D'Agostino v. Swanson, 89-116

Decision Date04 January 1990
Docket NumberNo. 89-116,89-116
Citation240 Mont. 435,47 St.Rep. 10,784 P.2d 919
PartiesJohn J. D'AGOSTINO and Joann M. D'Agostino, husband and wife, Third-Party Plaintiffs and Appellants, v. Burneal C. SWANSON, the same person as Neal Swanson and Neil Swanson, Third-Party Defendant, Counterclaimant and Respondent.
CourtMontana Supreme Court

Edmund P. Sedivy, Jr., Morrow, Sedivy & Bennett, Bozeman, for third-party plaintiffs and appellants.

H.A. Bolinger, Bozeman, for third-party defendant, counterclaimant and respondent.

HUNT, Justice.

This appeal arises out of a real property dispute involving several parties, including appellants, John J. and Joann M. D'Agostino, and respondent, Burneal C. Swanson. The District Court of the Eighteenth Judicial District, Gallatin County, granted partial summary judgment against the D'Agostinos and dismissed their third-party complaint against Swanson. After a hearing on Swanson's counterclaim, the court held in favor of Swanson, concluding that the D'Agostinos breached written covenants against encumbrances, committed fraud by concealing material facts in the sale of real property, breached the covenant of good faith and fair dealing and improperly joined Swanson as a party to the action. The court entered judgment against the D'Agostinos in the amount of $6,953 as attorney's fees, $761 as costs and $5,000 as punitive damages. The D'Agostinos appeal. We affirm.

The issues are as follows:

1. Did the trial court err in granting partial summary judgment to Swanson on the ground that the claims alleged in the D'Agostinos' third-party complaint were barred by the statute of limitations?

2. Did the trial court err in finding that the D'Agostinos improperly joined Swanson as a party to the action?

3. Did the trial court err in finding that the D'Agostinos were liable on the counterclaims brought by Swanson?

In 1977, appellants, John J. and Joann M. D'Agostino, purchased the Westwood Motel, located on Lots 3, 4, 5 and 6 of Block 26 of the Original Townsite to West Yellowstone, Montana. The motel property consisted of a large main building and several small cabins.

The D'Agostinos purchased the property from Robert and Vivian Schaap, who had owned the motel since 1974. At the time the Schaaps purchased the property, four cabins sat partially on Lot 3 and partially on Lot 4. The Schaaps consolidated these four cabins into two larger units and moved them to the west, onto Lot 4, aligning them with the east side of an existing cabin. It appears that the Schaaps believed that this consolidation and realignment completely removed the structures from Lot 3, although they did not complete a survey to determine the exact boundary line between Lots 3 and 4.

In 1979, the D'Agostinos decided to sell Lot 3. Prior to the sale, John D'Agostino and his realtor, John Costello, sought to determine the line between Lots 3 and 4 by measuring from a survey marker on an adjoining lot. They observed that the Schaap cabins were very close to the line and that some cement steps and small cupolas over the doors obviously encroached onto Lot 3. Later, D'Agostino talked to Donna Young, who had possessed the property from 1949 to 1965 and who, in 1979, still held the title to the lots. Young cautioned D'Agostino that the cabins encroached upon Lot 3.

The D'Agostinos sold Lot 3 to Swanson in 1979. The agreement for sale of the lot warranted title "free and clear of all encumbrances" and provided that the D'Agostinos would obtain title insurance "with no exceptions." Because the contract was entered into in the winter when, due to the amount of snow on the ground, a survey was impracticable, the agreement provided that the D'Agostinos would have the property surveyed as soon as possible in the summer months. The D'Agostinos failed to undertake the survey.

Swanson paid a total of $30,000 for the lot. He put $3,000 down when the purchase agreement was executed and paid the remaining $27,000 in May, 1979. Upon payment of the entire purchase price, the D'Agostinos delivered a full warranty deed to Swanson.

At the time the parties entered into the purchase agreement, D'Agostino represented and Swanson believed that Lot 3 was a vacant lot and that, with the exception of the cement slabs and cupola overhangs, none of the cabins encroached upon it. In order to accommodate the problem of entrance to the cabins, the agreement included a two-year provision allowing the D'Agostinos and their motel guests a right of access to and from the cabins.

In early June, 1981, Swanson gave written notice to the D'Agostinos, reminding them that the right of access would expire on October 15, 1981, and asking them to inform any possible purchasers of the motel of the access problems. In response, John D'Agostino approached Swanson with a written easement grant, which provided a permanent easement and right of encroachment over Lot 3. Swanson refused to sign the grant because he wanted all of Lot 3 for development.

Shortly thereafter, Swanson and D'Agostino measured the lot line. Swanson testified that they both agreed that the cabin structures themselves encroached onto Lot 3. D'Agostino refuted Swanson's assertion and testified that the cabins did not appear over the boundary line. The District Court specifically found that Swanson's testimony was more credible. The court also found that this was the first Swanson knew of the actual cabin encroachment, while D'Agostino knew of the problem all along.

On June 15, 1981, the D'Agostinos sold Lots 4 through 6 to Atanas and Eileen Markov. In 1982, the Markovs hired a surveyor to check the boundary line between Lots 3 and 4. On July 6, 1982, the surveyor reported that the cabins in question encroached approximately 2 to 3 feet upon Lot 3 and the cupolas even further.

In March, 1983, the Markovs filed suit against the D'Agostinos and their realtor, Costello, alleging fraud, deceit and concealment. On February 24, 1984, the D'Agostinos filed a cross-claim against Costello and a third-party complaint against Swanson. In the third-party complaint, the D'Agostinos alleged that the encroachment was a mutual mistake and sought reformation or rescission of the contract or a declaratory judgment for an easement.

Swanson answered the D'Agostino's third-party complaint in April, 1984. In December, 1985, he amended the answer and counterclaimed against the D'Agostinos, alleging that the D'Agostinos breached the purchase agreement, the warranty deed and the implied covenant of good faith and fair dealing, and that the D'Agostinos fraudulently concealed material facts. Swanson sought general and punitive damages as well as costs and attorney's fees.

In February, 1987, the court granted partial summary judgment to Swanson and dismissed the D'Agostinos third-party complaint against him, holding that the D'Agostinos' claims were barred by the statute of limitations and that the D'Agostinos did not present a justiciable claim against Swanson. The court denied the D'Agostinos' subsequent motion to amend the third-party complaint.

On March 31, 1987, the jury trial on the Markovs' complaint commenced. Following a week-long trial, the jury returned a verdict in the amount of $53,050 in favor of the Markovs and against the D'Agostinos. The jury held the realtor, Costello, free from liability on any claims against him by either the Markovs or the D'Agostinos. To settle the judgment, the cabins were moved off Lot 3 and onto vacant parcels that were available on the motel grounds.

On December 29, 1987, the District Court conducted a hearing on Swanson's counterclaim. Both Swanson and John D'Agostino testified. After the proceeding, the District Court issued findings of fact and conclusions of law. The court held that the D'Agostinos had breached the covenant against encumbrances and the covenant of good faith and fair dealing as well as committed fraud and improperly joined Swanson as a party to the litigation. The court awarded Swanson attorney's fees of $6,953 and costs of $761. The court reasoned that, although the written contract between Swanson and the D'Agostinos contained no provision for attorney's fees, the award in this case was needed to make Swanson whole. The court also found that the D'Agostinos continued actions and legal proceedings against Swanson were "ill-advised, frivolous, fraudulent, malicious and oppressive," thereby entitling Swanson to punitive damages of $5,000 to deter the D'Agostinos from such further conduct. The D'Agostinos appealed to this Court.

I

Did the trial court err in granting partial summary judgment to Swanson on the ground that the claims alleged in the D'Agostinos' third-party complaint were barred by the statute of limitations?

The D'Agostinos' third-party complaint alleged that they entered into an agreement with Swanson for the sale and purchase of Lot 3 for $30,000. The complaint further alleged that when they executed the agreement the parties were under the mistaken belief that three cabins were located on Lot 4 when in fact the structures partially encroached upon Lot 3. The D'Agostinos sought, by way of reformation or rescission of the contract or a declaratory judgment, an easement from Swanson to correct the "mistake."

The District Court granted summary judgment to Swanson and dismissed the D'Agostinos' third-party complaint, holding that the claims alleged by the D'Agostinos were barred by Sec. 27-2-203, MCA, which provides as follows:

The period prescribed for the commencement of an action for relief on the ground of fraud or mistake is within 2 years, the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake.

The D'Agostinos argue that the District Court applied the incorrect statute of limitations. They maintain that the proper statute to apply in this case is Sec. 27-2-202(1), MCA, which provides an eight-year...

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