No. 12345
IN THE SUPREME COURT OF THE STATE OF MONTAFA
1973
GARRY V. BENNETT,
Plaintiff and Appellant,
HARRIETT V. MAHONEY and
STELLA FOOTE,
Defendants and Respondents.
Appeal from: District Court of the Thirteenth Judicial District,
Honorable C. B Sande, Judge presiding.
.
Counsel of Record:
For Appellant :
Crowley, Kilbourne, Haughey, Hanson and Gallagher,
Billings, Montana
Robert Edd Lee argued, Billings, Montana
For Respondents:
Anderson, Syrmnes, Forbes, Peete and Brown, Billings,
Montana
Rockwood Brown, Jr. argued, Billings, Montana
Submitted: January 25, 1973
Decided :MAR 2 3 1973
Filed: 2 8 lgs
Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e Court.
T h i s appeal i s taken from a judgment f o r defendants
e n t e r e d by t h e d i s t r i c t c o u r t of Yellowstone County on an a c t i o n
f o r d e c l a r a t o r y judgment. The m a t t e r was submitted t o t h i s
Court on w r i t t e n b r i e f s and s t i p u l a t e d f a c t s , w i t h a l l p e r t i n e n t
agreements and correspondence a t t a c h e d a s e x h i b i t s ,
The c o n t r o v e r s y involved a l e a s e agreement o r i g i n a l l y
e n t e r e d i n t o on September 29, 1945, t o run u n t i l December 31,
1970. The p r o p e r t y involved was a commercial s i t e on Montana
Avenue i n Ei!lings. The o r i g i n a l p a r t i e s involved were John W,
and Margaret L. Foote a s l e s s o r s and Clark K , Fergus a s l e s s e e .
The l e s s e e c o n s t r u c t e d a supermarket, ~IIGPJII a s C l a r k ' s Market,
which he operated f o r about twenty-two y e a r s . The p r o p e r t y was
then subleased t o a l o c a l department s t o r e . The o r i g i n a l twenty-
f i v e y e a r l e a s e contained an o p t i o n f o r a t e n y e a r extended term
upon i t s e x p i r a t i o n , w i t h p r o v i s i o n f o r a r b i t r a t i o n i n t h e event
t h e p a r t i e s could n o t a g r e e on t h e terms of t h e extended l e a s e ,
Before e x p i r a t i o n of t h e o r i g i n a l l e a s e , Garry V . Bennett,
p l a i n t i f f and a p p e l l a n t ( h e r e i n a f t e r r e f e r r e d t o a s l e s s e e ) ,
succeeded t o t h e i n t e r e s t s o f Clark K. Fergus. H a r r i e t t V.
Mahoney and S t e l l a Foote, defendants and respondents, (hereinafter
r e f e r r e d t o a s ~ l e s s o r s ) ,succeeded t o t h e i n t e r e s t s of John and
Margaret Foote. Immediately p r i o r t o t h e e x p i r a t i o n of t h e o r i g -
i n a l l e a s e , l e s s o r s and l e s s e e n e g o t i a t e d concerning t h e o p t i o n a l
t e n y e a r extended term, b u t were unable t o a g r e e on t h e amount of
rental. I n a d d i t i o n , t h e y could n o t a g r e e whether o r n o t t h e new
r e n t a l should be ground r e n t a l only o r based on improvements by
lessee.
The m a t t e r was l i t i g a t e d i n t h e d i s t r i c t c o u r t and by o r d e r
and judgment dated September 2 2 , 1970, t h a t c o u r t h e l d :
" I T I S ORDERED, ADJUDGED AND DECREED, That under
t h e p r o v i s i o n s f o r d e t e r m i n a t i o n of t h e r e n t a l
t o b e paid by p l a i n t i f f s (Garry Bennett and E l s i e
Fergus) d u r i n g t h e extended term of t h e l e a s e which
i s t h e s u b j e c t of t h i s a c t i o n , t h e a r b i t r a t o r s
a c t i n g pursuant t o s a i d l e a s e should c o n s i d e r only
ground r e n t a l and n o t improvements placed thereon
by t h e l e s s e e and h i s s u c c e s s o r s i n i n t e r e s t , i n
determining t h e r e n t a l a p p l i c a b l e d u r i n g t h e ex-
tended term commencing January I , 1971."
Pursuant t o t h e terms of t h i s o r d e r and judgment and
t h e provisions of the o r i g i n a l l e a s e c o n t r a c t , three a r b i t r a t o r s
met and on December 22, 1970, a r r i v e d a t t h e following r e n t a l
agreement :
"Rent s h a l l b e a t t h e r a t e of $3,400.00 per annum,
s t a r t i n g January 1, 1971, f o r a p e r i o d of f i v e
y e a r s through December 31, 1975, w i t h t h e o p t i o n
t o renew f o r a n a d d i t i o n a l f i v e y e a r p e r i o d , w i t h
r e n t a t $4,000.00 p e r y e a r , s t a r t i n g January 1,
1976 and ending December 31, 1980.
"As f u r t h e r c o n s i d e r a t i o n , we amend t h e o r i g i n a l
l e a s e wherein t h e l e s s e e CLARK K. FERGUS w i l l pay
a l l taxes---more s p e c i f i c a l l y , t h e $200.00 pre-
v i o u s l y c a r r e d by t h e l e s s o r , JOHN W. FOQTE."
Lessee, through h i s a t t o r n e y , s e n t a l e t t e r t o t h e a t t o r n e y
f o r t h e l e s s o r s , d a t e d January 7 , 1971, i n which l e s s e e attempted
t o a c c e p t t h e a r b i t r a t o r s ' d e t e r m i n a t i o n of December 22, 1970,
and extend t h e l e a s e f o r an a d d i t i o n a l t e n y e a r s . L e s s o r s , through
t h e i r a t t o r n e y , r e f u s e d t h e attempted e x e r c i s e of t h e e x t e n s i o n
o p t i o n on t h e grounds t h a t i t was submitted p a s t t h e t e n day
acceptance p e r i o d provided f o r i n t h e o r i g i n a l l e a s e i n t h e s e
terms :
** The t h r e e persons so s e l e c t e d s h a l l c o n s t i -
t u t e a board o f a r b i t r a t i o n f o r t h e purpose of de-
termining t h e r e n t a l of s a i d l e a s e d premises f o r a
t e n year extended term t h e r e o f , and s h a l l promptly
a g r e e by a m a j o r i t y v o t e on such r e n t a l , which i n no
e v e n t be l e s s than F i f t e e n Hundred D o l l a r s ($1,500.00)
p e r annum. Within t e n days a f t e r such board of a r b i - -
t r a t i o n- f i x e s such r e n t a l , s a i d l e s s e e shaii-?iotify
--
s a i d l e s s o r s i n w r i t i n g whether o r n o t he wishes t o
exercise h i s option t o-
- extend t h e terms of t h i s l e a s e
-
f o r an a d d i t i o n a l p e r i o d of t e n y e a r s on t h e r e n t a l
f i x e d by s a i d board o f a r b i t r a t i o n and both l e s s o r s
and l e s s e e w i l l be bound by t h e d e c i s i o n of s a i d
l e s s e e . I' (Emphasis s u p p l i e d ) ,
O January 20, 1971, l e s s e e s e n t a l e t t e r t o l e s s o r , S t e l l a
n
Foote, and t o each of t h e t h r e e members of t h e board of a r b i t r a -
t o r s , r e q u e s t i n g t h e e x t e n s i o n l e a s e m a t t e r be resubmitted t o
a r b i t r a t i o n on t h e b a s i s t h a t t h e a r b i t r a t i o n award f a i l e d t o
follow t h e i n s t r u c t i o n s of t h e o r i g i n a l l e a s e , because t h e r e n t a l
d e t e r m i n a t i o n was f o r a p e r i o d of f i v e r a t h e r than t e n y e a r s .
Lessors continued i n t h e i r p o s i t i o n t h a t l e s s e e enn nett's f a i l u r e
t o make a t i m e l y acceptance of t h e a r b i t r a t i o n agreement had
terminated a l l h i s i n t e r e s t .
O A p r i l 27, 1971, l e s s e e Bennett f i l e d a d e c l a r a t o r y
n
judgment a c t i o n i n d i s t r i c t c o u r t f o r a d e t e r m i n a t i o n of t h e s e
matters. O August 16, 1972, t h e d i s t r i c t c o u r t rendered i t s
n
f i n d i n g s of f a c t , c o n c l u s i o n s of law and judgment i n f a v o r of
defendant l e s s o r s , which s t a t e d i n p a r t :
" I T I S HEREBY ORDERED, ADJUDGED AND DECREED a s f o l l o w s :
"1. That t h e A r b i t r a t i o n Award rendered by t h e
Board of A r b i t r a t o r s on December 22, 1970, E x h i b i t
' C ' , was w i t h i n t h e a u t h o r i t y and l i m i t s of t h e sub-
mission i . e , t h e Lease and Decree of Court, Exhi-
b i t s 'A 1 and t B ' r e s p e c t i v e l y , and was l e g a l l y v a l i d
and e f f e c t i v e between t h e p a r t i e s t o s a i d l e a s e .
"2. That t h e p l a i n t i f f and h i s predecessors i n
i n t e r e s t f a i l e d t o e x e r c i s e t h e i r o p t i o n t o extend
s a i d Lease f o r an a d d i t i o n a l t e n (10) y e a r s upon t h e
terms of s a i d A r b i t r a t i o n Award w i t h i n t h e time and
i n t h e manner a s r e q u i r e d by s a i d Lease instrument
and by reason of t h i s f a i l u r e , t h e e n t i r e r i g h t , t i t l e
and i n t e r e s t of t h e p l a i n t i f f and h i s p r e d e c e s s o r s i n
i n t e r e s t a s Lessee under s a i d Lease a r e f u l l y termin-
a t e d a s of t h e end of t h e i n i t i a l term. 2k * * I f
Lessee a p p e a l s from t h a t f i n a l judgment and p r e s e n t s
two a r e a s i n which t h e a r b i t r a t o r s exceeded t h e i r a u t h o r i t y .
1. The a r b i t r a t i o n award only e s t a b l i s h e d t h e renewal
l e a s e f o r a period of f i v e y e a r s , r a t h e r t h a n t e n y e a r s a s r e -
q u i r e d by t h e submission agreement,
2, The a r b i t r a t i o n award s h i f t e d t h e payment of c e r t a i n
t a x e s from l e s s o r s t o t h e l e s s e e , which was n o t w i t h i n t h e a u t h o r i t y
of the a r b i t r a t o r s .
W f i n d no m e r i t i n l e s s e e ' s c o n t e n t i o n t h e a r b i t r a t i o n
e
award was rendered f o r a p e r i o d of f i v e r a t h e r than t e n y e a r s .
The award, hereinabove quoted, c l e a r l y e s t a b l i s h e d a r e n t a l f o r
t h e t e n y e a r period from January 1, 1971 t o December 31, 1980,
and l e s s o r s a r e bound f o r t h a t e n t i r e p e r i o d of time. The f a c t
t h e r e was a $600 i n c r e a s e i n annual r e n t a l and an o p t i o n t o renew
scheduled t o t a k e e f f e c t on January 1, 1976, i n no way r e l i n q u i s h e s
t h e o b l i g a t i o n s of t h e l e s s o r s t o be bound by t h e terms of t h e
lease f o r the e n t i r e ten years. I f anything, i t operates t o the
advantage of t h e l e s s e e , g i v i n g him a u n i l a t e r a l o p t i o n t o c a n c e l
a t t h e "half way p o i n t " i n t h e l i f e of t h e l e a s e .
W f i n d n o t h i n g i n t h e terms of t h e submission agreement
e
which precluded t h e a r b i t r a t i o n board from e s t a , b l i s h i n g d i f f e r e n t
r e n t a l s f o r d i f f e r e n t y e a r s w i t h i n t h e l i f e of t h e t e n y e a r ex-
tension lease.
W a l s o f i n d no m e r i t i n l e s s e e ' s c o n t e n t i o n t h e d i s p o s i -
e
t i o n of t h e t a x o b l i g a t i o n was n o t w i t h i n t h e a u t h o r i t y of t h e
a r b i t r a t o r s i n f i x i n g the r e n t a l f o r the ten year extension l e a s e
period. Under circumstances o t h e r than t h o s e involved h e r e ,
t h e r e might have been m e r i t i n t h i s c o n t e n t i o n , However, i n
looking t o t h e terms of t h e o r i g i n a l twenty-five y e a r l e a s e
agreement, we f i n d i t was e s t a b l i s h e d i n 1945 t h a t l e s s o r s would
pay a l l t a x e s up t o $200 p e r annun and l e s s e e would pay any t a x e s
i n excess of t h a t amount, Thus, t h e payment of t a x e s was v e r y
much a p a r t of t h e " r e n t a l " o b l i g a t i o n o r compensation between
t h e l e s s o r s and l e s s e e under t h e terms of t h e o r i g i n a l l e a s e .
This f a c t made i t incumbent upon t h e a r b i t r a t i o n board t o make
some d i s p o s i t i o n of t h e t a x payment i s s u e i n t h e " r e n t a l " terms
of t h e t e n year e x t e n s i o n l e a s e . The d i s p o s i t i o n i t made appears
i n no way unreasonable t o t h i s Court, nor does i t seem p a r t i c u l a r l y
unusual, s i n c e under t h e o r i g i n a l l e a s e agreement l e s s e e was
paying p a r t of t h e t a x e s , under t h e t e n y e a r e x t e n s i o n l e a s e he
would have paid them a i l .
I n McIntosh v. H a r t f o r d F i r e I n s . Co, , 106 Mont. 434, 439,
78 P.2d 8 2 , t h i s Court s t a t e d t h e a p p l i c a b l e g e n e r a l r u l e :
"It i s t h e p o l i c y of t h e law t o f a v o r t h e s e t t l e m e n t
of d i s p u t e s by a r b i t r a t i o n , and every r e a s o n a b l e i n -
tendment w i l l be indulged t o g i v e e f f e c t t o such
proceedings. An award made by a p p r a i s e r s o r a r b i t r a t o r s
should n o t be v a c a t e d u n l e s s i t was made w i t h o u t
a u t h o r i t y , o r a s a r e s u l t of f r a u d o r mistake, o r
misfeasance o r malfeasance of t h e a p p r a i s e r s . 1 1
See a l s o : Lee v , P r ~ v i d e n c eWashington I n s . Co., 82 Mont. 264,
266 P , 640; Crosby v , Board of H a i l I n s u r a n c e , 113 Mont, 470,
29 P.2d 99; 5 Am J u r Zd, A r b i t r a t i o n and Award $ 5 137,167.
Appellant l e s s e e h a s n o t s u s t a i n e d t h e burden of e s t a b -
l i s h i n g e r r o r abuse i n t h e award made by t h e a r b i t r a t o r s ,
T h e r e f o r e , t h e judgment of t h e d i s t r i c t c o u r t i s a f f i r m e d ,
-
Associate J u s t i c e
// Chief ~ u s t i c e
c i a t e J u s t i c/ s .
e