                                                                                           February 12 2013


                                           DA 12-0329

                  IN THE SUPREME COURT OF THE STATE OF MONTANA

                                           2013 MT 33



MING DA SITU and PEI SHU ZHOU,

              Plaintiffs and Appellants,

         v.

H. DOUGLAS SMOLE, as successor trustee
of the LOIS M. MURPHY revocable trust,

              Defendant and Appellee.



APPEAL FROM:            District Court of the First Judicial District,
                        In and For the County of Lewis and Clark, Cause No. CDV-2009-732
                        Honorable Kathy Seeley, Presiding Judge


COUNSEL OF RECORD:

                For Appellants:

                        R. J. “Jim” Sewell, Jr., Scott H. Clement, Smith Law Firm, P.C.,
                        Helena, Montana

                For Appellee:

                        Scott M. Svee, Jackson, Murdo & Grant, P.C., Helena, Montana



                                                     Submitted on Briefs: December 19, 2012

                                                                 Decided: February 12, 2013




Filed:

                        __________________________________________
                                          Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1     Ming Da Situ and Pei Shu Zhou (collectively “Situs”) appeal from an order and

judgment of the First Judicial District Court, Lewis and Clark County, dismissing Situs’

breach of lease claim on statute of limitation grounds and granting judgment in favor of

Lois M. Murphy1 (Murphy). We affirm.

                                         ISSUES

¶2     Situs raise the following two issues on appeal:

¶3     1. Did the District Court err in granting Murphy’s motion to dismiss in light of

Situs’ presentation of facts to demonstrate that the statute of limitations had not expired,

as well as facts to demonstrate that Murphy should have been estopped from claiming the

statute of limitations as a defense?

¶4     2. Did the District Court improperly consider matters outside the pleadings in

ruling on Murphy’s motion to dismiss, and fail to provide proper notice and an

opportunity for the Situs to present all pertinent materials pursuant to a M. R. Civ. P. 56

motion for summary judgment?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶5     On or about October 14, 1989, the Situs acquired the assets of a restaurant located

at 1306 Euclid Avenue, in Helena, Montana. The real property on which the restaurant

building was located was and continues to be owned by Murphy. Situs and Murphy

1
  Lois M. Murphy passed away during the pendency of this case before the District Court.
H. Douglas Smole, as successor trustee of the Lois M. Murphy revocable trust, has been
substituted as a party to the proceedings.

                                             2
entered into a Memorandum of Agreement (the “Lease”) dated October 4, 1989, that

granted Situs a ten-year lease of Murphy’s real property on which the building was

situated. The Lease required Situs to make monthly payments of $175 to Murphy. The

Lease granted Situs the option to purchase Murphy’s real property at the October 3, 1999

expiration of the Lease. The relevant provision of the Lease provided as follows:

              IT IS FURTHER AGREED, that at the expiration of the full term of
      the within lease agreement, [Situs] shall have, and are hereby granted, an
      option to purchase from [Murphy] the land which is the subject matter of
      this lease, at a price mutually agreeable to the parties, it being understood
      and agreed that in the event that the parties hereto find themselves unable to
      reach agreement as to the fair value of said land (exclusive of
      improvements other than paving) at the date of exercise of said option, that
      parties shall hire mutually acceptable independent qualified appraisers at
      mutual expense, to evaluate said land, and it is understood and agreed that
      the parties hereto shall accept said appraisal as fully determinative of the
      purchase price to be paid.

¶6    Situs claimed that they provided written notice to Murphy of their interest in

purchasing the property, although the date of such notice was not provided. Situs alleged

that Murphy agreed to the appointment of an independent appraiser on September 28,

2000, but Murphy never followed through in procuring an appraisal.

¶7    Situs continued to pay Murphy $175 per month until April 2008. In April 2008,

Murphy sent Situs a written notice that the monthly rental rate would increase to $650 per

month beginning May 1, 2008. Situs ignored this notice and continued to pay $175 per

month through March 2009.        Murphy served Situs with written notice of tenancy

termination dated March 31, 2009. The notice demanded unpaid rent in the amount of

$5,700, which represented the difference between the $650 monthly payment demanded

by Murphy and the $175 monthly payments made by Situs over the course of the

                                            3
preceding year. Situs continued to send monthly payments of $175 to Murphy through

August 2009. Murphy rejected all of Situs monthly payments that occurred after Murphy

sent notice of tenancy termination.

¶8     On August 17, 2009, Situs filed a complaint in District Court requesting a

declaratory judgment and order requiring Murphy to select an independent appraiser and

sell the property. In addition, Situs sought damages for loss of prospective sales from

their restaurant business allegedly caused by Murphy’s breach of the Lease, together with

costs and attorney fees. Murphy filed an answer on September 4, 2009, which included a

counterclaim for unlawful detainer. Murphy also filed a motion to dismiss the complaint

pursuant to M. R. Civ. P. 12(b)(6) arguing that the applicable statute of limitations had

expired. On July 22, 2010, the District Court dismissed Situs’ complaint on statute of

limitations grounds. Situs attempted to appeal the District Court’s dismissal of their

complaint to this Court, but their appeal was dismissed because Murphy’s counterclaim

was still pending in District Court.

¶9     On April 14, 2011, Murphy filed a motion for summary judgment on her

counterclaim for unlawful detainer. The District Court held oral argument on the motion

for summary judgment on August 9, 2011, and granted summary judgment in favor of

Murphy in an order dated January 19, 2012. The District Court determined that Murphy

was entitled to recover the requested rent, trebled for any amounts due after May 1, 2009.

The District Court also ordered Situs to vacate the property within 30 days. A subsequent

April 26, 2012 order granted Situs an additional 60 days to vacate the property. On May

30, 2012, the District Court entered a final judgment requiring Situs to remove all of their

                                             4
property from Murphy’s lot by June 25, 2012, and awarding Murphy $5,700 in unpaid

rent and trebled rent totaling $66,300 for all rent due after May 1, 2009.

¶10    Situs ask the Court to vacate the grant of summary judgment on Murphy’s

unlawful detainer counterclaim should the Court determine that the District Court erred in

granting Murphy’s motion to dismiss, but they do not directly challenge any of the

District Court’s conclusions regarding Murphy’s counterclaim on appeal. Rather, their

appeal is limited to a review of the District Court’s decision to dismiss the Situs’

complaint on statute of limitations grounds.

                              STANDARDS OF REVIEW

¶11    We review de novo a district court’s ruling on a motion to dismiss for failure to

state a claim pursuant to M. R. Civ. P. 12(b)(6).           Meagher v. Butte-Silver Bow

City-County, 2007 MT 129, ¶ 13, 337 Mont. 339, 160 P.3d 552; Plouffe v. State, 2003

MT 62, ¶ 8, 314 Mont. 413, 66 P.3d 316. The determination of whether a complaint

states a claim is a conclusion of law, and the district court’s conclusions of law are

reviewed for correctness. Farmers Coop. Ass’n v. Amsden, 2007 MT 287, ¶ 9, 339 Mont.

452, 171 P.3d 684; Guest v. McLaverty, 2006 MT 150, ¶ 2, 332 Mont. 421, 138 P.3d 812.

                                      DISCUSSION

¶12    Did the District Court err in granting Murphy’s motion to dismiss in light of Situs’
       presentation of sufficient facts to demonstrate that the statute of limitations had
       not expired, as well as facts to demonstrate that Murphy should have been
       estopped from claiming the statute of limitations as a defense?

¶13    A motion to dismiss under M. R. Civ. P. 12(b)(6) allows the district court to

examine only whether “a claim has been adequately stated in the complaint.” Meagher,


                                               5
¶ 15. The court is limited to an examination of the contents of the complaint in making

its determination of adequacy. Meagher, ¶ 15. The effect of a Rule 12(b)(6) motion to

dismiss is that all of the well-pleaded allegations in the complaint are admitted as true,

and the complaint is construed in the light most favorable to the plaintiff. Amsden, ¶ 9;

Plouffe, ¶ 8. Therefore, we will affirm the district court’s dismissal only if we conclude

that the plaintiff would not be entitled to relief based on any set of facts that could be

proven to support the claim. Guest, ¶ 2; Plouffe, ¶ 8.

¶14    The District Court determined that under Situs’ version of the facts as alleged in

the complaint, their claims would be barred by the statute of limitations. The District

Court relied on § 27-2-202(1), MCA, which states that the “period prescribed for the

commencement of an action upon any contract, obligation, or liability founded upon an

instrument in writing is within 8 years.” Since the written Lease expired in October

1999, the District Court reasoned that § 27-2-202(1), MCA, would function to bar any

contract claim commenced after October 2007.             Alternatively, the District Court

determined that any implied contract claim would be barred by § 27-2-202(2), MCA,

which provides that the “period prescribed for the commencement of an action upon a

contract, account, or promise not founded on an instrument in writing is within 5 years.”

The District Court concluded that the impliedly renewed lease agreement ended in

October 2000, so any action commenced after October 2005 would be time-barred by this

provision.

¶15    Situs argue that the District Court erred in dismissing their complaint because they

effectively alleged a sufficient set of facts to state a claim. Situs maintain that Murphy’s

                                             6
repudiation took place in November 2007, which would extend the statute of limitations

until 2015. Situs rely on Wright v. Brooks, 47 Mont. 99, 130 P. 968 (1913), to support

their contention that notwithstanding a specific repudiation of an obligation by a vendor,

a vendee in possession is not barred from suing for specific performance by delay, as his

possession is the continued assertion of his claim.

¶16    Wright involved a claim for specific performance by a buyer under an oral

contract for the sale of real estate. The agreement to sell the property was made in 1898,

and the lawsuit was commenced over thirteen years later, in 1911. Wright, 47 Mont. at

108, 130 P. at 969.      The buyer possessed and improved the property during this

thirteen-year period. Wright, 47 Mont. at 106, 130 P. at 968. The Court cited to the

general rule that specific performance will be ordered in cases where the buyer takes

possession and makes improvements with the seller’s knowledge or consent. Wright, 47

Mont. at 108, 130 P. at 969. The Court determined that “where the vendee has made

repeated efforts to pay, and stands ready, able and willing to pay, the vendor is placed in

the same position as though payment had been made; that is to say, he holds the legal title

in trust for the vendee.” Wright, 47 Mont. at 108, 130 P. at 969. Under this theory, the

Court held that the statute of limitations does not commence to run until the vendor has in

some manner disavowed his trust. Wright, 47 Mont. at 109, 130 P. at 969.

¶17    We find Wright distinguishable from the instant case in several important ways.

First, the Lease merely granted Situs an option to purchase the real property, with the

terms of the deal to be settled at a later date only if the option was exercised. This stands

in contrast to Wright, where all that remained under the agreement was the exchange of

                                             7
money for title. Under these facts, it cannot be said that Murphy held title to the real

property in trust for Situs. Second, Situs were not standing ready to tender a previously

agreed-upon sum which Murphy expressly rejected. Situs failed to timely complete the

steps needed to arrive at a fair market price or timely commence an action to protect their

rights. Third, Situs possessed the real estate under a lease, unlike in Wright, where the

possession of the land was pursuant to a contract for purchase. The factual and legal

distinctions between Wright and the instant case render it unpersuasive.

¶18    More recent decisions from this Court are instructive. In Nevala v. McKay, 178

Mont. 327, 583 P.2d 1065 (1978), the lessor agreed to lease a parcel of ranch land to

lessee from 1964 to 1971, and the lease was to continue thereafter on a year-to-year basis

unless terminated by one of the parties. The lease also granted the lessee a right of first

refusal if the lessor decided to sell the land. Nevala, 178 Mont. at 328-29, 583 P.2d at

1066. Instead of executing written one-year extensions, the parties wrote a three-year

handwritten extension of the lease to December 1, 1974, by writing on the back of the

original lease. Nevala, 178 Mont. at 329, 583 P.2d at 1066. After 1974, the Nevalas

stayed on the farm until 1975 with no written lease extensions. Nevala, 178 Mont. at

329, 583 P.2d at 1066. In September 1975, the lessor offered to sell the land to the

lessee, but before the lessee obtained financing and tendered the purchase money, the

lessor sold the land to a third party. Nevala, 178 Mont. at 329, 583 P.2d at 1067. The

lessee sought specific performance of the right of first refusal contained in the lease.

Nevala, 178 Mont. at 330, 583 P.2d at 1067.



                                              8
¶19    We held that the lessee was a holdover tenant when he attempted to assert his right

of first refusal, and as such, the lessee had no right to exercise the right of first refusal.

Nevala, 178 Mont. at 332, 583 P.2d at 1068.             This Court recognized that “a few

jurisdictions have allowed holdover tenants to exercise an option to purchase or right of

first refusal during the holdover period, but by far the greater weight of authority is that

such option or right cannot be exercised by a lessee holding over after the expiration of

the lease.” Nevala, 178 Mont. at 332, 583 P.2d at 1068. In reaching its conclusion, the

Court rejected the lessee’s contention that every provision of an expired lease is extended

into a holdover period based on the language of § 42-205, R.C.M. (1947),2 which

provided as follows:

       If a lessee of real property remains in possession thereof after the expiration
       of the hiring, and the lessor accepts a rent from him, the parties are
       presumed to have renewed the hiring on the same terms and for the same
       time, not exceeding one month, when the rent is payable monthly, nor in
       any case one year.

The Court also relied on Miller v. Meredith, 149 Mont. 125, 423 P.2d 595 (1967)

(overruled on other grounds by Rasmussen v. Lee, 276 Mont. 84, 916 P.2d 98 (1996)), in

which we explicitly held that an option to purchase does not carry over into a holdover

tenancy because the lease and the option are distinct agreements.

¶20    The Lease granted Situs an option to purchase the real estate “at the expiration of

the full term” of the Lease, which expired pursuant to its terms on October 3, 1999. The

Lease did not contain any language permitting renewal or extension beyond the Lease


2
  The current version of § 42-205, R.C.M. (1947), is similar in pertinent parts and contained in
§ 70-26-204, MCA.

                                               9
term. Following the expiration of the Lease, Situs continued to pay monthly rent in the

same amount as set forth in the Lease. Situs occupied the premises as holdover tenants

until receiving a notice of termination on March 31, 2009. The notice of termination

ended the holdover tenancy as of May 1, 2009.

¶21    As discussed in Nevala and Miller, the option to purchase in the Lease is a

covenant which is separate from and independent of the Lease. The option to purchase

was not a term of the tenancy.        Therefore, the option to purchase does not extend

throughout the pendency of the holdover tenancy and cannot be exercised at any point

later than granted by the Lease. Section 70-26-204, MCA, states that:

       If a lessee of real property leased under an arrangement not governed by
       Title 70, chapter 24,3 remains in possession of the property after the
       expiration of the hiring and the lessor accepts rent from the lessee, the
       parties are presumed to have renewed the hiring on the same terms and for
       the same time, not exceeding 1 month when the rent is payable monthly, or
       in any case 1 year.

The option to purchase accrued at the termination of the Lease on October 3, 1999.

While a reasonable period of time must be granted to Situs to exercise the option, the

contractual basis for the option to purchase does not extend indefinitely through a

holdover period.      Pursuant to § 70-26-204, MCA, Situs maintained a renewed

month-to-month lease on the same terms of tenancy as the original Lease,4 but the option




3
  Title 70, chapter 24, is the Residential Landlord and Tenant Act of 1977, and does not apply to
commercial properties.
4
  As discussed in Willson v. Terry, 265 Mont. 119, 874 P.2d 1234 (1994), a renewal of a lease
pursuant to § 70-26-204, MCA, cannot be presumed to contain all the terms of the initial written
agreement when renewed beyond one year.

                                               10
to purchase was a separate and independent covenant, which is not statutorily renewed as

a term of tenancy absent some language in the contract providing for renewal.

¶22   According to the allegations in the complaint, Situs exercised their right to

purchase the real estate from Murphy by written notice. The parties were initially unable

to agree on a purchase price. Situs allege that Murphy agreed to appoint an appraiser to

determine the fair market value of the property on September 28, 2000. However,

Murphy did not follow through and no appraisal was performed.                Pursuant to

§ 27-2-202(1), MCA, an action to enforce a contract provision must be commenced

within eight years. Generally, “a claim or cause of action accrues when all elements of

the claim or cause exist or have occurred, the right to maintain an action on the claim or

cause is complete, and a court or other agency is authorized to accept jurisdiction of the

action.” Section 27-2-102(1)(a), MCA. Montana law states that:

      Where a right exists but a demand is necessary to entitle a person to
      maintain an action, the time within which the action must be commenced
      must be computed from the time when the demand is made, except where
      the right grows out of the receipt or detention of money or property by an
      agent, trustee, attorney, or other person acting in a fiduciary capacity, the
      time must be computed from the time when the person having the right to
      make the demand has actual knowledge of the facts upon which that right
      depends.

Section 27-2-301, MCA.

¶23   Relying on §§ 27-2-102(1)(a) and -301, MCA, and the nature of the option to

purchase, we conclude that the statute of limitations began to run on Situs’ claims at the

time they exercised the option by demanding performance. As noted above, the Situs did

not establish in the District Court the actual date upon which they ostensibly provided


                                           11
written notice to Murphy of their interest in purchasing the property. See Opinion, ¶ 6.

For purposes of the statute of limitations, however, even if we look to September 28,

2000, the date upon which Situs claim in their complaint that Murphy allegedly agreed to

the appointment of an appraiser, the commencement of Situs’ action was still untimely.

Situs commenced an action to enforce the option to purchase on August 17, 2009. Situs

can prove no set of facts that would demonstrate that they commenced their cause of

action within eight years of the exercise of their option, as required by § 27-2-202(1),

MCA. Accordingly, we hold that the District Court did not err in granting Murphy’s

motion to dismiss Situs’ complaint as time-barred by § 27-2-202(1), MCA.

¶24    Situs also argue that Murphy should be equitably estopped from claiming

protection under the statute of limitations. Situs assert that Murphy initially acquiesced

when Situs attempted to exercise the option, and that Murphy’s ensuing silence in

response to their efforts to get an appraisal induced the Situs into believing that Murphy

did not intend to repudiate the contract.

¶25    To succeed on an equitable estoppel claim, a party must prove the following six

elements: (1) the existence of conduct, acts, language, or silence amounting to a

representation or concealment of material facts; (2) the party estopped must have

knowledge of these facts at the time of the representation or concealment, or the

circumstances must be such that knowledge is necessarily imputed to that party; (3) the

truth concerning these facts must be unknown to the other party at the time it was acted

upon; (4) the conduct must be done with the intention or expectation that it will be acted

upon by the other party, or have occurred under circumstances showing it to be both

                                            12
natural and probable that it will be acted upon; (5) the conduct must be relied upon by the

other party and lead that party to act; and (6) the other party must in fact act upon the

conduct in such a manner as to change its position for the worse. Johnson Farms, Inc. v.

Halland, 2012 MT 215, ¶ 28, 366 Mont. 299, ___ P.3d ___; Pankratz Farms, Inc. v.

Pankratz, 2004 MT 180, ¶ 67, 322 Mont. 133, 95 P.3d 671.

¶26    We conclude that the doctrine of equitable estoppel has no application under the

facts presented here. We have previously determined that Situs did not need to wait until

Murphy expressly repudiated the option before commencing an action to enforce the

option. This Court has held that estoppel arises “when a party through its acts, conduct,

or acquiescence, has caused another party in good faith to change its position for the

worse.” Selley v. Liberty Northwest Ins. Corp., 2000 MT 76, ¶ 9, 299 Mont. 127, 998

P.2d 156. We also observed in Selley that the doctrine is intended “to prevent one party

from unconscionably taking advantage of a wrong while asserting a strict legal right, and

will be invoked where justice, honesty, and fair dealing are promoted.” Selley, ¶ 11

(internal quotations marks omitted). It cannot reasonably be argued that by invoking the

statute of limitations after eight years, Murphy acted unconscionably or unjustly, or that

Situs were lulled for that long into changing their position for the worse. Situs had eight

years to file an action on the contract. We will not fault Murphy for Situs’ failure to act

within that time period.

¶27    We hold that Situs have failed to demonstrate a set of facts that would enable them

to equitably estop Murphy from raising her statute of limitations defense.



                                            13
¶28    Did the District Court improperly consider matters outside the pleadings in ruling
       on Murphy’s motion to dismiss, and fail to provide proper notice and an
       opportunity for the Situs to present all pertinent materials pursuant to a
       M. R. Civ. P. 56 motion for summary judgment?

¶29    When presented with a Rule 12(b)(6) motion to dismiss, a district court has the

discretion to consider matters presented to it that are outside of the pleadings, but if it

chooses to do so, it must treat the motion as one for summary judgment under

M. R. Civ. P. 56 and provide notice to the parties of its intention. Lozeau v. GEICO

Indem. Co., 2009 MT 136, ¶ 10, 350 Mont. 320, 207 P.3d 316; Meagher, ¶ 16. The

district court is required to provide notice to the parties of its intention to convert a

motion to dismiss into a motion for summary judgment “to allow the parties a reasonable

opportunity to present all material made pertinent to the motion and avoid surprise.”

Plouffe, ¶ 15.

¶30    Situs assert that the District Court improperly considered matters beyond the scope

of the motion to dismiss because its order dismissing Situs’ claims referenced a fact

outside the pleadings in a footnote. The footnote in question reads as follows:

       The complaint indicates the rent change was March 2009, while an
       unsigned letter with a handwritten date of April 1, 2008 included within
       exhibit 1 to Plaintiff’s response to the motion to dismiss states that the rent
       increase was to begin May 1, 2008.

The date the rent increased had no bearing on the District Court’s analysis of the statute

of limitations. The footnote merely noted the inconsistencies within Situs’ own filings.

The District Court’s inclusion of this fact in a footnote does not convert the motion to

dismiss into a motion for summary judgment, and therefore did not deprive Situs of an

opportunity to present additional materials for the District Court’s consideration. We

                                             14
hold that the District Court did not improperly consider matters outside the pleadings in

reaching its decision to dismiss Situs’ complaint pursuant to Rule 12(b)(6).

                                    CONCLUSION

¶31    For the foregoing reasons, we affirm the District Court’s dismissal of Situs’

complaint.



                                                        /S/ Patricia Cotter


We Concur:

/S/ Mike McGrath
/S/ Beth Baker
/S/ Michael E Wheat
/S/ Jim Rice




                                            15
