Dunlap v. Nelson, 12601

Decision Date17 September 1974
Docket NumberNo. 12601,12601
Citation165 Mont. 291,529 P.2d 1394
PartiesDonald G. DUNLAP and Thelma Dunlap, Plaintiffs and Counter-Defendants and Appellants, v. Chris NELSON and Therese E. Nelson, Defendants and Counter-Plaintiffs and Respondents.
CourtMontana Supreme Court

Gough, Booth, Shanahan & Johnson, Helena, Cordell Johnson argued, Helena, for appellants.

Keller, Reynolds & Drake, Helena, Paul F. Reynolds argued, Helena, for respondents.

DALY, Justice.

This is an appeal from an action in equity for rescission of a contract on grounds of failure of consideration and fraudulent inducement heard in the first judicial district by the Hon. Gordon R. Bennett. From a judgment denying rescission, the appellants bring this appeal.

Appellants, Donald G. Dunlap and Thelma Dunlap (hereinafter referred to as buyers) purchased from respondents, Chris Nelson and Therese E. Nelson (hereinafter referred to as sellers) in April of 1971, a marina facility located at Cave Bay on Canyon Ferry Lake near Helena, Montana. The facility is situated on property owned by the State of Montana and managed by the Montana Fish and Game Commission.

Buyers became aware that sellers were offering the marina facility for sale through an advertisement in the Los Angeles Times. Buyers were at that time living in Anaheim, California, where Dunlap was employed as a barber and his wife managed an apartment building.

Buyers met with sellers' son, Norman Nelson, in California to discuss the matter. Buyers later went to Norman Nelson's house in Pacific Palisades, California, where they met with Norman and sellers to discuss the sale.

Buyers, in late March 1971, inspected the marina facilities. Sellers offered the property for $125,000. Buyers responded with a counteroffer of $75,000, which was accepted and the parties on or about May 19, 1971, entered into a contract entitled 'Escrow Agreement'.

There are three areas of dispute in the facts as they concern the negotiations and later the action for rescission: (1) Back taxes on the marina property, (2) liability insurance on the property, and (3) the future leasehold from the Fish and Game Commission.

There were back taxes owing on the marina property at the time of the purchase. Buyers contend that at the initial meeting between buyers and sellers that sellers represented to buyers that before the sellers could sell the property they would return to Montana and 'straighten out the taxes'. Sellers' son, Norman Nelson, denied any such representation and testified that it was his understanding that tax responsibility was that of a former marina owner, Louie Faas, and that sellers might possibly be responsible for them if Faas did not pay them. Buyers did not check the tax records in Lewis and Clark County to see if the taxes were paid befoer purchasing the marina. On September 24, 1971, five months after the sale was made, sellers brought a quiet title action in Lewis and Clark County and judgment was rendered in sellers' behalf which determined the back taxes on the marina property. These taxes were paid on December 3, 1971, by sellers.

It is buyers' contention that sellers represented to them that the property was covered by insurance, including liability insurance, and it would be possible for the buyers to taken over the existing insurance until it was necessary to renew the policy. It was later discovered by the buyers that there was no liability insurance coverage on the property.

Sellers, however, testify that they have no recollection of any such conversation. Sellers' son, Norman, had no recollection of any discussions in reference to insurance, although it is possible that the subject was mentioned but not in detail. He testified that the first time he recalled any conversation in reference to insurance was in August, 1970, and that discussion took place between himself and his father only, that he first learned that there was no liability insurance in August, 1971. Paragraph 10 of the escrow agreement provided that buyers were to secure for themselves adequated public liability and property damage insurance coverage. Paragraph 11 required the deposit of the insurance policy or policies required with the escrow papers. Paragraph 13 of the escrow agreements sets forth that failure of the buyers to maintain insurance is a basis for default. Buyers upon learning that there was no liability insurance sought to obtain a policy but claim that they were unable to do so. Thereafter buyers had a letter of rescission dated July 9, 1971, sent to sellers. July 22, 1971, sellers obtained a policy of insurance for personal liability for the marina facilities.

At the time of the sale, the marina property was under a ten-year lease from the Fish and Game Department, which ran until 1980. The sellers assured buyers that they could get a ten-year lease with a ten-year renewable option. Paragraph 30 of the escrow agreement provided:

'It is also expressly provided and understood by and between the parties hereto that the sale of all of the property here involved by Sellers to Buyers is expressly conditioned on the granting of a ten-year lease or permit by the State of Montana to Buyers for the use and occupancy of said real property forming the site for use as a resort site. It is further agreed that if such lease or permit is not granted, that the buyers may, at their option, declare this agreement null and void and of no force and effect except that as to the down payment or $12,500.00 which has been made by Buyers to Sellers, as hereinabove set forth, an equitable portion thereof will be refunded by Sellers to Buyers, Sellers being permitted to retain so much thereof as will compensate them faily and adequately for their loss of time, profits and inconvenience in the premises. It is further agreed that if the parties cannot decide upon the division of said down payment, they will submit the matters to arbitration, each party selecting an arbitrator and these two selecting a third. The decision of a majority of said arbitrators on said question shall be binding on the parties hereto.'

Buyers were not granted a ten-year lease, but only a five-year lease by the Fish and Game Commission.

Buyers present the following four issues for review:

1. Whether buyers are entitled to rescind the contract for material failure of consideration?

2. Whether buyers are entitled to rescind contract, based on fraud in the inducement?

3. Whether district court erred in admitting evidence of insurance obtained after notice of rescission had been given?

4. What expenditures should properly be allowed in order to make buyers whole?

The buyers contend that because of the representation by the respondents concerning the matters of back taxes and liability insurance that they were fraudulently induced into the escrow agreement.

We defined fraud in Cowan v. Westland Realty Company, 162 Mont. 379, 512 P.2d 714, 716, 30 St.Rep. 707, as follows:

'In Lee v. Stockmen's Nat. Bank, 63 Mont. 262, 284, 207 P. 623, this court set down the elements which the plaintiff must prove to make out a prima facie case of fraud: (1) A representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity, or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance upon its truth; (8) his right to rely thereon; and (9) his consequent and proximate...

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5 cases
  • Poulsen v. Treasure State Industries, Inc.
    • United States
    • Montana Supreme Court
    • February 18, 1981
    ...Realty Co. (1973), 162 Mont. 379, 512 P.2d 714; Lee v. Stockmen's Nat. Bank (1922), 63 Mont. 262, 207 P. 623; Dunlap v. Nelson (1974), 165 Mont. 291, 529 P.2d 1394. The fact that from the moment of its procurement the plant was for sale indicates TSI purchased the plant for investment purpo......
  • Schulz v. Peake
    • United States
    • Montana Supreme Court
    • August 24, 1978
    ...of fraud is not established unless the plaintiff proves he relied on the truth of the representations made to him. Dunlap v. Nelson, 165 Mont. 291, 296, 529 P.2d 1394; Clough v. Jackson, 156 Mont. 272, 279, 479 P.2d 266; Young v. Handrow, 151 Mont. 310, 315, 443 P.2d 9. The district court f......
  • Anderson v. Applebury
    • United States
    • Montana Supreme Court
    • August 15, 1977
    ...plaintiff proves the making of a material misrepresentation, and reliance upon the truth of such misrepresentation. Dunlap v. Nelson, 165 Mont. 291, 529 P.2d 1394; Clough v. Jackson, 156 Mont. 272, 479 P.2d 266; Young v. Handrow, 151 Mont. 310, 443 P.2d In the instant case the question is t......
  • Bails v. Gar
    • United States
    • Montana Supreme Court
    • December 28, 1976
    ...at the trial. See Cowan v. Westland Realty Co., 162 Mont. 379, 512 P. 714; Lee v. Stockman's Nat. Bank, supra; Dunlap v. Nelson, 165 Mont. 291, 529 P.2d 1394. Here the pretrial discovery considered in the light most favorable to Bails tends to show that the alleged representations were fals......
  • Request a trial to view additional results

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