No. 85-56
I N THE SUPREME COURT O F THE STATE O F MONTANA
1985
I F G LEASING COMPANY, a Minnesota
Corporation,
P l a i n t i f f and R e s p o n d e n t ,
JOHN SCHULTZ, J R . , ESTHER SCHULTZ,
K.O. DEK LAND COMPANY, LELAND T R A I L E R
AND EQUIPMENT,
D e f e n d a n t s and A p p e l l a n t s .
APPEAL FROF4: D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of Y e l l o w s t o n e ,
T h e H o n o r a b l e C h a r l e s L u e d k e , Judge p r e s i d i n g .
COUNSEL OF RECORD:
For Appellants:
B e r g e r Law F i r m ; C h r i s Nelson, Billings, Montana
For Respondent:
Lynaugh, Fitzgerald & H i n g l e ; C h a r l e s W. Hingle,
B i l l i n g s , Montana
S u b m i t t e d on B r i e f s : May 9 , 1 9 8 5
Decided: A u g u s t 29, 1985
Filed: ~ u t 2i ;j 1985
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
This is an appeal from a judgment of the Thirteenth
Judicial District Court, in and for the County of Yellowstone
which found Schultz in debt to IFG Leasing Company for
failure to pay monies owed on the lease of certain equipment.
We affirm.
John Schultz, Jr. and Esther Schultz were partners
doing business as K.O. Dek Land Company. On June 28, 1978,
Schultz leased a combine from I F G Leasing Company. The lease
called for five annual payments in the amount of $12,150.72,
the first payment being due on June 27, 1978, and subsequent
payments due on June 25th of each year thereafter.
Appellants failed to pay the rental due on June 25, 1979, and
all subsequent payments. IFG obtained judgment against
appellant in the principal amount of $57,596.29 plus interest
at the rate of 10% per annum from the date of default. The
combine remains in the possession of the appellant because
respondent has not been able to locate it.
The parties entered into a second lease on February 27,
1979, for refrigerated trailer. Leland Trailer and
Equipment, the vendor, guaranteed the performance of Schultz.
The lease called for five annual rental payments in the
amount of $7,536.34, the first payment being due on February
13, 1979, and subsequent payments due on March 25th of each
year. Schultz failed to make four installment payments
required under the lease. As a consequence, the trailer was
sold by Leland for the amount of $17,500. I F G and Leland
entered into an agreement whereby Leland would pay I F G the
sum of $17,500 for the ownership of the trailer.
IFG credited Schultzls account in the amount of
$17,500. A judgment was obtained against Schultz in the
amount o f $15,553.46 plus interest a t 1 0 % p e r annum. The
D i s t r i c t C o u r t d e t e r m i n e d t h e i n t e r e s t r a t e by t h e t e r m s o f
b o t h l e a s e a g r e e m e n t s which p r o v i d e d f o r i n t e r e s t on d e f a u l t
to be paid "at the highest contractual rate permitted by
law," and S 31-1-107 (1), MCA (1979) which p r o v i d e d f o r 1 0 %
per annum. The total interest due on said obligations
e q u a l l e d $29,745.80 f o r t h e p e r i o d between J u l y 5 , 1 9 7 9 , and
t h e d a t e o f t r i a l , November 5 , 1984.
Two i s s u e s a r e r a i s e d on a p p e a l :
(1) Whether r e s p o n d e n t f a i l e d t o m i t i g a t e h i s damages
r e g a r d i n g t h e d i s p o s i t i o n o f t h e Leland T r a i l e r .
(2) Whether respondent is entitled to prejudgment
i n t e r e s t a t a r a t e o f 10% p e r annurn.
Initially, t h i s Court recognizes that the dispute a t
issue is not governed by the provisions of the Uniform
Commercial Code. I n c i r c u m s t a n c e s where t h e p u r p o r t e d l e a s e
g i v e s t h e l e s s e e t h e o p t i o n t o a c q u i r e t h e l e a s e d goods upon
expiration of the lease, the lease is commercially
i n d i s t i n g u i s h a b l e from a n i n s t a l l m e n t s a l e s c o n t r a c t , and i s
governed by the Uniform Commercial Code. Section
30-1-201(37), MCA; F i r e S u p p l y and S e r v i c e , I n c . v. C h i c o Hot
Springs (Mont. 1982), 639 P.2d 1160, 39 St.Rep. 231.
However, t h e f a c t s o f t h i s c a s e i n d i c a t e t h a t t h e lessee d i d
n o t have t h e o p t i o n t o o b t a i n t i t l e t o t h e p r o p e r t y a t no
f u r t h e r charge a t t h e termination of t h e lease. Therefore,
we find t h e characterization of the transaction i n t h e matter
b e f o r e u s was a l e a s e o f equipment. D i e d e v. Davis (Mont.
1 9 8 3 ) , 661 P.2d 838, 40 S t . Rep. 394.
Appellants argue t h a t t h e respondent f a i l e d t o m i t i g a t e
damages by a c c e p t i n g $17,500 f o r t h e t r a i l e r . T h i s amount i s
alleged to be less than i t s market value. Mr. Schultz
t e s t i f i e d t h a t a t t h e t i m e t h e t r a i l e r was t a k e n , its value
was between $20,000 and $22,000.
The r u l e i n Montana i s t h a t a n o n d e f a u l t i n g p a r t y i n a
contractual arrangement must act reasonably under the
circumstanc~s so as not to unnecessarily enlarge damages
c a u s e d by d e f a u l t . Diede v . D a v i s , s u p r a ; Town Pump, I n c . v .
Diteman (Mont. 1981), 622 P.2d 212, 38 St.Rep. 54. The
sufficiency of t h e e f f o r t t o mitigate is a determination f o r
the trier o f fact. Bronken's Good Time Company v . J. W.
Brown and A s s o c i a t e s (Mont. 1 9 8 3 ) , 661 P.2d 861, 40 St.Rep.
549.
This matter was initiated as a collection a c t i o n by
respondent to recover rent upon appellants' two e q u i p m e n t
l e a s e s which were in default. The District Court in its
f i n d i n g s o f f a c t found t h e a p p e l l a n t s had d e f a u l t e d on t h e i r
obligation t o pay t h e r e n t a l due o n t h e two l e a s e s . As a
consequence, the t r a i l e r was s o l d and t h e p r o c e e d s of the
s a l e w e r e c r e d i t e d a g a i n s t t h e d e b t due t o respondent. The
c o u r t a l s o determined t h a t both l e a s e s r e q u i r e d i n t e r e s t t o
be paid on delinquent payments. Based upon the District
Court's findings of f a c t and conclusions of law t h e c o u r t
ordered appellant t o pay r e s p o n d e n t s p e c i f i c amounts, less
t h e amount c r e d i t e d a s r e p r e s e n t e d by t h e s a l e o f t h e t r a i l -
er, representing principal and interest on the two lease
agreements. From o u r r e v i e w o f t h e r e c o r d , we c o n c l u d e t h a t
t h e r e was s u b s t a n t i a l e v i d e n c e i n t h e r e c o r d t o s u p p o r t t h e
$17,500 value for which the trailer was sold, and which
amount was c r e d i t e d t o t h e a c c o u n t o f t h e appellants. We
hold t h a t the respondent's e f f o r t s t o m i t i g a t e i t s damages
w e r e reasonable under t h e circumstances.
A p p e l l a n t n e x t a r g u e s t h a t t h e l e g a l r a t e of i n t e r e s t ,
6 % p e r annum, s h o u l d h a v e been a s s i g n e d t o t h e o b l i g a t i o n s i n
question rather than the contractual rate, 10% p e r annum.
The D i s t r i c t C o u r t i n i t s f i n d i n g s o f f a c t and c o n c l u s i . o n s o f
law stated that each lease entered into by the parties
provided t h a t :
interest to be paid on delinquent
payments a t " t h e h i g h e s t c o n t r a c t u a l r a t e
p e r m i t t e d by law." S e c t i o n 3 1 - 1 - 1 0 7 ( 1 ) ,
MCA (1979) f i x e s t h a t r a t e a t 1 0 % p e r
annum, and i s a p p l i c a b l e u n d e r t h e f a c t s
and c i r c u m s t a n c e s of t h i s c a s e .
The a p p e l l a n t s m a i n t a i n b e c a u s e t h e l e a s e s d o n o t s t a t e t h e
amount o f i n t e r e s t t o b e c h a r g e d on t h e s e o b l i g a t i o n s , the
l e g a l r a t e , 6% should be applied.
S e c t i o n 31-1-107 (1), MCA (1979) , t h e s t a t u t e i n e f f e c t
a t t h e t i m e o f t h e e x e c u t i o n o f t h e two l e a s e s p r o v i d e d t h a t :
[ t h e ] p a r t i e s may a g r e e i n w r i t i n g f o r
t h e payment o f a n y r a t e o f i n t e r e s t n o t
more t h a n 1 0 % p e r annum o r more t h a n 4
percentage points in excess of the
d i s c o u n t r a t e on 90-day commercia 1 p a p e r
i n e f f e c t a t t h e f e d e r a l reserve bank i n
the ninth federal reserve district,
w h i c h e v e r i s g r e a t e r , and s u c h i n t e r e s t
s h a l l be allowed according t o t h e t e r m s
o f t h e agreement.
Section 31-1-107(1, MCA, prior to amendment by (1981)
Kont.Laws, C h a p t e r 275, S e c . 8; (1983) Mont. Laws, C h a p t e r 9 ,
S e c . 1; (1983) Mont. Laws, C h a p t e r 567, Set. 1.
A p p e l l a n t s p r i m a r i l y r e l y on B i g Sky L i v e s t o c k , I n c . v .
Herzog (1976), 1 7 1 Mont. 409, 558 P.2d 1107. The case
involved interest based upon an action on an account for
veterinary drugs. The jury's award of 10% p e r annum was
reversed an.d t h e l e g a l r a t e was i n s t a t e d . However, i n the
summary reversal, this Court did not address any written
agreement or an interest rate e s t a b l i s h e d by the parties.
In the present matter, the terms of the written lease
agreement addressed t h e r a t e of interest. The p r o v i s i o n of
the agreement which required interest to be paid on
delinquent payments at "the highest contractual rate
permitted by law" clearly required the contractual rate a t
10% a s e s t a b l i s h e d by S 31-1-107 (1) , MCA (1979), t o apply.
Accordingly, the order of the District Court is
affirmed.
W e concur: / I
Justices