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Full Opinion
No. 8 9 - 2 6 0
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
GRANT BAKER and ELMA L. BAKER
Plaintiffs and Appellants
-vs-
ARTHUR L . BAILEY and EDNA L. BAILEY,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable James R . Wheelis, Judge Presiding.
COUNSEL OF RECORD:
For Appellant:
Rex Palmer, Missoula, Montana
For Respondent:
David B. Cotner; Boone, Karlberg & Haddon, iss sou la,
Montana
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&!? 2 Submitted on Briefs: October 25, 1989
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5 Decided: December 1, 1989
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*s o Clerk
Justice R. C. McDonough delivered the Opinion of the Court.
Grant and Norma Raker (Bakers) appeal from a judgment of
the District Court of the Fourth Judicial District, Missoula
County. The District Court, sitting without a jury, found
the Bakers liable for breach of the covenant of good faith
and fair dealing and further found their claims for damages
arising out of breach of contract should not be fully grant-
ed. We reverse in part and affirm in part.
The issues on appeal are:
1. Whether the District Court erred when it found the
Bakers in breach of contract and the implied covenant of qood
faith and fair dealing.
2. Whether the District Court erred when it found that
the Rakers are limited to the recovery of less than one-half
the sums claimed under the contract.
3. Whether the District Court abused its discretion
when it found that both parties should be responsible for
their own attorney fees.
In June of 19?6, Arthur and Elma Bailey moved a mobile
home onto property owned by their daughter and son-in-law.
With their permission, the Raileys hooked onto the water line
which serviced their daughter's home and installed a pipeline
which would provide water for their trailer.
Approximately six years later, in the spring of 1982,
the Bailey's daughter and son-in-law made the decision to
sell their residence and the surrounding property. Because
they were concerned about taking care of their parents,
however, they transferred one acre of the property to the
Baileys. This one acre surrounded the mobile home. The
remaining property, consisting of forty-five acres, was sold
to the Rakers.
In order to insure that the Bailey's continued to have
access to water, a Water Well Use Agreement was prepared.
Mrs. Baker was concerned about future ownership of the
one-acre plot. In particular, she was worried that "a bunch
of hippies" would move in next to her and consequently she
wanted some control over the type of person who may, in the
future, buy the Bailey's land. In order to address this
concern, the well agreement specifically provided that the
right to use water would only extend to the Bailevs. In the
event the Baileys conveyed the property, the Bakers were
under no obligation to provide the new owners with water.
Despite the plain language used in the agreement, the
Baileys believed that although not specifically set forth,
the Bakers would transfer the right to use the water well to
a subsequent "reasonable purchaser" of the Bailey property.
The language of the agreement, according to testimony of both
the Baileys and the Bakers, was included for the purpose of
addressing Mrs. Baker's concern over potentially undesirable
neighbors. This purpose was not, however, articulated within
the contract.
In addition to the water well use agreement, the Bakers,
at the time of purchase, asked for and received a right of
first refusal in the event the Baileys received an offer to
purchase their property. If an offer was received, the
Baileys were to notify the Bakers of the offer in writing.
The Bakers would then have the opportunity to exercise their
"right of first refusal" within fifteen days of the offer.
Following sale of the land, the Bakers and Baileys lived
next to one another and in fact became friends. The Baileys,
however, decided to move to Butte, Montana, in the spring of
1984. On June 30, 1984, they executed a standard form list-
ing contract with a local realty company. Under the terms of
the listing, the Baileys represented that the property would
he sold with "shared well water." Based upon the realtor's
valuation of the property with water, it was listed for
$47,500.00.
Shortly after the decision was made to sell the proper-
ty, the water system developed several problems. As a result
of these problems pressure in the line was reduced and the
Baileys were unable to obtain sufficient water to meet their
needs. As a result, they found it necessary to bring water
to their residence in plastic jugs.
The Bakers were not as significantly affected by the
problems. The Bakers always had sufficient water. In fact,
during the entire period the Baileys were deprived of water,
the Bakers had enough water to irrigate their lawn. Despite
the fact this use adversely affected the Baileys' water
supply, the Bakers refused to reduce their consumption. This
problem persisted until August when the water system was
finally repaired.
After the problems with the water well surfaced, the
Bakers informed the Baileys that they would not share the
water supply with any new purchaser. Consequently, the
property would have to be sold without access to water from
the well.
The Baileys searched for alternative sources of water,
but unfortunately none was available. They approached the
Bakers and offered to purchase joint use of the well. This
offer was refused.
Recognizing that they would not be able to provide water
for the property, the Baileys realized that the property was
virtually without value. They, therefore, agreed to sell it
for $8,000.00, which was the fair market value of the trailer
and other improvements on the land.
After the Baileys made the decision to accept the
$8,000.00 offer, they gave the Bakers notice of its terms in
compliance with the right of first refusal provisions in the
contract. On August 20, 1984, the Bakers exercised their
option and purchased the property for $8,000.00. The trans-
action was closed on September 10, 1984. At that time, the
Bakers acquired the Baileys' one-acre parcel which, if sup-
plied with water, allegedly could be marketed for $40,000.00
- $47,500.00.
The Bakers then filed a lawsuit to recover for the value
of a refrigerator and certain unpaid expenses which they felt
were owed by the Baileys. The Baileys, on the other hand,
counterclaimed and sought damages for breach of the Water
Well Use Agreement. The District Court found the Bakers in
breach of contract and in breach of the implied covenant of
good faith and fair dealing. It also found the Baileys
liable for less than one-half of the electrical expenses of
the well. Following this judgment, the Bakers appealed the
lower court's findings in regard to their liability for
breach of contract and the Baileys' limited liability for
expenses incurred on the water well.
The facts of this case present a classic parol evidence
problem. The parol evidence rule, briefly stated, requires
that in the absence of fraud, duress, or mutual mistake, all
extrinsic evidence must be excluded if the parties have
reduced their agreement to an integrated writing. Under this
rule, all prior and contemporaneous negotiations or
understandings of the contract are merged, once that contract
is reduced to writing. Williston on Contracts, Third Edition
S 631.
As this case illustrates, application of the rule can
work to create harsh results. However, the policies behind
the rule compel its consistent, uniform application. Commer-
cial stability requires that parties to a contract may rely
upon its express terms without worrying that the law will
allow the other party to change the terms of the agreement at
a later date.
The Baileys maintain that all of the parties to the
Water Well Use Agreement, shared a common understanding that
the Bakers would continue to share the well water with subse-
quent purchasers provided that the purchasers were acceptable
to the Bakers. This contention may be true; however it is
not found within the terms of the contract.
The Water Well Use Agreement is very explicit concerning
the rights and obligations of the parties. Its terms pro-
vide: "it being specifically understood that this Agreement
is solely for the benefit of [the Baileys] and shall
terminate in the event [the Baileys] no longer occupy [the
land] ." It further provides that "it is the intent of the
parties to fully set forth their understanding concerning the
utilization of the domestic water supplies for the respective
tracts . . . " There are no terms within the contract which
state that the Bakers will provide water to subsequent
"reasonable" purchasers.
Therefore, the fact there may have been further oral
understandings between the parties is not admissible. The
language of the Water Well Use Agreement is clear. Where the
lanquage of a written contract is clear and unambiguous,
there is nothing for the court to construe. Rather, the duty
of the court is simply to apply the language as written to
the facts of the case and decide the case accordingly. The
lower court's reliance upon evidence of the parties' oral
negotiations was therefore in error, and there was no breach
of contract.
In order to prove that a party acted unreasonably in
violation of the implied covenant of good faith and fair
dealing, one must show as an element there was a breach of
t h e express terms of the contract. Nordlund v. S c h o o l D i s -
trict (1987), 44 St.Rep. 1183, 738 P.2d 1299. We have
concluded t h a t t h e Bakers d i d not breach t h e terms of the
Water Well Use Agreement and accordingly, there was no
v i o l a t i o n o f t h e c o v e n a n t o f good f a i t h and f a i r d e a l i n g even
i f a l l o t h e r e l e m e n t s o f t h e v i o l a t i o n were met.
I1
At trial, t h e Bakers, l i k e the Baileys, s o u g h t damages
f o r b r e a c h o f t h e Water Well Use Agreement. They m a i n t a i n e d
t h a t t h e B a i l e y s f a i l e d t o pay o n e - h a l f o f t h e e l e c t r i c a l and
maintenance expenses o f t h e w e l l . The B a i l e y s , on t h e o t h e r
hand, a r g u e d t h a t t h e y o n l y owed t h e B a k e r s f o r e l e c t r i c a l
e x p e n s e s i n c u r r e d d u r i n g t h e months o f September t h r o u g h May
o f 1984.
The Water W e l l Use Agreement s p e c i f i c a l l y p r o v i d e d t h a t
the two p a r t i e s would e q u a l l y s h a r e a l l o f the electrical
b i l l s and m a i n t e n a n c e e x p e n s e s i n c u r r e d t h r o u g h t h e i r j o i n t
u s e o f t h e pump. The sum o f t h e e l e c t r i c a l e x p e n s e s a t t r i b -
utable for t h e year preceding the s a l e of the property js
$218.03. The total cost of repairs on the pump e q u a l l e d
$1,572.85. Bakers m a i n t a i n t h a t p u r s u a n t t o t h e terms o f t h e
contract the Baileys a r e responsible f o r one h a l f of these
e x p e n s e s , o r $895.42.
The B a i l e y s m a i n t a i n t h a t t h e y a r e o n l y l i a b l e f o r t h e
electrical expenses incurred through the operation of the
pump f o r t h e months of September 1983 t h r o u g h May o f 1984.
D u r i n g t h e months o f J u n e , J u l y and A u g u s t , 1984, t h e w a t e r
s y s t e m was n o t i n working o r d e r and c o n s e q u e n t l y t h e B a i l e y s
were d e p r i v e d o f w a t e r . The B a i l e y s m a i n t a i n , and t h e l o w e r
c o u r t agreed, t h a t t h i s d e p r i v a t i o n was a p a r t i a l f a i l u r e of
consideration and that as a result the Baileys would he
e x c u s e d from t h e i r d u t y t o pay t h e i r s h a r e o f t h e e l e c t r i c a l
expenses due under the contract for the months of June, July
and August.
The lower court also held that the Baileys did not owe
the Bakers any money for the expenses incurred through the
repair of the water line. The repair expense was incurred
after the Bakers were notified of their right to exercise
their option to purchase the property. Four days after
completion of the work, the Bakers exercised the right and
purchased the property. The District Court therefore found
that all benefit derived from the repairs was realized by the
Bakers, and, accordingly, the Baileys had no responsibility
to pay a portion of the repair expense.
The District Court found the Baileys were only liable
for expenses incurred by the Bakers for electricity which
operated the pump during the months of September through May.
The amount owed by the Baileys equaled $ 6 0 . 0 0 . However, the
court also found, and the Bakers admit, that the Bakers owed
the Baileys $ 2 2 5 . 0 0 for propane which was left on the proper-
ty after it was sold. Therefore, the amount owed by the
Bakers to the Baileys, was offset by the $ 6 0 . 0 0 owed on the
Water Well Use Agreement. Accordingly, the Bakers owed the
Baileys $ 1 6 5 . 0 0 and the Baileys owed nothing under the
contract.
We find the District Court's findings on this issue were
reasonable and were not an abuse of discretion. They were
supported by the evidence and, thus, on this issue the lower
court is affirmed. Let the judgment be entered accordingly
for $ 1 6 5 . 0 0 .
111
As a final issue, the Bakers assert that the lower court
erred by not awardinq them attorney fees. In Montana the
general rule is that attorney fees are awarded only where a
statute or contract provides for their recovery.
Northwestern National Bank of Great Falls v. Weaver-Maxwell,
Inc. ( 1 9 8 6 ) , 43 St.Rep. 1 9 9 5 , 7 2 9 P.2d 1 2 5 8 .
The Water Well Use Agreement provided that ". . . in the
event of litigation . . . reasonable attorney fees - be
may
awarded . . ." (Emphasis added.) The lower court determined
that the term "may" allowed it to award attorney fees in its
discretion. Since both parties were successful in the law-
suit, it declined to award fees to either party.
The District Court correctly construed the terms of the
agreement. The contract by its terms left the award of fees
to the discretion of the court. The fact that the Bakers
were partially unsuccessful in their claims against the
Baileys does not support an award of attorney fees. The
judgment of the lower court is therefore reversed and
remanded for proceedings consistent with this opinion.
We Concur: 1