Riverview Homes, II, Ltd. v. Canton

Decision Date31 December 2001
Docket NumberNo. 01-001.,01-001.
PartiesRIVERVIEW HOMES II, LTD., a Montana Limited Partnership, Plaintiff and Appellant, v. Jim CANTON, a/k/a James Canton, and "all other persons, unknown claiming or who might claim any right, title, estate or interest in or lien or encumbrance upon the real property described in the complaint adverse to Plaintiff's ownership or any cloud upon Plaintiff's title thereto, whether such claim or possible claim be present or contingent," Defendant, Counter-Claimant, Third Party Plaintiff, and Respondent, v. Micha Properties, Inc., and Jon Wemple, Individual and as Agent for Riverview Homes II, Ltd., and Micha Properties, Inc., Third Party Defendants.
CourtMontana Supreme Court

W. Arthur Graham, Sullivan, Tabaracci & Rhoades, P.C., Missoula, MT, for Appellant.

Susan Ridgeway, Attorney at Law, Missoula, MT, Milton Datsopoulos, Datsopoulos, MacDonald & Lind, Missoula, MT, for Respondent.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The original Plaintiff, Riverview Homes II, Ltd., filed this action in the District Court for the Twenty-First Judicial District in Ravalli County to quiet title to a twenty-acre parcel pledged by the Defendant, Jim Canton, as security in the event Canton breached his contractual obligation to complete a proposed subdivision and construct a man-made lake. The District Court found that Canton breached the contract, yet concluded the contract remedy violated the Montana Subdivision and Platting Act and was an unenforceable liquidated damages provision. The District Court subsequently awarded Riverview monetary damages in the amount of $92,046 plus interest and attorney fees. Riverview appeals both the District Court's conclusion that the contract remedy was void as a matter of law and, in the alternative, the amount of damages awarded. We affirm the judgment of the District Court.

¶ 2 The following issues are presented on appeal:

¶ 3 1. Did the District Court err when it concluded the contract remedy provision violated the Montana Subdivision and Platting Act?

¶ 4 2. Did the District Court err when it concluded the contract remedy provision was an unenforceable liquidated damages provision?

¶ 5 3. Did the District Court err in its calculation of the amount of monetary damages?

FACTUAL BACKGROUND

¶ 6 On September 3, 1993, Riverview Homes II, a limited partnership, and Jim Canton, an individual, entered into a contract for the sale and purchase of real property. Pursuant to the terms of the contract, Riverview agreed to purchase three lots in a previously approved and platted subdivision known as River Bend No. 1, and six one-acre lots in a proposed subdivision located in an adjacent twenty-acre tract to be called River Bend No. 2. Neither the six lots nor the twenty-acre tract had been submitted for county review and approval at the time the parties entered the contract. The contract provided for a purchase price of $279,000. Riverview paid $82,500 prior to closing, and $77,500 at closing. The remaining balance of $119,000 was to be paid upon Canton's completion of the River Bend No. 2 subdivision and the construction of a man-made lake within that subdivision. These contractual obligations were to be completed by May 1, 1994, with the remaining balance to bear interest at nine percent until that date. The parties later agreed to extend the deadline for completion to November 1, 1994.

¶ 7 The contract for deed set forth remedies available to Riverview in the event Canton failed to obtain final plat approval for River Bend No. 2 or complete the man-made lake. Paragraph 6 of the contract for deed provided:

Additional Security: The SELLER hereby grants BUYER an assignment of BUYER'S interest for security purposes only and a Quitclaim Deed on the twenty (20) acres described on Exhibit "B". The security shall give the BUYER a priority position subject only to the first priority position identified in Section 7 of this Agreement on said twenty (20) acre parcel until such time as the SELLER completes all necessary state and county requirements and obtains the recordation of the new proposed River Bend No. 2 subdivision including the additional six (6) lots as described on page 1 of this agreement. The parties hereto agree that Seller's completion of said state and county requirements and the requirements contained in this agreement shall be valued at Two Hundred Thousand Dollars ($200,000.00). In addition, SELLER shall complete the man-made lake which SELLER is in the process of building.
Paragraph 6 was supplemented with Paragraph 23:
DEFAULT BY SELLER: Time is of the essence and should SELLER be unable to complete the construction of the man-made lake prior to May 1, 1994, the BUYER, at BUYER'S option, may consider such a failure a default of SELLER by providing written notice of such default to SELLER stating that SELLER shall have thirty (30) days from the mailing of said notice in which to cure said default, by completing the construction of the man-made lake as required herein. In the event the SELLER fails to cure said default within said time period, the BUYER, at BUYER'S option, may commence foreclosure proceedings on the property previously described and given to BUYER as security for compliance of SELLER'S obligation. Further, in the event of default, at the BUYER's option, the BUYER may record the Quitclaim Deed or foreclosure upon the assignment of BUYER's interest for security purposes.

Together, the contract provisions permitted Riverview to either commence foreclosure proceedings or record the quitclaim deed to the twenty-acre parcel as the remedy in the event of Canton's breach. The twenty-acre parcel included property subject to the purchase agreement but other property as well.

¶ 8 On August 13, 1997, Riverview sent Canton a notice of default. In September of 1997, Riverview received from escrow the deed conveying the twenty-acre tract from Canton to Riverview. Riverview attempted to record the deed, but the Ravalli County Clerk and Recorder refused to file it because such transfers required subdivision approval. In October of 1998, Riverview commenced a quiet title action to receive title to the twenty-acre parcel, based on the contract remedy provision.

¶ 9 Following a four-day trial, the District Court entered its Findings of Fact, Conclusions of Law and Order on March 23, 2000. It concluded that Canton had breached his contractual obligation to complete the subdivision and construct the man-made lake. However, the District Court declared the contract remedy void because it violated § 76-3-302, MCA, of the Montana Subdivision and Platting Act. Furthermore, it concluded that the parties' valuation of the requirements that the seller was obligated to complete was an unenforceable liquidated damages provision.

¶ 10 The District Court then ordered a hearing to determine the appropriate amount of monetary damages to be awarded to Riverview for Canton's breach of contract. The hearing was held on July 6, 2000. After hearing expert testimony on damages, the District Court awarded $92,046 to Riverview, plus interest and attorney fees. The award was based on "scenario one" as testified to by Canton's expert witness, Steve Hall, a licensed and certified appraiser. Under scenario one, the District Court assumed that the lots would have been received by Riverview as of November 1, 1994, and sold as bare lots without homes. After determining the amount of net profit and accounting for present value, the District Court arrived at the $92,046 award.

¶ 11 On September 14, 2000, the District Court entered its final judgment in favor of Riverview, with the addition of attorney fees in the amount of $42,500. Riverview filed a Notice of Appeal on September 27, 2000, from the District Court's judgment. Specifically, it contends that the agreed upon contract remedy was enforceable, and, in the event it was not, that the District Court failed to award monetary damages in an amount which compensates Riverview for all of the detriment actually caused by Canton's default. Canton filed a cross-appeal of the District Court's order which was subsequently withdrawn.

STANDARD OF REVIEW

¶ 12 The standard of review of a district court's conclusions of law is whether the court's interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686. The standard of review of a district court's findings of fact is whether those findings are clearly erroneous. Daines v. Knight (1995), 269 Mont. 320, 324, 888 P.2d 904, 906.

DISCUSSION
ISSUE 1

¶ 13 Did the District Court err when it concluded the contract remedy provision violated the Montana Subdivision and Platting Act?

¶ 14 Riverview contends that the transfer of the twenty-acre parcel pledged by Canton as security for his contractual obligations does not violate the Montana Subdivision and Platting Act. The Act generally requires that all transfers of land comprising less than 160 acres undergo subdivision plat review prior to transfer. See §§ 76-3-104, -301, -302, MCA. However, pursuant to § 76-3-201(1)(b), MCA, certain divisions of land are exempted:

Exemption for certain divisions of land. (1) Unless the method of disposition is adopted for the purpose of evading this chapter, the requirements of this chapter may not apply to any division of land that:
...
(b) is created to provide security for construction mortgages, liens, or trust indentures;....

Riverview contends that the security provision in the contract was, in effect, a "construction lien" as contemplated in § 76-3-201(1)(b), MCA. It relies on the definition of "lien" found at § 71-3-101(2), MCA, of the general lien statute, as well as the definition of "construction" from Webster's dictionary. Section § 71-3-101(2), MCA, provides in pertinent part:

A "lien" is a charge imposed in some mode
...

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