Hughes v. Hughes

Hughes v. Hughes, 2013 MT 176 (July 2, 2013) (5-0) (Morris, J.)
Issues: (1) Whether Johnny’s undesignated payments to his parents, Jack and Shirley, restarted the statute of limitations on the 1989 promissory note; (2) whether Jack and Shirley possess a life estate in the new house or a right to any of the insurance proceeds; (3) whether Jack is entitled to an easement for stock water across Johnny’s property; and (4) whether the arbitrator exceeded his authority or miscalculated damages.

Short Answer: (1) Yes; (2) no; (3) yes; (4) no.

Affirmed in part, reversed in part & remanded

Facts: Jack and Shirley loaned $104,375 to their son, Johnny, in 1989. Johnny executed a promissory note. In 1997, Johnny asked Jack and Shirley for $180,000 to settle his divorce. He had not yet made any payments on the 1989 note. Jack and Shirley loaned him the money, and he gave them a second promissory note.

Between 1999 and 2008, Johnny paid $155,000 to Jack and Shirley. After a falling out, Jack and Shirley sued to collect the unpaid debt. The district court held that the statute of limitations barred Jack and Shirley from collecting on the 1989 note. Johnny claimed that 100% of his payments should therefore be applied to the 1997 note, while Jack and Shirley argued the payments should be divided between the two loans. The court submitted the issue to a jury, which divided Johnny’s payments on a pro-rata basis. The district court awarded attorney fees to Johnny as the prevailing party on this issue.

Jack and Shirley granted Johnny an undivided 56% interest in the Melby Ranch through deeds in 1984, 1985, and 1986, reserving a life estate in the buildings and improvements on the property. Johnny has lived in a house on the ranch since 1977. A fire destroyed the house in 2006; Johnny collected insurance proceeds for the house and his personal property. With this plus several hundred thousand dollars of additional personal money, Johnny rebuilt the house. Jack and Shirley claim a life estate in the house or an interest in the insurance payment. The district court held that the fire extinguished any life estate in the house, and held Jack and Shirley had no claim to the insurance proceeds.

In 2011, the parties hired three referees to partition the ranch. The parties accepted the referees’ proposed division of land, which awarded Johnny the land where his new house sits. Johnny claims that his parents’ decision to accept the partition extinguished whatever life estate they may have retained in the new house.

The referees also proposed, and the parties agreed, that Johnny would receive a section of land that included Flatwillow Creek. Jack owns a right to use water from that creek for stockwater, as well as a neighboring section of land that was not subject to the partition. Jack claims that historically he allowed his cattle free access to the creek across the land that Johnny now owns. The parties intend to fence their properties, so Jack sought an easement for a water gap in the fence or for a pipe to bring water to his land. The district court held it lacked jurisdiction over water issues, but awarded a water gap to Jack. The parties sought clarification, and the district court stated it lacked jurisdiction to award the water gap to Jack.

Finally, Johnny and his brother, Jay, created P Standing X Cattle Company, which entered into a pasture lease with Jack and PX Cattle Company in 2000. In 2008, Johnny and Jay dissolved the partnership, and Jay assigned his interest to Johnny. Jack immediately attempted to terminate the pasture lease with notice to Johnny, and thereafter prevented Johnny from accessing the pasture. Jack and Jay seized hay belonging to Johnny from the pasture. The parties submitted this dispute to an arbitrator, who determined the pasture lease was still valid when Jack and Jay locked Johnny out and seized his hay. The arbitrator awarded $195,110 in damages to Johnny and ordered Jack and Jay to return Johnny’s hay.

Procedural Posture & Holding: The district court consolidated multiple complaints, and ruled in favor of Johnny on all issues other than the water rights. Jack and Shirley appeal, and Johnny cross-appeals. The Supreme Court affirms in part, reverses in part, and remands.

Reasoning: (1) A party has six years from the time it demands payment on a promissory note to bring suit. Jack and Shirley first demanded payment in 1999. They argue that Johnny because made partial payment, the statute began anew. The Court agrees. The jury made an implied finding that Johnny paid $56,885 toward the 1989 promissory note, which restarted the statute of limitations. The Court remands to the district court for the sole issue of the remaining principal and interest owed on the 1989 note, and vacates the attorney fee award to Johnny and remands for determination of fees for Jack and Shirley.

(2) An order partitioning property extinguishes a tenant’s rights in the whole property and establishes the tenant’s exclusive right of ownership in the property the tenant received. The referees noted that the trial court had decided Jack and Shirley no longer possessed a life estate in the house. Jack and Shirley agreed to the partition recommendation. The partition extinguished any claim to a life estate in the new house that Jack and Shirley may have had, as well as any right to insurance proceeds from the fire that burned the old house. Johnny accepted the partition with the understanding that he was the sole owner of the house and of the insurance proceeds. The Court declines to alter the partition.

(3) An easement to access water is separate from a water right. Jack’s water rights were already adjudicated. The district court had jurisdiction to determine whether Jack had an easement to access the creek. Jack argues he has an implied easement arising from the partition. The partition would be inequitable if it results in Jack’s inability to use his stock water right. The land benefited by the easement was not included in the partition; thus, Jack’s acceptance of the partition does not mean he intended to give away the water right. The Court remands for a determination of how to best provide Jack with access.

(4) The parties agreed to arbitrate their dispute over the pasture lease. The arbitrator determined that Jack’s notice of termination sent Feb.18, 2010 did not terminate the lease, or at least not immediately, and awarded damages to Johnny. The Court agrees the notice did not effect immediate termination based upon the lease language. Jack had authority only to terminate the lease at its expiration on Jan. 1, 2012. Jack unlawfully excluded Johnny from the property in 2010 and 2011, entitling Johnny to damages for those years.

Jack and Shirley contend the arbitrator failed to follow clearly established Montana law regarding the measure of damages for the loss of future offspring from a cow. The Court cannot determine whether Johnny was already compensated for his loss of 200 prospective calves when he sold the cows. Because of this ambiguity, the Court cannot say that the arbitrator disregarded clearly established Montana law, and declines to vacate the award.