and was r e f u s e d financing. Defendants a l s o d i s c o v e r e d t h a t N e v i l l e had n o t mentioned s e v e r a l o t h e r c l a i m s a g a i n s t t h e p r o p e r t y . De- f e n d a n t s a t t e m p t e d t o n o t i f y N e v i l l e of t h e f a i l u r e of t h e c o n t r a c t p r o v i s i o n , b u t b e c a u s e N e v i l l e was on a h u n t i n g t r i p , t h e y p l a c e d a l e t t e r i n h i s d o o r which he found upon h i s r e t u r n on October 29. Defendant Robinson c o n t a c t e d d e f e n d a n t Mastersons and a d v i s e d him of t h e b u y e r s ' i n t e n t i o n t o c a n c e l t h e c o n t r a c t f o r f a i l u r e of a c o n d i t i o n p r e c e d e n t . On November 2, 1978, d e f e n d a n t M a s t e r s o n s s o l d t h e p r o p e r t y under a t h i r d c o n t r a c t t o t h e p a r t n e r s h i p of def e n d a n t s Dye, Robinson and R u s s e l l , known a s Block ~ s s o c i a t e s . P l a i n t i f f took no p a r t i n t h e t h i r d c o n t r a c t . The D i s t r i c t C o u r t found a n o v a t i o n of t h e f i r s t cont r a c t and t h a t p l a i n t i f f had, i n f a c t , b r e a c h e d t h e second c o n t r a c t and was i n d e f a u l t of b o t h c o n t r a c t s . P l a i n t i f f argues t h a t t h e novation d i d i n f a c t occur, b u t d i s a g r e e s t h a t t h e f i r s t c o n t r a c t was s t i l l b i n d i n g . P l a i n t i f f c l a i m e d t h a t d e f e n d a n t Gib M a s t e r s o n s , a s a g e n t f o r Yellowstone Amusement, I n c . , c o n s e n t e d t o a new d e b t o r when h e e n t e r e d i n t o a b u y - s e l l agreement on September 2 1 , 1978, with p l a i n t i f f , a s sellers. R u s s e l l were b u y e r s . Carkeek, Dye, ~ o b i n s o n ,and By t h a t agreement d e f e n d a n t M a s t e r s o n s , a s a g e n t f o r Yellowstone Amusement, I n c . , was a c c e p t i n g t h e promise o f Carkeek and t h e o t h e r s t o pay $125,000. Plaintiff i n s i s t s t h a t by a c c e p t i n g t h a t promise from d e f e n d a n t s , i t was d i s c h a r g i n g h i s d e b t owed t o Yellowstone Amusement, I n c . I n o t h e r words, t h e o b l i g a t i o n s between t h e o r i g i n a l p a r t i e s a s found i n t h e May 1 2 , 1978, agreement w e r e e x t i n g u i s h e d and a new o b l i g a t i o n was c r e a t e d which i s t h e b a s i s of t h e nova t i o n . W e do n o t a c c e p t p l a i n t i f f ' s argument. novation. 1978. W e f i n d no The p a r t i e s e n t e r e d i n t o a c o n t r a c t on May 1 2 , The c o n t r a c t c a l l e d f o r a payment on t h e c o n t r a c t on August 1 2 , 1978. P l a i n t i f f d e f a u l t e d on September 21, 1978. Defendant Mastersons informed p l a i n t i f f of h i s d e f a u l t . P l a i n t i f f f u r t h e r attempts t o s a t i s f y the contract obligation a l s o f a i l e d when h e gave d e f e n d a n t M a s t e r s o n s , a s a g e n t f o r Yellowstone Amusement, I n c . , marked " i n s u f f i c i e n t f u n d s . " contract stated i n part: a check which was r e t u r n e d The o r i g i n a l May 1 2 , 1978, " I f t h e e n t i r e sum i s n o t p a i d t h e n t h i s c o n t r a c t s h a l l be i n d e f a u l t . " A t t h e time, t h e c o n t r a c t was n o t p a i d and p l a i n t i f f was i n d e f a u l t . In a frantic a t t e m p t t o f o r e g o t h e e f f e c t s of d e f a u l t of t h e c o n t r a c t , p l a i n t i f f attempted t o sell t h e property t o another party-d e f e n d a n t s Carkeek, Dye, R u s s e l l and Robinson, t h e r e b y c l a i m i n g a n o v a t i o n and a d i s c h a r g e of t h e o r i g i n a l c o n t r a c t . "'Novation' a n e x i s t i n g one." i s t h e s u b s t i t u t i o n of a new o b l i g a t i o n f o r S e c t i o n 28-1-1501, made by t h e s u b s t i t u t i o n o f : MCA. "Novation i s (1) a new o b l i g a t i o n between t h e same p a r t i e s w i t h i n t e n t t o e x t i n g u i s h t h e o l d o b l i g a tion." S e c t i o n 28-1-1502, MCA. " I n o r d e r t o e f f e c t a n o v a t i o n t h e r e must be a c l e a r and d e f i n i t e i n t e n t i o n on t h e p a r t of a l l concerned t h a t such i s t h e p u r p o s e of t h e a g r e e ment, f o r i t i s a w e l l - s e t t l e d p r i n c i p l e t h a t n o v a t i o n i s n e v e r t o be presumed; t h e p o i n t i n e v e r y c a s e , t h e n , i s , d i d t h e p a r t i e s i n t e n d by t h e i r arrangement t o e x t i n g u i s h t h e o l d d e b t o r o b l i g a t i o n and r e l y e n t i r e l y on t h e new, o r d i d t h e y i n t e n d t o keep t h e o l d a l i v e and merely a c c e p t t h e new a s f u r t h e r s e c u r i t y , and t h i s q u e s t i o n of i n t e n t i o n must be d e c i d e d from a l l of t h e c i r c u m s t a n c e s . " Harrison v. Fregger ( 1 9 3 0 ) , 88 Mont. 448, 453, 294 P . 372, 373. W e f i n d no s u b s t i t u t e d c o n t r a c t . The new agreement i s n o t a s u b s t i t u t e d c o n t . r a c t o p e r a t i n g a s a n immediate d i s c h a r g e . W e f i n d t h i s by t h e r e a s o n a b l e i n t e r p r e t a t i o n of t h e i n t e n t of t h e p a r t i e s a s found i n t h e r e c o r d . " T h e r e i s no d i s c h a r g e by n o v a t i o n when a c r e d i t o r mere1.y a c c e p t s a payment made by a t h i r d p e r s o n o r a s s e n t s t o t h e assumption of t h e d e b t by such a t h i r d p e r s o n . If the transaction r e a s o n a b l y a p p e a r e d t o him a s one t h a t would g i v e him a d d i t i o n a l s e c u r i t y , and n o t a wholly new and s u b s t i t u t e d o b l i g o r , t h e r e i s no a s s e n t by him t o s u c h a s u b s t i t u t i o n and t h e r e i s no d i s c h a r g e by n o v a t i o n . " Corbin on C o n t r a c t s , S1298 a t 2 2 4 ( 1 9 6 2 ) . Defendant M a s t e r s o n s was t h e o r i g i n a l o b l i g e e . defaulted. Plaintiff The o r i g i n a l c o n t r a c t was b r e a c h e d f o r nonpayment. Defendant Mastersons s i m p l y wanted h i s money f o r t h e b u i l d i n g and p r o p e r t y . He d i d n o t want t o s u b s t i t u t e t h e c o n t r a c t P l a i n t i f f i s a r e a l e s t a t e broker. with another person. He a t t e m p t e d t o s e c u r e a d d i t i o n a l b u y e r s f o r t h e p r o p e r t y when he was i n d e f a u l t and induced d e f e n d a n t M a s t e r s o n s by a l l o w i n g p l a i n t i f f t o e n t e r t h e b u y - s e l l agreement of September 21, 1978, a s a s e l l e r . However, i n t h e e n d , t h e b u y - s e l l a g r e e - ment f a i l e d t o e f f e c t u a t e a b i n d i n g c o n t r a c t . substituted contract. There was no The D i s t r i c t C o u r t found t h a t t h e c o n d i t i o n p r e c e d e n t of o b t a i n i n g f i n a n c i n g f o r t h e p r o p e r t y was n o t f u l f i l l e d , t h e r e f o r e r e n d e r i n g t h e second c o n t r a c t n u l l and v o i d . The o r i g i n a l o b l i g o r was n e v e r d i s c h a r g e d . F a i l u r e t o e f f e c t u a t e a second c o n t r a c t r e s u l t e d i n no contract. Without a second c o n t r a c t , t h e r e c a n be no nova- tion. P l a i n t i f f a r g u e s t h a t t h e D i s t r i c t C o u r t e r r e d by f i n d i n g t h a t t h e s u b j e c t t o f i n a n c i n g c l a u s e was a c o n d i t i o n p r e c e d e n t and w i t h o u t f i n d i n g t h a t d e f e n d a n t s had t o make reasonable e f f o r t t o secure financing, thereby, allowing the d e f e n d a n t s t o g e t o u t of t h e September 21, 1978, c o n t r a c t . W disagree. e The b u y - s e l l agreement s p e c i f i c a l l y s t a t e d t h a t " t h i s o f f e r i s s u b j e c t t o f i n a n c i n g a t Empire F e d e r a l S a v i n g s and Loan, L i v i n g s t o n , Mt." "A c o n d i t i o n p r e c e d e n t i s a f a c t o r e v e n t which t h e p a r t i e s i n t e n d must e x i s t o r t a k e p l a c e b e f o r e t h e r e i s a r i g h t t o performance. A c o n d i t i o n i s d i s t i n g u i s h e d from a promise i n t h a t i t c r e a t e s no r i g h t o r d u t y i n and of its e l f b u t i s m e r e l y a l i m i t i n g o r modifying factor. If the condition i s not f u l f i l l e d , the r i g h t t o e n f o r c e t h e c o n t r a c t d o e s n o t come i n t o e x i s t e n c e . " W i l l i s t o n , A T r e a t i s e on t h e Law-f C o n t r a c t s , 5663 a t 12673rd e d . 1 9 6 1 ) . - o 7 - "A c o n d i t i o n p r e c e d e n t i s one which i s t o be performed b e f o r e some r i g h t d e p e n d e n t t h e r e o n a c c r u e s o r some a c t dependent t h e r e o n i s p e r formed." S e c t i o n 28-1-403, MCA. B e f o r e any p a r t y t o an o b l i g a t i o n c a n r e q u i r e a n o t h e r p a r t y t o perform any a c t under i t , he must f u l f i l l a l l c o n d i t i o n s p r e c e d e n t t h e r e t o imposed upon h i m s e l f and must be a b l e and o f f e r t o f u l f i l l a l l c o n d i t i o n s c o n c u r r e n t s o imposed upon him of t h e l i k e f u l f i l l m e n t by t h e o t h e r p a r t y e x c e p t a s p r o v i d e d by s e c t i o n 28-1-407, MCA. The D i s t r i c t C o u r t p r o p e r l y found t h a t t h e f a i l u r e t o o b t a i n t h e n e c e s s a r y f i n a n c i n g f o r t h e p u r c h a s e from Empire F e d e r a l S a v i n g s and Loan i n L i v i n g s t o n , Montana, r e n d e r e d t h e c o n t r a c t of September 2 1 , 1978, a n u l l i t y . vision is specific. The p r o - Under t h e c i r c u m s t a n c e s of t h i s c a s e , t h e e f f o r t s of d e f e n d a n t s t o o b t a i n t h e f i n a n c i n g were reasonable. P l a i n t i f f represented t o defendants t h a t i n f a c t he had a commitment f o r f i n a n c i n g a t Empire F e d e r a l S a v i n g s and Loan. Testimony from t h e bank o f f i c e r i n d i c a t e d t h a t no commitment was made. F u r t h e r , d e f e n d a n t s went t o L i v i n g s t o n t o make a p p l i c a t i o n f o r t h e l o a n b u t were i n formed by t h e l o a n o f f i c e r t h a t he would n o t make a l o a n i n West Yellowstone, Montana, t o anybody and t h a t i t w a s f u t i l e a t t h a t p o i n t i n t i m e t o make an a p p l i c a t i o n f o r a l o a n . P l a i n t i f f had no money. money--he P l a i n t i f f had no a c c e s s t o was p u r e l y s p e c u l a t i n g on t h e p r o p e r t y , and he embarked on a h i g h l y s p e c u l a t i v e v e n t u r e i n hope t h a t some l e n d i n g i n s t i t u t i o n would g i v e him t h e money, o r i n hope t h a t he c o u l d somehow f i n d a buyer f o r h i s p r o p e r t y . Plain- t i f f d i d n o t p u t one c e n t o f h i s own money i n t o t h i s b u i l d i n g . P l a i n t i f f attempted t o salvage a loosely-held f i n a n c i a l gamble by making r e p r e s e n t a t i o n s t o o t h e r s a s an inducement t o purchase t h e property. commitment f o r a l o a n . There was no l o a n . There was no There was no l e a s e n o r a commitment f o r a l e a s e on t h e p r e m i s e s . I n t h e end when t h e c a r d s w e r e c a l l e d , p l a i n t i f f came up empty-handed. o b l i g a t e d t o make payment. P l a i n t i f f was He f a i l e d t o do s o . H e attempted t o make a n o t h e r p a r t y l i a b l e f o r h i s nonpayment and, t h e r e b y , extinguish h i s original obligations--this too f a i l e d . Although t h e D i s t r i c t C o u r t e r r e d i n c o n c l u d i n g t h a t a n o v a t i o n had o c c u r r e d , w e f i n d s u b s t a n t i a l e v i d e n c e and p r o p e r a p p l i c a t i o n of law t o uphold t h e awarding of damages f o r t h e b r e a c h of t h e May 1 2 , 1 9 7 8 , c o n t r a c t . Af f irmed. Justice W e concur: /

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.