Covenant Investments, Inc. v. First Security Bank , 373 Mont. 353 ( 2014 )

January 21 2014
DA 13-0502
IN THE SUPREME COURT OF THE STATE OF MONTANA
2014 MT 14COVENANT INVESTMENTS, INC.,
Plaintiff and Appellant,
v.
FIRST SECURITY BANK,
Defendant and Appellee.
APPEAL FROM: District Court of the Eighteenth Judicial District,
In and For the County of Gallatin, Cause No. DV 12-596B
Honorable Mike Salvagni, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
James A. Patten, Patricia D. Peterman; Patten, Peterman, Bekkedahl
& Green, PLLC; Billings, Montana
For Appellee:
Calvin L. Braaksma; Braaksma & Miller, PLLC; Bozeman, Montana
Submitted on Briefs: December 10, 2013
Decided: January 21, 2014
Filed:
__________________________________________
Clerk
Justice Patricia Cotter delivered the Opinion of the Court.
¶1 Covenant Investments, Inc. appeals the Eighteenth Judicial District Court’s
dismissal of its complaint against First Security Bank (FSB) under M. R. Civ. P. 12(b)(6)
(Rule 12(b)(6)). We affirm.
¶2 In February 2004, in preparation for an anticipated subdivision of property, R & D
Holding,1 and FSB’s predecessor-in-interest, 360 Ranch Corporation, entered into a
“Waiver of Right to Protest” the creation of Special Improvement Districts (SIDs)
(Waiver) for the purpose of making road and/or intersection improvements to
Cottonwood Road, between Huffine Lane and West Babcock Street, in Bozeman,
Montana. The Waiver provided that if SIDs were not utilized to complete these
improvements, the parties to the Waiver would “participate in an alternate financing
method” for completion of the improvements. Subsequently, Covenant unilaterally
completed the road upgrade project and then sought reimbursement from FSB. FSB
refused and Covenant filed this action. The District Court granted FSB’s motion to
dismiss under Rule 12(b)(6). Covenant appeals.
ISSUE
¶3 Did the District Court err in dismissing Covenant’s complaint against First
Security Bank?
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It is unclear from the record whether R & D Holding is affiliated with Covenant or was
Covenant’s predecessor-in-interest to this property. Covenant’s complaint does not indicate a
date upon which Covenant took possession of the relevant property.
2
FACTUAL AND PROCEDURAL BACKGROUND
¶4 In 2004, R & D Holding and 360 Ranch Corporation, then-owners of real property
located along Cottonwood Road between W. Babcock Street and Huffine Lane, entered
into the above-referenced Waiver. The Waiver, in relevant part, provided:
In consideration of receiving Final Plat approval from the City of
Bozeman to subdivide the subject property . . . and in recognition of the
traffic that will be generated by the development of the . . . property, R & D
Holding and 360 Ranch Corporation and their successors and assigns,
waive the right to protest the creation of one or more special improvement
districts for street improvements to the east half of Cottonwood Road,
extending from Huffine Lane to West Babcock.
If Special Improvements Districts are not utilized for the completion
of these projects, the undersigned agree to participate in an alternate
financing method for completion of these projects on a fair share,
proportionate basis as determined by square footage of the property, linear
front footage of the property, taxable valuation of the property, or a
combination thereof.
. . .
This waiver shall be a covenant running with the land and shall not
expire.
¶5 No SIDs were implemented by the City of Bozeman. At some point in time after
the Waiver was signed, Covenant undertook and paid for all improvements to the
intersection of Huffine Lane and Cottonwood Road. In 2007, FSB constructed and took
occupancy of its bank building at the corner of Huffine and Cottonwood.2 In early 2007,
Covenant requested that FSB pay its fair share of the street improvements it had
undertaken and FSB refused to reimburse Covenant for such costs. In August 2012,
Covenant filed its initial complaint. In June 2013, it filed an amended complaint. In its
2
Covenant does not disclose, nor does the record reflect, when FSB purchased the property or
when Covenant undertook the relevant improvements to Cottonwood Road.
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complaints, Covenant alleged that FSB breached its obligation under the Waiver and
sought to enforce the alternate financing provision of the Waiver.
¶6 FSB moved to dismiss Covenant’s complaint arguing that it owed no duty or
obligation to Covenant under the Waiver. Specifically, it contended (1) Covenant did not
allege that a contract existed between the parties and that FSB breached such contract;
(2) an “obligation” arises either from a contract or by operation of law and Covenant did
not argue “operation of law” nor does “operation of law” apply to this case; and
(3) Covenant is essentially seeking contribution and the three-year statute of limitations
for contribution had expired.
¶7 Relying on Scherpenseel v. Bitney, 263 Mont. 68, 73-75, 865 P.2d 1145, 1148-49
(1993), the District Court stated, “The [c]ourt finds that generally, a covenant running
with the land becomes part of a deed by operation of law and that a deed constitutes a
contract founded upon a written instrument. . . . Thus, generally speaking, a written
covenant running with the land creates an obligation (by way of a contract) and claims
involving such covenants are subject to the eight-year statute of limitations set forth in
§ 27-2-202(1), MCA.”
¶8 The court concluded, however, that the Waiver did not contain the “essential
elements of a contract,” and therefore did not bind FSB as a successor to the original
covenantor. Specifically, the court found that the provision regarding alternative
financing was “silent as to the nature, cost, and timing of these street improvements and
who is responsible for determining the necessary improvements.” It concluded that as a
result of these omitted terms that were essential to the agreement, there was no mutual
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assent and the financing provision was void for lack of certainty. Additionally, the court
found that Covenant failed to mount a cogent argument that FSB’s purported obligation
arose by operation of law. The court therefore held that Covenant’s complaint must be
dismissed for failure to state a claim upon which relief can be granted.
STANDARD OF REVIEW
¶9 We construe allegations contained in a complaint in a light most favorable to the
plaintiff when reviewing an order dismissing a complaint under M. R. Civ. P. 12(b)(6).
A court should not dismiss a complaint for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his claim that would
entitle him to relief. A district court’s determination that a complaint failed to state a
claim presents a conclusion of law. We review for correctness a district court’s
conclusions of law. In re Estate of Glennie, 2011 MT 291, ¶ 11, 362 Mont. 508, 265
P.3d 654 (internal citations omitted).
DISCUSSION
¶10 Did the District Court err in dismissing Covenant’s complaint against First
Security Bank?
¶11 Covenant maintains on appeal that the Waiver signed by FSB’s predecessor-in-
title created a covenant running with the land that (1) did not expire, (2) was incorporated
into the deed of conveyance, and (3) is binding upon the covenantor’s successor.
Covenant asserts that when the Bank purchased the property, it “stepped into the shoes of
the covenantor” and became obligated to pay its fair share of the street improvements.
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Therefore, its refusal to reimburse Covenant was a breach of the obligation set forth in
the Waiver.
¶12 FSB counters that the District Court correctly concluded that no valid, enforceable
contract existed between the parties. It further asserts that the Waiver does not evidence
an obligation imposed upon it by operation of law. The Bank argues
An obligation which arises by operation of law is one which devolves upon
a person by the mere application of “established rules of law” to the facts of
a particular transaction, “without the act or cooperation of the party
himself.” . . . Examples include the termination of a joint tenancy by the
death of a joint tenant; the termination of a life estate by the death of the
life tenant; and the application of the automatic stay in bankruptcy upon the
filing of a bankruptcy petition. A document in which parties agree to
participate in future negotiations in order to strike an agreement about street
improvements is, by definition, not an obligation which exists by operation
of law. [Emphasis in original.]
¶13 An obligation arises either from a contract between parties or by operation of law.
Section 28-1-102, MCA (emphasis added). Covenant posits on appeal that the Waiver
document that was executed by the predecessors to the parties to this litigation constitutes
a contract. We agree that a contract was created; however, the question we must resolve
is whether the District Court correctly determined that the provision in the contract
regarding alternative financing was void for lack of certainty. Because we presume the
existence of a contract, there is no basis for a resort to the mutually exclusive “operation
of law” theory. Moreover, if a contractual provision were deemed void for lack of
certainty, it could not in any event be resuscitated by operation of law.
¶14 It is well established that an enforceable contract contains the following essential
elements: (1) identifiable parties capable of contracting; (2) consent of these parties; (3) a
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lawful object; and (4) sufficient consideration. Hanson v. Water Ski Mania Estates, 2005
MT 47, ¶ 20, 326 Mont. 154, 108 P.3d 481. “Consent must be mutual, and the parties
must agree upon the same thing, in the same sense.” AAA Constr. of Missoula, LLC v.
Choice Land Corp., 2011 MT 262, ¶ 19, 362 Mont. 264, 264 P.3d 709.
¶15 The Waiver referenced the anticipated intersection improvements and the possible
methods for determining how the costs of the improvements would be distributed
between the property owners, but it failed to specify what type of financing would be
utilized and by whom, and how and when the improvements themselves would be
undertaken. As the District Court observed, “the provision is silent as to the nature, cost,
and timing of these street improvements and who is responsible for determining the
necessary improvements.” As such, the Waiver is distinguishable from the agreement we
held to be enforceable in Hurly v. Lake Cabin Dev., LLC, 2012 MT 77, 364 Mont. 425,
276 P.3d 854. There, we determined that a buy-sell agreement provided “sufficient
information . . . to make the parties’ obligations ‘clearly ascertainable.’” Hurly, ¶ 21.
Notwithstanding the parties’ agreement to finalize terms for the construction of additional
structures on the property, “there were clear and definite parameters for determining” the
parties’ obligations, and the agreement therefore “included all essential material terms.”
Hurly, ¶ 22. In contrast, without further detail in the Waiver regarding the process and
financing for the improvements, “there was no meeting of the minds” as it pertains to the
alternate financing provision and the provision is void for lack of certainty.
¶16 As noted above, there is nothing in the record or Covenant’s complaint
establishing when it took possession of the property, when it undertook and completed
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the improvements, when FSB purchased the property, or whether FSB owned the
property at the time the improvements were undertaken. Covenant’s amended complaint
merely alleges that Covenant “paid for all street improvements on the east side of
Cottonwood Road between Huffine and West Babcock Streets, Bozeman, Montana,” and
“[w]hen [FSB] acquired the property, it incurred the obligation to reimburse [Covenant]
for its proportionate fair share for those street improvements.” This language suggests
that Covenant completed the intersection improvements unilaterally without notifying or
seeking participation from FSB or FSB’s predecessor, 360 Ranch. The pertinent
language utilized in the Waiver does not contemplate unilateral action; rather it reflects
the intention that the parties would jointly “participate” in the planning, financing, and
completion of these projects. The Waiver presumes future negotiations and collaborative
efforts. Covenant’s decision to proceed unilaterally with the intersection improvements
deprived FSB (or 360 Ranch Corporation) of any such participation.
¶17 We conclude that the District Court did not err in determining that the Waiver’s
alternative financing provision was void for lack of certainty. We further conclude that
by acting unilaterally Covenant waived its right to belatedly demand enforcement of the
Waiver provision. We therefore conclude that the court did not err in dismissing
Covenant’s complaint seeking enforcement of the Waiver agreement.
¶18 Finally, we agree with FSB that if Covenant’s complaint is construed as one for
contribution, it is barred by the statute of limitations. Section 27-2-202(3), MCA,
“provides for a three-year limitations period for the commencement of an action upon an
obligation or liability, other than a contract, account, or promise, not founded upon an
8
instrument in writing.” N. Cheyenne Tribe v. Roman Catholic Church, 2013 MT 24,
¶ 41, 368 Mont. 330, 296 P.3d 450. While the record does not provide the date the
improvements were completed, Covenant asserts in its amended complaint that it first
sought reimbursement for the improvements from FSB in 2007. It then filed its initial
complaint in August 2012. This being so, an action by Covenant for reimbursement of its
costs would be time-barred under § 27-2-202(3), MCA.
CONCLUSION
¶19 For the foregoing reasons, we affirm the District Court’s dismissal of Covenant’s
complaint for failure to state a claim upon which relief could be granted.
/S/ PATRICIA COTTER
We concur:
/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ BETH BAKER
/S/ LAURIE McKINNON
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