Montana Williams Double Diamond v. Royal Village, Inc., 14947

• Decision Date: 03 April 1980
• Docket Number: No. 14947,14947
• Citation: 186 Mont. 359,37 St.Rep. 421,607 P.2d 1120
• Court: Montana Supreme Court
• Parties: MONTANA WILLIAMS DOUBLE DIAMOND, a Montana Corporation, Plaintiff and Appellant, v. ROYAL VILLAGE, INC., a Montana Corporation, Defendant and Respondent.

Page 1120

607 P.2d 1120

186 Mont. 359

MONTANA WILLIAMS DOUBLE DIAMOND, a Montana Corporation Plaintiff and Appellant, v. ROYAL VILLAGE, INC., a Montana Corporation, Defendant and Respondent.

No. 14947.

Supreme Court of Montana.

Submitted Feb. 25, 1980.

Decided March 12, 1980.

Rehearing Denied April 3, 1980.

Goetz & Madden, Bozeman, William L. Madden, Jr., argued, Bozeman, for plaintiff and appellant.

Bolinger, Higgins & Andes, Bozeman, H. A. Bolinger, Jr., argued, Bozeman, for defendant and respondent.

SHEEHY, Justice.

Montana Williams Double Diamond Corporation appeals from a judgment issued pursuant to a show cause hearing in Gallatin County District Court, declaring that the Corporation forfeited all rights under contracts entered into with Royal Village, Inc. and ordering the cancellation of all such contracts together with an accompanying note and mortgage given to the Corporation by Royal Village, Inc.

Montana Williams Double Diamond Corporation (hereafter referred to as Montana Williams) is a Montana corporation whose principal business is a real estate sales business under the fictitious and unregistered name of Double Diamond Properties. Double Diamond Properties is operated by Lillian E. Williams, a real estate broker licensed under Montana law.

In November 1977, Wallace Diteman, a construction contractor, approached Lillian Williams concerning his interest in purchasing property for a subdivision development. Through her brokerage efforts, Diteman later purchased an approximate 300 acre parcel west of Belgrade, Montana, in the name of Royal Village, Inc. (hereafter referred to as Royal Village). It was agreed that the commission owing on the purchase "would be deferred and picked-up somewhere along the way." Subsequently two attempts were made to pay the deferred commission but the various agreements fell by the wayside.

Meanwhile, Royal Village began developing the Royal Village subdivision consisting of approximately 268 lots. Royal Village estimated 1.2 million dollars was necessary for required improvements. Royal Village was never successful at financing the construction project. In the fall of 1978, Royal Village approached Montana Williams with a plan to generate working capital. Montana Williams entered into an agreement dated September 29, 1978, agreeing to purchase 137 lots from Royal Village for the total sum of $748,663.04 payable as follows: earnest money of $3,946.70, consisting of the sum of $2,700 plus a credit for title insurance of $1,246.70; down payment of $266,053.30 payable on the date of closing; and the balance of $478,663.04 together with interest at the rate of 10% from September 15, 1978, was to be paid in two installments, one of $230,000.50 toward principal and interest on or before December 1, 1978, and the balance of the principal and accrued interest on or before December 1, 1983. The date of closing was designated as September 15, 1978.

As part of the same transaction, Diteman and Double Diamond Properties entered into an exclusive real estate listing agreement giving Double Diamond the sole right to sell the lots in Royal Village Subdivision, exclusive of the lots included in Phase I, for a period of five years. No sales were ever consummated.

In order to accommodate the cash generation function of the contract, the agreement provides in paragraph 2(H) for partial releases of lots for payments under the purchase contract. Pursuant to paragraph 2(G) of the contract for sale, five lots set forth on Exhibit A to the contract were to be released upon payment of the closing amount. Release of the remaining 132 lots, listed on Exhibit B of the contract was to be, according to paragraph 2(H), upon payments on the principal balance due at the rate of 77 cents per square foot for each lot proposed to be released. Deeds for these 132 lots were to be deposited with an escrow agent who was to deliver such deeds to the purchaser upon determination that the rate for the lot sought to be released had been paid. In the event of Montana Williams' breach, Royal Village was entitled under paragraph 5, to forfeit Montana Williams' interest under the agreement by giving the notices therein required. However, any lots previously released would not be subject to forfeiture.

Additionally, Royal Village warranted it would obtain FHA, VA and HUD approvals of the subdivision. To insure this warranty, Royal Village executed a note and mortgage on the remaining lots to Montana Williams in the sum of $748,663.04 to insure Montana Williams that the improvements would be made on the lots being purchased by them.

Neither party performed the contract as written. The payments to be made, the warranty deeds to be delivered and the escrow agent to become involved were never made or designated for the reason that of the $266,053.30 payment due at the time of closing, only $41,823.52 (being the full proceeds from the sale of the five lots set forth in Exhibit A to the contract) was paid. Nevertheless, upon receipt of the money, Royal Village released all five Exhibit A lots by delivery of deeds and mortgage releases. Following execution of the purchase contract, Royal Village also released Exhibit B lots sold to third party purchasers by delivering deeds and bank releases directly from Royal Village to the third party purchasers.

Overall, Montana Williams sold 12 of the 137 lots to third party purchasers for cash. Of the remaining lots, Montana Williams sold 120 on contracts for deed to third party purchasers. For payments received under these contracts, Royal Village released three lots by delivery of warranty deeds and releases of mortgage.

The sales by Montana Williams to third party purchasers generated $238,378 in cash. All was paid to Royal Village even though Montana Williams was entitled to keep a portion as commissions under paragraph 2(E) of the contract for sale. By taking into account credits for title insurance, closing fees and some real estate commissions paid by Montana Williams, a total of $250,362.24 has been paid by Montana Williams under the contract.

The parties developed differences on how to salvage the operations when it became apparent Montana Williams could not pay the December installment. In February 1979, Montana Williams requested Royal Village to release as many lots as paid for by the $238,378.31 so as to free those lots for further marketing. Considering the 12 lots already released, Montana Williams asserted it was entitled to at least 31 lots. Royal Village refused the demand and then served Montana Williams with two 15 day notices of default as provided for under the contract. The notices gave Montana Williams a total of 30 days to bring all payments current or forfeit all its contractual rights.

As a result, Montana Williams filed this cause for a declaration of its rights under the contracts on March 22, 1979. After a show cause hearing on April 17 and 18, 1979, the District Court issued findings of fact and conclusions of law on May 4, 1979. The court determined that Montana Williams had forfeited all its contractual rights by failing to make timely payments. The District Court's May 7, 1979 judgment cancelled all agreements between the parties and cancelled the note and mortgage given to secure Royal Village's express warranty. This appeal followed.

The following issues are set forth for our review:

(1) Whether the District Court erred in ruling that the appellant is not entitled to have any additional lots deeded to it?

(2) Whether the District Court erred in not declaring the respondent legally bound by the contracts entered into between appellant and third party purchasers?

(3) Whether the District Court erred in cancelling the...