Arcadia Financial, Ltd. v. Prestige Toyota

No. 99-092

IN THE SUPREME COURT OF THE STATE OF MONTANA

1999 MT 273

296 Mont. 494

989 P.2d 831

ARCADIA FINANCIAL, LTD.,

Plaintiff/Respondent

and Cross-Appellant

PRESTIGE TOYOTA,

Defendant/Appellant

and Cross-Respondent.

APPEAL FROM: District Court of the Thirteenth Judicial
District,

In and for the County of Yellowstone,

The Honorable Russell C. Fagg, Judge presiding.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (1 of 9)4/9/2007 2:17:38 PM
No

COUNSEL OF RECORD:

For Appellant:

Peter T. Stanley, Attorney at Law; Billings, Montana

For Respondent:

David M. Wagner, Crowley, Haughey, Hanson, Toole & Dietrich;

Billings, Montana

Submitted on Briefs: July 22, 1999

Decided: November 16, 1999

Filed:

__________________________________________

Clerk

Justice Jim Regnier delivered the opinion of the Court.

¶ Arcadia Financial, Ltd., ("Arcadia") filed an action in the Thirteenth Judicial
District Court, Yellowstone County, against Prestige Toyota ("Prestige") to recover
damages for breach of contract. After a bench trial, the District Court issued its
Findings of Fact and Conclusions of Law and awarded Arcadia the principal amount
owing on the contract as well as interest, costs and attorney fees. Prestige appeals and
Arcadia cross-appeals. We affirm the District Court's award.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (2 of 9)4/9/2007 2:17:38 PM
No

¶ This appeal raises the following issues:

¶ 1. Whether the District Court erred in concluding that according to the terms of an
assignment provision in a retail installment contract Prestige guaranteed payment of
all sums due when it failed to deliver a valid certificate of title within the time
required?

¶ 2. Whether the District Court erred in awarding all the sums due under a retail
installment contract to Arcadia?

¶ 3. Whether the District Court erred in awarding attorney fees and costs to Arcadia?

FACTUAL BACKGROUND¶ Prestige is a new and used car dealer located in
Billings, Montana. Arcadia is a Minnesota corporation that purchases retail
installment contracts from automobile dealers after dealers have entered into such
contracts with buyers. On June 13, 1995, Prestige entered into a Master Dealer
Agreement with Arcadia providing for the sale of retail installment contracts to
Arcadia.

¶ On December 29, 1995, Prestige entered into a retail installment contract with
James B. Knight ("Knight Contract"). Mr. Knight purchased a 1994 Hyundai Excel
for $7195. The retail installment contract contains a provision assigning the contract
to Arcadia. The Knight Contract permits four assignment options: (1) "with full
recourse and guarantee," (2) "with 90 day recourse," (3) "without recourse," or (4)
"under the terms of a Master Dealer Agreement."

¶ On December 29, 1995, the same day that Mr. Knight purchased the vehicle,
Prestige assigned the Knight contract to Arcadia "without recourse." The
assignment provision states that "[i]f this assignment is made without recourse, it is
understood that only the warranties above apply." One of the above warranties in
the assignment provision of the Knight Contract provides:

(c) That at the time of making the contract [Prestige] has a valid certificate of title . . .
which has been sent so as to be received within 10 days by the appropriate officials for
noting [Arcadia's] interest on the certificate . . . .

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (3 of 9)4/9/2007 2:17:38 PM
No

This warranty ensured that Arcadia had a perfected security interest in the vehicle sold to
Knight.

¶ Prestige admitted that it did not send a valid certificate of title to the appropriate
officials so as to be received within ten days of the sale as required by the terms of the
contract. The Knight Contract states that Prestige unconditionally guarantees the
full performance of the terms of the contract in the event that it breaches "any of the
foregoing warranties."

¶ Mr. Knight made approximately three monthly payments toward the purchase of
the vehicle. Mr. Knight subsequently defaulted on the contract and filed for Chapter
7 Bankruptcy protection. At the time of Mr. Knight's filing, he owed $7232.29 in
principal under the terms of the installment contract. The bankruptcy trustee voided
Arcadia's lien on the Hyundai Excel and characterized the Knight Contract as a
voidable preferential transfer because Prestige had not filed the title application
noting Arcadia's interest on the certificate within the time permitted under the
Bankruptcy Code. On August 1, 1996, the Bankruptcy Court approved the sale of
Mr. Knight's vehicle for $2200.

¶ Arcadia demanded that Prestige repurchase the Knight Contract in a letter dated
March 10, 1997. Prestige refused. On July 3, 1997, Arcadia filed a complaint alleging
a breach of the Master Dealer Agreement and the Knight Contract and seeking
damages in the amount of the remaining principal owing on the Knight Contract as
well as interest, costs, and attorney fees. Prestige admitted breaching the warranty
contained in the Knight Contract that required Prestige to file an application for title
within ten days of assignment. However, Prestige claimed it was not required to
repurchase the contract and asserted that Arcadia's damages for not having a
perfected security interest in the automobile were limited to the amount the
bankruptcy trustee received on its sale. Arcadia moved for summary judgment and
Prestige moved for partial summary judgment on the issue of damages. In an order
dated May 27, 1998, the District Court denied both motions.

¶ A bench trial was held on July 8, 1998. On July 20, 1998, the District Court issued
its Findings of Fact and Conclusions of Law, awarding Arcadia the principal amount
due and owing on the Knight Contract, as well as interest, attorney fees, and costs.
Prestige appeals from the District Court's Findings of Fact and Conclusions of Law
as well as the court's denial of its motion for partial summary judgment. Arcadia

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (4 of 9)4/9/2007 2:17:38 PM
No

cross-appeals the District Court's denial of its motion for summary judgment in
order to preserve the issue.

STANDARD OF REVIEW

¶ The construction and interpretation of written agreements is a question of law. See,
e.g., In re Estate of Hill (1997), 281 Mont. 142, 145, 931 P.2d 1320, 1323 (citations
omitted). Likewise, it is a question of law whether ambiguity exists in a written
agreement. Estate of Hill, 281 Mont. at 146, 931 P.2d at 1323. We review a district
court's conclusions of law to determine whether the court's interpretation is correct.
Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469, 898 P.2d 680,
686.

DISCUSSION¶ 1. Whether the District Court erred in concluding that according to
the terms of an assignment provision in a retail installment contract Prestige
guaranteed payment of all sums due when it failed to deliver a valid certificate of title
within the time required?

¶ Where the language of the contract is clear and unambiguous and susceptible to
only one interpretation, the duty of the court is to apply the language as written.
Carelli v. Hall (1996), 279 Mont. 202, 209, 926 P.2d 756, 761.

¶ The assignment provision of the Knight Contract states, in relevant part:

Assignment and Warranty Terms. . . . This assignment is made in consideration of the
following warranties: . . . (c) That at the time of making of the contract [Prestige] has a
valid certificate of title or other valid and exclusive evidence of ownership to the vehicle
sold . . . which has been sent so as to be received within 10 days by the appropriate
officials for noting [Arcadia's] interest on the certificate . . . .

If this assignment is made without recourse, it is understood that only the warranties above
apply. . . . [Prestige] agrees that in the event of the breach of any of the foregoing
warranties the waiver of recourse against [Prestige] shall be abrogated and [Prestige]
unconditionally guarantees the full performance of all the terms and conditions of the
contract by Buyer therein and in accordance with the terms of the guaranty endorsement
set forth above . . . .

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (5 of 9)4/9/2007 2:17:38 PM
No

(Emphasis added.) The guarantee endorsement states that "[i]f Buyer defaults for any reason . . .
[Prestige] agrees to repurchase the contract for the amount then outstanding."

¶ The Knight Contract contains four assignment options. Prestige initialed the space
provided in the Knight Contract which indicated that the contract was assigned to
Arcadia "without recourse." Prestige argues that, according to the first sentence of
the second paragraph of the assignment provision, "only the warranties" of the first
paragraph apply to nonrecourse assignments. Prestige contends that these
warranties are not referred to by the contract language "any of the foregoing
warranties" in the second paragraph. Prestige argues that, although it did breach its
warranty to deliver a valid certificate of title within ten days of sale, it did not breach
any of the "foregoing" warranties and therefore it did not unconditionally guarantee
performance.

¶ We agree with the District Court's conclusion that the Knight Contract governs
this dispute. The Knight Contract was not assigned under the terms of the Master
Dealer Agreement. Furthermore, the Knight Contract specifically states that if the
assignment is made without recourse only the warranties of the first paragraph of its
assignment provision apply.

¶ The assignment provision of the Knight Contract clearly states that Prestige agreed
to guarantee full performance of the Knight Contract under three conditions: (1) if
assignment was made "with full recourse" and Mr. Knight defaulted, (2) if
assignment was made with "90-day recourse" and Arcadia delivered Mr. Knight's
vehicle to Prestige within 90 days after the due date of any defaulted payment, and
(3) in the event Prestige breached "any of the foregoing warranties" and Mr. Knight
defaulted. Because Prestige assigned the Knight Contract without recourse, Prestige
could have guaranteed full performance of its terms only under the third condition–i.
e., if Prestige breached any of the foregoing warranties and Mr. Knight defaulted.

¶ It is clear that the clause "any of the foregoing warranties" refers to the warranties
of the first paragraph of the assignment provision. The words of a contract are to be
understood in their ordinary and popular sense unless a special meaning is given to
them by usage. Section 28-3-501, MCA. The ordinary meaning of foregoing is "just
past; preceding; previously said or written." The American Heritage Dictionary of
the English Language 514 (New College ed. 1980). Clearly, the warranties contained

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (6 of 9)4/9/2007 2:17:38 PM
No

in the first paragraph of the assignment provisions precede the clause "any of the
foregoing" contained in the second paragraph. Significantly, the clause is not
expressly limited to warranties that might be contained in the second paragraph.
Rather, the clause is expressly inclusive in that it refers to "any" of the foregoing.

¶ We conclude that the contract clearly and unambiguously states that upon the
breach of the warranties contained in the first paragraph, the waiver of recourse
against Prestige will be abrogated and Prestige unconditionally guarantees the full
performance of the contract. Prestige conceded that it did not deliver a valid
certificate of title within the time required by the warranty provisions. Accordingly,
we agree with the District Court's conclusion that under the terms of the Knight
Contract Prestige clearly and unambiguously guaranteed full performance.

¶ 2. Whether the District Court erred in awarding Arcadia the principal amount
owing under the Knight Contract?

¶ The measure of damages for a breach of contract is determined in accordance with
§ 27-1-311, MCA. Larson v. Undem (1990), 246 Mont. 336, 805 P.2d 1318. Section 27-
1-311, MCA, states:

Breach of contract. For the breach of an obligation arising from contract, the measure of
damages, except when otherwise expressly provided by this code, is the amount which will
compensate the party aggrieved for all the detriment which was proximately caused thereby or in
the ordinary course of things would be likely to result therefrom. Damages which are not clearly
ascertainable in both their nature and origin cannot be recovered for a breach of contract.

We have emphasized that the purpose of the above section is to compensate an aggrieved party for
the loss sustained, and that the nonbreaching party should receive a sum which will give that party
an economic status identical to that which it would have enjoyed had the contract been performed.
Como v. Rhines (1982), 198 Mont. 279, 286, 645 P.2d 948, 952 (citations omitted).

¶ Prestige contends that had it delivered a valid certificate of title noting Arcadia's interest in Mr.
Knight's vehicle within the time required by the contract, Arcadia would have had a perfected
security interest in the vehicle, could have recovered it during Mr. Knight's bankruptcy
proceedings, and could have sold it. Prestige argues that the damages sustained by Arcadia should
be limited to the fair value of the vehicle at bankruptcy. Prestige argues that the only evidence of
the value of the vehicle at that time is the $2200 the bankruptcy trustee received on its sale.
Arcadia contends that Prestige unconditionally guaranteed full performance of the Knight

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (7 of 9)4/9/2007 2:17:38 PM
No

Contract and is therefore liable for $7232.29, the principal amount owing under the Knight
Contract. The District Court awarded the principal amount owing under the terms of the Knight
Contract to Arcadia.

¶ We conclude that § 27-1-311, MCA, does not limit Arcadia's damages to the amount received by
the bankruptcy trustee upon the sale of Mr. Knight's vehicle. To limit Arcadia's damages to this
amount would thwart the clear intentions of the parties at the time of contracting. We must
interpret a contract so as to "give effect to the mutual intention of the parties as it existed at the
time of contracting, so far as the same is ascertainable and lawful." Section 28-3-301, MCA. When
interpreting a written contract, we are to ascertain the intention of the parties "from the writing
alone if possible." Section 28-3-303, MCA.

¶ The contract states that if Prestige breached any of its warranties, it agreed to unconditionally
guarantee the full performance of the Knight Contract in accordance with the terms of the
guarantee endorsement. The guarantee endorsement provides that if Mr. Knight defaults for any
reason, Prestige agrees to repurchase the contract for the amount then outstanding. From the
language of the contract it is clear that at the time of contracting the parties contemplated that
nonrecourse assignments would be conditioned upon Prestige's warranties. Or, stated another
way, the inclusion of the unconditional guarantee manifests Arcadia's intent not to enter
nonrecourse assignments with Prestige unless Prestige fulfills its warranties. In the event Prestige
did not fulfill its warranties, the parties clearly intended that a nonrecourse assignment would
convert into a recourse assignment, granting Arcadia the right to seek performance from Prestige
in the event of the buyer's default.

¶ The Knight Contract was converted into a full recourse contract when Prestige did not send a
valid certificate of title within the time required by the agreement. Once Mr. Knight defaulted on
his payments, the terms of the guarantee endorsement required Prestige to repurchase the
contract for the amount of principal remaining due. Prestige violated its unconditional guarantee
by refusing to repurchase the Knight Contract. The detriment proximately caused by Prestige's
failure to perform its guarantee is the principal amount due and owing on the contract.

¶ We affirm the District Court's Findings of Fact and Conclusions of Law awarding damages to
Arcadia for the principal amount owing on the Knight Contract.

¶ 3. Whether the District Court erred in awarding attorney fees and costs to Arcadia?

¶ The District Court concluded that the express language of the Knight Contract entitled Arcadia
to attorney fees and costs. Prestige argues that because it did not agree to repurchase the Knight
Contract, it should have prevailed on its motion for partial summary judgment and that therefore
it should be entitled to attorney fees.

¶ The Knight Contract states that Prestige will pay Arcadia's costs and attorney fees upon any suit

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (8 of 9)4/9/2007 2:17:38 PM
No

for breach of warranty. The District Court concluded that the terms of the Knight Contract
required it to award attorney fees to Arcadia. Contractual provisions which grant one party the
right to recover attorney fees in the event that party brings an action upon the contract are
reciprocal and will be awarded to the prevailing party. Section 28-3-704, MCA. Although an
award of damages is an important factor in determining who prevailed, it is not the dispositive
factor. Doig v. Cascaddan (1997), 282 Mont. 105, 112-13, 935 P.2d 268, 272. Instead, we consider
the "totality of the circumstances and facts" in determining who prevailed. Doig, 282 Mont. at
113, 935 P.2d at 273.

¶ We conclude that Arcadia prevailed based on the totality of the circumstances and facts in this
case and that the District Court did not err in awarding Arcadia attorney fees and costs.

¶ Affirmed.

/S/ JIM REGNIER

We Concur:

/S/ J. A. TURNAGE

/S/ JAMES C. NELSON

/S/ TERRY N. TRIEWEILER

/S/ WILLIAM E. HUNT, SR.

file:///C|/Documents%20and%20Settings/cu1046/Desktop/opinions/99-092_(11-16-99)_Opinion.htm (9 of 9)4/9/2007 2:17:38 PM