Deist v. Wachholz, 82-428

• Citation: 678 P.2d 188,41 St.Rep. 286,208 Mont. 207
• Decision Date: 11 April 1984
• Docket Number: No. 82-428,82-428
• Parties: Joan A. DEIST, Plaintiff and Respondent, v. Paul D. WACHHOLZ, John R. Dittman, Van Kirke Nelson, and Conrad National Bank, Defendants and Appellants.
• Court: Montana Supreme Court

Page 188

678 P.2d 188

208 Mont. 207

Joan A. DEIST, Plaintiff and Respondent, v. Paul D. WACHHOLZ, John R. Dittman, Van Kirke Nelson, and Conrad National Bank, Defendants and Appellants.

No. 82-428.

Supreme Court of Montana.

Submitted Nov. 17, 1983.

Decided Feb. 22, 1984.

As Modified April 10, 1984.

Rehearing Denied April 11, 1984.

[208 Mont. 211] Garlington, Lohn & Robinson, Gary L. Graham argued and Sherman V. Lohn argued, Missoula, Murphy, Robinson, Heckathorn & Phillips, Murray, Kaufman, Vidal & Gordon, Kalispell, for defendants and appellants.

Sharon Morrison argued, Helena, William Rossbach, Missoula, for plaintiff and respondent.

HENRY LOBLE, District Judge. ^*

Defendants Wachholz, Dittman, and Nelson appeal from the judgment of the District Court of the Eleventh Judicial District, Flathead County. Defendant Conrad National Bank was not affected by the judgment and therefore is not a party to this appeal. For the reasons stated below, we affirm the District Court judgment in part, reverse in part, and remand for further proceedings to be conducted in accordance with this opinion.

Joan Deist and her husband, Russell, owned a ranch west of Kalispell, Montana. During the course of operation, Russell incurred a large debt on the ranch, represented by a Farmers' Home Administration mortgage and a demand note with the Conrad National Bank of Kalispell. By the late 1970's, the ranch had become an unprofitable enterprise. Russell died in May of 1978, leaving Joan with a debt of approximately $200,000.

Officers of the Conrad National Bank informed Joan that something had to be done about the debt. Joan had been a ranch wife for much of her life, and although she had been appointed to fill her late husband's seat on the Flathead County Commission, and had been elected to the position in her own right in 1980, she had little, if any, experience in real estate matters. Eugene Gillette, president of the bank and a family friend, advised Joan that she had three options: continue to operate the ranch, subdivide it, or sell. Gillette recommended a complete liquidation of her interest in the property, recognizing that the ranch was not turning [208 Mont. 212] a profit in its current condition, and that Joan would not pursue subdivision.

Paul Wachholz was vice-president for marketing at the Bank. According to his testimony at trial, his chief responsibility consisted of matching people with business

opportunities, although he did counsel bank customers from time to time. Wachholz had toured the Deist ranch with other bank officials after Russell's death when they were in the process of deciding how to help Joan deal with the outstanding debt. Joan asked him to help her find a buyer, and he agreed to do so. There is nothing in the record to suggest that he was authorized to negotiate a sale on Joan's behalf, or that he acted in an advisory capacity similar to the role played by Eugene Gillette. Apparently, any offers to buy made their way to Joan through Roy Deming, an agricultural loan officer with the Conrad National Bank. Deming then passed on any information about prospective buyers to Joan

That the Deist ranch was for sale was obviously common knowledge in the Kalispell community, as Joan was approached by prospective buyers or individuals who knew about prospective buyers. One of the former was Dr. Loren Vranish, a local physician and acquaintance of Joan Deist. Joan was willing to negotiate with Vranish, and her attorney, James Murphy of Kalispell, assisted her in drawing up acceptable terms. Vranish made an offer to purchase the real property for $500,000 with a $50,000 down payment and monthly payments of approximately $3800 reflecting an interest rate of nine-and-one-half percent (9 1/2%). Vranish also wanted deed releases included in the contract, to allow sale of 80 acre parcels after 1985. Although Joan was hoping that an agreement could be reached, the negotiations eventually fell through. Vranish was having trouble raising sufficient money to make the purchase. He sought a loan from the Conrad National Bank, but was turned down. Vranish's testimony, however, revealed that his deal with Joan collapsed over the proposed deed release provisions. [208 Mont. 213] Joan was unwilling to sell without assurances that the land would be preserved for agricultural use. Vranish testified that he intended to ranch the land for as long as it proved economically feasible to do so, but wanted the deed release option available. This compromise was unacceptable to Joan.

In the meantime, however, another offer became available. Wachholz referred a local forestry consultant and real estate investor, John Dittman, to Joan's attention. Dittman was willing to purchase the ranch, and had already submitted an offer to Roy Deming in late September of 1978, about the time the Vranish deal was floundering. Wachholz and Gillette represented Dittman to be a reputable buyer, and Joan testified that Wachholz told her that entering into an agreement with Dittman would be a "good deal." After the Vranish deal fell through, negotiations between Murphy, Joan's attorney, and Dittman proceeded.

There is some dispute about the extent of Joan's knowledge as to what took place during these negotiations. Joan usually was not present when Murphy and Dittman discussed contract terms. Eventually, on January 2, 1979, Joan signed a contract for deed with Dittman, who purchased as a trustee. There were no other signatories to the contract, and there was nothing in the contract, except the designation of Dittman as trustee, to indicate whether other buyers were involved in the purchase. The agreement called for a sales price of $532,400 for the land and outbuildings with $74,200 downpayment and the balance to be paid over fifteen years at eight percent (8%) interest. Interestingly, the agreement provided for deed releases beginning in 1980. Joan also sold the farm machinery for $25,800.

The immediate dispute began the same day the contract was signed. While dining with her daughter and son-in-law, Joan learned from them that Wachholz and a local physician, Van Kirke Nelson, were partners in the Dittman purchase. The three had entered into a partnership agreement covering the ownership and management of the ranch [208 Mont. 214] a few days before the contract was signed. Furthermore, testimony at trial revealed that Dittman and Wachholz were partners in other local real estate transactions. Joan was apparently upset about this revelation and, in particular, Nelson's involvement, although she testified at trial that, some time prior to completion of her negotiations with Dittman,

Wachholz had told her that he might join in the Dittman purchase. She insisted, however, that Wachholz never told her that he had finally decided to join Dittman

In the weeks following the signing of the contract, Wachholz, Dittman and Nelson had the land platted into twenty and forty acre parcels, in expectation that proposed changes in state law might affect future subdivision of the property. They sold the ranch machinery and equipment, and eventually sold the Deist family home located on the ranch, in addition to twenty acres for $115,000 on a contract providing nine-and-one-half percent (9 1/2%) interest. In the interim, Joan sought advice as to any legal recourse she might have against Wachholz, Dittman and Nelson. In December, 1979, Joan formally requested rescission of the contract, but her request was refused. In September of 1980, the partners sold another twenty acres for $56,000 on a contract for nine-and-one-half percent (9 1/2%) interest. The total payout under the two contracts, including interest payments, is approximately $249,345.

A complaint was filed in January, 1980, seeking rescission of the contract as against Wachholz, Dittman and Nelson, and, in the alternative, damages from the transaction as against the Conrad National Bank. The theory behind the initial complaint involved an alleged breach of fiduciary duty by Wachholz or the Bank to Joan. An amended complaint filed in May of 1981 clearly set forth allegations of constructive fraud and undue influence on the part of Wachholz, and sought rescission against the three partners or, in the alternative, damages against the Bank.

After extensive discovery, the case came to trial in April, 1982. Following trial and further briefing, the court [208 Mont. 215] rendered judgment against Wachholz, Dittman and Nelson. The Court concluded that Wachholz owed Joan a fiduciary duty both in his capacity as an officer of the Bank, which the court found was in a fiduciary relationship with Joan, and because Wachholz and the Bank were her agents in the sale of the ranch. Wachholz was found liable for constructive fraud and undue influence in his dealings with Joan, and the contract was ordered rescinded as to all parties. Joan was ordered to tender payment of monies received under the contract together with ten percent (10%) interest, and defendants were ordered to pay Joan rental payments for the time the ranch was in their possession, and also the monies due them under land sales made after the contract was signed. An amended judgment was entered specifying the sums due all of the parties. The Bank was not adjudged liable to Joan in any way. Wachholz, Dittman and Nelson filed a notice of appeal.

Appellants present four issues for review:

(1) Whether the trial court erred in finding that a fiduciary relationship existed on the part of Wachholz with respect to dealings with Joan?

(2) Whether the trial court erred in finding constructive fraud and undue influence respecting the real estate transaction between Joan and the appellants?

(3) Whether rescission was a proper remedy?

(4) Whether the trial court erred in its determination of amounts due Joan under the judgment?

THE EXISTENCE OF A FIDUCIARY DUTY

Appellants correctly note that a finding of a fiduciary duty is essential to subsequent...