NO. 82-331
IN THE SUPREME COURT OF THE STATE OF MONTANA
1983
ROBERT R. DIEDE,
Plaintiff and Respondent,
-VS-
BILLY J. DAVIS,
Defendant and Appellant.
Appeal from: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone, The Honorable
Charles Luedke, Judge presiding.
Counsel of Record:
For Agpellant:
Holmstrom & Dunaway; William J. O'Gonnor 11,
Billings, Montana
For Respondent:
9avidson, Veeder, Baugh, Broeder, Poppler
and Michelotti; Doris Poppler, Billings, Montana
Submitted on Briefs: December 30, 1982
Decided: March 24, 1983
Filed:
MAR 2 4 1983
*,& #
Clerk
.-
Mr. Justice Fred J. Weber delivered the Opinion of the
Court.
Defendant (lessee) appeals from an award of $8,400.00 in
damages to plaintiff (lessor) in this action arising from
lessee's breach of a lease agreement. The case was tried
before the Thirteenth Judicial District Court, Yellowstone
County, sitting without a jury. We affirm in part, reverse
in part and remand to the District Court for further
proceedings consistent with this opinion.
Lessee raises the following issues for review:
1. Whether the District Court erred in finding that
there was no oral agreement between the parties which
terminated the lease.
2. Whether the District Court erred in failing to find
that lessor was estopped from asserting any damages under the
lease, or had waived his right to assert them.
3. Whether the District Court erred in fixing the
rights of the parties at the time of the sale of the truck
without taking into consideration the subsequent lease.
Lessor is in the business of leasing trucks in
Yellowstone County, Montana; lessee is in the trucking
business in the Billings a.rea. On October 30, 1980, the
parties entered into a written agreement for the lease of a
1979 Freightliner truck-tractor, for 46 months beginning
November 15, 1980. Lessee agreed to pay a rental of
$1,500.00 per month for the first 24 months, and a rental of
$950.00 per month for the remaining 22 months. The lea.se
included the typed-in statement, "Lease is non-cancellable."
It also provided that lessee would pay for all maintenance
and necessary repairs and insurance, and that he would
reimburse lessor for any taxes lessor paid on the truck. The
lease further provided that the agreement was only a rental
agreement, and lessor, who was the owner of the truck, wouid
retain title unless the vehicle was purchased by lessee. The
lease contained a statement of what constituted default, and
the following provision:
"REMEDIES: In the event of default by Lessee,
Lessor may terminate the lease and, at its option,
1. Treat the equipment as its own in full
settlement of Lessee's obligations under the lease;
or
2. By notice to Lessee, sell the equipment at
public or private sale, in which event, Lessee
shall be liable to Lessor for the difference
between (a) the sum of all rentals called for by
the lease plus the residual value, less (b) the sum
of all rent paid and net proceeds of the sale."
On October 30, 1980, the parties also signed an
option-to-purchase agreement providing that, at the
expiration of the lease term, lessee would have the option to
purchase the leased vehicle for $7,500.00, if his payments
were up to date, and he was not otherwise in default. The
truck's mileage was 102,000 miles when lessee obtained the
vehicle. Lessor listed its retail value as $47,500.00 on the
lease agreement.
Lessee made the lease payments through December, 1980,
but, because lessee had to pay for major repairs to the
truck's engine that month, the parties agreed that the
January payment would be deferred. Timely lease payments
were made until June of 1981, and a $500 payment was made in
May, toward the $1,500.00 payment deferred in January.
In the middle of June, lessee learned that a truck of
his which had been stolen had been recovered and would be
returned to him. On June 13, he deleted lessor's truck from
his insurance and added his own recovered truck. Lessee was
at the time recuperating from heart surgery and had been
informed that a second operation might be required. He
contacted lessor and informed him that because of his
illness, he wished to return the 1979 Freightliner to lessor.
According to lessee, lessor agreed during a telephone
conversation on June 15, 1980, to accept the truck back if
all payments were brought up to date. Lessee testified that
on June 20, he brought the check and the truck's keys to
lessor's home, and the parties orally agreed that the lease
was terminated and no further obligation existed on the part
of either lessee or lessor. Lessor denied that any such
agreement existed; he testified that no June 15 telephone
conversation had occurred. He argued that, because it was
lessee's obligation to maintain the truck, his acceptance of
the vehicle's return was dependent upon its condition.
Because lessor lived in a residential neighborhood,
lessee did not return the truck to lessor's home address, but
parked it in the "West Parkway", for lessor to pick up later.
When lessor tried to start up the truck two days later on
June 22, it would not start. Lessee paid several hundred
dollars for repairs, but refused to pay for further repairs
because he believed the lease had been terminated as of June
20.
On July 23, 1980, lessor informed lessee by certified
letter that, because the truck was in no condition to
re-lease, and because lessee had defaulted by failing to keep
the vehicle insured between June 13 and June 20, 1980, lessor
intended to proceed under the Remedies portion of the lease,
and offer the truck for public sale. Lessee did not respond
to the letter. Lessor subsequently ran the following
advertisement for ten days in the Billings Gazette:
"Public Sale: '79 Freightliner COE, serial
#168606. Location: FJarehouse, corner 23rd & 4th
Ave. So., Billings. Date of sale: August 8, 1981,
10 a.m. Owner reserves right to bid."
Four prospective buyers besides lessor were present at
the sale on August 8, 1981. One of them, Don Adams, opened
the bid at $36,000.00. No one else bid except lessor, who
"bought the truck back" for $36,500.00.
On September 2, 1981, after making certain repairs on
the truck, lessor re-leased it to Don Adams, for 48 months at
$1,250.00 per month, with the option to purchase at the end
of the lease period for $7,125.00. The truck was again
valued at $47,500.00.
On August 19, 1981, lessor filed a complaint in the
District Court, alleging breach of contract and seeking
damages in the amount of $15,900.00. Trial was held on March
12, 1982, and judgment was entered on May 11, 1982. The
District Court denied lessor recovery of residual value of
$7,500.00, but awarded damages of $8,400.00, the difference
between the sale price of the truck and the remaining
payments on lessee's contract.
Lessor argues that this Court should apply the
provisions of the Uniform Commercial Code (UCC) in resolving
this dispute. Lessee maintains that the October 30, 1980
lease agreement was neither a sale nor a security agreement,
and the UCC does not apply. We agree.
As lessee points out, lessor is in the business of
leasing vehicles; the lease agreement explicitly states that
it "is a rental agreement only"; the option to buy is a
separate agreement; and the record is barren of evidence that
any acknowledged security agreement existed or was filed.
Section 30-9-203 (1), ( b ) , MCA.
The characterization of the transaction as a lease or a
sale is not conclusive; it is the intention of the parties
which is controlling, that intention to be determined by the
facts of each case. Transcontinental Refrigeration Co. v.
Figgins (1978) 179 Mont. 12, 18, 585 P.2d 1301, 1305. In
Fire Supply & Service v. Chico Hot Springs (1982) Mont .
, 639 P.2d 1160, 39 St.Rep. 231, we upheld the District
Court's determination that a sale was actually intended, and
the UCC applied, where, at the expiration of the "lease"
term, a fire alarm system could be purchased for $1.00,
stating:
"A sale is a contract under which title to goods
passes from the seller to a buyer for a price.
Section 30-2-106 (1), MCA. The fact that the
agreement was entitled a 'lease' rather than an
'installment sale contract' does not mean that the
parties are not subject to Montana's Commercial
Code. In circumstances where the purported 'lease'
gives the 'lessee' the option to acquire the
'leased' goods upon expiration of the 'lease' term
for nominal consideration, the 'lease' is
commercially indistinguishable from an installment
sales contract. Section 30-1-201 (37), MCA;
Whitworth v. Krueger (1976), 98 Idaho 65, 558 P.2d
1026, 1 2 .
09" Mont. at , 639 P.2d at 1163,
39 St.Rep. at 234.
In Transcontinental Refrigeration Co. v. Figgins, supra,
several documents indicated that the "lessee" had the option
to obtain title to the property at no further charge at
termination of the "lease"; such an agreement was recognized
as a sale.
In the case at bar, lessee would have had to pay lessor
$7,500.00 to obtain title to the truck, upon expiration of
the lease period. That is not "nominal consideration" for a
heavily-used truck which was not new at the beginning of the
lease period. The facts of this case indicate that a lease,
and not a sale or security agreement, was intended by the
parties, and accordingly, the UCC does not apply.
Lessee argues that a fully executed oral contract to
terminate the lease was effected on June 20, 1981, when
lessor accepted the truck keys and payment of all money due
on the lease. He points out that under section 28-2-1602,
MCA, a written contract may be altered by an executed oral
agreement, and under section 28-2-104, MCA, a fully executed
contract is one the object of which is fully performed.
We have no quarrel with lessee's statement of the law.
But the trial court found as a matter of fact that "the
Lessor denied any such oral agreement and the facts do negate
the existence of any meeting of the minds on the point."
The function of this Court in reviewing a challenge to
the sufficiency of the evidence is well-settled:
"We will not substitute our judgment for that of
the trier of fact, but rather will only consider
whether substantial credible evidence supports the
findings and conclusions. Those findings will not
be overturned by this Court unless there is a clear
preponderance of evidence against them. We will
view the evidence in a light most favorable to the
prevailing party, recognizing that substantial
evidence may be weak or conflicting with other
evidence, yet still support the findings."
Spraggins v. Elvidge (1982) Mont . , 647 P.2d 859,
861, 39 St.Rep. 1229, 1232, citing Cameron v. Cameron (1978)
179 Mont. 219, 228, 587 P.2d 939, 945.
Here, lessor testified that, on June 20, 1981, lessee
simply came to his house with the check and the truck keys;
he testified that there was no prior telephone conversation
and no oral agreement to terminate the lease. He also
testified that, three days later, upon learning that the
truck required numerous repairs and lessee denied
responsibility for further repairs, he told lessee, "Bill,
we've got two problems: Number one, you're not going to pay
me any more money, and number two, I 'm not taking the truck
back in this condition." Lessor's position is that, Remedy
No. 1 under the lease was dependent upon lessee's having kept
the truck in good condition, viz., that lessor could not be
expected to agree, and in fact did not agree to the return of
the truck in satisfaction of all lessee's obligations,
without first ascertaining that the vehicle was in good
condition.
We find there is substantial evidence to support the
District Court's conclusion that there was no meeting of the
minds on June 20, 1981, and hence no oral agreement to
terminate the lease.
Lessee next argues that the District Court should have
found that lessor was estopped to assert da-mages, or had
waived his right to assert them. Lessee maintains that
lessor led him to relinquish his possessory interest in the
truck by making oral representations that the lease was
terminated. He claims that:
"[Lessor] accepted the truck back, asking at the
time only that he be paid in full to date and that
the work necessary on the truck be paid for by
[lessee] " .
The District Court found that lessee ha.d "brought all
lease payments current and surrendered the keys to the truck
to Lessor at his home, intending that such action would
amount to a termination of the lease." Obviously the
District Court did not find substantial evidence that lessor
was aware, or should have been aware of lessee's belief that
the lease would be terminated that evening, nor do we find a
preponderance of evidence to the contrary. Indeed lessor's
behavior, upon discovering that the truck required repairs,
is far more consistent with lessor's position, that the lease
was not to be terminated until he had had an opportunity to
ascertain that the truck had been properly maintained by
lessee, as required under the terms of the lease. Lessee's
claim that lessor waived his right to assert damages is
merely another way of saying that the parties had reached
some form of agreement to terminate the lease without further
obligation to either.
Equitable estoppel is an unfavored doctrine and will
only be sustained upon clear and convincing evidence. Boise
Cascade v. First Security Bank of Anaconda (1979) 183 Mont.
378, 393, 600 P.2d 173, 182. We do not find such evidence to
support lessee's argument.
Lessee maintains that the District Court erred in fixing
the rights of the parties at the time of the sale of the
truck, without considering the subsequent re-lease of the
truck.
Lessee argues first that the remedy of sale provided in
the lease is void as a liquidated damage; presumably lessee
means that if the remedy is void, the sale cannot be
interposed between lessee's breach and lessor's subsequent
re-lease of the vehicle, to establish greater damages than
could be established by comparing the effects of the breach
with the second lease. Lessee argues that the remedy is void
under section 28-2-721, MCA, which provides that:
" (1) Every contract by which the amount of damage
to be paid or other compensation to be made for a
breach of an obligation is determined in
anticipation thereof is to that extent void, except
as expressly provided in subsection (2).
" (2) The parties to a contract may agree therein
upon an amount which shall be presumed to be an
amount of damage sustained by a breach thereof
when, from the nature of the case, it would be
impracticable or extremely difficult to fix the
actual damage."
Lessee also relies upon this Court's decision in Morgen &
Oswood Construction v. Big Sky of Montana (1976) 171 Mont.
268, 557 P.2d 1017. Lessee's reliance is misplaced in both
instances. Both Morgen - Oswood Construction and section
&.
28-2-721, MCA, refer to contracts which establish the amount
of damage or compensation to which the aggrieved party is
entitled in the event of a breach of contract. There was no
such provision in the lease agreement considered herein. The
Remedies section of the lease merely established an optional
procedure by which lessor could determine the extent of
damages; there was no stipulated amount of damages to be
presumed. We find the law on liquidated damages inapplicable
here.
The District Court concluded that lessor "properly
mitigated damages through compliance with the remedies
provided in the lease and his actions following completion of
such remedies are not available to [lessee] as further
mitigation."
Lessee argues that the District Court erred in failing
to consider the re-lease of the truck in fixing the rights of
the parties, because this allowed lessor a "windfall" at
lessee's expense, and permitted lessor to recover an amount
greater than his damages. Lessee submitted the following
comparison in support of his argument that, if the value of
the Adams lease is considered in mitigation only insofar as
it overlaps the original (Davis) lease, it is still more
valuable to lessor than the original lease:
Diede-Davis Lease Diede-Adams Lease
Terms Nov. 1980-Sept. 1984 Sept. 1981-Sept. 1985
Payments 24 mo @ $1500 per mo 48 mo @ $1250 per mo
22 mo @ $ 950 per mo
Total Lease $56,900 $60,000
Monies paid
through
June, 1981
Total under
lease from
JulyI 1981
to Sept. 1984 $44,900 $45,000
(Damages) (Mitigation)
The duty of the injured person to reduce or mitigate
damages is a positive duty, within limits; the test is:
"What would an ordinary, prudent person be expected to do
under the circumstances?" Harrington ~ 7 . Holiday Rambler
Corp. (1978) 176 Mont. 37, 42, 575 P.2d 578, 581, citing
Spackman v. Ralph M. Parsons Co. (1966) 147 Mont. 500, 505,
414 P.2d 918, 921.
Here, lessor possessed full title to the truck both
before and after the sale; neither property nor consideration
changed hands in the transaction. There was no payment from
buyer to seller to offset damages resulting from lessee's
default, thus no mitigating effect in plaintiff's purchase of
the truck. Such a sale does not constitute the attempt to
mitigate damages that could be expected of an "ordinary,
prudent person." Lessor then re-leased the truck to Don
Adams for slightly more than he would have received from
lessee over the same period. Lessor now attempts to
interpose the sale of the truck between lessee's breach and
the re-lease so that the sale, not the re-lease, is treated
as meeting the obligation to mitigate damages caused by the
breach. Under these circumstances, we conclude that the
primary purpose of the sale was to set up a technical basis
for claiming damages against lessee, when in fact, no loss or
damage was suffered. This would permit a lessor to "buy
back" the leased article for far less than its value, then
hold defaulting lessee responsible for the difference between
the remaining value of the lease and the sale price of the
property, while simultaneously benefiting from continued
ownership of the property. This would defeat the purpose of
the rule establishing an obligation to mitigate damages, and
would unfairly allow lessor recovery greater than the amount
he would have received had lessee fully performed the
-~j-l-.3r.3 r 7 - - t - - g , f
contract. Sections 2 4 4 3 8 - 1 , 24-3-3&5, MCA. We hold,
therefore, that the value of the re-lease, rather than the
sale price of the truck, must be considered in determining
mitigation of damages.
We note that lessor paid for certain repairs and
replacement of parts on the truck when re-leasing the vehicle
to Don Adams (plaintiff's exhibit no. 6). Under the terms of
the original agreement, lessee (Davis) was responsible for
maintenance and "any necessary repairs" to the vehicle. The
record does not establish which, if any, of the repairs made
in August and September of 1981 were "necessary", and which
of those necessary repairs were incurred before Adams became
responsible for maintenance and repairs, and could therefore
be considered damages. We therefore remand this case for
such further proceedings as are necessary to establish the
amount for repairs paid by lessor and chargeable to lessee,
and for entry of judgment based upon lessor's damages, if
any, which are in excess of the $45,000 mitigation value of
the second lease.
We concur:
3 ~s4 s , & J q
/p
Chief ~ u s t i c e