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 respon-
dent, 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 . Con-
cerning 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 oppor-
tunity 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 appel-
l 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-er-
p 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 . Appel-
lant, 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 al-
leged 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 proposi-
t 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 .