Rase v. Castle Mountain Ranch

Supreme Court of Montana · 1981 · Property

Propertylicense agreementscabin sitesconstructive fraudequityinnocent purchaserduty of inquirypossession inconsistent with record title

Facts

For decades, the cabin owners and their predecessors built permanent summer cabins on lakeshore land owned by Tavenner's subsidiary with the ranch owners' consent, and they openly improved, inherited, bought, and sold the cabins without objection. Beginning in 1963, the cabin owners signed uniform "license agreements" drafted by the ranch owners' lawyer, including a clause allowing either party to terminate on 30 days' written notice, but Tavenner never used the clause to terminate any cabin owner and tolerated repeated departures from the agreements' terms. When Ward agreed to buy the ranch in 1972, Tavenner refused Ward's request to terminate the cabin owners before sale, and Ward took the ranch "as planned, the cabins and all." After the purchase, Ward sent notices terminating the licenses, and the cabin owners sued for equitable relief.

Issue

Whether the district court could, in equity, look beyond the written license agreements and impose a constructive trust and equitable lien in favor of the cabin owners based on the predecessor landowners' long course of conduct and implied assurances. A related question was whether Ward qualified as a bona fide purchaser without notice so as to avoid those equitable claims.

Rule

In an equity case, where a landowner's course of conduct gives occupants implied assurance of somewhat permanent tenure and induces substantial, openly recognized investment in improvements, a court may impose a constructive trust and equitable lien despite written license language allowing 30-day termination. A purchaser is not an innocent purchaser without notice when possession by others and substantial permanent improvements are inconsistent with record title and the purchaser fails to make reasonable inquiry; parol evidence is admissible when the validity of the agreement is in dispute, and the statute of frauds does not bar a trust arising by implication or operation of law.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

For forty years, a ranch owner near Coeur d'Alene, Idaho allowed families to build fixed summer cottages along a private lake, approved expansions, and routinely watched the cottages pass by sale and inheritance. In 1995 the owner began using one-page "licenses" stating either side could terminate on 30 days' written notice, but the owner never invoked that clause and continued treating the cottages as long-term family places.

If the ranch owner's successor now seeks to terminate every cottage occupant under the 30-day clause, which is the strongest argument for equitable relief by the occupants?

Explanation. The majority held that where a landowner's course of conduct gives occupants implied assurance of somewhat permanent tenure and induces substantial, openly recognized investment in improvements, equity may impose a constructive trust and equitable lien even though later-written licenses contain 30-day termination language. The case did not rest on adverse possession, automatic transfer of title, or nominal rent.