Baker v. Bailey
| Decision Date | 01 December 1989 |
| Docket Number | No. 89-260,89-260 |
| Citation | 782 P.2d 1286,240 Mont. 139 |
| Parties | Grant BAKER and Elma L. Baker, Plaintiffs and Appellants, v. Arthur L. BAILEY and Edna L. Bailey, Defendants and Respondents. |
| Court | Montana Supreme Court |
Rex Palmer, Missoula, for plaintiffs-appellants.
David B. Cotner, Boone, Karlberg & Haddon, Missoula, for defendants-respondents.
Grant and Norma Baker (Bakers) appeal from a judgment of the District Court of the Fourth Judicial District, Missoula County. The District Court, sitting without a jury, found the Bakers liable for breach of the covenant of good faith and fair dealing and further found their claims for damages arising out of breach of contract should not be fully granted. We reverse in part and affirm in part.
The issues on appeal are:
1. Whether the District Court erred when it found the Bakers in breach of contract and the implied covenant of good faith and fair dealing.
2. Whether the District Court erred when it found that the Bakers are limited to the recovery of less than one-half the sums claimed under the contract.
3. Whether the District Court abused its discretion when it found that both parties should be responsible for their own attorney fees.
In June of 1976, Arthur and Elma Bailey moved a mobile home onto property owned by their daughter and son-in-law. With their permission, the Baileys hooked onto the water line which serviced their daughter's home and installed a pipeline which would provide water for their trailer.
Approximately six years later, in the spring of 1982, the Bailey's daughter and son-in-law made the decision to sell their residence and the surrounding property. Because they were concerned about taking care of their parents, however, they transferred one acre of the property to the Baileys. This one acre surrounded the mobile home. The remaining property, consisting of forty-five acres, was sold to the Bakers.
In order to insure that the Bailey's continued to have access to water, a Water Well Use Agreement was prepared. Mrs. Baker was concerned about future ownership of the one-acre plot. In particular, she was worried that "a bunch of hippies" would move in next to her and consequently she wanted some control over the type of person who may, in the future, buy the Bailey's land. In order to address this concern, the well agreement specifically provided that the right to use water would only extend to the Baileys. In the event the Baileys conveyed the property, the Bakers were under no obligation to provide the new owners with water.
Despite the plain language used in the agreement, the Baileys believed that although not specifically set forth, the Bakers would transfer the right to use the water well to a subsequent "reasonable purchaser" of the Bailey property. The language of the agreement, according to testimony of both the Baileys and the Bakers, was included for the purpose of addressing Mrs. Baker's concern over potentially undesirable neighbors. This purpose was not, however, articulated within the contract.
In addition to the water well use agreement, the Bakers, at the time of purchase, asked for and received a right of first refusal in the event the Baileys received an offer to purchase their property. If an offer was received, the Baileys were to notify the Bakers of the offer in writing. The Bakers would then have the opportunity to exercise their "right of first refusal" within fifteen days of the offer.
Following sale of the land, the Bakers and Baileys lived next to one another and in fact became friends. The Baileys, however, decided to move to Butte, Montana, in the spring of 1984. On June 30, 1984, they executed a standard form listing contract with a local realty company. Under the terms of the listing, the Baileys represented that the property would be sold with "shared well water." Based upon the realtor's valuation of the property with water, it was listed for $47,500.00.
Shortly after the decision was made to sell the property, the water system developed several problems. As a result of these problems pressure in the line was reduced and the Baileys were unable to obtain sufficient water to meet their needs. As a result, they found it necessary to bring water to their residence in plastic jugs.
The Bakers were not as significantly affected by the problems. The Bakers always had sufficient water. In fact, during the entire period the Baileys were deprived of water, the Bakers had enough water to irrigate their lawn. Despite the fact this use adversely affected the Baileys' water supply, the Bakers refused to reduce their consumption. This problem persisted until August when the water system was finally repaired.
After the problems with the water well surfaced, the Bakers informed the Baileys that they would not share the water supply with any new purchaser. Consequently, the property would have to be sold without access to water from the well.
The Baileys searched for alternative sources of water, but unfortunately none was available. They approached the Bakers and offered to purchase joint use of the well. This offer was refused.
Recognizing that they would not be able to provide water for the property, the Baileys realized that the property was virtually without value. They, therefore, agreed to sell it for $8,000.00, which was the fair market value of the trailer and other improvements on the land.
After the Baileys made the decision to accept the $8,000.00 offer, they gave the Bakers notice of its terms in compliance with the right of first refusal provisions in the contract. On August 20, 1984, the Bakers exercised their option and purchased the property for $8,000.00. The transaction was closed on September 10, 1984. At that time, the Bakers acquired the Baileys' one-acre parcel which, if supplied with water, allegedly could be marketed for $40,000.00--$47,500.00.
The Bakers then filed a lawsuit to recover for the value of a refrigerator and certain unpaid expenses which they felt were owed by the Baileys. The Baileys, on the other hand, counterclaimed and sought damages for breach of the Water Well Use Agreement. The District Court found the Bakers in breach of contract and in breach of the implied covenant of good faith and fair dealing. It also found the Baileys liable for less than one-half of the electrical expenses of the well. Following this judgment, the Bakers appealed the lower court's findings in regard to their liability for breach of contract and the Baileys' limited liability for expenses incurred on the water well.
The facts of this case present a classic parol evidence problem. The parol evidence rule, briefly stated, requires that in the absence of fraud, duress, or mutual mistake, all extrinsic evidence must be excluded if the parties have reduced their agreement to an integrated writing. Under this rule, all prior and contemporaneous negotiations or understandings of the contract are merged, once that contract is reduced...
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