                                   No. 12818

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




LOUIS FLAHERTY, d / b / a FLAHERTY
AGENCY, and BRYON L. FLAHERTY,
Individually,

                           P l a i n t i f f s and A p p e l l a n t s ,



RILEY H. HENSLEY and LARO B.
HENSLEY, husband and w i f e ,

                           Defendants and Respondents.



Appeal from:     D i s t r i c t Court o f t h e E i g h t h J u d i c i a l D i s t r i c t ,
                 Honorable Truman G. Bradford, Judge p r e s i d i n g .

Counsel of Record:

     For Appellants :

            John McCarvel a r g u e d , G r e a t F a l l s , Montana
            H a r t e l i u s and Lewin, G r e a t F a l l s , Montana

     F o r Respondent:

            E. W. G i a n o t t i a r g u e d , G r e a t F a l l s , Montana

                                    -



                                              Submitted:           November 1 8 , 1974

                                                 Decided :      ~ E 8c
                                                                     3
Filed :   ?EC 2 3 l d
                  a'
Mr.   Chief J u s t i c e James T . 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 a n a p p e a l from t h e judgment of t h e d i s t r i c t

c o u r t , Cascade County, h o l d i n g t h a t d e f e n d a n t s R i l e y H . Hensley

and Laro B. Hensley d i d n o t owe a r e a l e s t a t e b r o k e r ' s commission

o f $4,200 t o p l a i n t i f f L o u i s F l a h e r t y .

             The f a c t s a r e :       Sometime p r i o r t o March 1 2 , 1973, t h e
Hensleys l e a s e d c e r t a i n r a n c h p r o p e r t y i n Teton County, Montana

t o one S t e w a r t Schwartz.              T h i s l e a s e was i n w r i t i n g and c o n t a i n e d

a p r o v i s i o n g r a n t i n g Schwartz a n o p t i o n t o p u r c h a s e t h e p r o p e r t y
during t h e term a t a prearranged p r i c e .                       On March 1 2 , 1973, t h e

Hensleys e n t e r e d i n t o a r e a l e s t a t e b r o k e r ' s employment c o n t r a c t

with Flaherty.             The c o n t r a c t p r o v i d e d f o r a n "open" l i s t i n g .           At

t h i s t i m e F l a h e r t y and h i s a g e n t s were aware o f t h e l e a s e between

t h e Hensleys and Schwartz, a l t h o u g h it i s s h a r p l y d i s p u t e d whether

t h e y knew of S c h w a r t z l s o p t i o n .        Subsequently F l a h e r t y n e g o t i a t e d

w i t h a p r o s p e c t i v e b u y e r , and on March 30, 1973, t h e p a r t i e s

e n t e r e d i n t o a "Stevens-Ness" form r e c e i p t and agreement t o s e l l
and p u r c h a s e .    This instrument s p e c i f i c a l l y c a l l e d a t t e n t i o n t o

Schwartzls option.                However, b e f o r e t h e s a l e was consummated,

Schwartz e l e c t e d t o e x e r c i s e h i s o p t i o n and purchased t h e p r o p e r t y .

             Whether F l a h e r t y had n o t i c e , a c t u a l o r c o n s t r u c t i v e ,

of S c h w a r t z l s o p t i o n i s t h e c r u c i a l e l e m e n t i n t h i s c a s e .       Flaherty

c o n t e n d s t h e Hensleys n e v e r informed him o f it u n t i l t h e agreement
t o s e l l and p u r c h a s e was e x e c u t e d , and t h e r e f o r e t h e y breached

t h e b r o k e r ' s employment c o n t r a c t and a c t e d i n bad f a i t h .                  The
d i s t r i c t c o u r t , however, r e j e c t e d t h i s c o n t e n t i o n by f i n d i n g

F l a h e r t y h i m s e l f n e g l i g e n t f o r n o t a s c e r t a i n i n g t h e e x i s t e n c e of
t h e o p t i o n e a r l i e r , a s s e t f o r t h i n f i n d i n g of f a c t 111:

             "That a t t h e t i m e of e n t e r i n g i n t o t h e r e a l e s t a t e
             b r o k e r s employment c o n t r a c t , p l a i n t i f f ' s a g e n t s
             were aware of t h e w r i t t e n l e a s e between d e f e n d a n t
             and Schwartz. T h a t p l a i n t i f f and h i s a g e n t s were
              negligent i n not determining t h e option provisions
              contained i n s a i d w r i t t e n l e a s e before o f f e r i n g
              the said property f o r s a l e . "
W t h i n k t h i s f i n d i n g i s s u p p o r t e d by s u b s t a n t i a l c r e d i b l e e v i -
 e

dence and o u g h t t o s t a n d .         Donald B l u m f i e l d , p r e s i d e n t of t h e

G r e a t F a l l s Board of R e a l t o r s , was c a l l e d a s a w i t n e s s by t h e

Hensleys and t e s t i f i e d a s f o l l o w s :

              "Q.       Would you c o n s i d e r a s e l l e r t h a t came t o
              your o f f i c e and l i s t e d p r o p e r t y f o r s a l e w i t h
              you and had n o t t o l d you t h e r e was o u t s t a n d i n g
              o p t i o n s , t h a t t h a t p e r s o n would be a c t i n g i n
              bad f a i t h . A.          (no r e s p o n s e )

               "Q.      Wouldn't you f e e l he would have a n o b l i -
              g a t i o n t o make a f u l l d i s c l o s u r e t o any o p t i o n s
              o u t s t a n d i n g ? A. I think so.           Of c o u r s e I t h i n k
              t h i s would--if a l i s t i n g was p r o p e r l y t a k e n you
              would know t h i s a t t h e t i m e .

              "Q.     How would you know i t ?                 A.      You would a s k .

              "Q.      I f he d i d n ' t t e l l you? A.       P a r t i c u l a r l y on
              farm p r o p e r t y you would a s k . Number o n e , I
              would want t o s e e t h e l e a s e . I f t h e r e was a
              l e a s e on t h e p r o p e r t y I would want t o s e e t h a t
              s o I would know when p o s s e s s i o n c o u l d be a f f e c t e d
              by t h e p u r c h a s e r , what p r i c e t h e summer f a l l o w
              might have t o be p a i d t o t h e l e s s o r .

              "Q.     That w o u l d n ' t a f f e c t t h e s a l e , would i t ?
              A.     Oh, y e s , i t would d e f i n i t e l y .

              "Q.       I t wouldn't preclude t h e s a l e , but not a l l
              l e a s e s c o n t a i n a n o p t i o n t o p u r c h a s e , do t h e y ?
              A.      No, t h e y d o n ' t .     But I would s t i l l want t o
              see the lease. "               (Emphasis added)            .
 I n o t h e r words, a r e a s o n a b l e , p r u d e n t man i n F l a h e r t y ' s s h o e s

 would have o b t a i n e d a copy of t h e l e a s e immediately and d i s -

 covered a l l t h e f a c t s .

              T h i s i s t h e p r e v a i l i n g m a j o r i t y r u l e i n such c a s e s .      See

 B e s t v K e l l y , 2 2 Wash.2d 257, 155 P.2d 7 9 4 , 801, 156 ALR 1387,

 p e r h a p s t h e l e a d i n g c a s e on t h e s u b j e c t and f r e q u e n t l y c i t e d
 w i t h approval. i n o t h e r j u r i s d i c t i o n s .                            -
                                                                    The C o u r t i n B e s t p l a c e d

 a n a f f i r m a t i v e d u t y upon t h e b r o k e r :
              " * * * t h e burden of i n q u i r i n g i n t o t h e t e r m s [of
              t h e l e a s e ] r e s t e d upon [ t h e b r o k e r ] , and even a
              c u r s o r y e x a m i n a t i o n of t h e l e a s e would have d i s c l o s e d
             t h e paragraph r e f e r r e d t o . "            ( B r a c k e t e d words
             added)     .
             W e a r e u n a b l e t o d i s t i n g u i s h t h e i n s t a n t c a s e from B e s t .

How c a n F l a h e r t y - - a    l i c e n s e d r e a l e s t a t e b r o k e r f o r 21 y e a r s - -

now be h e a r d t o d i s c l a i m knowledge of S c h w a r t z ' s o p t i o n when

he a d m i t s he knew of t h e l e a s e from t h e s t a r t ?

                                                  -
             Applying t h e r u l e i n B e s t r e s o l v e s t h e c o n t r o v e r s y , f o r

t h e d i s p o s i t i v e i s s u e i s whether F l a h e r t y i s e n t i t l e d t o a com-

m i s s i o n where he had p r i o r n o t i c e of t h e d e f e c t which s u b s e q u e n t -

l y p r e v e n t e d consummation of t h e s a l e .               The A n n o t a t i o n a t 156

ALR 1398, 1399 p r o v i d e s t h e answer:

             " I f a b r o k e r , a t t h e t i m e he makes a c o n t r a c t
             w i t h t h e owner f o r t h e s a l e of t h e l a t t e r ' s
             p r o p e r t y , knows of d e f e c t s i n h i s e m p l o y e r ' s
             t i t l e o r knows f a c t s s u f f i c i e n t t o p u t a r e a s o n -
             a b l y p r u d e n t p e r s o n on i n q u i r y , which, i f f o l l o w e d
             w i t h r e a s o n a b l e d i l i g e n c e , would b r i n g t o him
             s u c h knowledge, he i s n o t e n t i t l e d t o r e c o v e r
             commissions where t h e s a l e f a i l s b e c a u s e of s u c h
             defects.
             The Hensleys a r e e n t i t l e d t o a t t o r n e y f e e s by v i r t u e of

s e c t i o n 93-8601.1,          R.C.M.     1947, which p r o v i d e s :
             " C o n t r a c t u a l r i g h t t o a t t o r n e y f e e s t o be
             r e c i p r o c a l . Whenever by v i r t u e of t h e p r o v i s i o n s
             of any c o n t r a c t o r o b l i g a t i o n i n t h e n a t u r e of a
             c o n t r a c t , made and e n t e r e d i n t o a t any t i m e a f t e r
             t h e e f f e c t i v e d a t e of t h i s a c t , one p a r t y t o such
             c o n t r a c t o r o b l i g a t i o n has an express r i g h t t o
             r e c o v e r a t t o r n e y f e e s from any o t h e r p a r t y t o
             the contract or obligation i n the event the party
             h a v i n g t h a t r i g h t s h a l l b r i n g a n a c t i o n upon t h e
             c o n t r a c t o r o b l i g a t i o n , t h e n i n any a c t i o n on
             such c o n t r a c t o r o b l i g a t i o n a l l p a r t i e s t o t h e
             c o n t r a c t o r o b l i g a t i o n s h a l l be deemed t o have
             t h e same r i g h t t o r e c o v e r a t t o r n e y f e e s , and
             t h e p r e v a i l i n g p a r t y i n any s u c h a c t i o n , whether
             by v i r t u e of t h e e x p r e s s c o n t r a c t u a l r i g h t , o r
             by v i r t u e of t h i s a c t , s h a l l be e n t i t l e d t o re-
             c o v e r h i s r e a s o n a b l e a t t o r n e y f e e s from t h e l o s i n g
             party or parties."
             The judgment of t h e d i s t r i c t c o u r t on t h e i s s u e of t h e
H e n s l e y t s l i a b i l i t y t o F l a h e r t y i s a f f i r m e d ; t h e c a u s e i s remanded
with d i r e c t i o n s t o f i x a t t o r n e y f e e s i n accordance with t h e s t a t u t e .


                                                     ................................
                                                                           Chief J u s t i c e
                                              - 4 -
We concur:
