Kaufman Bros. v. Home Value Stores, Inc.

                                                                                             June 5 2012


                                         DA 11-0595

               IN THE SUPREME COURT OF THE STATE OF MONTANA
                                         2012 MT 121



KAUFMAN BROTHERS,

              Plaintiff and Appellant,

         v.

HOME VALUE STORES, INC., PACIFIC
GALLERIES, LLD, and LARRY LI,

              Defendants and Appellees.


APPEAL FROM:          District Court of the Thirteenth Judicial District,
                      In and For the County of Yellowstone, Cause No. DV 10-1937
                      Honorable Russell C. Fagg, Presiding Judge


COUNSEL OF RECORD:

               For Appellant:

                      Thomas E. Towe, Michael C. Doggett; Towe, Ball, Enright, Mackey &
                      Sommerfeld, P.L.L.P.; Billings, Montana

               For Appellee:

                      P. Bruce Harper, Michelle R. Lee; Harper Law Firm; Billings, Montana



                                                  Submitted on Briefs: March 28, 2012

                                                             Decided: June 5, 2012


Filed:

                      __________________________________________
                                        Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1     Plaintiffs/Appellants, Kaufman Brothers (Kaufmans), appeal from the order of the

Thirteenth Judicial District Court, Yellowstone County, granting summary judgment to

Defendants/Appellees Home Value Stores, Inc., et al. (Home Value) on Kaufmans’

claims under the parties’ contract for deed. We affirm. We address the following issue:

¶2     Did the District Court err by holding that Kaufmans’ election to terminate the
parties’ contract for deed and retake possession of the property precluded a subsequent
action for breach of contract against Home Value?

                  FACTUAL AND PROCEDURAL BACKGROUND

¶3     Kaufman Brothers is a partnership consisting of brothers Roy and George

Kaufman, which owned a commercial building in Billings. Home Value Stores, Inc., the

primary Defendant, operates retail stores across the country. Kaufmans and Home Value

entered into a contract for deed1 (Contract) for the sale and purchase of Kaufmans’

building. After making the down payment and monthly payments for almost two years,

Home Value discontinued making payments and failed to pay property taxes as required

by the Contract. Kaufmans issued a notice of default in December of 2008, notifying

Home Value it had 30 days to cure these contract failures. When Home Value failed to

do so, Kaufmans issued a notice of acceleration declaring the remaining balance owed

under the Contract with accrued interest immediately due and payable. When payment

was not forthcoming within 30 days of the notice of acceleration, Kaufmans obtained

Home Value’s quit claim deed from escrow, recorded it, retook possession of the

1
  See Glacier Campground v. Wild Rivers, Inc., 182 Mont. 389, 597 P.2d 689 (1978) (generally
discussing “land sale contracts, or contracts for deed as they are commonly called in this state”).
                                              2
building, and resold the property. As Kaufmans stated in their later complaint, “the

Contract was considered terminated.”

¶4    The Kaufmans filed suit against Home Value for breach of contract, alleging they

had not been made whole and were entitled to damages for Home Value’s failure to pay

taxes, damage done to the building by lack of repairs and maintenance, for fixtures taken

from the building, attorney fees in preparing the default and acceleration notices, sale

expenses, and interest. Home Value moved for summary judgment, arguing that because

Kaufmans chose to terminate the Contract, take possession, and retain Contract payments

as liquidated damages rather than sue for the accelerated balance and additional damages

under the Contract, their breach of contract action was precluded under the election of

remedies doctrine.

¶5    The District Court initially denied Home Value’s motion for summary judgment

but revisited the issue upon Home Value’s motion for reconsideration, granting summary

judgment in favor of Home Value. Kaufmans appeal.

                              STANDARD OF REVIEW

¶6    Summary judgment is appropriate only “if the pleadings, depositions, answers to

interrogatories, and admissions on file,” along with any affidavits demonstrate that no

genuine issue exists as to any material fact and that the party moving for summary

judgment is entitled to judgment as a matter of law. Rule 56(c), M. R. Civ. P. We

review a district court’s grant or denial of summary judgment de novo, applying the same

criteria as the district courts. Estate of Richerson, 2011 MT 266, ¶ 7, 362 Mont. 324, 264

                                        3
P.3d 1087 (citing Modroo v. Nationwide Mut. Fire Ins. Co., 2008 MT 275, ¶ 19, 345

Mont. 262, 191 P.3d 389). We review the District Court’s interpretation of a contract for

correctness. Richerson, ¶ 7 (citing Giacomelli v. Scottsdale Ins. Co., 2009 MT 418, ¶ 14,

354 Mont. 15, 221 P.3d 666).

                                     DISCUSSION

¶7     Did the District Court err by holding that Kaufmans’ election to terminate the
parties’ contract for deed and retake possession of the property precluded a subsequent
action for breach of contract against Home Value?

¶8    The pertinent language of the Contract is as follows:

      12. Default: Should any default of Purchaser hereunder remain uncured
      for more than thirty (30) days after written notice thereof, Sellers may,
      without further notice or period of grace:

      a. Use any appropriate remedy to enforce compliance with the provisions
      of this agreement and to enforce collection from Purchaser of any amounts
      due Sellers, without accelerating the maturity of the unpaid balance or
      terminating the agreement, all without prejudice to the privilege of Sellers
      to subsequently accelerate the maturity of the balance or to terminate the
      agreement; or (Emphasis added.)

      b. Declare the entire unpaid principal balance with accrued interest thereon
      immediately due and payable, and upon nonpayment thereof after thirty
      (30) days’ notice to Purchaser of said acceleration, Sellers may enforce
      collection of the total amount then due and payable in any appropriate
      manner by any available remedy, or terminate this agreement, retaining all
      payments made by Purchaser as liquidated damages for breach of this
      agreement. (Emphasis added.)
                                          . . .

      25. Waiver: The waiver of any breach of this contract by either party shall
      not constitute a continuing waiver or a waiver of any subsequent breach,
      either of the same or another provision of this contract. All remedies
      afforded in this contract shall be taken and construed as cumulative, that is,
      in addition to every other remedy provided herein or by law.

                                        4
¶9     Kaufmans argue that the District Court erred in holding that the Contract

effectively limited their remedies. Responding to Home Value’s argument that the “or”

in Paragraph 12(b) can mean only one thing—that Kaufmans could either enforce the

Contract by collecting the accelerated amount due “or” terminate the Contract and retain

the payments as liquidated damages, but not both—Kaufmans argue that “[t]he use of the

word ‘or’ in this paragraph does not mean the Kaufmans are entitled to one or the other

but not both . . . . Such a restrictive interpretation is inconsistent with the plain meaning

of the language.”

¶10    “The construction and interpretation of a contract are questions of law.” Richards

v. JTL Group, Inc., 2009 MT 173, ¶ 14, 350 Mont. 516, 212 P.3d 264 (citation omitted).

A contract is to be interpreted to “give effect to the mutual intention of the parties as it

existed at the time of contracting . . . .” Section 28-3-301, MCA. “The language of a

contract is to govern its interpretation if the language is clear and explicit and does not

involve an absurdity.” Section 28-3-401, MCA.

¶11    The first sentence of Paragraph 12 states that after notice of default has been

given, and the default has remained uncured for more than 30 days, the sellers may

choose the course of action listed in Paragraph 12(a) or the course of action listed in

Paragraph 12(b). Kaufmans provided notice of acceleration of the balance due under

Paragraph 12(b), and after 30 days had lapsed without payment, they could then either

(1) “enforce collection of the total amount then due and payable in any appropriate

manner by any available remedy, or” (emphasis added) (2) “terminate this agreement,

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retaining all payments made by Purchaser as liquidated damages for breach of this

agreement.” Kaufmans chose the second option under 12(b), terminating the contract and

retaining all payments made by Home Value as liquidated damages for its breach.

¶12   Under the plain language of this provision, Kaufmans could do one or the other,

but not both. Kaufmans’ argument that the “or” used within Paragraph 12(b) does not

contractually preclude them from pursuing “both” remedies is not persuasive as a matter

of plain meaning, but particularly so in light of our precedent.         Our cases have

meticulously scrutinized the default provisions at issue in land contract cases. See Clark

v. Am. Developing & Mining Co., 28 Mont. 468, 72 P. 978 (1903); White v. Jewett, 106

Mont. 416, 78 P. 85 (1938); Glacier Campground, 182 Mont. 389, 597 P.2d 689; SAS

Partn. v. Schafer, 200 Mont. 478, 653 P.2d 834 (1982); and Belue v. Gebhardt, 240

Mont. 358, 784 P.2d 396 (1989). We have noted that use of “the conjunctive ‘and’ rather

than the disjunctive ‘or’” within a default provision is significant. Glacier Campground,

182 Mont. at 398, 597 P.2d at 694. Generally, “[w]here a contract specifically provides

that the remedies enumerated therein shall be the only course of settlement thereunder, a

party to it is limited to the remedies provided therein.” Glacier Campground, 182 Mont.

at 403, 597 P.2d at 696-97 (citing Wing v. Brasher, 59 Mont. 10, 194 P. 1106 (1921)

(quotation omitted)).

¶13   Kaufmans further argue that the Contract does not contain language expressly

restricting them to one remedy but instead includes a provision within Paragraph 25

making all remedies “afforded in” the Contract and provided by law, cumulative.

                                        6
Kaufmans reason that the option language under Paragraph 12 must be read in

conjunction with the cumulative remedies language in Paragraph 25. They argue that “a

vendor’s election to retake the property does not prohibit the vendor from maintaining an

action against the vend[ee] for actual damages caused during a vendee’s occupation of

the premises even if he elects to retake the property and keep all the installment

payments.” Kaufmans also cite to our statement in Glacier Campground that “[i]n the

absence of a contractual provision expressly limiting the remedy or remedies available, a

party may pursue any remedy which law or equity affords, as well as the remedy or

remedies specified in the contract.” Glacier Campground, 182 Mont. at 403, 597 P.2d at

696.

¶14    Assuming arguendo that Kaufmans’ cumulative remedy argument is viable as a

matter of contract interpretation, any further remedy that Kaufmans would seek must also

be permitted by law. Glacier Campground, 182 Mont. at 403, 597 P.2d at 696 (“a party

may pursue any remedy which law or equity affords”) (emphasis added). The District

Court held that the Kaufmans’ termination of the Contract and retention of Home Value’s

contract payments as liquidated damages was an election of remedies, which precluded

their claim for actual damages as a matter of law.

¶15    “When a party having knowledge of the facts makes an election between

inconsistent remedies, the election is final and bars any action, suit, or proceeding

inconsistent with the elected remedy, in the absence of fraud by the other party.” 25 Am.

Jur. 2d Election of Remedies § 6 (2004). When determining whether the election of

                                         7
remedies doctrine bars relief, we consider whether the following three criteria have been

satisfied: (1) the existence of two or more remedies, (2) an inconsistency between such

remedies, and (3) a choice of one of them. Frazer Educ. Assn. v. Bd. of Trustees, 256

Mont. 223, 227, 846 P.2d 267, 270 (1993) (citing 25 Am Jur. 2d Election of Remedies § 8

(1966)).

¶16    The Contract provided Kaufmans with three optional remedies, one under

Paragraph 12(a) to enforce compliance with the Contract and obtain collection without

accelerating the balance due, and the two options under Paragraph 12(b) discussed above.

The first criterion is thus satisfied. Under the third criterion, the Kaufmans chose to

terminate the contract, retain Home Value’s payments as liquidated damages, retake

possession of the property, and sell it. “It is well settled in Montana that an election

exists only when a remedy is pursued to a final conclusion.” Midfirst Bank v. Ranieri,

257 Mont. 312, 848 P.2d 1046 (1993) (citing Glacier Campground, 182 Mont. at 401,

597 P.2d at 695; St. ex. rel Crowley v. Dist. Ct., 108 Mont. 89, 96, 88 P.2d 23, 26 (1939)).

Kaufmans pursued this remedy to a final conclusion.

¶17    Regarding the second criterion, our precedent includes a long line of authority

precluding the pursuit of inconsistent remedies under a contract for deed. “The remedy

of the vendor by way of cancellation of a contract and the continued liability of the

purchaser for the purchase money, whether past due or not, are totally inconsistent . . . .”

Adamczik v. McCauley, 89 Mont. 27, 36, 297 P. 486, 488 (1931) (citations omitted).

“The general rule is that ‘if the vendor exercises his option to declare the contract at an

                                         8
end, he cannot change his position and thereafter hold the purchaser liable to complete

the purchase or pay any part of the unpaid purchase price. The remedy of the vendor by

way of cancellation of the contract and the continued liability of the purchaser for the

purchase money are totally inconsistent.’” Edwards v. Muri, 73 Mont. 339, 351, 237

P. 209, 213 (1925). In Glacier Campground, we cited the holding in Security-First Natl.

Bank of L.A. v. Hauer, 47 Cal.App.2d 302, 117 P.2d 952 (1941), to reaffirm this

principle:

       Upon the breach of any covenant by the vendees under a conditional sales
       agreement, plaintiffs are entitled to invoke either of two remedies: (1) to
       affirm the contract and sue for the balance of the purchase price, or (2) to
       terminate the contract, retain the money paid on the purchase price and
       repossess the property. [Citation omitted.] These remedies are inconsistent
       and the election of one precludes the right to exercise the other.

Glacier Campground, 182 Mont. at 402, 597 P.2d at 696 (citing Security-First, 47

Cal.App.2d at 306, 117 P.2d at 954).

¶18    Kaufmans distinguish recovery of the purchase price after contract termination

from their claim to recover waste and unpaid taxes. “[S]etting aside Home Value Stores’

argument that an action for the recovery of installment payments is inconsistent with

retaking possession of the property under the Contract for Deed,” Kaufmans argue, “there

is no inconsistency in retaking possession of the property and filing a Complaint for

damages and waste to the property committed by Home Value Stores while they were in

possession of the property.” Kaufmans add that “[i]t is not inconsistent for a vendor to

recover damages when the purchaser caused the breach and damages, many of which

were self-concealing” and argue that such a remedy is necessary for them to be made
                                        9
whole. For authority, Kaufmans offer Meyer v. Hansen, 373 N.W.2d 392 (N.D. 1985), a

contract for deed case that held that “[a] provision for liquidated damages will not

prevent recovery for actual damages for events which are not covered by the liquidated

damages clause, unless the contract expressly provides that damages other than those

enumerated shall not be recovered.” Meyer, 373 N.W.2d at 395 (citations omitted).

¶19    We have not previously adopted the principle stated in Meyer but, in any event, its

application here would necessarily defeat Kaufmans’ position.           Meyer held that

termination of the contract for deed and repossession of the property would not preclude

recovery for actual damages “not covered by the liquidated damages clause.” Meyer, 373

N.W.2d at 395. The clause at issue in Meyer provided that liquidated damages would

serve only to compensate the seller for the buyer’s “use and occupation of the premises,”

and thus the seller was permitted to bring an action for damages inflicted on the property

by the buyer. Meyer, 373 N.W.2d at 394. In contrast, the provision at issue here was not

so limited. It provided that liquidated damages would broadly compensate Kaufmans

“for breach of this agreement.” The liquidated damages clause in the subject Contract

compensates Kaufmans for all damages caused by Home Value’s breach of the Contract,

including failure to pay taxes or properly maintain the property.

¶20    Thus, Kaufmans’ claims for damages for breach of contract fall within the

long-stated general rule that “[u]pon the breach of any covenant by the vendees under a

conditional sales agreement, plaintiffs are entitled to invoke either of two remedies,”

which are inconsistent.    Glacier Campground, 182 Mont. at 402, 597 P.2d at 696

                                         10
(citation omitted). Kaufmans elected the second remedy, to “terminate the contract,

retain the money paid on the purchase price and repossess the property,” Glacier

Campground, 182 Mont. at 402, 597 P.2d at 696 (citation omitted), and that election,

under the contract provisions at issue, precludes the additional relief sought here.2

¶21    The District Court is affirmed.



                                                     /S/ JIM RICE


We concur:


/S/ BRIAN MORRIS
/S/ JAMES C. NELSON
/S/ PATRICIA COTTER
/S/ BETH BAKER




2
  Although unnecessary to our resolution of this matter, we note our holding in Edwards, 73
Mont. at 351, 237 P. at 213, regarding the recovery of unpaid real estate taxes and interest
following termination of a contract for deed: “It is suggested [by plaintiffs] that there is a
difference between seeking to recover for installments on the purchase price and for taxes paid
by the vendor and interest past due; but this question has been definitely disposed of in this state
contrary to the contention of plaintiffs on this subject,” citing and discussing De Young v.
Benepe, 55 Mont. 306, 176 P. 609 (1918).
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