                                  No. 12409

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

                                      1973



 8?Qp$
   .
N IL
 ,      COWAN and GAY S
Husband and Wife,
                                 . COWAN,
                           P l a i n t i f f s and Respondents,



WESTLAND REALTY C M A Y ; ROBERT M N O
                 O PN             USN
and DOUGLAS JOHNSON,

                           Defendants and A p p e l l a n t s .



Appeal from:      D i s t r i c t Court of t h e Fourth J u d i c i a l District,
                  Honorable E. Gardner Brownlee, Judge p r e s i d i n g .

Counsel o f Record:

    For Appellants :

            G a r l i n g t o n , Lohn and Robinson, M i s s o u l a , Montana
            Robert E. S h e r i d a n , J r . a r g u e d , Missoula , Montaqa
                                                                             ,!

    F o r Respondents :

            Mulroney, Delaney and Dalby, M i s s o u l a , Montana
            D e x t e r L. Delaney a r g u e d , M i s s o u l a , Montana



                                             Submitted:      J u n e 1 9 , 1973

                                               Decided :    JUL 16 1973
Filed :     JUL 1 8 1973
M r . Chief J u s t i c e H a r r i s o n d e l i v e r e d t h e Opinion of t h e Court.

        T h i s i s an a c t i o n brought by p l a i n t i f f s Neal D, and Gay S.
Cowan, husband and w i f e , seeking r e s c i s s i o n of a "Land Purchase
Agreement" on t h e ground of m i s r e p r e s e n t a t i o n .            The d i s t r i c t
c o u r t of t h e f o u r t h j u d i c i a l d i s t r i c t , Missoula County, s i t t i n g
w i t h o u t a j u r y , e n t e r e d f i n d i n g s of f a c t , conclusions of law, and
judgment i n f a v o r of p l a i n t i f f s .       Subsequently, t h e d i s t r i c t
c o u r t e n t e r e d an o r d e r amending t h e judgment which l i m i t e d t h e
judgment t o defendant Westland R e a l t y , and dismissed t h e a c t i o n
a s t o t h e i n d i v i d u a l defendants, Robert Munson and Douglas
Johnson.        Defendant Westland R e a l t y a p p e a l s from t h e judgment.
        The b a s i s f o r t h i s a p p e a l i s whether t h e evidence was
s u f f i c i e n t t o warrant a f i n d i n g of f r a u d based upon misrepresenta-
t i o n , thereby e n t i t l i n g p l a i n t i f f s t o r e s c i n d t h e "Land Purchase
Agreement 1'.
        Westland R e a l t y i s a Montana c o r p o r a t i o n engaged i n t h e
r e a l e s t a t e b u s i n e s s i n Missoula, Montana.            Munson, p r e s i d e n t of
t h e c o r p o r a t i o n , and Johnson, a salesman employed by Westland, were
b o t h l i c e n s e d a s r e a l e s t a t e b r o k e r s by t h e s t a t e of Montana.
It was admitted t h a t b o t h Munson and Johnson were a g e n t s of
Westland when a c t i n g w i t h i n t h e scope and c o u r s e of t h e i r employ-
ment.      Munson d i d n o t d i r e c t l y d e a l w i t h p l a i n t i f f s .
        I n June 1970, p l a i n t i f f s were d e s i r o u s of a c q u i r i n g a p a r c e l
of r e a l p r o p e r t y on which t o b u i l d o r e s t a b l i s h a home.            Plaintiffs
c o n t a c t e d Westland f o r information concerning a p i e c e of p r o p e r t y
l o c a t e d i n t h e Six-Mile a r e a n e a r Missoula which they had seen
l i s t e d f o r s a l e i n t h e newspaper and had a l s o observed a s i g n posted
on t h e p r o p e r t y ,   P l a i n t i f f s agreed t o m e e t Johnson a t t h e p r o p e r t y
t o go over t h e boundaries,
        k t t h i s meeting p l a i n t i f f Neal Cowan asked Johnson about

t h e w a t e r s i t u a t i o n f o r he had h e a r d , through rumors, t h a t water
was d i f f i c u l t t o g e t i n t h e Six-Mile a r e a ,           Plaintiff        Gay Cowan
remained i n t h e c a r d u r i n g t h i s meeting.                  She d i d n o t t a l k w i t h
Johnson, b u t she d i d p a r t i c i p a t e i n s i g n i n g t h e n e c e s s a r y papers
i n t r a n s a c t i n g t h e agreement,
        A t t r i a l , p l a i n t i f f Neal Cowan t e s t i f i e d t h a t Johnson t o l d
him "There i s water a l l over.                    They a r e g e t t i n g shallow w e l l s up
 here."        Johnson admitted having made t h e statement o r one q u i t e
s i m i l a r , b u t s t a t e d t h a t i t was made w i t h r e f e r e n c e t o s p r i n g s
which a p p a r e n t l y o r i g i n a t e d on a d j o i n i n g F o r e s t S e r v i c e p r o p e r t y .
There i s c o n f l i c t i n t h e testimony w i t h r e s p e c t t o t h e F o r e s t
S e r v i c e land.
        P l a i n t i f f contended t h a t n e i t h e r h e n o r Johnson walked i n t o
t h e adjoining Forest Service property.                            However, Johnson contended
h e and p l a i n t i f f walked onto t h e F o r e s t S e r v i c e p r o p e r t y and
d i s c u s s e d t h e s p r i n g s thereon.        Johnson maintained t h a t he pointed
o u t t h e s p r i n g s t o p l a i n t i f f and d i s c u s s e d t h e p o s s i b i l i t y of
f i l i n g a w a t e r r i g h t on them, i f one had n o t a l r e a d y been claimed,
        P l a i n t i f f a l s o claimed Johnson t o l d him o t h e r people were
g e t t i n g shallow w e l l s i n t h e a r e a ; Johnson s t a t e d he was making
r e f e r e n c e t o a c i s t e r n type system of c o l l e c t i n g ground and s u r -
face waters r a t h e r than a well.
        A f t e r viewing t h e p r o p e r t y w i t h Johnson, p l a i n t i f f s signed
a "Receipt and Agreement t o S e l l and Purchase", d a t e d June 1 5 , 1970,
On June 17, 1970, p l a i n t i f f s signed t h e "Land Purchase Agreementr'
a g r e e i n g t o pay on a time payment b a s i s ,
        P l a i n t i f f s paid $350 a s i n i t i a l payment and agreed t o make
monthly payments of $35 p l u s escrow f e e s i n t h e amount of $1.50
p e r month over t h e term of t h e c o n t r a c t .                 The purchase p r i c e was
$3,100,        U t o t h e d a t e of t h e t r i a l June 1 9 , 1972, p l a i n t i f f s
                p
made a l l of t h e payments r e q u i r e d by them t o b e made under t h e
terms of t h e agreement,
        A f t e r s i g n i n g t h e agreement, p l a i n t i f f s made some improvements
on t h e p r o p e r t y .    During J u l y 1970, p l a i n t i f f s expended $379.30
f o r i n s t a l l a t i o n of a s e p t i c tank,         On September 7 , 1971, they
expended t h e sum of $1,600 i n digging a w e l l .                            P l a i n t i f f Neal Cowan
t e s t i f i e d h e had t h e d i g g e r s t o p a t 200 f e e t when n o water was
found because of f i n a n c i a l r e a s o n s .
        A l e t t e r d a t e d September 22, 1971, was s e n t t o d e f e n d a n t s

by                        a t t o r n e y g i v i n g n o t i c e of r e s c i s s i o n of t h e a g r e e -
ment and demanding reimbursement of a l l sums they had expended.
T h e r e a f t e r , t h i s a c t i o n was brought a l l e g i n g t h a t d e f e n d a n t s had
m i s r e p r e s e n t e d t h e land and, i n e f f e c t , had f r a u d u l e n t l y induced
p l a i n t i f f s i n t o purchasing t h e p r o p e r t y .
        I n i t s f i n d i n g s of f a c t t h e d i s t r i c t c o u r t found:
        "That among o t h e r t h i n g s Defendant Johnson, i n t h e
        scope of h i s employment with Westland R e a l t y , r e p r e -
        s e n t e d t o t h e P l a i n t i f f s t h a t t h e l o t which t h e
        P l a i n t i f f s agreed t o purchase on a time-payment con-
        t r a c t , d a t e d June 1 7 , 1970, had adequate w a t e r a v a i l -
        a b l e f o r purposes of domestic u s e and o t h e r w i s e .
        That t h a t r e p r e s e n t a t i o n was one of t h e m a t e r i a l i n -
        ducements by which t h e P l a i n t i f f s were persuaded t o
        purchase s a i d r e a l p r o p e r t y from Defendant Westland
        Realty.
        "That based on t h e r e p r e s e n t a t i o n s of t h e Defendants
        t h a t s a i d land which P l a i n t i f f s agreed t o purchase
        had adequate water a v a i l a b l e f o r domestic and o t h e r
        purposes, P i a i n t i f f s attempted t o d r i l l a water w e l l ,
        i n s t a l l e d a s e p t i c t a n k , d r a i n f i e l d s and o t h e r
        sewage f a c i l i t i e s . That a f t e r t h e due and d i l i g e n t
        e x p e n d i t u r e of e f f o r t i n a t t e m p t i n g t o l o c a t e w a t e r
        f o r s a i d purpose, t h e P l a i n t i f f s d i s c o v e r e d t h a t i t was
        n o t possibl-e t o o b t a i n w a t e r o r a w a t e r s o u r c e , That
        a t t h e time t h e p a r t i e s were n e g o t i a t i n g s a i d s a l e and
        purchase, t h e Defendants knew o r should have known t h a t
        i t was n o t p o s s i b l e t o o b t a i n w a t e r o r a w a t e r s o u r c e
        on s a i d p r o p e r t y and, t h e r e f o r e , t h e r e p r e s e n t a t i o n s t o
        t h e P l a i n t i f f s i n inducing them t o purchase s a i d p r o p e r t y
        were f a l s e . I f

        The d i s t r i c t c o u r t concluded, a s a m a t t e r of law, t h a t by
r e a s o n o f t h e m i s r e p r e s e n t a t i o n by d e f e n d a n t s , p l a i n t i f f s were
e n t i t l e d t o a d e c r e e a l l o w i n g them t o r e s c i n d t h e agreement and
t o r e c o v e r a l l sums of money which t h e y expended i n c o n n e c t i o n

w i t h t h e purchase of t h e p r o p e r t y and t h e i r a t t e m p t t o l o c a t e
water and t h e i n s t a l l a t i o n of f a c i l i t i e s r e l a t e d t h e r e t o .       Judg-
ment was e n t e r e d a c c o r d i n g l y ,      Defendants Munson and Johnson having
been d i s m i s s e d , d e f e n d a n t Westland R e a l t y a p p e a l s .

        A s h e r e t o f o r e s t a t e d t h e s o l e i s s u e on a p p e a l i s :      Was t h e
evidence presented s u f f i c i e n t t o w a r r a n t a f i n d i n g of f r a u d based
upon m i s r e p r e s e n t a t i o n ?
         L h i s Court h d s s t a t e d many times t h a t i t s funcciun on appeal

is to determine whether t h e r e i s s u b s t a n t i a l evidence t o support

t h e f i n d i n g s of t h e d i s t r i c t c o u r t .   T h i s Court w i l l n o t r e v e r s e
t h e f i n d i n g s of t h e t r i a l c o u r t u n l e s s t h e r e i s a c l e a r preponder-
ance of t h e evidence a g a i n s t such f i n d i n g s .               Spencer v . Robertson,
151 Mont. 507, 511, 445 P.2d 4 8 ; Smith v , K r u t a r , 153 Mont. 325,
3 3 3 , 457 P.2d 459.
         I n Lee v, ~ t o c k m e n ' s Nat, Bank, 63 Mont. 262, 284, 207 P, 623?
t h i s Court s e t down t h e elements which t h e p l a i n t i f f must prove t o
make o u t a prima f a c i e c a s e of f r a u d :             (1) A r e p r e s e n t a t i o n ;   (2)
i t s f a l s i t y ; (3) i t s m a t e r i a l i t y ; (4) t h e s p e a k e r ' s knowledge of
i t s f a l s i t y , o r ignorance of i t s t r u t h ; (5) h i s i n t e n t t h a t i t
should b e a c t e d upon by t h e person and i n t h e manner reasonably
contemplated; (6) t h e h e a r e r ' s ignorance of i t s f a l s i t y ; (7) h i s
r e l i a n c e upon i t s t r u t h ; (8) h i s r i g h t t o r e l y t h e r e o n ; and (9)
h i s consequent and proximate i n j u r y .
         These elements must be e s t a b l i s h e d i n a l l c a s e s , whether
tried b e f o r e a j u r y o r a judge.               Young v. Handrow, 151 Mont. 310,
316, 443 P.2d 9.
         Actual fraud i s always a q u e s t i o n o f f a c t .                S e c t i o n 13-310,
R.C.M,      1947,      Fraud can never be presumed, b u t must be proved

by a preponderance of t h e evidence.                        Good f a i t h w i l l always b e
presumed and mere s u s p i c i o n of f r a u d i s n o t s u f f i c i e n t .              R e i l l y v.
Maw, 146 Msnt. 145, 153, 405 P,2d 440.
         The a l l e g e d f r a u d upon which t h e d i s t r i c t c o u r t made i t s
f i n d i n g t h a t p l a i n t i f f s were e n t i t l e d t o r e s c i s s i o n was t h e r e p r e -
~ n t a t i o n Johnson t h a t t h e r e was an adequate supply of w a t e r
              by
f o r domestic use and otherwise.                      W have searched t h e t r a n s c r i p t
                                                        e
and f a i l t o f i n d where Johnson made any such r e p r e s e n t a t i o n .

         I n response t o d i r e c t q u e s t i o n s by h i s own c o u n s e l , p l a i n t i f f
Neal Cowan t e s t i f i e d :
         "Q. Now, what was i t a g a i n t h a t he t o l d you w i t h
         r e g a r d t o t h e a v a i l a b i l i t y of w a t e r ? A . 'There i s
         water a l l over. They a r e g e t t i n g shallow w e l l s up
         here. 1
        "Q.     Now, d i d he say who was g e t t i n g shallow w e l l s
        i n t h e a r e a ? A . No,
        .        O r d i d he say where you could g e t a shallow
        w e l l o r how you could h i t - i t o r anything of t h a t
        k i n d ? A . No, 11
        On cross-examination,               p l a i n t i f f Neal Cowan t e s t i f i e d :
        "Q.   You s t a t e d i n your testimony t h a t M r . Johnson
        made t h e statement t h a t t h e r e was water a l l over
        up t h e r e , i s t h i s c o r r e c t ? A . Yes.

        "Q.      Did, a t any time, M r . Johnson e v e r s p e c i f i c a l l y
        a s s u r e you o r t e l l you t h a t you could o b t a i n water
        on t h a t . p a r t i c u l a r p i e c e of p r o p e r t y by d r i l l i n g a
        w e l l ? A , I assumed a f t e r he s a i d water a l l over t h e
        place.
        "Q,  Did h e e v e r a s s u r e you you could g e t water by
        means of a w e l l ? A . No,
        "Q,       Did he e v e r a s s u r e you, a s a m a t t e r of f a c t ,
        t h a t you could o b t a i n water by any method on t h a t
        p a r t i c u l a r p i e c e of l a n d ? A , No.

        "Q.    There was no stream on t h e land, was t h e r e ?
        A*    No.
        "Q.     That was p e r f e c t l y p l a i n and v i s i b l e ?        A.     Right.
        "Q.     And i f he d i d n ' t a s s u r e you t h a t you could g e t
        water by any s p e c i f i c method e i t h e r w e l l o r c i s t e r n
        o r o t h e r w i s e , how d i d you assume then you were t o g e t
        your w a t e r ? A . By d r i l l i n g a w e l l ,
        "Q.  I s i t n o t t r u e , M r . Cowan, t h a t you bought t h i s
        land assuming t h a t t h e r e would be water w i t h t h e l a n d ?
        You were making t h e assumption t h a t you could o b t a i n
        water i f you bought i t ? A , By d r i l l i n g a w e l l , y e s ,

        "Q.    13ut by t h e same token, you were never a s s u r e d by
        M r . Johnson t h a t t h e r e i s water a v a i l a b l e f o r a w e l l ?
        A,    No*1 1
        The foregoing testimony i n d i c a t e s t h a t Johnson never made
any r e p r e s e n t a t i o n w i t h r e s p e c t t o t h e p l a i n t i f f s being s u c c e s s f u l
i n d r i l l i n g a well.       The d i s t r i c t c o u r t , however, s p e c i f i c a l l y
found Johnson r e p r e s e n t e d t o p l a i n t i f f s t h a t t h e l o t had adequate
water a v i l a b l e f o r purposes o f domestic use and otherwise.                               The
r e c o r d r e v e a l s no such r e p r e s e n t a t i o n was e v e r made by Johnson.
        F u r t h e r , an cross-examination p l a i n t i f f Neal Cowan t e s t i f i e d :
        "Q.    He d i d n ' t t e l l you s p e c i f i c a l l y , a s I a l r e a d y
        asked you, t h a t you could o b t a i n w a t e r by means of
        a w e l l ? A , No.

        "Q.  He d i d n ' t mention any o t h e r s p e c i f i c method by
        which you were a s s u r e d of o b t a i n i n g w a t e r ? A . No.
     "Q. So as a matter of fact, he never did say
     specifi.cally that there was adequate water
     available for home, domestic or other use, did
     he? That statement was not made? A. No. I I
     The first requirement to determine fraud is that of a
representation, Since the testimony of plaintiff Neal Cowan
clearly indicates that no representation as to the availability
of water for domestic use or otherwise was made by Johnson,
we hold the evidence was not sufficient to warrant a finding
of fraud based upon misrepresentation.   Since there was no
representation, it is not necessary to discuss the other elements
required to prove fraud.
     The judgment of t




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