Wortman v. Griff, 82-56

• Decision Date: 04 October 1982
• Docket Number: No. 82-56,82-56
• Parties: Richard A. WORTMAN and Ann F. Wortman, Plaintiffs and Appellants, v. Gary J. GRIFF, Gerald J. Caplan, Conservative Investors Group, and First Security Bank of Livingston, Defendants and Respondents.
• Court: Montana Supreme Court

Page 998

651 P.2d 998

200 Mont. 528

Richard A. WORTMAN and Ann F. Wortman, Plaintiffs and Appellants, v. Gary J. GRIFF, Gerald J. Caplan, Conservative Investors

Group, and First Security Bank of Livingston,

Defendants and Respondents.

No. 82-56.

Supreme Court of Montana.

Submitted on Briefs July 15, 1982.

Decided Oct. 4, 1982.

Nash & Nash, Bozeman, Cordell Johnson, Helena, for plaintiffs and appellants.

Gene I. Brown, Bozeman, Huppert & Swindlehurst, Livingston, for defendants and respondents.

DALY, Justice.

This action arose out of two agreements by the plaintiffs with Gary Griff and Gerald Caplan, as individuals, and with Conservative Investors Group, a California corporation, for two parcels of land. A trial was held in the District Court of the Eighteenth Judicial District. In its decision, the District Court found that the contracts were separate and distinct agreements, and that plaintiff had defrauded the defendant corporation. From this judgment, plaintiff appeals.

The defendants, Griff and Caplan, who are officers and the sole shareholders of the defendant corporation, contacted the plaintiff about purchasing the property in question. They became aware of the property through an ad in the Wall Street Journal. After receipt of a brochure on the land and some initial phone contact with the plaintiff, Richard Wortman, the defendant, flew to Montana from California to look at the land in mid-November 1977. After taking a walking tour of the property, which was subdivided into ten-acre tracts, and then conducting negotiations, it was agreed that defendants, Griff and Caplan, would purchase lots one through six and the house located on lot one as individuals and the corporation would purchase lots seven through thirteen. This agreement was entered into despite the defendants' knowledge that some of the lots were located in a floodplain, because it was alleged plaintiff said there were building sites outside the floodplain on every lot.

Although there is evidence that the lots in both parcels were not of equal value, it was agreed to allocate one-half of the total price to each contract. It was also agreed in both contracts that the purchaser was to pay the taxes on the land. This was not done and plaintiff had to pay the taxes to prevent a tax lien from being imposed upon the land. However, an attempt was made to reimburse the plaintiff for said taxes but he refused the check. It should also be noted that despite the negotiations, neither contract refers to the other.

The corporate defendant stopped making its semi-annual payments, as required by the contract in March 1981. The individual defendants attempted to make their payment on lots one through six, which was refused by the plaintiff. The plaintiff's contend that the contracts are not separate but constitute one agreement, and therefore the defendants are in default on the whole and their rights in all the property should be terminated.

Defendants on the other hand answered by contending that the two contracts are separate and distinct. The corporate defendant also counterclaimed asking for rescission because plaintiff had misrepresented lots seven through thirteen as having building sites on them, when in fact such lots were located in a floodplain and no such sites existed on some of them.

There are four issues raised on appeal:

1. Whether the District Court erred in granting the nonresident corporate defendant's counterclaim for rescission?

2. Whether the District Court's finding of fraud is supported by substantial evidence?

3. Whether the court erred in failing to construe the two contracts as one?

4. Whether attorney fees should have been awarded to the prevailing party?

The issue of whether the District Court should have granted the nonresident corporate defendant's counterclaim for rescission is the most easily resolved. Appellants claim that the corporation cannot assert its counterclaim for rescission against them. They cite section 35-1-1004(1), MCA, which prohibits a corporation not authorized to do business in Montana from suing in the courts of this state, in support of this contention. However, the corporation in this situation was not instituting a suit. They were merely defending the action brought against them by plaintiffs, which they have a right to do under section 35-1-1004(2), MCA. The counterclaim is just one aspect of the defense which they are entitled to raise and can therefore be brought.

The next issue to be addressed is whether there is substantial credible evidence to support the finding of fraud. There are nine elements which must be established to prove fraud. These are:

"1. A representation;

"2. Falsity of the representation;

"3. Materiality of the representation;

"4. Speaker's knowledge of the falsity of the representation or ignorance of its truth;

"5. Speaker's intent it should be relied upon;

"6. The hearer's ignorance of the falsity of the representation;

"7. The hearer's reliance on the representation;

"8. The hearer's right to rely on the representation; and

"9. Consequent and proximate injury caused by the reliance on the representation." Van Ettinger v. Pappin (1976), 180 Mont. 1, 10, 588 P.2d 988.

The District Court in this case believed that all of said elements were present as is evidenced by its finding of fact number eight stating that the plaintiff fraudulently represented lots seven through thirteen and its conclusion of law number one stating that rescission was proper due to fraud.

Appellants raise two major contentions in this regard. Firstly, they contend that because the defendants had the opportunity to investigate to see whether there were actually building sites on the lots, and that since they did not they cannot complain. But, this is not the case. In Jenkins v. Hillard (1982), 647 P.2d 354, 39 St.Rep. 1156, this Court stated:

"Van Ettinger and Lowe do not stand for the proposition that a buyer must assume a seller or his agent is lying when the buyer is told a plausible explanation for a defect and what is required to cure the defect. The Kansas Supreme Court has expressed the limitations that need to be placed on the Van Ettinger and Lowe cases:

" 'The trend of the decisions of the courts of this and other states is towards the just doctrine that where a contract is induced by false representations as to material existent facts, which are made with the intent to deceive, and upon which the plaintiff relied, it is no defense, to the action for rescission or for damages arising out of the deceit, that the party to whom the representations were made might, with due diligence, have discovered their falsity, and that he made no searching inquiry into facts ...' " Nordstrom v. Miller (1980), 227 Kan. 59, 605 P.2d 545, 553, quoting Speed v. Hollingsworth (1894), 54 Kan. 436, 440, 38 P. 496, 497.

"Opportunity to inspect in itself is no defense to possible willful misrepresentations that, because of their plausibility preclude further investigation. See also, Shechter v. Brewer (Mo.1961), 344 S.W.2d 784, and Lumby v. Doetch (1979), Mont., 600 P.2d 200, 36 St.Rep. 1684." 647 P.2d 354, 39 St.Rep. at 1160.

Secondly, they contend that because you can build on a floodplain if regulations are met or that the lots could be rearranged so a building site exists on each that they are not liable. However, this is not the case as neither of these situations has anything to do with the representation that the District Court must have determined the plaintiff to have made, that there were building sites outside the floodplain on each lot.

As this Court has stated on previous innumerable occasions a decision of the District Court will not be overturned where there is substantial credible evidence to support it. Lumby v. Doetch (1979), 600 P.2d 200, 36 St.Rep. 1684. In making a determination on the issue of substantial evidence this Court is guided by a number of principles. These are most concisely set out in Lumby where this Court stated:

"In resolving this issue, we are guided by a number of principles established by this Court. The credibility of witnesses and the weight to be given their testimony are matters for the District Court's determination in a nonjury case. Corscadden v. Kenney (1977), 175 Mont. 98, 572 P.2d 1234, 1237, 34 St.Rep. 1533, 1537. Thus, in examining the sufficiency of the evidence, we must view the same in a light most favorable to the prevailing party, and we will presume the findings and judgment by the District Court are correct. Hellickson v. Barrett Mobile Home Transport, Inc. (1973), 161 Mont. 455, 459, 507 P.2d 523, 525. We will not overturn the findings and conclusions of the District Court unless there is a decided preponderance of the evidence against them, and when the evidence furnishes reasonable grounds for different conclusions, the findings of the District Court will not be disturbed. Morgen and Oswood Const. Co. v. Big Sky of Mont. (1976), 171 Mont. 268, 275, 557 P.2d 1017, 1021. The burden of proof is on the appellant. Schuman v. Study Com'n of Yellowstone Cty. (1978), 176 Mont. 313, 578 P.2d 291, 292, 35 St.Rep. 386, 388." 600 P.2d at 202.

In examining this record in light of these...