Schulz v. Peake

Decision Date24 August 1978
Docket NumberNo. 14212,14212
Citation35 St.Rep. 1295,583 P.2d 425,178 Mont. 261
PartiesArnold H. SCHULZ and Minnie B. Schulz, husband and wife, and Robert L. Schulz, Plaintiffs and Appellants, v. Fred J. PEAKE and Anna Mae Peake, husband and wife, Defendants and Respondents.
CourtMontana Supreme Court

Landoe, Gary & Planalp, Bozeman, for plaintiffs and appellants.

Berger, Anderson, Sinclair & Murphy, Billings, for defendants and respondents.

HARRISON, Justice.

This is an appeal in a damage action for alleged fraudulent representations in the sale of a motel. In a nonjury case, the court found for defendants and plaintiffs appeal.

Plaintiffs-appellants are Arnold and Minnie Schulz, husband and wife, and their son Robert Schulz. The family had operated a drive-in restaurant in Elkton, Oregon, before coming to Gardiner, Montana. While living at Elkton, they formed a friendship with Luis Dohnalek who later moved to Gardiner. Through Dohnalek they became interested in and later bought the Northgate Motel in Gardiner.

While living in Gardiner, Dohnalek became acquainted with defendants-respondents, Fred and Annamae Peake. He learned they were interested in selling the motel and Annamae Peake offered him $500 finders fee if he could find a buyer. At that time, he wrote appellants to find out if they were interested. They contacted Dohnalek and respondents, who confirmed their interest in selling. Minnie Schulz testified that Peake told them that in addition to the motel, there were 13 acres at the site. That figure was denied by the Peakes.

In May, 1973, Arnold and Robert Schulz went to Gardiner, stayed at the motel and spent three days inspecting the motel and the surrounding premises. They walked the grounds and inspected most, if not all, of the motel units. During this visit, they were informed by respondents that certain of the units were not habitable during the winter while others could be occupied all year. On May 10, 1973, appellants agreed to purchase the motel and made a $1,000 earnest payment. Appellant Robert Schulz prepared the memorandum of the agreement which was signed by Robert and Arnold, and Arnold also signed his wife's name. They then returned to Oregon to try and sell their business at Elkton.

On July 13, 1973, Dohnalek wrote to appellants concerning certain details about the motel. At that time he told them if they did not decide to buy the motel that he, Dohnalek, was interested in buying it. He also told appellants that respondents would refund the earnest money payment if they did not purchase the motel. Either in the July 13 letter or an earlier letter, Dohnalek attached a sketch of the motel area.

Early in September, 1973, Arnold and Robert returned to Gardiner, moved into the motel and spent some 20 days there prior to executing a contract for the purchase of the motel. During this period they again inspected the units, talked to local people and generally educated themselves about the business and its problems. Three days before the contract was signed Minnie Schulz came from Oregon to look at the property. The parties signed a contract for deed which accurately described the property purchased and said contract was placed in escrow.

Approximately a year after the purchase, appellants had a controversy with a neighbor over a boundary line. They had their area surveyed and it resulted with the fact they owned approximately 1.3 acres of useable land instead of 13 acres. They then brought this action for damages alleging four specific misrepresentations. The District Court found no misrepresentations and no fraud.

Four issues are presented on appeal:

1. Was Luis Dohnalek an agent for Fred Peake?

2. Did the court err in its findings and conclusions holding that the "Complete Investigation" clause insulates sellers from fraud?

3. Did the court err in its failure to find that sellers misrepresented the acreage to the buyers?

4. Did the court err in failing to find sellers misrepresented the heating system?

Appellants argue the court ruled Dohnalek was not an agent because of the friendship between Dohnalek and the parties. The record does not sustain that argument. The court found that prior to May, 1973, Minnie Schulz had contacted Dohnalek asking him to locate a business in Gardiner. Dohnalek first suggested they purchase a grocery store in Gardiner, but appellants were not interested. It was later he learned respondents were interested in selling and wrote to appellants about the motel.

To have found Dohnalek an agent of respondents, the trial court would have to have found he came within the following two statutes and our cases interpreting those statutes.

Section 2-101, R.C.M.1947, defines agency:

"Agency defined. An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency."

Section 2-103, R.C.M.1947, distinguishes between special and general agents:

"Agents, general or special. An agent for a particular act or transaction is called a special agent. All others are general agents."

A person dealing with a special agent is bound at his peril to ascertain the scope of the agent's authority. Moore v. Skyles (1905), 33 Mont. 135, 138, 82 P. 799; Schaeffer v. Mutual Benefit Life Ins. Co. (1909),38 Mont. 459, 465, 100 P. 225; Northwestern Electric Equipment Co. v. Leighton et al. (1923) 66 Mont. 529, 213 P. 1094; Benema v. Union Central Life Ins. Co. (1933), 94 Mont. 138, 147, 21 P.2d 69.

Sections 2-104, 2-105, and 2-106, R.C.M.1947, define actual and ostensible agencies:

"2-104. Agency, actual or ostensible. An agency is either actual or ostensible.

"2-105. Actual agency. An agency is actual when the agent is really employed by the principal.

"2-106. Ostensible agency. An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him."

It is significant to note there is not one shred of testimony, nor any allegation that Luis Dohnalek or Fred Peake ever represented that Dohnalek was Peake's agent. All negotiations were admittedly conducted between appellants and respondents. Dohnalek was merely the conduit through which information was transmitted to appellants. Some of this information was provided by Peake, other information gathered by Dohnalek himself, and some by third parties through Dohnalek. But all of such information was gathered by Dohnalek as a friend of appellants, at their special instance and request, and not as the agent of Peake.

In the old case of Hartt v. Jahn et al. (1921), 59 Mont. 173, 181, 196 P. 153, 156, the Court, in interpreting section 2-216, R.C.M.1947 (then Section 5424 Revised Codes 1907), said:

"* * * It must be remembered that the subject-matter is real estate, and that any contract conferring upon an agent or broker the authority to make a sale or to contract to make sale of real estate must be in writing. * * * As the statutes now read, any binding authority given to an agent to contract to sell land must be in writing. Inasmuch as the authority of the agent must be in writing, he can have no more authority than is vested in him by the writing."

The burden of proof was on appellants to prove their claim. Certainly, if the agency relationship is contended to be material, appellants failed to sustain the burden of proof in establishing an agency. See Federal Land Bank of Spokane v. Myhre (1940), 110 Mont. 416, 101 P.2d 1017.

Under the law of these cases, the court found, as we must, that the evidence was insufficient to make out a prima facie case of agency.

As to any oral authorizations alleged, section 2-116, R.C.M.1947, provides:

"Form of authority. An oral authorization is sufficient for any purposes, except that an authority to enter into a contract required by law to be in writing can only be given an instrument in writing."

This section was interpreted (as Section 7939, Revised Codes of Montana 1921) in Hartt v. Jahn, supra, as heretofore quoted. In Electrical Products Consolidated v. El Camp Inc. (1937), 105 Mont. 386, 395, 73 P.2d 199, 203, the Court said:

"The decisive question presented for review by this court is whether the plaintiff made a case upon the law and the facts sufficient to sustain the judgment. * * * It is our opinion that such a case was not made; this because there was no sufficient showing of the authority of Day to avoid the effect of the statute requiring an agent's authority to be in writing in conformity with section 7939 * * *."

Nor can it be said that respondents ratified any action of Dohnalek, because Dohnalek took no action. He never claimed to be the agent of respondents nor did he ever exercise any such authority. This is a unique effort to make respondents responsible for alleged misrepresentations of Dohnalek, who admittedly never claimed to be the agent of respondents, nor did respondents ever represent to anyone he was their agent. Neither can section 2-117, R.C.M.1947, concerning ratification add any strength to appellants' already weak position. This section provides:

"Ratification of agent's act. A ratification can be made only in the manner that would have been necessary to confer an original authority for the act ratified, or where an oral authorization would suffice, by accepting or restraining the benefit of the act, with notice thereof."

We find no error as to the first issue.

The second issue concerns the court's finding and conclusion that appellants relied on their own inspection of the motel and therefore respondents were not liable.

Paragraph 14 of the contract reads:

"Examination of Property. The purchasers declare they are purchasing said property on their own examination and judgment and not through any representations to them made by the sellers, or their agents, as to its location, value, future value, income therefrom or as to its production."


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13 cases
  • In re Chabot, Bankruptcy No. 05-62798-7.
    • United States
    • U.S. Bankruptcy Court — District of Montana
    • May 10, 2007
    ...on summary judgment. The burden of proof to establish an agency was on Chabot, and she failed her burden. Schulz v. Peake (1978), 178 Mont. 261, 266, 583 P.2d 425, 427-28 (1978). WaMu provided an uncontroverted fact at SUF 3 that no agency relationship exists, with supporting documents. Cha......
  • Jenkins v. Hillard
    • United States
    • Montana Supreme Court
    • June 29, 1982
    ...therefore does not preclude proof that a prior oral representation was made and relied upon. Respondent contends that Schulz v. Peake (1978), 178 Mont. 261, 583 P.2d 425, should control our interpretation of the contract for sale. In Schulz, this Court construed a contract provision similar......
  • McCarty v. Lincoln Green, Inc.
    • United States
    • Montana Supreme Court
    • December 19, 1980
    ...anything other than their own examination and inspection of the premises. Berryman relies on our recent case of Schulz v. Peake (1978), Mont., 583 P.2d 425, 35 St.Rep. 1295. In that case, the purchaser of a motel property sued for fraudulent misrepresentations in the sale, contending they w......
  • First Fidelity Bank v. Matthews, 84-139
    • United States
    • Montana Supreme Court
    • December 31, 1984
    ..."A person dealing with a special agent is bound at his peril to ascertain the scope of the agency's authority." Schulz v. Peake (1978), 178 Mont. 261, 583 P.2d 425. In Phelps v. Union Central Life Ins. (1937), 105 Mont. 195, 71 P.2d 887, this Court " 'When one deals with a special agent or ......
  • Request a trial to view additional results

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