author: JUSTICE GRAY

text:
    ROBERT L. RATH, Claimant and Appellant, v. ST. LABRE INDIAN SCHOOL, Employer, and STATE COMPENSATION MUTUAL INSURANCE FUND, Defendant and Respondent.
    No. 91-034.
    Submitted on Briefs June 13, 1991.
    Decided Aug. 13, 1991.
    249 Mont. 433.
    816 P.2d 1061.

      John S. Yoder, Yoder Law Office, Billings, for claimant and appellant.
    Michael P. Heringer, Anderson, Brown, Gerbase, Cebull, Fulton, Harman & Ross, Billings, for defendant and respondent.
   JUSTICE GRAY

delivered the Opinion of the Court.

The claimant, Robert L. Rath, appeals the judgment of the Workers’ Compensation Court refusing to set aside the Full and Final Compromise Settlement that he entered into on January 17, 1986. Following a trial on the matter, the Workers’ Compensation Court ruled that there was no mutual mistake of fact as to the claimant’s medical condition at the time of the settlement and that his petition to reopen the settlement was barred by the statute of limitations pursuant to § 27-2-203, MCA. We affirm.

The dispositive issue on appeal is whether the Workers’ Compensation Court erred in concluding that the claimant’s petition to reopen the settlement was barred by the statute of limitations pursuant to § 27-2-203, MCA.

Over the years, the claimant has suffered three separate on-the-job injuries to his back. In July 1969, the claimant was working as a supervisor at a sawmill in Ashland, Montana, when a tree struck him on his back. He suffered a compression fracture of a thoracic vertebra. The claimant was treated by Dr. Peter V. Teal, an orthopedic surgeon in Billings. In January 1971, the claimant was released by Dr. Teal to pursue lighter work and was given a twenty percent impairment rating as a result of this injury. The claimant received workers’ compensation benefits, settling his claim on a full and final compromise basis.

Shortly after settlement, the claimant returned to work as a heavy equipment operator for Powder River County in Broadus, Montana. On June 18,1971, the claimant strained his lower back while changing a tire on a road grader. As with his previous injury, the claimant was treated by Dr. Teal. A myelogram was performed which showed a bulging disc at L4-5. Based upon the claimant’s complaints of pain, Dr. Teal completed a fusion from L4 to SI in February 1972.

Dr. Teal released the claimant to work in October 1974. He also assessed a twenty percent impairment rating for this injury. The claimant received workers’ compensation benefits as a result of his 1971 injury, again settling his claim on a full and final compromise basis.

After this settlement, the claimant went to work as the food supervisor for the St. Labre Indian School. His back condition was subject to intermittent flare-ups associated with increased activity level. The claimant saw Dr. Perry M. Berg, an associate of Dr. Teal, in 1982 or 1983 for upper back pain. In 1983, he also saw Dr. L. A. Campodonico, his family physician in Miles City, for low back pain.

On March 5, 1985, the claimant slipped and fell while carrying a box of meat and injured his back a third time. He was initially treated by Dr. C. T. Smith, an orthopedic surgeon in Sheridan, Wyoming. Dr. Smith diagnosed the claimant’s condition as an “acute lumbosacral strain of SI joint superimposed on degenerative arthritis and an old fusion.”

On April 9, 1985, the claimant was examined by Dr. Teal. Dr. Teal noted that the claimant had been having steadily increasing pain prior to re-injuring his back in the fall at work. The claimant also complained of tenderness at L2-3 and L3-4. Dr. Teal diagnosed the claimant as having degenerative disc disease, along with chronic lumbar sprain. Dr. Teal believed the claimant was unable to return to his former position and advised him to seek lighter work. The claimant did not return to Dr. Teal until September 1986, after his full and final compromise settlement had been approved by the Workers’ Compensation Court.

The claimant was examined by Dr. Gary Ray, however, on October 17, 1985. Dr. Ray noted the degenerative changes above claimant’s fusion. Dr. Ray believed the claimant had reached maximum healing and released him to work with significant restrictions. The claimant never returned to Dr. Ray.

Approximately three months prior to the full and final compromise settlement, the claimant retained Thomas Lynaugh to represent him in regard to his workers’ compensation claim. The claimant and Mr. Lynaugh also entered into an attorney agreement for Mr. Lynaugh to represent him in regard to his claim for social security disability benefits.

On November 20,1985, the claimant requested a partial lump sum advance of $65,000 from the respondent, State Compensation Mutual Insurance Fund, which he asserted could be credited against his projected permanent total disability benefits. The only type of employment activity that the claimant felt he could physically perform was light bookkeeping duties at a family-owned diner in Ash-land. The claimant’s condition had not improved since the March 1985 injury.

The respondent denied the claimant’s request for a lump sum advance. The claimant’s counsel, however, negotiated a settlement in the amount of $71,500 to be paid in a lump sum, which represented 500 weeks at the claimant’s maximum permanent partial disability rate.

In support of the Petition for Full and Final Compromise Settlement, the claimant executed an affidavit which indicated that he was aware of the extreme limitations placed on him by Dr. Ray. He also recognized that his only vocational opportunity was in a limited capacity at the family-owned diner in Ashland. In his affidavit, the claimant also stated that he was aware that with the full and final compromise settlement, he could never reopen his claim.

The Petition for Full and Final Compromise Settlement was subsequently submitted to the Division of Workers’ Compensation. The Division approved the settlement on January 17,1986. The Workers’ Compensation Court approved the settlement on January 21, 1986.

The claimant’s back problems have bothered him consistently since the March 5, 1985 injury. He was admitted to the hospital by Dr. Teal in late September 1986 because of his continuing low back pain. On September 29, 1986, a CT scan showed constriction of the claimant’s spinal canal. On October 3, 1986, a myelogram was performed which showed spinal stenosis at the L3-4 level. The stenosis was due to the bulging of the disc and/or bone spurs that projected into the spinal canal.

Dr. Teal explained in his deposition that the claimant’s joints are wearing out, which produces constriction of the spinal canal so that the nerves have less room. As the condition progresses, the spinal canal becomes narrower and the vertebrae become more unstable and loose as time passes. Dr. Teal suspected spinal stenosis in April

1985 because of the claimant’s significant degenerative disc disease. However, his suspicions were not confirmed until the October 3, 1986, myelogram.

Dr. Teal testified that based upon the findings of the CT scan and the myelogram, he discussed with the claimant the possibility of future surgery to relieve the constriction in his spinal canal. He advised the claimant to consider surgery and to return in November 1986 to discuss it further.

The claimant pursued his claim for social security disability benefits during this period of time. As part of that claim process, the claimant’s counsel submitted a letter with exhibits to the administrative law judge on October 23,1986, asserting that the findings of the CT scan and the myelogram supported Rath’s claim for disability benefits. The letter makes it clear that Dr. Teal had discussed with the claimant the possibility of surgery as a course of treatment for bis condition. The claimant argued that, given his condition, he was not capable of performing any competitive employment, and therefore, was totally disabled.

Although Dr. Teal requested that the claimant return in November 1986 to discuss surgery for his back problems, the claimant did not return until July 1987, at which time he continued to complain of low back pain. In May 1988, the claimant told Dr. Teal that his pain was as severe as in March 1985. X-rays did not reveal any significant change in the claimant’s condition.

The claimant returned to Dr. Teal on May 9,1989, complaining of pain in his back. A CT scan showed stenosis of the spinal canal at L3-4. When compared with the CT scan of September 1986, this CT scan showed basically no change in the claimant’s condition except for a little more stenosis at the L3-4 level.

An MRI completed on July 19, 1989 reconfirmed Dr. Teal’s belief that claimant suffered from spinal stenosis. Dr. Teal recommended surgery. Surgery was performed on November 3,1989, to decompress and remove bone spurs at L3-4 and to extend the fusion to the third lumbar vertebra. At the time of his deposition on September 6,1990, Dr. Teal did not believe the claimant had reached a point of maximum healing and had not released the claimant to work. The claimant has not worked since his March 5, 1985 injury.

On July 9, 1990, the claimant filed a petition with the Workers’ Compensation Court to set aside the Full and Final Compromise Settlement he had entered into on January 17,1986, on the grounds of mutual mistake of the fact that he would be required to have additional back surgery after the settlement of his claim. A trial on the matter was held on September 24, 1990. The claimant testified briefly at the trial. Further testimony of the claimant, as well as testimony of his treating physician, Dr. Teal, his counsel at the time of settlement, Thomas Lynaugh, three of the respondent’s claims personnel and the claimant’s vocational rehabilitation expert, was submitted by depositions filed with the Workers’ Compensation Court.

On December 13,1990, the Workers’ Compensation Court entered its findings of fact, conclusions of law, and judgment refusing to set aside the settlement. The Workers’ Compensation Court ruled that there was no mutual mistake of fact as to the claimant’s medical condition at the time of the settlement, and that his petition to reopen the settlement was barred by the statute of limitations pursuant to § 27-2-203, MCA. This appeal followed.

The claimant contends on appeal that the Workers’ Compensation Court erred in concluding that there was no mutual mistake of fact regarding the condition of his back at the time of the January 17, 1986, Full and Final Compromise Settlement. In addition, the claimant contends that the Workers’ Compensation Court erred in concluding that his petition to reopen the settlement was barred by the statute of limitations.

The claimant maintains that he never had knowledge that his condition might require further surgery until he received a letter from Dr. Teal dated July 29, 1989. He asserts that the court ignored the testimony of Dr. Teal that in an office visit on July 7, 1987, after the October 3, 1986, myelogram, there was no discussion of surgery. He argues that Dr. Teal’s office note of this visit reflected that Dr. Teal had not yet determined a definite diagnosis of spinal stenosis and that Dr. Teal’s primary diagnosis was depression. He further asserts that in his next visit to Dr. Teal on May 31,1988, he again was treated conservatively with no discussion of surgery. The claimant argues that this evidence is consistent with his own testimony that he believed Dr. Teal thought his subjective complaints of pain had a psychological, rather than a physiological, basis. He further argues that the two-year statute of limitations contained in § 27-2-203, MCA, did not begin to accrue until he actually discovered his mistake regarding the condition of his back in July 1989.

This Court will not overturn findings of fact of the Workers’ Compensation Court if there is substantial evidence in the record to support them. Kraft v. Flathead Valley Labor & Contr. (1990), 243 Mont. 363, 365, 792 P.2d 1094, 1095. Conclusions of law, “whether the conclusions are made by an agency, workers’ compensation court, or trial court,” will be upheld if the tribunal’s interpretation of the law is correct. Steer, Inc. v. Dept. of Revenue (Mont. 1990), [245 Mont. 470,] 803 P.2d 601, 603, 47 St.Rep. 2199, 2200. We will also uphold the result reached below if correct, regardless of the reasons given for the conclusion. Jerome v. Pardis (1989), 240 Mont. 187, 192, 783 P.2d 919, 922.

The Full and Final Compromise Settlement entered into by the parties is a contract. In Kienas v. Peterson (1980), 191 Mont. 325, 624 P.2d 1, this Court established that under general principles of contract law a full and final compromise settlement could be set aside in limited situations if the parties to the agreement were operating under a mutual mistake of fact. Section 28-2-409, MCA, describes what constitutes a mistake of fact:

“What constitutes mistake of fact. Mistake of fact is a mistake not caused by the neglect of a legal duty on the part of the person making the mistake and consisting in:
“(1) an unconscious ignorance or forgetfulness of a fact, past or present, material to the contract; or
“(2) belief in the present existence of a thing material to the contract which does not exist or in the past existence of such a thing which has not existed.”

Section 27-2-203, MCA, sets forth the applicable statute of limitations for an action to reopen a full and final compromise settlement on grounds of mutual mistake.

“Actions for relief on ground of fraud or mistake. The period prescribed for the commencement of an action for relief on the ground of fraud or mistake is within 2 years, the cause of action in such case not to be deemed to have accrued -until the discovery by the aggrieved party of the facts constituting the fraud or mistake.”

Actual knowledge of the mutual mistake is not required to start the running of the statute of limitations. D’Agostino v. Swanson (1990), 240 Mont. 435, 443, 784 P.2d 919, 924. Rather, the statute of limitations begins to run when the facts are such that the party bringing the action would have discovered the mistake had he or she exercised ordinary diligence. D’Agostino, 240 Mont. at 443, 784 P.2d at 924.

Here, the Workers’ Compensation Court concluded that, based upon the medical evidence presented, it could find nothing to indicate that the parties were mutually mistaken about the condition of the claimant’s back at the time of the settlement. In addition, the court ruled that the claimant’s petition was barred by the two-year statute of limitations, apparently reasoning that because there was no mutual mistake of fact at the time the settlement was entered into in January 1986, the two-year period for bringing the action expired in January 1988.

Our review of the record shows that even if the parties were mutually mistaken as to the condition of the claimant’s back at the time they entered into the settlement, as the claimant asserts, the claimant’s petition was barred by the statute of limitations. Contrary to the claimant’s assertions, the record clearly indicates that the claimant discovered no later than October 1986 that additional back surgery was a possibility. Dr. Teal testified that, based upon the findings of the September 1986 CT scan and the October 1986 myelogram, he discussed with the claimant the possibility of further surgery, advised him to consider it and requested him to return in November to discuss it further. The claimant did not return to Dr. Teal until July 1987. In his deposition, Dr. Teal explained that he did not discuss surgery with the claimant at that time because he was “impressed ... with the severity of [the claimant’s] emotional depression and felt that we shouldn’t be — we should be treating that and shouldn’t be putting him through an operation.”

Furthermore, in October 1986, the claimant’s attorney notified the administrative law judge in the claimant’s social security claim of Dr. Teal’s conclusion that surgery was a possible course of treatment. Moreover, when the administrative law judge ruled in the claimant’s favor, the decision awarding social security disability benefits was based in part on the medical findings that surgery was possible for the claimant in the future.

Given this evidence, the two-year period in which to bring a claim based on mutual mistake pursuant to § 27-2-203, MCA, expired, at the latest, in October 1988. Because the claimant did not file his petition to reopen the settlement until July 1990, his claim was barred by the statute of limitations. Accordingly, the result reached by the Workers’ Compensation Court is correct.

Affirmed.

CHIEF JUSTICE TURNAGE, and JUSTICES TRIEWEILER, HUNT, and WEBER concur.


source: Caselaw Access Project

author: JUSTICE HARRISON

license: Public Domain

text:
    THOMAS W. LIDDLE and CONSTANCE L. LIDDLE, Plaintiffs and Respondents, v. JACK H. PETTY, ET AL., Defendant and Appellant.
    No. 90-596.
    Submitted on briefs July 11, 1991.
    Decided August 20, 1991.
    249 Mont. 442.
    816 P.2d 1066.

      Marshall Murray and James M. Ramlow, Murray & Kaufman, Kalispell, for defendant and appellant.
    Chris Christensen, Kalispell, for plaintiffs and respondents.
   JUSTICE HARRISON

delivered the Opinion of the Court.

Jack H. Petty appeals from a July 23, 1990, judgment of the District Court of the Eleventh Judicial District, Flathead County, Montana, awarding damages to Thomas W. and Constance L. Liddle for breach of a contract for deed. We affirm.

The issue is whether the District Court erred by holding that the vendee, Jack Petty, rather than the vendors, Thomas and Constance Liddle, had materially breached the contract for deed and that Petty was not entitled to suspend payments.

I.

In 1981 Thomas and Constance Liddle purchased a small farm located in Flathead County on Highway 2 across from the water slides. At the time of purchase, the Federal Land Bank of Spokane held a mortgage on the property, and Liddles assumed liability for the promissory note secured by the mortgage.

In February of 1985, Liddles sold the real property to Jack Petty under a contract for deed for $498,000. Petty agreed to pay $80,000 in cash at the time of closing, to assume the obligation to the Federal Land Bank of approximately $248,000, and to compensate Liddles for the $170,000 balance plus interest in five annual payments beginning January 1,1987.

According to the terms of the contract, when Liddles received the $80,000 down payment, they would convey to Petty a twenty-five acre parcel of land released from the Federal Land Bank mortgage for development of a recreational vehicle park:

“18. Release of Acreage. Seller hereby agrees that, upon payment of the down payment referenced in Paragraph 1(a) above, it will release unto Purchaser that certain portion of real property being conveyed hereunder (in the approximate size of 25 acres), which parcel is specifically described on Exhibit B attached hereto, and will thereafter cooperate with Purchaser in obtaining a release of said property from the Federal Land Bank mortgage referenced in Paragraph 1(b) above.”

Although Petty made the $80,000 down payment, the twenty-five acre tract was not conveyed to him at that time because the tract had not been surveyed. The twenty-five acre parcel was surveyed and the Certificate of Survey was recorded on February 21,1985. Because the survey was incorrect, a corrected Certificate of Survey was recorded on May 20, 1987.

Additional consideration for the release of the twenty-five acre parcel was the assignment of a security interest in Petty’s retirement fund:

“19 .Additional Collateral. As additional collateral and as additional consideration for the release of the 25-acre parcel just mentioned in the prior paragraph, Purchaser hereby grants to Seller an assignment of and security interest in and to this vested interest in Western Airlines, Pilots’ Retirement Income Plan, Certificate Number 3158

The parties later learned that terms of the merger of Western Airlines and Delta Airlines prevented Petty from assigning an interest in his retirement fund.

In his testimony, Petty also claimed that at the time he entered into the contract, he had been assured that the property was unzoned. In relation to zoning, the contract provided:

“20. Potential Reduction of Price. The parties hereto acknowledge that Purchaser intends to use the 25-acre parcel being released ... as a recreational vehicle park. The entire property being conveyed hereunder is being sold at $498,000.00 under the assumption that Purchaser can acquire the necessary zoning approval for a recreational vehicle park on said released property.... However, if, after use of due diligence and the expiration of 30 months subsequent to the execution of this Agreement, Purchaser fails to obtain said zoning approval, then, in such case, the purchase price of $498,000 shall be reduced by $25,000.00 ....”

The title insurance failed to reflect the fact that the property was zoned at the time of sale. Petty was unable to obtain rezoning of the property allowing him to construct an RV park.

The Contract for Deed provided that if Petty failed to make any of the payments or failed to comply with any other provision of the contract, Liddles had to give notice to Petty of default. If Petty failed to cure the default within 30 days of receiving notice, Liddles were required to give 30 days further notice. If Petty could not meet the required payments within 30 days of the second notice, the entire ■unpaid balance on the contract, including principal and interest, became due.

Federal Land Bank notified Petty in September, 1985, that it would not release the twenty-five acre parcel to Petty until he brought loan payments current. Petty ceased making payments altogether in early 1986. On May 27, 1987, Liddles sent Petty a notice of default alleging that Petty was $27,944.40 in arrears on the Federal Land Bank mortgage lien, $32,043.84 in arrears on the payments of interest to Liddles, and had not provided a certified copy of the fire insurance policy as required by the Contract for Deed. The notice asked that Petty cure the default.

On June 18, 1987, Petty sent an instruction to the escrow agent not to close the escrow or to release documents to Liddles pending further instruction or court order.

Liddles sent a second notice of default on July 13,1987, accelerating the entire balance due under the Contract for Deed in the amount of $170,000. Liddles also requested attorney’s fees as allowed by the Contract for Deed. On December 17,1987, Liddles filed this action to enforce their rights under the Contract for Deed. Defendant counterclaimed, alleging that he was entitled to rescission and return of his payments on the ground of misrepresentation by Liddles.

After the action was filed, Farm Credit Bank of Spokane, successor to Federal Land Bank, foreclosed on the property. On March 12,1990, the District Court ruled that the bank was entitled to a deficiency judgment against Petty and Liddles.

A hearing on this case was held June 4, 1990, before the District Court sitting without a jury. Mr. Liddle testified that at the time of closing he was under the impression that all necessary documents for the transfer of the twenty-five acre tract had been signed and turned over to Petty. According to Mr. Liddle, the first time that he became aware that Petty had not received the deed to the twenty-five acre parcel was in December 1987. Prior to that date, Petty had not contacted Liddles directly to say that he needed the deed to the twenty-five acre parcel. Mr. Liddle testified that he returned the signed deed to the American Abstract and Title Company in December 1987.

Petty testified that he had not ever received the deed for the twenty-five acre tract and that release of the twenty-five acre tract was “paramount to the deal.” Petty’s testimony contradicted his answer to interrogatories in which he stated that the deed to the twenty-five acre parcel was delivered after the defaults were claimed. Russell E. Harshberger of American Abstract and Title Company denied receiving in the mail the deed to the twenty-five acre parcel which he had sent to Liddles in November 1987.

The District Court found in favor of plaintiffs, deducting $25,000 from the balance of the purchase price owed to Liddles as provided in the Contract for Deed since Petty was unable to obtain rezoning of the property. From this judgment, Petty appeals.

II.

The issue is whether the District Court erred by holding that Petty, rather than Liddles, had materially breached the contract for deed and that Petty was not entitled to discontinue payments. According to Petty, he was entitled to suspend payments because Liddles had materially breached the contract by failing to convey the deed to the twenty-five acre parcel to him at the time Liddles received the $80,000 down payment as provided in the Contract for Deed. Petty claimed that release of the twenty-five acre parcel was “paramount” to the deal.

Unless the contract provides otherwise, the general rule is that the vendor need not produce marketable title to real property sold under an installment contract until the date set for final payment and tender of the deed. Wise v. Sebena (Mont. 1991), [248 Mont. 32,] 808 P.2d 494, 498, 48 St.Rep. 309, 311; Scheitlin v. R. & D. Minerals (1985), 217 Mont. 8, 11, 701 P.2d 1388, 1390. If one of the contracting parties materially breaches the contract, the injured party is entitled to suspend his performance. Determination of whether the breach is material is a question of fact. Sjoberg v. Kravik (1988), 233 Mont. 33, 38, 759 P.2d 966, 969.

A party to a contract may rescind “if, through the fault of the party as to whom he rescinds, the consideration for his obligation fails in whole or part.” Section 28-2-1711, MCA. In addition, the party must meet the requirements of § 28-2-1713, MCA, which provides in part:

“Rescission, when not effected by consent, can be accomplished only by the use on the part of the party rescinding of reasonable diligence to comply with the following rules:
“(1) He must rescind promptly upon discovering the facts which entitle him to rescind if he is free from duress, menace, undue influence, or disability and is aware of his right to rescind.”

Section 28-2-1713(1), MCA. Therefore, even though a party may be entitled to rescind a contract, the “rescinding party must use reasonable diligence and take action within a reasonable time upon discovering the facts which entitle him to rescind.” Berry v. Romain (Mont. 1981), [194 Mont. 300,] 632 P.2d 1127, 1130.

Petty argues that this case is analogous to Sjoberg where the real estate contract provided for release of an underlying mortgage. In Sjoberg, we upheld the district court’s decision that procuring a release of the underlying mortgage was material to the contract. Sjoberg, 233 Mont. at 39, 759 P.2d at 969. In contrast to this case, the buyer in Sjoberg promptly notified the seller that he was in default for failing to acquire a release of the underlying mortgage, and the buyer attempted to make payment with the provision that it be held in escrow. The escrow agent rejected the payment. When the seller responded by notifying the buyer that he was in default for past-due payments, the buyer promptly made the payments within the grace period. Sjoberg, 233 Mont. at 35-37, 759 P.2d at 967-68. In addition, we upheld the district court’s decision that once the release was obtained the buyer was obligated to recommence payments. Sjoberg, 233 Mont. at 39, 759 P.2d at 969.

The District Court found that Petty had not made any payments to Liddles since February 11, 1985, when Petty had made the down payment. Petty suspended payments to the Federal Land Bank in January 1986. The District Court found that Petty had not requested a deed to the twenty-five acre parcel until May 1987 and had given no notice of default to Liddles as a result of their alleged failure to furnish a release. In addition, as the District Court found, Petty “had a great deal of difficulty in getting the 25-acre parcel released by the Federal Land Bank due to the fact that he was in default on the mortgage payments within seven (7) months after having assumed the mortgage obligation.” In the opinion of the District Court, Petty’s problem was not the lack of a deed to the twenty-five acre parcel, but the inability to obtain rezoning of the twenty-five acre parcel to allow operation of an RV park.

On the other hand, the District Court found that Liddles had “performed in accordance with all the terms and conditions of the Contract for Deed” and had “delivered a deed to the acreage in a timely fashion after being presented with one by Defendant through Mr. Harshberger.”

Petty was not entitled to suspend performance of the contract when the failure of consideration was not through the fault of the other party and when Petty had failed to use “reasonable diligence” to “rescind promptly upon discovering the facts.” Unlike the buyer in Sjoberg, Petty delayed over two years after the contract was signed to report to Liddles that he had not received the deed to the twenty-five parcel and had never given Liddles notice of default.

This Court cannot set aside findings of fact determined by a district court sitting without a jury, unless the findings are “clearly erroneous,” and we must give “due regard” to the “opportunity of the trial court to judge of the credibility of the witnesses.” Rule 52(a), M.R.Civ.P.; Steer, Inc. v. Department of Revenue (Mont. 1990), [245 Mont. 470,] 803 P.2d 601, 603, 47 St.Rep. 2199, 2200. When evidence conflicts, we will not substitute our judgment for that of the District Court if the findings are supported by substantial, credible evidence. Lorenz v. Estate of Schilling (1989), 236 Mont. 82, 84, 768 P.2d 869, 870.

Substantial evidence supports the findings of the District Court that the lack of a release of the twenty-five acre tract from the Federal Land Bank is attributable to actions of Petty, rather than Liddles. Even if receipt of the release or deed to the twenty-five acre parcel were material, Liddles were not accountable for the failure to obtain the release.

When the purchase price of property under a contract for deed is paid in installments, “default in the payment of any installment is a distinct breach and gives the vendor the right to declare a forfeiture.” Wise, 808 P.2d at 498, 48 St.Rep. at 311 (quoting Suburban Homes Co. v. North (1914), 50 Mont. 108, 145 P.2d 5). The conclusion of the District Court that Petty “breached the terms and conditions of the Contract for Deed without justification,” was not clearly erroneous and was supported by substantial, credible evidence.

Affirmed.

JUSTICES GRAY, HUNT, TRIEWEILER and WEBER concur.


author: JUSTICE McDONOUGH

text:
    EBI/ORION GROUP, Petitioner/Appellant and Cross-Respondent, v. STATE COMPENSATION MUTUAL INSURANCE FUND, Defendant/Respondent and Cross-Appellant. In re CLAUDE ATHEY, Intervenor/Claimant.
    No. 91-031.
    Submitted on briefs July 2, 1991.
    Decided August 22, 1991.
    249 Mont. 449.
    816 P.2d 1070.

      Bradley J. Luck and Charles E. McNeil, Garlington, Lohn & Robinson, Missoula, for petitioner/appellant and cross-respondent.
    Richard E. Bach, Helena, for defendant/respondent and cross-appellant.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

EBI/Orion Group appeals from the judgment of the Workers’ Compensation Court which held that it was not entitled to indemnification from the State Compensation Mutual Insurance Fund for workers’ compensation benefits paid to claimant, Claude Athey. We affirm.

Although several issues have been submitted on appeal, we find only one necessary to our review:

‘Whether substantial credible evidence supports the Workers’ Compensation Court’s determination that no second injury occurred while State Compensation Mutual Insurance Fund was on risk.”

On September 19,1985, claimant, Claude Athey injured his back in a slip and fall accident. This injury occurred in the course and scope of his employment with Harp Line Construction. At this time Harp Line Construction was insured, for workers’ compensation purposes, by EBI/Orion Group (EBI). Despite this injury, Mr. Athey continued to work until he was laid off seasonably and did not seek medical attention until February of 1986.

In May of 1986, Mr. Athey’s treating physicians determined that his back condition had become medically stable. During the summer of 1986, Mr. Athey continued his employment with Harp Line Construction. His employment required him to engage in heavy work activities that periodically caused pain in the area of his back injury. At this point in time, Harp Line Construction was insured by the State Compensation Mutual Insurance Fund (State Fund).

On September 8, 1986, Mr. Athey was working particularly hard lifting and stacking tires. He suffered an injury to his chest and stomach and also experienced pain in his back. He reported the injury to his superiors at Harp Line Construction and apparently determined that he could no longer work.

Mr. Athey filed a claim for workers’ compensation benefits following this accident. Apparently, Mr. Athey has problems reading and writing, so consequently his employer filled out the form for him. Mr. Athey had not filed a claim after his slip and fall accident and it was his impression that the claim for compensation was for both the 1985 injury and his present injuries received when moving the tires. On receipt of the claim, the State Fund began payment of benefits under § 39-71-608, MCA, while its investigation of the circumstances surrounding the claim continued.

After investigation, the State Fund determined that the date of Mr. Athey’s injuries was September 19, 1985, when EBI was the insurer at risk. On this basis, it terminated the benefits it had been paying Athey.

On January 23, 1987, EBI received a claim for workers’ compensation benefits. Eventually EBI accepted liability for Mr. Athey’s condition. However it retained a full reservation of rights to recover any amounts paid, from the State Fund, in the event further investigation revealed that a second injury occurred with the State Fund on risk. After settlement was reached with Mr. Athey, EBI requested that the State Fund contribute 50% toward the settlement. The State Fund refused.

EBI filed a petition before the Workers’ Compensation Court for determination of its right to indemnification from the State Fund. The Workers’ Compensation Court granted summary judgment in favor of the State Fund. EBI appealed to this Court and we reversed. EBI/Orion Group v. State Compensation Ins. Fund (1989), 240 Mont. 99, 782 P.2d 1276. On remand we directed the Workers’ Compensation Court “to determine whether Claude Athey had reached the condition of maximum healing following his injury of September 19,1985, prior to his second injury, and whether in fact a second injury occurred.” EBI/Orion Group, 240 Mont. at 105, 782 P.2d at 1280. In its Order on Remand, the Workers’ Compensation Court denied EBI’s claim for indemnification on the grounds that Athey did not suffer an “injury” on September 8, 1986. This appeal followed.

As stated above, the State Fund has cross-appealed from the judgment of the Workers’ Compensation Court. It maintains that the court erred when it found that Mr. Athey had reached a medically stable condition before the accident of 1986. Because we affirm the Workers’ Compensation Court we need not address this issue. A finding in favor of the State Fund on this issue would not change the result of this opinion. We need only review EBI’s assignment of error that the lower court incorrectly found Mr. Athey did not suffer an injury in September of 1986.

The standard of review utilized when reviewing decisions of the Workers’ Compensation Court is well established.

“Our function in reviewing a decision of the Workers’ Compensation Court is to determine whether there is substantial evidence to support the findings and conclusions of that court. We cannot substitute our judgment for that of the trial court as to the weight of evidence on questions of fact. Steffes v. 93 Leasing Co. Inc. (1978), 177 Mont. 83, 86, 580 P.2d 450, 452. However, decisions of the Workers’ Compensation Court must be based upon substantial credible evidence. O’Brien v. Central Feeds (1990), 241 Mont. 267, 271, 786 P.2d 1169, 1172. If the conclusions of law are not supported by the Court’s findings of fact, those conclusions must be reversed. Hume v. St. Regis Paper Company (1980), 187 Mont. 53, 608 P.2d 1063.”

Hash v. Montana Silversmith (Mont. 1991), [248 Mont. 155,] 810 P.2d 1174, 1175, 48 St.Rep. 364, 365.

The Workers’ Compensation Court found that the State Fund was not legally required to indemnify EBI for benefits paid to Claude Athey. In reaching this conclusion, the court relied upon the Belton rule. Simply stated the Belton rule holds that once a claimant has reached maximum healing or a medically stable condition, the insurer at risk is no longer responsible for any subsequent injuries or conditions. See Belton v. Carlson Transport (1983), 202 Mont. 384, 389, 658 P.2d 405, 408. As this rule clearly states, in order for EBI to sustain a claim of indemnification against the State Fund it must establish two elements. First it must show that Mr. Athey had attained a condition of maximum healing. Second, it must establish that he sustained an injury after he reached maximum healing.

As stated above, the Workers’ Compensation Court found, and EBI agrees, that Claude Athey had reached maximum healing before the injury of September 8, 1986. However, the Workers’ Compensation Court did not find that Mr. Athey injured his back while lifting tires on that date. Based upon this finding, the court denied EBI’s claim for indemnification.

EBI maintains that the Workers’ Compensation Court’s judgment on this issue was not supported by substantial evidence. In making this argument, EBI relies upon testimony elicited from Athey’s doctors which suggests that the September 1986 accident permanently aggravated his condition. The Workers’ Compensation Court did not attribute much weight to this testimony because it found that the doctors’ responses to questions on this issue resulted more from skillful examination of EBI’s counsel than from medical fact. This doctor was deposed ex parte and the other doctor’s opinion contradicted an earlier report that he issued. In weighing all evidence including Athey’s own testimony, the court determined that the back condition when Athey left work on September 8,1986, was the result of Athey’s gradually worsening condition and was not a separate injury that caused any permanent aggravation. Therefore no injury, within the meaning of § 39-71-119, MCA, occurred.

We disagree with EBI’s argument that this conclusion was properly supported. We have fully read the depositions that were submitted to the Workers’ Compensation Court. It is by no means clear that Mr. Athey’s 1986 accident permanently aggravated underlying back condition or constituted an injury as that term is defined by the Workers’ Compensation Act. While there may be some conflicting evidence on this point, the lower court’s judgment is supported by substantial evidence.

Substantial evidence has been defined as that evidence that a reasonable mind might accept as adequate to support a conclusion. Although it may be based upon weak and conflicting evidence, in order to rise to the level of substantial evidence it must be greater than trifling or frivolous. Christensen v. Britton (1989), 240 Mont. 393, 401, 784 P.2d 908, 913. In this case, the Workers’ Compensation Court considered the depositions of all doctors involved in this case. It also took into account Mr. Athey’s testimony concerning the circumstances surrounding his accident and injury and that his back hurt him all of the time and progressively worsened. Substantial evidence supports the court’s judgment on this issue. Accordingly, its judgment is affirmed.

JUSTICES HARRISON, HUNT, GRAY, and TRIEWEILER concur.


author: JUSTICE WEBER

text:
    MELANIE VESTRE and David V. Knoll, Plaintiffs and Appellants, v. PAUL LAMBERT, Donald C. Barringer, Norma L. Barringer, Dean Conaway and Century 21 Preferred Properties, Inc., Defendants and Respondents, DAVID V. KNOLL, Plaintiff and Appellant, v. STANLEY W. PINE, Defendant and Respondent.
    No. 89-614.
    Submitted on briefs June 18, 1991.
    Decided August 20, 1991.
    249 Mont. 455.
    817 P.2d 219.

      Lane K. Bennett, Kalispell, for plaintiffs and appellants.
    Stephen C. Berg, Warden, Christiansen, Johnson & Berg; M. Dean Jellison, Attorney at Law, Kalispell, for defendants and respondents.
   JUSTICE WEBER

delivered the Opinion of the Court.

The District Court for the Eleventh Judicial District, Flathead County, consolidated two lawsuits and a jury trial was held. Plaintiffs, Melanie Vestre and David Knoll, sought damages for fraud, negligent misrepresentation, negligent construction, and breach of warranty against Century 21, Paul Lambert, Dean Conaway and Donald and Norma Barringer, d/b/a, Barringer Construction. Judgment was entered in favor of the Barringers and they are not parties to this appeal. The jury found that defendants Lambert and Conaway had negligently misrepresented material facts and awarded plaintiffs $10,000. The jury found in favor of Lambert, Conaway and Century 21 in all other respects. Plaintiff Knoll also brought an action against Stanley Pine to recover on a promissory note. Pine counterclaimed and sought damages for misrepresentation. The jury found Knoll violated a duty owed to Pine and awarded Pine $40,000. Plaintiffs appeal. We reverse and remand.

We will address the following issues:

1. Did the District Court err in allowing Pine to testify as an expert witness?

2. Did the District Court err in allowing defense counsel to testify and argue the case?

3. Did the District Court err in allowing Pine’s testimony on his community activities and involvement?

Plaintiffs, Melanie Vestre (Vestre) and David Knoll (Knoll), lived in their home located on Flathead Lake near Kalispell, Montana (“the Lake home”). Plaintiffs contacted Dean Conaway (Conaway), a real estate agent employed by Century 21 Preferred Properties, Inc. (Century 21), regarding the purchase of real estate investment property. Plaintiffs informed Conaway that they were looking for undeveloped property on which to build improvements and rental units. Plaintiffs informed Century 21, Paul Lambert (Lambert), President of Century 21, and Conaway that they wanted an investment that would be profitable and beneficial for taxation purposes also.

Conaway, Lambert and Century 21 referred plaintiffs to townhouses in the Buffalo Head Addition Number 92, located in Kalispell, Montana, then being built and constructed by Donald and Norma Barringer, d/b/a Barringer Construction (Barringers). Century 21, Lambert and Conaway informed plaintiffs that Barringers were finishing one four-plex unit which would be available for sale to them and had two townhouses in a finished unit for sale immediately.

Century 21, Lambert, Conaway and Barringers all suggested that the parties involve Stanley Pine (Pine), developer of the Buffalo Head Addition No. 92, in a complex three-way property exchange. The parties exchanged various appraisals. Subsequently, on May 6,1985, plaintiffs, Barringers and Pine entered into an exchange agreement whereby various properties, cash, notes, and equity were transferred among them.

As part of the exchange, plaintiffs transferred their Lake home property to Pine and received a total of six townhouses (the “original units”) from Pine and Barringers. Barringers were the developers, builders, and contractors on these six original units. Plaintiffs also received from Barringers two vacant building lots in the development, and committed to building a four-plex unit on each lot. Plaintiffs did eventually construct one four-plex unit on one lot, known as the “Blue Units”. Pine executed a promissory note in the amount of $20,521.

During the negotiation process, prior to the closing of the exchange agreement, plaintiffs became aware of the fact that six townhouse units in the same subdivision constructed by Barringers, which adjoined two of their potential townhouse units, were involved in a dispute between the purchaser, Dr. Douglas Wood (Wood), and the defendants — Barringers, Century 21 and Lambert. Wood filed a lawsuit demanding rescission.

Certain problems were bothering the tenants of the units purchased by plaintiffs, and high utility bills were experienced during this period by the tenants. Defendants advised plaintiffs that the units were considered to be energy efficient and that an approximate heating cost of $110 per month was likely. These problems, among many others, apparently started a chain reaction of problems culminating in defaults and foreclosures involving all parties. This lawsuit resulted.

Plaintiffs maintained that Century 21, Lambert, and Conaway breached their duty to fully disclose as contained in § 37-51-321, MCA; and misrepresented the value and marketability of the units, amounting to misrepresentation, negligence and constructive fraud. Knoll also filed a default action against Pine alleging that Pine failed to pay the promissory note when due. Pine counterclaimed.

The District Court granted Knoll summary judgment on the promissory note but found that Pine’s counterclaim alleged material misrepresentations in conjunction with the real estate transaction which formed the basis for the promissory note. Thus, the counterclaims were consolidated with the Century 21 case.

The jury returned a special verdict finding:

1. Plaintiffs violated a duty owed to Pine and Pine was damaged in the amount of $40,000.

NEGLIGENCE CLAIMS:

2. Barringers were not negligent.

3. Century 21, Lambert and Conaway were negligent but such, negligence was not a legal cause of damages to the plaintiffs.

4. Plaintiffs were negligent and such negligence was a legal cause of damage to them.

5. Negligence was allocated as follows:

(a) Negligence of Century 21, Lambert, Conaway and Barringers: 60%

(b) Negligence of Plaintiffs: 40%

6. The total damages sustained by plaintiffs as a result of the negligence of Century 21, Lambert, Conaway and Barringer was zero.

NEGLIGENT MISREPRESENTATION CLAIMS:

7. Lambert and Conaway negligently misrepresented material facts to the plaintiffs. Barringers did not.

8. The negligently misrepresented material facts were a legal cause of damage to the plaintiffs.

9. The total damages sustained by plaintiffs as a result of the negligent misrepresentation was $10,000.

FRAUD CLAIMS:

10. Defendants did not defraud plaintiffs.

11. The total damages sustained by plaintiffs as a result of the fraud of Century 21 and Lambert was zero.

EXPRESS WARRANTY (original Units):

12. Barringers did not breach an express warranty in favor of the plaintiffs regarding the original units.

Subsequently, the District Court entered judgment on the verdicts and ordered that plaintiffs have judgment against Century 21, Lambert and Conaway in the amount of $10,000. The District Court further ordered that Barringers have judgment against plaintiffs and were entitled to their costs and disbursements. As to Pine, the District Court ordered that the total amount due on the note was on offset to the $40,000 judgment plus costs for Pine, leaving Knoll a balance due to Pine of $10,647 plus costs. Plaintiffs appeal.

I.

Did the District Court err in allowing Pine to testify as an expert witness?

At trial, defendants called Pine to testify in their case-in-chief. Plaintiffs maintained that Pine was qualified as an expert and testified as such over plaintiff’s objection. Plaintiffs had notice that Pine would be called as a witness, but not as an expert witness. Plaintiffs maintain that Pine’s testimony as an expert witness was unfair surprise because they had no opportunity to prepare for cross-examination of an expert, and no opportunity to prepare an expert of their own for rebuttal.

Defendants Century 21, Lambert and Conaway acknowledge that Pine was not identified in the pre-trial order as an expert witness. However, they deny that Pine was called as an expert witness, but instead that he “expressed an opinion as a layman and central participant in the subject exchange”. We disagree.

Relevant portions of Pine’s testimony are set out below:

Direct Examination

BY [DEFENSE COUNSEL]:

“Q. Would you please state your name and your address?
“A. Stan Pine,...
“Q. Stan, would you give the Jurors an idea of your post-high school education and professional training?
“A. I graduated with a Bachelor’s Degree in accounting at Kent State University.
“Q. In what year?
“A. In 1967. And then I proceeded to go to work for Arthur Anderson and Company. They are a large CPA firm in their Denver office. And I worked for them for a few years. I opened up my own CPA practice in a smaller town in Colorado and ran and managed that practice for about six years. Then I moved up here.
“Q. In what year?
“A. In 1976.
“Q. Are you a licensed Certified Public Accountant?
“A. I am, in the State of Colorado. I have never changed my certificate to Montana.
“Q. So have you practiced in Montana as a CPA?
“A. I have worked for Larry Simpson, who is a CPA here. And if you don’t transfer your certificate, you have to work underneath somebody else. So I have done some work for him.
“Q. Stan, at my request have you reviewed the Plaintiffs’ Exhibit 30 which I am holding in my hands?
“A. I have.
“Q. To the extent it can be reviewed?
“A. Yes. I have not had time to go through item by item on some of the littler checks. But I have looked at the major items.”

Following this questioning, defense counsel was allowed to put the original Exhibit 30 on the jury box and hand out copies of it to the Jurors. The questioning continued.

“[PLAINTIFFS’ COUNSEL]: Your Honor, after the qualification statement, I would again like to make my objection.
“THE COURT: The objection is duly noted and overruled.
“[DEFENSE COUNSEL]: Your Honor, I would like the court to be aware that Stanley Pine has at all times been listed as a witness whom we would call in this trial. [Plaintiffs’ Counsel] is correct, not in an expert capacity, and he will not be testifying in that capacity.
“Q. Stan, having reviewed Exhibit 30, and at my request and with the input of not only me, but the town folks I am representing there and your own attorney, did you have occasion to have prepared a document which might aid you in your analysis of Exhibit 30?
“A. It is a long, roundabout way of saying I prepared a document. Yes.
“Q. What is it entitled?
“A. ‘Knoll transaction per Exhibit 30.’
“Q. Would you identify, please Exhibit J, and tell me if Exhibit J is not an identical copy of what you just referred to?
“A. It is.
“[DEFENSE COUNSEL]: Your Honor, I have provided a copy of Exhibit J to counsel. I would like to offer it in evidence.
“[PLAINTIFFS’ COUNSEL]: We object on the same basis we have been doing; it is an expert, (sic).”

Following that exchange, defense counsel was allowed to give copies of Exhibit J to the Jurors. Pine then testified at length and in detail regarding the information and calculations provided by Exhibit J and compared it to the calculations of Melanie Vestre. Plaintiffs’ counsel again objected arguing that Pine was commenting completely on the evidence. The Court again overruled the objection and allowed the testimony as rebuttal to Melanie Vestre’s calculations.

Admissibility of evidence is within the sound discretion of the District Court and will not be reversed absent an abuse of discretion. Morning Star Enterprises, Inc. v. R. H. Grover, Inc. (Mont. 1991), [247 Mont. 105,] 805 P.2d 553, 556, 48 St.Rep. 112, 113; Massman v. City of Helena (1989), 237 Mont. 234, 240, 773 P.2d 1206, 1210.

Pine was not deposed by either party in this case. He was not listed as an expert witness pursuant to Rule 26(e)(1) and (2), M.R.Civ.P. He did testify in plaintiffs’ case-in-chief on direct examination for the limited purpose of “showing the last of the agreements in the exchange”, but he was not cross-examined by defendants. Plaintiffs did not have their own expert to testify on this matter.

We conclude that Pine was unquestionably qualified by defendants as an expert and testified as such. This amounted to unfair surprise to the plaintiffs. We conclude that the District Court abused its discretion in allowing Pine to testify as an expert witness.

We hold that the District Court erred in allowing Pine to testify as an expert witness. We reverse on this issue.

II.

Did the District Court err in allowing defense counsel to testify and argue the case?

At trial, plaintiffs called Daniel W. Hileman (Hileman), the attorney who had represented Wood in his litigation concerning his townhouses, to testify. Hileman was listed as a witness in the pre-trial order. He testified that prior to the May 6, 1985, closing date of the exchange transaction he had advised counsel for defendants — Century 21, Lambert and Conaway, that Wood was not making his payments, and would not make his payments. Counsel for defendants then offered himself as a surrebuttal -witness to this testimony. Plaintiffs objected but the objection was overruled.

On appeal, plaintiffs maintain that allowing defense counsel’s testimony was error and in violation of Rule 3.7, Rules of Professional Conduct, because the testimony did not relate to an uncontested issue or the nature or value of legal services. Plaintiffs urge that defendants could have discovered the nature of Hileman’s testimony through normal discovery procedures but failed to do so. Defendants maintain that since Hileman was not deposed, the nature of his testimony was not clear until he actually testified. Defendants further allege that no other witness could have testified to the nature of defense counsel’s communications with Hileman.

Rule 3.7 provides (in part):

“(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness except where:
“(1) the testimony relates to an uncontested issue.
“(2) the testimony relates to the nature and value of legal services rendered in the case; or
“(3) disqualification of the lawyer would work substantial hardship on the client.”

We agree with plaintiffs that defense counsel’s testimony in this case was improper. Hileman was listed as a witness in the pretrial order. Defendants had every opportunity to depose him but did not. No interrogatories were addressed to his testimony. The fact that they did not use the discovery available to them does not justify allowing defense counsel’s testimony to veil their shortcomings. Rule 3.7 clearly does not allow a lawyer to testify under these circumstances.

We hold that the District Court erred in allowing defense counsel to testify and conduct the trial of the case. We reverse on this issue.

III.

Did the District Court err in allowing Pine’s testimony on his community activities and involvement?

We will consider this issue for the assistance of the District Court and parties on retrial. During trial, on direct examination, Pine testified as follows:

[BY DEFENSE COUNSEL]:
“Q. You were previously sworn and gave your name, address and occupation and your educational experience. Could you tell us a little bit about your community involvement and what you do in this community, how long you have been here and the like?
“A. We moved here —
“[PLAINTIFFS’ COUNSEL]: Objection, relevance.
“[THE COURT]: Overruled. You may answer.
“[THE WITNESS]: We moved here in 1976, and I have been involved in, I think, as was stated the first day I testified, some in-town and some other business involvements. And as far as community involvement, I have been on the Cay use Prairie School Board, which is a little school out where we five. I am presently on the Hospital Board, Kalispell Regional Hospital Board, and Northwest Hospice Care, which oversees the hospital and Health Promotion Center, and a couple of other things.
“I am on the Youth for Christ Board, and was one of the founders on that. Various such boards and other things like that.
[DEFENSE COUNSEL]:
“Q. When did you first become involved with Buffalo Head Subdivision?”

On appeal, plaintiffs’ maintain that the District Court erred in allowing this testimony on community activities. They maintain that such testimony was irrelevant to any issue involved at trial and that Pine’s character and reputation were not at issue. Plaintiffs urge that evidence of character is not admissible in a trial unless the character of the witness is at issue. Rule 404, M.R.Evid.

Pine contends that it is always proper to establish a witness’ background and to place him in his setting by asking what he is doing and what he has done for a living.

Rule 404(c), M.R.Evid., provides:

“Character in issue. Evidence of a person’s character or a trait of his character is admissible in cases in which character or a trait of character of a person is an essential element of a charge, claim, or defense.”

In Lindberg v. Leatham Bros. Inc. (1985), 215 Mont. 11, 693 P.2d 1234, this Court addressed a similar question. Lindberg was a wrongful death and survivorship action which arose from a fatal car-truck collision between a car driven by Patricia Lindberg and a trailer truck driven by David Toland of Leatham Brothers, Inc. At trial, plaintiffs attempted to introduce evidence that Mr. Toland had been fired from a bus-driving job for being late to work.

In affirming the District Court’s decision disallowing the introduction of such evidence this Court stated:

“This evidence is relevant only to prove a character trait of driver Toland, to-wit: He is an irresponsible employee. Character evidence of this nature is specifically proscribed. See Rule 404, M.R.Evid.
“Appellants misconstrue what is meant by putting one’s character into issue. Rule 404(a)(1), M.R.Evid., incorporates the time-honored practice of allowing the accused in a criminal case to introduce evidence of his good character. The prosecution may then rebut the same. The ride has no application in civil cases unless the character trait is an essential element of the charge, claim, or defense. A character trait of tardiness is not an essential element of an action alleging negligent driving.”

Lindberg, 693 P.2d at 1242. Such is the case here. Pine’s community involvement is not an essential element of an action to recover under any of the theories presented in this case: misrepresentation, recovery on a promissory note, fraud, negligent misrepresentation, negligent construction or breach of warranty.

We conclude that the District Court erred in allowing Pine’s testimony on his community activities, and that such testimony should not be presented on retrial.

We find it unnecessary to address the remaining issues. We note the contradiction in the “negligence” section of the jury verdict form where the jury found negligence on the part of defendants and yet concluded the total damages to be zero. This should be considered on re-trial.

Reversed and remanded.

CHIEF JUSTICE TURNAGE and JUSTICES McDONOUGH, TRIEWEILER and GRAY concur.


author: JUSTICE McDONOUGH JUSTICE WEBER

text:
    PEGGY A. YOUNG, Individually, and as Personal Representative of the Estates of Craig Carrol Young, Deceased, and Charles E. Young, Deceased, Plaintiffs and Appellants, v. MILTON DATSOPOULOS, Richard A. Reep, William K. VanCanagan and Datsopoulos, MacDonald & Lind, Defendants and Respondents.
    No. 90-150.
    Heard February 20, 1991.
    Decided August 21, 1991.
    249 Mont. 466.
    817 P.2d 225.

      Richard F. Gallagher argued, Margaret M. Joyce Johnson, Church, Harris, Johnson & Williams, Great Falls, for plaintiffs and appellants.
    Dexter L. Delaney argued, Mulroney, Delaney & Scott, Missoula, Martin “Skip” Burke, Faegre & Benson, Minneapolis, Minn., for defendants and respondents.
   JUSTICE McDONOUGH

delivered the Opinion of the Court.

This is an appeal from the District Court of the Fourth Judicial District, Missoula County. Plaintiff appeals a partial summary judgment for defendants, which bars a large portion of her legal malpractice claims. We reverse and remand.

The following issue is dispositive of this appeal:

Do genuine issues of material fact exist as to when the statute of limitations began to run, making partial summary judgment inappropriate?

In December 1982, Craig Young, then thirty-one years of age, left his home in Missoula, Montana, on a business trip to Texas. Slightly over one month later, on January 12, 1983, his stabbed and gunshot body was found alongside a Texas roadway.

Between Craig’s departure for Texas and the discovery that he had been murdered, his family became concerned about his uncharacteristic failure to communicate with them. His parents and his younger brother and sister went through his personal and business papers in an effort to locate clues as to his whereabouts. They knew Craig had had a business association with Jack Dickie, who lived in Texas. The exact nature of that business was not known to the family. They did know that Craig was involved in the development of mining claims, that Craig and Dickie may have been operating in “gray areas” of the law, and that Craig never appeared to have much money.

During the family’s search through Craig’s papers, they found newspaper clippings indicating that Dickie had been involved in murders committed to collect the decedents’ life insurance policies. The family learned that a life insurance policy which Craig had obtained the previous summer was in the amount of $3 million. They also found evidence of promissory notes worth $2.5 million from Craig to Vanguard World Holdings (Vanguard), a Panamanian corporation.

The family contacted the defendant law firm, knowing that the firm had done legal work for Craig. The law firm gave the family the name of a private investigator in Texas and also suggested that they contact the Texas Rangers. After Craig’s body was found, the Youngs retained the defendant law firm to probate his estate.

In his will, Craig had named his father, Charles E. Young, and Jack Dickie as co-personal representatives of his estate. The Young family objected to any involvement of Dickie, who they strongly suspected was responsible for Craig’s death. According to Peggy Young, defendants Reep and Vancanagan, attorneys with the defendant law firm, advised her and Charles E. Young that there was no basis for opposing Dickie’s appointment as co-personal representative unless a criminal investigation connected him to Craig’s death. Though Dickie remained as a co-personal representative, he agreed to forego fees for acting as such and he did not participate actively in the probate of the estate. The estate did pay Dickie’s attorney fees incurred during the dispute over whether he should remain as co-personal representative.

United Pacific Insurance Company, which had issued the $3 million insurance policy on Craig’s life, hired a private investigator who became convinced that Dickie had murdered Craig and that Dickie owned or controlled Vanguard. However, United Pacific eventually paid the face amount of the $3 million policy to the estate, and has never sought repayment. That life insurance policy was the only substantial asset of the estate.

The notes Craig had signed in favor of the Vanguard corporation had been issued in exchange for corporate stock and forty-nine Montana mining claims Craig had staked several years earlier. As part of a paper shuffle, Dickie and Craig had transferred these and other assets among several shell corporations, inflating their stated values with each transfer, until Craig’s assets reached a paper value of over $10 million. This had been done to support the application for the insurance on Craig’s life, which was a prerequisite to a $3 million loan Dickey ostensibly was arranging from a British labor union. Whether the Youngs understood all of this is disputed.

Peggy Young maintains that the members of the defendant law firm told the Youngs that absent evidence that Craig’s signature had been forged, there was no basis for refusing to pay the $2.5 million promissory notes to Vanguard. The law firm contends that it advised the Youngs that a possible defense to the notes would be failure of consideration, but that because such a defense would challenge Craig’s credibility in stating his net worth to the life insurance company to obtain the policy, the defense was not raised. Peggy Young maintains that no such advice was given.

On January 30, 1984, Charles E. Young, as co-personal representative of Craig’s estate, agreed to settle the Vanguard claim for $2.14 million. The amount of the settlement was, in fact, suggested by Peggy Young. The remaining $1 million in insurance money went to the Youngs, as Craig’s heirs. The estate inventory eventually listed Craig’s mining claims as having no actual value at all. On the advice of defendants, the estate also abandoned certain legal claims defendants had been litigating on Craig’s behalf against defendants Shuman, Munro, and Jenkins. Dickie was subsequently convicted in federal court on racketeering charges, which included matters relating to Craig’s murder.

In October 1985, the Internal Revenue Service, in auditing Craig’s estate’s federal estate tax return, disallowed the deduction of the Vanguard claim from the estate assets due to failure of “adequate and full consideration, since it was merely a paper transaction.” A $1.2 million deficiency was assessed against the estate. The Youngs contacted separate counsel for assistance with the IRS matter.

On September 3, 1987, the parties to this action executed an agreement to toll the running of the statute of limitations. Therefore, that is the effective filing date of the complaint, in which Peggy Young and Charles E. Young, as executor for the estate of Craig Young, were originally named as plaintiffs. In May of 1988, Charles E. Young died. His death further complicates the question of who knew what, and when. Peggy Young succeeded him as personal representative of Craig’s estate and as the plaintiff in this case.

The complaint alleges breach of contract, negligence, bad faith, negligent misrepresentation, and contractual bad faith. Peggy Young claims that the defendants committed legal malpractice by misadvising the Youngs or by failing to advise them properly concerning removal of Jack Dickie as a co-personal representative, the possible defense to the Vanguard claim of lack of consideration, and abandonment of the claims against Shuman, Munro, and Jenkins. She also asks for indemnity for the Youngs’ attorney fees, costs, and expenses in defending against the IRS claim.

Defendants moved for summary judgment based on a statute of limitations defense; waiver, ratification and estoppel; and unclean hands, unjust enrichment, and in pari delicto. The District Court initially denied the motion. However, on the defendants’ request for amendment of the order denying summary judgment, the court awarded defendants partial summary judgment on a theory that the statue of limitations for attorney malpractice had expired before the Youngs filed their complaint. The partial summary judgment dismissed all claims relating to the appointment and service of Jack Dickie as co-personal representative of Craig Young’s estate, the settlement of the Vanguard claim against the estate, and the release of the legal claims Craig Young held against Shuman, Munro, and Jenkins. One claim survived the summary judgment: whether defendants were professionally negligent in failing to obtain an advance letter ruling on the deductibility of the Vanguard claim on the federal estate tax return.

Do genuine issues of material fact exist as to when the statute of limitations began to run, making partial summary judgment inappropriate?

Summary judgment is proper only if no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Our standard of review is the same as that employed by the district court. McCracken v. City of Chinook (1990), 242 Mont. 21, 24, 788 P.2d 892, 894. All reasonable inferences that may be drawn from the offered proof are to be drawn in favor of the party opposing the motion for summary judgment. Cereck v. Albertson’s, Inc. (1981), 195 Mont. 409, 411, 637 P.2d 509, 511.

Section 27-2-206, MCA, provides, in relevent part:

“An action against an attorney licensed to practice law in Montana ... based upon the person’s alleged professional negligent act or for error or omission in the person’s practice must be commenced within 3 years after the plaintiff discovers or through the use of reasonable diligence should have discovered the act, error, or omission, whichever occurs last, but in no case may the action be commenced after 10 years from the date of the act, error, or omission.”

While this statute incorporates the “discovery rule,” this Court has held that the statute of limitations begins to run when the plaintiff has “knowledge of the facts essential to the cause of action, not knowledge of the legal theories upon which an action may be brought.” Burgett v. Flaherty (1983), 204 Mont. 169, 173, 663 P.2d 332, 334.

Defendants rely heavily upon Burgett and several other cases previously decided under § 27-2-206, MCA. In Burgett, the claim was based on the conflict between the attorney’s action in stipulating to a dissolution of marriage by default and his client’s wishes not to have a dissolution so entered. In Schweitzer v. Estate of Halko (1988), 231 Mont. 283, 751 P.2d 1064, the claim was based on the conflict between the client’s new will and his old will, both of which the attorney had drafted, and both of which the client had signed. In Boles v. Simonton (1990), 242 Mont. 394, 791 P.2d 755, the malpractice claimed was omission of a savings clause in a default clause in a contract for deed. The contract was admittedly read before it was signed and this Court stated that “[t]he default clause, as here drafted, is not complex or beyond the understanding of a lay person.” Boles, 791 P.2d at 758. The Court held that the statute of limitations began to run at the signing of the contract.

Here, in contrast to the above cases, the claim of legal malpractice is not based upon the attorney’s acts contrary to the clients’ wishes. Rather, the Youngs took legal positions on the basis of the defendants’ expertise in legal matters. While one may assume, where an attorney has acted contrary to a client’s wishes in a matter which is within the understanding of a lay person, that the client would be cognizant of the facts which form the basis for a claim of malpractice, the same cannot be said here.

In Schneider v. Leaphart (1987), 228 Mont. 483, 743 P.2d 613, this Court held that the statute of limitations for legal malpractice began to run not when the attorney drafted the defective agreement, of which the client was presumably aware when he signed it, but two years later when the client was advised by an accountant that the agreement was flawed. As this Court stated in Boles, “the client became aware of the attorney’s alleged negligence in including a maintenance provision in a property settlement when an accountant told him the provision was unnecessary; it was the discovery of this fact that triggered the statute....” Boles, 791 P.2d at 758.

In McMillan v. Landoe, Brown, et al., P.C. (1988), 233 Mont. 483, 760 P.2d 758, this Court held that § 27-2-206, MCA, commenced to run on a claim for malpractice in failing to exercise due care in prosecuting a sheriff’s sale not from the date of the sheriff’s sale, but when the client was forced to defend against an action based upon the sale. In Peschel v. Jones (1988), 232 Mont. 516, 760 P.2d 51, the statute began to run on a claim on a misdrafted agreement not when the agreement was drafted, but when other parties to the agreement took action which the client had believed would be prohibited under the agreement and when the client learned of claims against him which he had expected the agreement to resolve. These cases do not conform to the defendants’ interpretation of § 27-2-206, MCA.

The Youngs maintain that they were not aware that different legal positions could have been taken in the matters for which they claim attorney malpractice. They claim that, until they contacted separate counsel after receiving the IRS assessment in October 1985, they were not aware that defendants could have declined to represent Jack Dickie as a co-personal representatives of the estate, forcing Dickie to obtain separate counsel (who would normally receive part of the attorney fees for probating the estate). Further, they claim that until they contacted their present counsel they were not aware of the existence of a possible defense of lack of consideration for the Vanguard claim. They maintain that defendants told them that because Craig’s signature on the Vanguard notes checked out as genuine, the notes would have to be paid out of Craig’s estate. Finally, they claim that they were not informed that there was possibly remaining value in Craig’s claims against Shuman, Munro, and Jenkins.

Because Dickie did not take an active role as co-personal representative of Craig’s estate and did not accept any fee for so acting, it initially appears that the actual damages for that aspect are limited to the amount of the attorney fees Craig’s estate agreed to pay for Dickie’s temporary separate counsel. But other damages are also claimed under the various counts of the complaint. The claim is that defendants failed to advise the Youngs that co-personal representatives could be represented by separate counsel or that Dickie’s appointment could be challenged as not in the best interest of the estate.

We have real doubts there was any value in Craig’s claims against Shuman, Munro, and Jenkins. But, again, the Youngs are claiming a failure to advise them properly on a matter not within the range of knowledge of the average lay person. That is a factual issue.

The substantive claim in this appeal appears to be the failure to pursue a defense of failure of consideration for the Vanguard claim. The Youngs were admittedly aware at the time Craig’s body was found or shortly thereafter that their son may have operated in “gray areas” of the law; that he was not a wealthy man but that there was a $3 million policy of insurance on his life; that Jack Dickie was a prime suspect in Craig’s murder; that Craig had executed $2.5 million in promissory notes payable to Vanguard; that Craig was afraid for his life. Mark Young, Craig’s brother, knew that Dickie was associated with Vanguard and that Craig and Dickie had been engaging in stock shuffling on mining claims, for the purpose of increasing Craig’s financial status. The Youngs also knew that Craig believed he would receive a large sum of money on his final fatal trip to Texas. Peggy Young admits that she was the one who suggested the amount of the eventual settlement with Vanguard and that she knew of the decisions made in probating Craig’s estate.

We hold that material issues of fact are present as to when, as a result of all the other facts of which they were aware, the Youngs should have known or through the use of reasonable diligence should have known that defendants were omitting or failing to take certain actions, which omissions Peggy Young now claims constitute legal malpractice. The existence of the malpractice which is claimed may be in effect inherently unknowable to the lay client. When it was or should have been knowable is exactly the type of factual question appropriate for resolution by a trier of fact.

Conflicts in the deposition testimony illuminate another aspect of the issues of material fact. In his deposition, defendant Reep states that before the estate made its settlement with Vanguard he advised the Youngs of the possible defense of lack of consideration. Peggy Young, in her deposition, states that no such advice was given. If the trier of fact believes the defendants, that claim is precluded, because prior to the January 1984 settlement the Youngs had actual knowledge that such a defense was available and that their attorneys were not going to raise it.

We hold that material issues of fact are present in this case as to the claims upon which the District Court granted summary judgment. We reverse the summary judgment and remand for further proceedings consistent with this Opinion. Because of our holding on that issue, it is not necessary that we consider the issue of whether defendants are estopped to assert the defense of the statute of limitations against their former clients.

JUSTICES HARRISON, HUNT, HON. JOHN C. McCARVEL, District Judge, sitting for JUSTICE GRAY, and HON. THOMAS C. HONZEL, District Judge, sitting for JUSTICE TRIEWEILER concur.

JUSTICE WEBER

dissenting:

The majority has stated the following issue as dispositive: Do genuine issues of material fact exist as to when the statute of limitations began to rim, making partial summary judgment inappropriate? I agree with that statement of the issue. In considering that issue I conclude there are no issues of material fact in this case, only issues of legal theory.

Section 27-2-206, MCA, provides in substance that an action against an attorney must be commenced within three years after the plaintiff discovers or should have discovered the act, error or omission. The majority opinion cites a number of Montana decisions and reaches a conclusion that the cases do not conform to the defendants’ interpretation of § 27-2-206, MCA. I disagree with that conclusion. The key legal statement of the pertinent Montana decisions is contained in Burgett v. Flaherty (1983), 204 Mont. 169, 173, 663 P.2d 332, 334. The majority opinion refers to Burgett but fails to conform to its holding. I think; it appropriate to cite more fully to Burgett in which this Court stated as follows:

“As a matter of law, what is critical in determining when a legal malpractice action accrues is knowledge of the facts essential to the cause of action, not knowledge of the legal theories upon which an action may be brought.
“California’s statute of limitations for legal malpractice is not identical to Section 27-2-206, MCA, but for the purpose of the discovery argument advanced by Burgett, its interpretation by the California Court of Appeals is persuasive.
“ ‘The question here is whether appellant’s alleged ignorance of her supposed rights against her former attorney is sufficient to toll the statute of limitations.
“ ‘The statute of limitations is not tolled by belated discovery of legal theories, as distinguished from belated discovery of facts. In legal and medical malpractice cases, the courts are often confronted with such claims that the statute of limitations has been tolled. However, the Supreme Court repeatedly has explained that it is the knowledge of facts rather than discovery of legal theory, that is the test. The test is whether the plaintiff has information of circumstances sufficient to put a reasonable person on inquiry, or has the opportunity to obtain knowledge from sources open to his or her investigation. (Sanchez v. South Hoover Hospital, 18 Cal.3d 93, 101, 132 Cal.Rptr. 657, 553 P.2d 1129.) ...’, (Emphasis in original.) (Citations omitted.)”

I emphasize that no Montana case has modified the Burgett holding as above stated. As a result I conclude that in Montana it is not knowledge of legal theories which is significant. The only test is whether the plaintiff had knowledge of facts essential to the cause of action. I will now review the plaintiffs’ knowledge of facts essential to the plaintiffs’ cause of action.

To shorten this dissent, I discuss only the primary claim on the part of the plaintiffs, that being the claimed failure to pursue a defense of failure of consideration for the Vanguard creditor’s claim. I think it important to emphasize the extent of the factual knowledge on the part of the plaintiffs as set forth by the District Court in its careful review of the facts and of the law. Following are pertinent’ portions of the opinion of the District Court which has been reversed by the majority:

“Plaintiffs assert that Defendants advised that the Vanguard promissory notes would have to be paid because they had been signed by Craig Young, that there was no viable defense to the claim and that the law required that the claim be paid. Plaintiffs further claim that Defendants did not tell them of a defense of insufficient or no consideration for the notes as a basis for denial of the creditor’s claim
"... A careful review of the facts found herein, and Plaintiffs’ alternative motion for partial summary judgment for Defendants, now cause the Court to hold that all of the facts which constitute the acts, errors or omissions which are the basis of the alleged professional negligence relating to the settlement and payment of the Vanguard claim were discovered, or through the use of reasonable diligence should have been discovered by January, 1984.
“In addition, no other facts relating to the settlement of the Vanguard creditor’s claim have been discovered since January, 1984. All of the advice, misadvice or omission to advise Plaintiffs on that subject was concluded by Defendants by January 30, 1984.
“Again Plaintiffs argue that the statute of limitations on this issue did not commence until their consultation with present counsel in October of 1985 when they ‘discovered’ the alleged malpractice of Defendants. However, that is merely the date when the legal theory of Plaintiffs’ suit was discovered and, as in the first claim set forth above, no additional facts have been, or will be, discovered since September 14, 1984 relating to the Vanguard creditor’s claim settlement, and therefore Plaintiffs’ complaint relating to such issue is likewise barred by the statute of limitations. (Emphasis added.)”

The District Court concluded that there were no genuine issues of material fact, and therefore granted partial summary judgment to the defendants on the theory that each claim was barred by the statute of limitations, § 27-2-206, MCA.

The majority points to the contention by the plaintiffs that they were not aware of the different legal positions which could have been taken until after receiving the IRS assessment notice in October, 1985, and thereafter talking to their present counsel. The majority then concludes that material issues of fact are present as to when the Youngs should have known that defendants were failing to take certain actions which the plaintiffs now claim constitute legal malpractice. I am unable to find any facts in the majority opinion which fit within that definition. The critical question is when the Youngs obtained knowledge of the essential facts, not when they obtained knowledge of their legal theories. As quoted in Burgett:

“In legal and medical malpractice cases, the courts are often confronted with such claims that the statute of limitations has been tolled. However, the Supreme Court repeatedly has explained that it is knowledge of facts rather than discovery of legal theory, that is the test.”

Burgett, 663 P.2d at 332.

Plaintiffs’ primary contention is that until they talked to another firm of attorneys, they did not know of the failure to advise them of the legal defense of lack of consideration. The plaintiffs’ contention has been rejected under Burgett and succeeding Montana cases. As pointed out by the District Court, all of the facts which were known at the time of the 1990 order were known to the plaintiffs in 1984. There are no additional facts which subsequently became known to the plaintiffs. I conclude that the majority has disregarded Burgett and subsequent Montana cases interpreting § 27-2-206, MCA.

I would affirm the determination by the District Court that the claims were barred by the statute of limitations.

CHIEF JUSTICE TURNAGE joins in the foregoing dissent of JUSTICE WEBER.