Hillard v. Jenkins

No. 81-460 IN THE SUPREME COURT OF THE STATE OF MONTANA 1982

ROGER W. JENKINS,

Plaintiff and Appellant, VS.

LARRY JOE HILLARD, JR. and LARRY HILLARD, Defendants and Respondents.

No. 81-461

LARRY HILLARD, Plaintiff and Appellant, VS . ROGER W e JENKINS, Defendant and Respondent.

Appeal from: District Court of the Eiqhteenth Judicial District, In and for the County of- alla at in Honorable Jack Shanstrom, Judge presiding. Counsel of Record: For Appellants:

Landoe, Brown, Planalp, Komrners & Lineberger, Bozeman, Montana For Respondents: Steven Nelson, Bozeman, Montana

Submitted on briefs: March 4, 1982 Decided: June 29, 1982

Mr. J u s t i c e Gene B. D a l y d e l i v e r e d t h e O p i n i o n o f t h e Court..

T h i s i s an a p p e a l o f two summary j u d g m e n t s i s s u e d by the Dist-rict. Court of the Eighteenth Judicial D i s t - r i c t, G a l l a t i n County.

Respondent, Larry Joe H i l l a r d , is t h e son of respondent, Larry H i l l a r d . I n March 1 9 7 9 t h e s o n s o l d a h o t e l i n Three Forks, Montana, to appellant., Roger Jenkins. The f a t h e r ( h e r e i n a f t e r r e f e r r e d t o a s H i l l a r d ) showed a p p e l l a n t t h e h o t e l , conducted t h e c o n t r a c t negot-iat-ions f o r its s a l e , and s i g n e d t h e c o n t r a c t f o r s a l e a s h i s s o n ' s a t t o r n e y - i n -fact.

Negotiations f o r the s a l e of the h o t e l occurred over a b o u t a six-month period. During t h i s t i m e , appellant lived i n S e a t t l e and came t o T h r e e F o r k s whenever H i l l a r d was f r e e t o d i s c u s s t.he s a l e .

Appellant inspected the hotel thoroughly o n l y once and was accompanied by Hillard. Appellant claims that during this inspection Hillard told him that the hotel b u i l d i n g was i n e x c e l l e n t c o n d i t i o n and t h a t i t was f o r s a l e b e c a u s e H i l l a r d was t i r e d o f managing i t f o r h i s s o n . Concerning the c o n d i t i o n of the heating system, appellant in h i s d e p o s i t i o n c l a i m s t h a t H i l l a r d made t h e f o l l o w i n g r e p r e -s e n t a tions :

Q . And when you g o t s p e c i f i c a l l y t o t h e b o i l e r room, or you know, t.he a r e a which con- t a i n e d t h e b o i l e r s and t h e h e a t i n g s y s t e m , d i d he make any s t a t e m e n t - s c o n c e r n i n g t h e c o n d i t i o n of t h o s e t h i n g s ? A. Yes. He s t a t e d t h a t t h e -- l e t m e p r e f a c e t h a t . T h e r e was a b o u t t.wo and a h a l f i n c h e s o f w a t e r on t h e f l o o r i n t h e b o i l e r room and r i g h t away I q u e s t i o n e d t h a t and I was t o l d t h a t t h e r e was a b o u t a 4 0 0 - g a l l o n h o t w a t e r h o l d i n g t a n k and w a t e r was l e a k i n g o u t o f i t and it had a p a t c h on it and I a s k e d him what t h a t was, and h e s a i d , 'Well, t h e r e ' s a s m a l l c r a c k i n t h e h o l d i n g t a n k and t h a t c a n b e

welded,' and h e had c h e c k e d w i t h l o c a l w e l d e r s and h e was a s s u r e d t h a t it c o u l d b e w e l d e d , s o it was i n c o n s e q u e n t i a l . A t t-hat t i m e I a s k e d him w h a t c o n d i t i o n t.he b o i l e r s w e r e i n and h e t o l d m e t h a t . t h e y h a d a s l i g h t p r o b l e m w i t h t.he p i l o t l i g h t and t h a t t h e r e was n o p r o b l e m wit.h t h a t , b u t t h a t . it was o n l y an a d j u s t m e n t . I was a s s u r e d t h a t b o t h t.he h e a t i n g s y s t e m and t h e b o i l e r s were more t h a n adequat-e " . Appellant a l s o s t a t e d t h a t t h e manager o f the hotel

prevented him from making further inspections of the building. When a p p e l l a n t t - o l d H i l l a r d t . h a t t h e m a n a g e r had prevented h i s f u r t h e r inspect-ions, H i l l a r d t o l d a p p e l l a n t he would t a k e c a r e o f t h e s i t u a t i o n . A p p e l l a n t . d i d not. t . r y t o inspect the premises a f ter t-his conversation with Hillard.

I n h i s d e p o s i t i o n , H i l l a r d s t a t e d t . h a t he t h o u g h t t h e h e a t i n g s y s t e m was o p e r a t i n g p r o p e r l y . H i l l a r d a l s o s a i d he did not recall making comments on the condition of the boilers.

Appellant purchased the hotel in March 1979, and about the second week in April he discovered that. the boilers did not work p r o p e r l y . Appellant stated that he t h e n s p e n t a b o u t $35,000 t o r e p a i r and r e b u i l d t h e h o t e l ' s h e a t i n g system.

The contract. for sale of the hot-el contained the following provisions:

". . . Buyer h a s i n s p e c t e d and i s f a m i l i a r wit-h t h e p r e m i s e s and t h e p h y s i c a l c o n d i t i o n o f a l l t h e f u r n i t u r e , f i x t u r e s and equipment. and i m p r o v e m e n t s t h e r e o n and t h e r e i n , and e n t e r s i n t o t h i s Agreement o n h i s own i n d e - pendent i n v e s t i g a t i o n . "

and

"This c o n t r a c t c o n t a i n s t h e e n t i r e agreement b e t w e e n t h e p a r t - i e s and t h e Buyer a f f i r m s that. n e i t h e r S e l l e r nor any a g e n t of t h e S e l l e r h a s made a n y r e p r e s e n t a t - i o n s o r p r o m i s e s wit,h r e s p e c t . t o o r a f f e c t i n g t.he p r o p e r t y h e r e i n d e s c r i b e d on t - h i s c o n t r a c t

n o t e x p r e s s l y c o n t a i n e d h e r e i n and t h a t Buyer a f f i r m s t h a t h e r e l i e s upon h i s own p e r s o n a l o b s e r v a t i o n and e x a m i n a t i o n o f t-he p r o p e r t y herein described."

A p p e l l a n t . had g i v e n H i l l a r d a $ 1 5 , 0 0 0 p r o m i s s o r y n o t e as p a r t o f t h e t r a n s a c t i o n . $ 5 , 0 0 0 was p a y a b l e o n t-he n o t e o n March 1, 1 9 7 9 , and $10,000 p a y a b l e on o r b e f o r e August 30, 1979.

In January 1980 H i l l a r d brought an action on the note, c l a i m i n g t h a t a p p e l l a n t f a i l e d t o pay t h e $10,000 d u e o n August 30, 1979. I n March 1 9 8 0 , t h e a p p e l l a n t b r o u g h t a new and i n d e p e n d e n t a c t i o n a g a i n s t both t h e son, a s seller, a n d t h e f a t h e r , as t h e s o n ' s a g e n t , a l l e g i n g t h a t t h e f a t h e r had f r a u d u l e n t l y m i s r e p r e s e n t e d t h e c o n d i t i o n o f t h e h o t e l ' s h e a t i n g system.

In April 1980, the appellant answered Hillard's complaint, a l l e g i n g as an a f f i r m a t i v e d e f e n s e t h a t H i l l a r d fraudulent-ly misrepresented the condition of the hotel 's heating system and counterclaiming for a return of the $5,000 he a l r e a d y p a i d on t h e n o t e .

H i l l a r d moved f o r summary j u d g m e n t o n h i s p r o m i s s o r y n o t e a c t i o n and on t h e f r a u d a c t i o n b e g a n b y a p p e l l a n t . The District. Court granted both motions for summary j u d g m e n t . The District Court found that appellant had ample opportunity to inspect t.he hotel and t-hat. h e understood the clauses of the contract i n which he a f f i r m e d sole reliance on h i s own i n s p e c t i o n . The D i s t r i c t C o u r t c o n c l u d e d , as a matter of law, t.hat appellant had failed t o make a prima facie showing t h a t he had the right t o r e l y on H i l l a r d ' s alleged misrepresent-ations.

The sole issue on review is whether the District C o u r t e r r e d i n g r a n t i n g b o t h summary j u d g m e n t s .

Under R u l e 5 6 ( c ) , lul.R.Civ.P., a summary j u d g m e n t is p r o p e r o n l y when t h e r e i s no g e n u i n e i s s u e o f m a t e r i a l f a c t and when t h e moving p a r t y is e n t i t l e d to a judgment as a m a t t e r of law. Summary j u d g m e n t is t h e r e f o r e n o t a p r o p e r tool f o r resolving disputed issues of f a c t and is a c c o r d -ingly improper whenever a material factual matter is in dispute. F l a n a g a n v . C u r r a n ( 1 9 7 4 ) , 1 6 4 Mont. 262, 5 2 1 P. 2d 200. Moreover, the p a r t y opposing t h e motion, appellant, w i l l be i n d u l g e d t o t h e e x t e n t o f a l l i n f e r e n c e s w h i c h may be r e a s o n a b l y drawn from the record. Equity Cooperative A s s ' n v . B e c h t o l d ( 1 9 7 7 ) , 1 7 3 Mont. 1 0 3 , 566 P.2d 793.

Here, there is a t l e a s t one b l a t a n t i s s u e of fact: w h e t h e r H i l l a r d made a w i l l f u l m i s r e p r e s e n t a t i o n t o appell a n t concerning t h e c o n d i t i o n of t h e h e a t i n g system.

H i l l a r d , as respondent, a r g u e s t h a t even i f it can be shown t h a t h e made t h e m i s r e p r e s e n t a t i o n s , appellant cannot make a p r i m a f a c i e s h o w i n g t h a t h e had t h e r i g h t t o r e l y o n the representations. In particular, r e s p o n d e n t claims t h a t the contract provision and appellant's opportunity to inspect the hotel preclude appellant's right to rely on H i l l a r d ' s r e p r e s e n t a t i o n s , however f a l s e . We disagree.

It is well established in this state that actual f r a u d is a q u e s t i o n o f f a c t . S e c t i o n 28-2-404, MCA; Cowan v. W e s t l a n d R e a l t y Company ( 1 9 7 3 ) , 1 6 2 Mont. 379, 5 1 2 P.2d 714; P o u l s e n v. T r e a s u r e S t a t e I n d u s t r i e s , Inc. ( 1981),

Mont . , 626 P.2d 822, 38 S t .Rep. 218. Further, this Court has recognized the rule that "fraud vitiates every

t r a n s a c t i o n and a l l contracts." Bails v. Gar (1976), 171 Mont. 342, 558 P.2d 458, 461. The reasoning behind this rule i s t h a t a p a r t y who h a s p e r p e t r a t e d f r a u d b y i n d u c i n g another to enter into a contract may not. t.hen use the contract to immunize himself from t h e fraud. Bails, 558 P.2d a t 461-462. The c o n t r a c t p r o v i s i o n t h e r e f o r e d o e s n o t p r e c l u d e p r o o f t h a t a p r i o r o r a l r e p r e s e n t a t i o n w a s made and r e l i e d upon.

Respondent contends t h a t Schulz v. Peake ( 1 9 7 8 ) , 178 Mont. 261, 583 P.2d 425, should c o n t r o l our interpret.ation of the contract for sale. In Schulz, t h i s Court construed a contract provision similar t.o the one in this case and stated that because the provision was unambiguous, the c o u r t ' s d u t y was t o e n f o r c e i t . S c h u l z is n o t c o n t r o l l i n g h e r e f o r t h e s i m p l e r e a s o n t h a t i n S c h u l z a t r i a l w a s had and findings of f a c t were made t h a t no m i s r e p r e s e n t a t i o n s w e r e made and no f r a u d c o m m i t t e d . Here, a p p e l l a n t was n o t g i v e n t h e o p p o r t u n i t . y t o show t . h a t m i s r e p r e s e n t a t i o n s were made and f r a u d c o m m i t t e d .

Respondent c i t e s Van E t t i n g e r v . Pappin ( 1 9 7 8 ) , 180 Mont. 1, 588 P.2d 988, and Lowe v . Root ( 1 9 7 5 ) , 1 6 6 Mont. 150, 5 3 1 P.2d 674, to support his argument that because a p p e l l a n t i n s p e c t e d t h e premises he cannot, as a matter o f law, be allowed the right to rely on a representation, whether t r u e of f a l s e . In particular, respondent cites t h i s often-quoted p a s s a g e i n Van E t t i n g e r :

"'When i t a p p e a r s t h a t a p a r t y , who c l a i m s t.o h a v e b e e n d e c e i v e d t-o h i s p r e j u d i c e , - has i n v e s t i g a t e d f o r h i m s e l f o r t h a t t h e means were a t h a n d t o a s c e r t a i n t h e t r u t h ... of a n y r e p r e s e n t a t i o n s made t o him, h i s r e l i a n c e upon s u c h r e p r e s e n t a t i o n s made t o h i m , how- e v e r f a l s e t h e y may h a v e b e e n , a f f o r d s n o ground of complaint. ( G r i n d r o d v . Anglo- A m e r i c a n Bond Co., 34 Mont. 1 6 9 , 85 I?. 891; Power & B r o t h e r s v . T u r n e r , 37 Mont. 521, 97 P. 950; 26 C. J. 1 1 4 9 . ) I " (Emphasis added. ) 588 P.2d a t 9 9 4 , q u o t i n g L e e v . S t o c k m e n ' s N a t i o n a l Bank ( 1 9 2 2 ) , 63 Mont. 262, 284, 207 P. 623, 630,

Respondent h a s placed an u n n e c e s s a r i l y h a r s h int-erp r e t a t i o n on t h e above p a s s a g e . I n Van E t t i n g e r t h e p a r t y claiming f r a u d knew t.he f a l s i t y o f the representation and t h e r e f o r e no e v i d e n c e c o u l d be p r e s e n t e d t o show t h e r i g h t to rely on the representation. In Lowe a superficial i n s p e c t i o n of t h e b u i l d i n g would h a v e r e v e a l e d t h e o p e n and notorious deficiencies in the building. T h a t i s s i m p l y not. the case here.

Appellant acknowledges t - h a t upon his inspection he found two inches of water in the basement.. Respondent claims that the presence of the water should have put a p p e l l a n t on i n q u i r y t h a t t h e b o i l e r s w e r e d e f e c t i v e . Appellant, i n d e e d , was p u t o n i n q u i r y . According to h i s d e p o s i -tion, a p p e l l a n t a s k e d H i l l a r d why t h e w a t e r was t h e r e and H i l l a r d r e p l i e d t h a t t h e b o i l e r s needed o n l y minor r e p a i r s , a l l e g e d l y m i s r e p r e s e n t i n g t h e t r u e c o n d i t i o n of t h e b o i l e r s . Moreover, appellant may have been prevented from further access t o the hotel i n o r d e r to invest.igate H i l l a r d ' s alleged misrepresentations. Appellant s t a t e d i n h i s deposition that the manager of the hotel would not let him freely inspect. t h e premises.

Van E t t i n g e r and Lowe do n o t stand f o r the proposit i o n t h a t a b u y e r m u s t assume a s e l l e r o r h i s a g e n t i s l y i n g when t h e b u y e r i s t o l d a p l a u s i b l e e x p l a n a t i o n f o r a d e f e c t and what is r e q u i r e d t o c u r e t h e d e f e c t . The Kansas Supreme C o u r t h a s e x p r e s s e d t.he l i m i t a t i o n s t h a t need t o be placed on t h e Van E t t i n g e r and Lowe c a s e s :

"'The t r e n d of t h e d e c i s i o n s of t h e c o u r t s of t h i s and o t . h e r s t a t e s i s t o w a r d s t h e j u s t d o c t r i n e , t h a t where a c o n t r a c t i s i n d u c e d by f a l s e representations a s to material e x i s t e n t f a c t . s , w h i c h a r e made w i t h t.he i n t e n t t o d e c e i v e , and upon which t h e p l a i n t i f f r e l i e d ,

i t i s no d e f e n s e , t o a n a c t i o n f o r r e s c i s s i o n o r f o r damages a r i s i n g o u t o f t h e d e c e i t , t h a t t h e p a r t y t o whom t h e r e p r e s e n t a t i o n s were made m i g h t , w i t h d u e d i l i g e n c e , h a v e d i s c o v e r e d t h e i r f a l s i t y , a n d t h a t h e made no searching inquiry into facts. . ."' N o r d s t r o m v . M i l l e r ( 1 9 8 0 ) , 227 Kan. 5 9 , 6 0 5 P.2d 5 4 5 , 553, q u o t i n g Speed v. H o l l i n g s w o r t h (1894) , 54 Kan. 4 3 6 , 4 4 0 , 38 P . 4 9 6 , 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. 1 9 6 1 ) , 3 4 4 S.W.2d 7 8 4 , a n d Lumby v . D o e t c h ( 1 9 7 9 ) , - Mont. -, 600 P.2d 2 0 0 , 36 S t . R e p . 1684.

The District Court therefore erred by h o l d i n g that a p p e l l a n t f a i l e d t o make a p r i m a f a c i e s h o w i n g t h a t h e h a d a r i g h t t o r e l y on H i l l a r d f s a l l e g e d m i s r e p r e s e n t a t i o n s . Since the record r e f l e c t s o t h e r genuine i s s u e s of m a t e r i a l fact, such as, whether Hillard made fraudulent 'representations, whether appellant relied on those representations, and whether a p p e l l a n t had t h e o p p o r t u n i t y t o f u r t h e r i n v e s t i g a t e Hillard's alleged representations, t h e summary j u d g m e n t s a r e

reversed. The c a s e s a r e j o i n e d and remanded t o t h e D i s t r i c t "?

Court.

W concur: e

Mr. J u s t i c e John C. Sheehy d i s s e n t i n g :

I would a f f i r m t h e D i s t r i c t C o u r t . Under t h e f a c t s of t h i s case, our p r i o r decisionsshould r e q u i r e affirmance. See p a r t i c u l a r l y Van E t t i n g e r v. Pappin ( 1 9 7 8 ) , 180 Mont. 1, 588 P.2d 988; Lowe v. Koot ( 1 9 7 5 ) , 166 Mont. 1 5 0 , 531 P.2d 674; Lee v. Stockmen's N a t i o n a l Bank ( 1 9 2 2 ) , 63 Mont. 262, 2 0 7 P. 523; and G r i n r o d v. Anglo-American Bond Co. ( 1 9 0 6 ) , 34 Mont. 169, 85 P. 891.

H e r e t h e buyer s p e c i f i c a l l y c o n t r a c t e d t h a t t h e s e l l e r made no r e p r e s e n t a t i o n s t o him n o t c o n t a i n e d i n t h e w r i t t e n agreement. I f t h a t language a f f o r d s no p r o t e c t i o n t o a s e l l e r under t h e s e f a c t s , we have p r o v i d e d a f e r t i l e b r e e d i n g ground f o r l a w s u i t s i n a l l l a n d s a l e c o n t r a c t s . There would b e c i v i c and s o c i a l b e n e f i t i f w e r e q u i r e d p e r s o n s s i g n i n g w r i t t e n c o n t r a c t s t o s a y what t h e y mean o r mean what t h e y s a y i n t h e language u s e d .