Capital Hill Shopping Center v. Mi

No. 1.3233

I N THE SUPREME COURT O THE STATE O MONTANA F F

CAPITAL HILL SHOPPING CENTER ASSOCIATES, a l i m i t e d p a r t n e r s h i p ,

D e f e n d a n t and T h i r d - P a r t y P l a i n t i f f and A p p e l l a n t ,

W. R. MILES, J R . , Third-Party Defendant, and Respondent.

Appeal from: D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t , H o n o r a b l e P e t e r G. Meloy, J u d g e p r e s i d i n g .

C o u n s e l o f Record:

For Appellant:

L o b l e , P i c o t t e , P a u l y , H e l e n a , Montana L e s t e r L o b l e , I1 a r g u e d , H e l e n a , Montana

For Respondent:

Mahan and S t r o p e , H e l e n a , Montana Thomas H. Mahan a r g u e d , H e l e n a , Montana

Submitted: J a n u a r y 1 8 , 1977

Filed: '- cq? :. ' ,$j5[

Hon. Harold W. Coder, J r . , d i s t r i c t judge, d e l i v e r e d t h e Opinion of t h e Court.

This Court i s asked t o review a d e t e r m i n a t i o n by t h e d i s -t r i c t c o u r t , Lewis and C l a r k County, denying l i a b i l i t y of s e l l e r f o r a t t o r n e y f e e s i n c u r r e d by t h e purchaser of a shopping c e n t e r i n d e f e n s e of a c l a i m by a t e n a n t a s s e r t i n g an e x c l u s i v e lease.

The f a c t s , o r s o much of them a s a r e n e c e s s a r y t o s a t i s f y t h i s inquiry are:

T h i r d p a r t y defendant and respondent W . R. M i l e s , J r . (Miles) promoted and developed t h e C a p i t a l H i l l Shopping Center i n Helena and i n 1964 l e a s e d space t o W . A . Brown, J r . (Brown) , f o r t h e o p e r a t i o n of a c a r d and g i f t shop. The l e a s e was renewed i n 1970 f o r a f i v e y e a r term. During Brown's tenancy he r e q u e s t e d and r e c e i v e d from Miles an o r a l agreement t h a t d u r i n g t h e l i f e of t h i s tenancy, Brown would have t h e only c a r d and g i f t shop i n the center.

I n June 1971, Miles s o l d t h e c e n t e r t o a p p e l l a n t , C a p i t a l H i l l Shopping Center A s s o c i a t e s f o r $1.6 million and an a d d i -t i o n a l $150,000 t o s e r v e a s a c o n s u l t a n t t o C a p i t a l H i l l f o r a - p e r i o d of 5 y e a r s .

The c o n t r a c t f o r s a l e executed by M i l e s , a s s e l l e r , and C a p i t a l H i l l , a s buyer c o n t a i n e d , i n t e r a l i a , t h e f o l l o w i n g :

"4. W a r r a n t i e s . S e l l e r r e p r e s e n t s and w a r r a n t s a s t o t h e f o l l o w i n g , which w a r r a n t i e s s h a l l s u r v i v e t h e c l o s i n g hereunder * * *: "* 7 c' * "4.10 9~ * >k There a r e no f a c t s i n e x i s t e n c e on t h e d a t e hereof and known t o t h e S e l l e r which might reasonably s e r v e a s a b a s i s f o r any m a t e r i a l l i a b i l i - t i e s o r o b l i g a t i o n s n o t d i s c l o s e d i n t h i s agreement or i n exhibits hereto.

"4.1 3 N r e p r e s e n t a t i o n s o r w a r r a n t i e s by o S e l l e r i n t h i s agreement o r any document, s t a t e m e n t , c e r t i f i c a t e o r schedule f u r n i s h e d o r t o be f u r n i s h e d t o t h e Buyer pursuant h e r e t o o r i n connection w i t h t h e t r a n s a c t i o n s contempla ted hereby, c o n t a i n o r w i l l con- t a i n any u n t r u e s t a t e m e n t s of a m a t e r i a l f a c t o r w i l l omit t o s t a t e a m a t e r i a l f a c t n e c e s s a r y t o make t h e s t a t e m e n t s o r f a c t s contained t h e r e i n n o t misleading. Except a s i s e x p r e s s l y h e r e i n otherwise provided, t h e r e p r e s e n t a t i o n s and w a r r a n t i e s of t h e S e l l e r a s s e t f o r t h i n t h i s agreement s h a l l b e t r u e on and a s of t h e d a t e hereof and t h e c l o s i n g d a t e a s though such r e p r e s e n t a t i o n s and w a r r a n t i e s were made on and a s of each such time.

"5. Indemnification. The S e l l e r a g r e e s t o and s h a l l indemnify t h e Buyer, i t s s u c c e s s o r s and a s s i g n s , - - i n r e s p e c t of each of t h e following m a t t e r s , which i n d e m n i f i c a t i o n s h a l l be i n a d d i t i o n t o any o t h e r r i g h t s of Buyer hereunder:

"5.2 Any damage o r d e f i c i e n c y r e s u l t i n g from any m i s r e p r e s e n t a t i o n , a breach of warranty, o r n o n f u l f i l l - ment of any agreement on t h e p a r t of t h e S e l l e r under t h i s agreement, o r from any m i s r e p r e s e n t a t i o n i n o r omission from any instrument f u r n i s h e d o r t o be f u r n i s h e d t o t h e Buyer hereunder o r i n any e x h i b i t t o t h i s a g r e e - ment, except t h a t such i d e m n i f i c a t i o n under t h i s sub- paragraph s h a l l n o t exceed t h e g r e a t e r of t h e t o t a l amount owed t o S e l l e r pursuant t o t h i s agreement a t t h e d a t e of n o t i c e t o S e l l e r of such damage o r d e f i c i e n c y .

"5.3 A l l c o s t s and expenses r e l a t i v e t o any a c t i o n s , s u i t s , proceedings, demands, assessments o r judgment i n c i d e n t t o any of t h e foregoing, i n c l u d i n g reasonable attorney's fees.

"8. Possession; Closing.

"8.4 When a l l such p r o r a t i o n s have been made o r agreed upon, t h e p a r t i e s s h a l l complete t h e c l o s i n g of t h e s a l e t r a n s a c t i o n by d e l i v e r i n g :

"(a) To t h e Buyer

" ( i i ) A l l l e a s e s , s u b l e a s e s o r o t h e r documents r e s p e c t i n g t h e Shopping Center.

" ( v ) A l l o t h e r agreements and l e a s e s o r sub- l e a s e s a f f e c t i n g t h e Shopping Center ( o r c o p i e s of t h e same c e r t i f i e d by S e l l e r oq t h e h o l d e r t h e r e o f ) .I' I Subsequently, C a p i t a l H i l l c a n c e l l e d an e x i s t i n g l e a s e l and on J u l y 30, 1972 executed a p r e l e a s e agreement w i t h a p a r t y

named Hatch's f o r t h e purpose of opening a c a r d and g i f t shop.

Whereupon Brown n o t i f i e d C a p i t a l H i l l o r a l l y , and l a t e r i n w r i t i n g , t h a t he possessed an "exclusive" l e a s e . Notwiths t a n d i n g such n o t i c e , C a p i t a l H i l l proceeded under i t s p r e l e a s e agreement and f i n a l i z e d i t s l e a s e w i t h Hatchl,s on August 1 5 , 1972.

Brown then sued C a p i t a l H i l l ; C a p i t a l H i l l , i n t u r n , tendered t h e defense t o Miles, which t e n d e r was refused. Capital H i l l then j o i n e d Miles a s t h i r d p a r t y defendant.

Before t r i a l , t h e i s s u e s r a i s e d by C a p i t a l ill' s ' t h i r d - p a r t y pleadings were severed by s t i p u l a t i o n , and t h e j u r y t h e n

r e t u r n e d a v e r d i c t i n f a v o r of C a p i t a l H i l l a g a i n s t Brown.

T h e r e a f t e r , by bench t r i a l , t h e i s s u e s involving Miles' l i a b i l i t y t o C a p i t a l H i l l were resolved i n f a v o r of Miles. The t r i a l c o u r t found: ( I ) "Miles advised Brown t h a t h e , (Brown) would, a t and during t h e time he was a t e n a n t , have t h e only c a r d and g i f t shop i n t h e c e n t e r . Brown b e l i e v e d t h a t he had an e x c l u s i v e t o t h e only c a r d and g i f t s t o r e based upon t h e conv e r s a t i o n w i t h Miles'!, and (2) " A t t h e time of t h e n e g o t i a t i o n s f o r s a l e t o C a p i t a l , Miles r e p r e s e n t e d t h a t t h e r e were no r e s t r i c -t i v e c l a u s e s i n Brown's l e a s e . C a p i t a l understood a t t h a t t i m e , and up t o t h e time Brown informed C a p i t a l t h a t he had an exclus i v e , t h a t t h e r e was no e x c l u s i v e i n ~ r o w n ' slease."

Respondent Miles i n s u p p o r t of t h e t r i a l c o u r t ' s d e t e r -mination, argues:

a) That t h e o r a l agreement between Miles and Brown was n o t e n f o r c e a b l e a g a i n s t C a p i t a l H i l l , because t h e j u r y s a i d s o ; t h a t , given i t s v a l i d i t y between Miles and Brown, t h e o r a l agreement terminated upon t h e s a l e by Miles of t h e c e n t e r t o C a p i t a l H i l l ; t h e r e f o r e , w i t h o u t an e n f o r c e a b l e e x c l u s i v e r i g h t t h e r e was no v i o l a t i o n by Miles of t h e indemnity agreement;

b) That such e x c l u s i v e r i g h t i s void under t h e s t a t u t e of f r a u d s s i n c e i t was n o t reduced t o w r i t i n g ;

c) Assuming t h a t M i l e s ' f a i l u r e t o d i s c l o s e v i o l a t e d t h e indemnity agreement, h i s l i a b i l i t y was c a n c e l l e d by ~ c u w n ' s n o t i c e t o C a p i t a l H i l l one year a f t e r t h e s a l e , and t h a t C a p i t a l H i l l , t h e r e f o r e , was r e s p o n s i b l e f o r i t s own damages inasmuch i t could have avoided t h e s u i t by l e a s i n g t o someone o t h e r t h a n a c a r d o r g i f t shop, t h u s avoiding any c o n f l i c t w i t h Brown's interest.

The v i c e of t h i s r a t i o n a l e , a s we view i t , i s t h a t t h e o r a l agreement i s d e c l a r e d t o be dead f o r t h e purpose of r e l i e v i n g Miles of h i s l i a b i l i t y a s an i n d e m n i t o r , b u t must immediately t h e r e a f t e r be r e s u r r e c t e d t o s u p p o r t t h e p r o p o s i -t i o n t h a t C a p i t a l H i l l must avoid i t by l e a s i n g t o some one o t h e r t h a n a c a r d and g i f t shop.

Thus, what we have i s an o b l i g a t i o n on t h e p a r t of C a p i t a l H i l l t o l i t i g a t e t h e v a l i d i t y of a v e r b a l agreement t o which it was n o t a p a r t y ; t h e outcome served t o s t r i p C a p i t a l H i l l , a s t h e v i c t o r , of i t s w a r r a n t i e s and i n d e m n i f i c a t i o n s f o r which i t had b a r g a i n e d under i t s s a l e agreement.

C a p i t a l H i l l argues t h a t Miles' f a i l u r e t o d i s c l o s e t o

i t , during t h e s a l e n e g o t i a t i o n s , t h e e x i s t e n c e of t h e o r a l he agreement between/and Brown regarding t h e exclusive n a t u r e of

Brown's l e a s e was v i o l a t i v e of t h e warranty provisions of t h e i r s a l e agreement; t h a t Miles' f a i l u r e t o accept t h e tender of defense of Brown's s u i t a g a i n s t i t c o n s t i t u t e d a breach by Miles of h i s duty t o indemnify; and t h e n o t i c e by Brown t o C a p i t a l H i l l one year a f t e r t h e s a l e d i d n o t cure Miles' d e f a l c a -tions.

W agree. e

I n i t i a l l y , we b e l i e v e t h e e x i s t e n c e of t h e o r a l agreement between Miles and Brown was a f a c t of s u f f i c i e n t m a t e r i a l i t y t o r e q u i r e d i s c l o s u r e t o C a p i t a l H i l l during t h e s a l e negotiat i o n s and t h e f a i l u r e of Miles t o do so was an omission within t h e purview of t h e warranty provisions s e t out above.

Unquestionably, had t h e f a c t of t h i s agreement been known t o C a p i t a l H i l l a t t h e time of t h e n e g o t i a t i o n s , i t s e x i s t e n c e

would have weighed heavily upon C a p i t a l ill's determinations t o e n t e r i n t o t h e purchase and i t s nondisclosure served no

i n t e r e s t o t h e r than t h a t of Miles. The warranty and indemnity provisions were i n t h a t agreement t o p r o t e c t t h e buyer from t h e very t h i n g t h a t came t o pass---the a s s e r t i o n of a claim by a t h i r d p a r t y a g a i n s t t h e buyer, which claim draws i t s sustenance from an unwritten and unrecorded agreement between such t h i r d p a r t y and t h e s e l l e r .

A covenant of warranty i s f o r t h e purpose of indemnifying t h e purchaser a g a i n s t a l o s s o r i n j u r y he may s u s t a i n by reason of a d e f e c t i n t h e vendor's t i t l e . Davis v. Andrews, (Texas Ct.. of Appeals 1962), 361 S.W.2d 419. This i s , we t h i n k , expressive of t h e g e n e r a l r u l e . Fagan v. Walters, 115 Wash. 454, 197 P. 635 (1921); Jones v. Grow Investment and Mortgage Co., 11 Utah 2d 326, 358 P.2d 909, 911 (1961); Matlock v. Wheeler, (Ckla. 1957), 306 P.2d 325; Newmyer v. Roush, 21 Idaho 106, 120 P. 464 (1912); Reinhardt v. Meyer, 153 Colo. 296, 385 P.2d 597 (1963).

Nor do we b e l i e v e t h a t Brown's n o t i c e t o C a p i t a l H i l l of h i s purported e x c l u s i v e l e a s e , coming, a s i t d i d , some t h i r t e e n months a f t e r t h e s a l e by Miles t o C a p i t a l H i l l could e f f e c t i v e l y r e l i e v e Miles of h i s l i a b i l i t i e s under t h e express warranty and indemnity p r o v i s i o n s of t h e s a l e agreement.

For whatever e l s e may be s a i d of Brown's communication, i t i s s u f f i c i e n t t o observe t h a t , a s a n o t i c e , i t came t o o l a t e .

Nor do we b e l i e v e t h e indemnity language s e t o u t above, can be construed t o mean anything o t h e r than what i t p l a i n l y s e t s out.

~ r o w n ' ss u i t a g a i n s t C a p i t a l H i l l was f o r t h e enforcement of some r i g h t which a r o s e under an a l l e g e d agreement between Brown and Miles. A s an indemnitor under t h e s a l e s agreement, Miles' l i a b i l i t y t o C a p i t a l H i l l a r o s e a t t h e time of t h e execution of t h a t agreement, and no subsequent n o t i c e , o r cornrnunic a t i o n by Brown t o C a p i t a l H i l l would s e r v e t o v i t i a t e t h a t liability.

A t t h e t i m e of ~ r o w n ' s s u i t a g a i n s t C a p i t a l H i l l , and t h e t e n d e r of defense by C a p i t a l H i l l t o Miles, Miles' o b l i g a t i o n a r o s e t o defend C a p i t a l i ill's t i t l e a g a i n s t such claim. A s an indemnitor, Miles was n o t e n t i t l e d , a s a m a t t e r of s u b j e c t i v e judgment, t o make a d e t e r m i n a t i o n t h a t Brown's c l a i m was w i t h o u t m e r i t ; nor was he e n t i t l e d a t t h a t time t o make an independent d e t e r m i n a t i o n regarding h i s l i a b i l i t y t o C a p i t a l H i l l , a s an indemnitor under t h e terms of t h e s a l e s agreement. Left i n i t s p r e s e n t s t a n c e , t h i s c a s e would have C a p i t a l H i l l indemnifying Miles notwithstanding t h e express c o n t r a c t u a l l i a b i l i t i e s of Miles f o r which C a p i t a l H i l l bargained and paid c o n s i d e r a t i o n .

I n view o f t h e e x p l i c i t t e n d e r of t h e defense by C a p i t a l H i l l and i t s r e j e c t i o n by Miles, and t h e subsequent t h i r d p a r t y p l e a d i n g , we need n o t c o n s i d e r n o t i c e , i f any, which would be r e q u i r e d t o r a i s e Miles' l i a b i l i t y a s an indemnitor. I r e l a n d v.

Linn County Bank, 103 Kan. 618, 176 P. 103, 2 A R 184 (1918); L

M i l l e r v. New York O i l Co., 34 Wyo. 272, 243 P. 118 (1926); Boston and Maine Railroad v. Bethlehem S t e e l , 311 F.2d 847, 849 (1963); Henderson Realty v. Mesa Paving Company, 27 A r i z . App. 299, 554 P.2d 895, 897 (1976).

Nor need we be concerned regarding t h e v a l i d i t y of c o n t r a c t s f o r i n d e m n i f i c a t i o n ; and t h a t they a r e t o be " l i b e r a l l y c o n s t r u e d i n f a v o r of t h e p a r t y intended t o be indemnified." L e s o f s k i v. R a v a l l i Co, E l e c t r i c Coop., 151 Mont. 104, 107, 439 P.2d 370 (1968), and a u t h o r i t i e s c i t e d t h e r e i n .

The d e c i s i o n of t h e d i s t r i c t c o u r t i s reversed and dismissed.

Judge, s i t t i n g f o r M r . J u s t i c e John Conway H a r r i s o n .

W Concur: e - -, , n 1 ,"" :.;/A& Chief ~ u s t l c e

I N THE SUPREME COURT O THE STATE O F M N A A F OTN

No. 13233

CAPITAL HILL SHOPPING CENTER, ASSOCIATES, a l i m i t e d p a r t n e r s h i p ,

D e f e n d a n t and T h i r d - P a r t y P l a i n t i f f and A p p e l l a n t ,

VS . W. R. MILES, J R . ,

~ h i r d - p a r t y Defendant, OCT- 3 I977 and ~ e s p o n d e n t . " CLERK OF SUPREF,$,riE COURT S-TAT-E QE iMxxax.gp!A O R D E R

IT I S ORDERED t h a t t h e l a s t s e n t e n c e o f t h e above named o p i n i o n i s d e l e t e d and t h e f o l l o w i n g p a r a g r a p h i n s e r t e d i n its place:

"The d e c i s i o n o f t h e d i s t r i c t c o u r t i s r e v e r s e d and t h e c a u s e remanded t o t h e d i s t r i c t court f o r t h e determination of a reasonable a t t o r n e y s f e e f o r p u r c h a s e r ' s a t t o r n e y t o be p a i d by s e l l e r and e n t r y o f judgment t h e r e o n . "

DATED t h i a g ?* !a o f S e p t e m b e r , 1977.

Hon. H a r o l d W. Coder, D i s t r i c t \ Judge, s i t t i n g i n p l a c e of M r . J u s t i c e J o h n Conway H a r r i s o n . r-- -7 /"