Bottrell v. American Bank

NO. 8 7 - 2 0 9
IN THE SUPREME COURT OF THE STATE OF MONTANA

1989

DONALD G. BOTTRELL, EDWARD T. REEVE,
and NORTHERN LINE LAYERS, INC.,
Plaintiffs and Respondents,
-vs-

AMERICAN BANK, f / k / a WESTERN STATE BANK,
a Montana banking corporation, JIM BEATON
and MARTY DERRIG,
Defendants and Appellants.

APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable William J. Speare, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Anderson, Edwards & Molloy; Donald W. Molloy argued
for American Bank, Billings, Montana
L . Randall Bishop argued for American Bank; Jarussi &
Bishop, Billings, Montana
Anderson, Brown, Gerbase, Cebull, Fulton, Harmon
& Ross; Richard Cebull argued for Beaton & Derrig,
as cross-appellants, Billings, Montana
For Respondent:
y ern don, Harper & Munro,Gregory S. Ilunro argued, Billinqs
C .
.
James Edmiston arqued for Northern Line, Rillinqs,
-
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., J
. * ,
J
, Montana

8
I---, -"
i Submitted: February 3 , 1989
."
L
, Dgcided: April 4, 1989

Filed^:-' ;
I

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.-
1 1
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.

Northern Line Layers, Inc. was awarded a judgment of
$500,000.00 compensatory damages and $100,000.00 punitive
damages against American Bank, based on a jury verdict, in
the District Court, Thirteenth Judicial District, Yellowstone
County, on January 8, 1987, "together with costs incurred by
plaintiffs to be determined."
In the same cause, on the same dav, the District Court
granted a separate judqment in favor of American Bank against
Donald G. Bottrell, i.n the sum of $22,126.31, and provided
that American Bank (Bank) should recover attorneys fees and
costs which "shall be determined at a hearing to be set bv
the court."
In the same cause, on the same day, the District Court
granted judgment in favor of American Bank, and against
Northern Line Layers, Inc. (NLL), in the sum of $239,629.43,
with attorneys fees and costs, which "shall be determined at
a hearing to be set by the court."
On January 29, 1987, a further separate judgment was
entered by the District Court, based unon its grant of a
motion for directed verdict at the close of the plainti-ffs'
evidence, in favor of the defendants, Jim Reaton and Marty
Derrig, and dismissing the "plaintiff's [sic] complaint
against" those defendants with prejudice.
Further, during the course of the jury trial, the
District Court granted a directed verdict which dismissed the
claims of the individual plaintiffs, Don Rottrell and Ed
Reeve, for damages against all of the defendants.
American Rank appeals to this Court from the judgment
entered aqainst it in favor of NLL. The latter, in turn,
cross-appeals from the judgment entered against it in favor
of American Bank. All of the plaintiffs cross-appeal from
the judgment dismissing their claims against the individual
bank officers, Jim Beaton and Marty Derrig. Donald G.
Bottrell and Edward T. Reeve cross-appeal from the judgment
dismissing their individual claims against American Bank.
In sorting out this welter of judgments, dismissals,
appeals and cross-appeals, we have come to the following
conclusions: The judgment for plaintiff of $500,000.00 in
compensatory damages is modified to $312,000.00 under the
conditions hereafter described. The award of punitive
damages of $100,000.00 is affirmed. Such judgments, however,
are subject to a setoff in the total amount of $239,629.43.
Costs incurred by NLL in the District Court and on this
appeal shall be recoverable. American Bank is not entitled
to costs or attorneys fees. Judgment interest is recoverable
only by NLL, and only on the net amount after application of
the setoff as aforesaid. The judgment in favor of American
Bank and. against Donald G. Bottrell in the sum of $22,126.31
is affirmed. The judgment of dismi.ssa1 of the claims of
Donald G. Bottrell and Edward T. Reeve against American Bank
is affirmed. The judgment dismissing the individuals Jim
Beaton and Marty Derrig is affirmed.
We recite the facts from the viewpoint of the
plaintiffs, since the jury determined in their favor.

In reviewing a jurv verdict, our function is to
determine whether the substantial credible evidence
in the record supports the jury verdict. We must
view the evidence in the light most favorable to
the prevailing party below, and if the record
presents conflicting evidence which has been
resolved by the jury, this Court is precluded from
disturbing the verdict. Anaconda Company v.
Whittaker (1980), 188 Mont. 66, 610 P.2d 1177.
When the evidence is in conflict, we can only
 review testimony for the purpose of determining
whether there is any substantial evidence in the
record to support the verdict of the jury, and we
must accept evidence there found as true, unless
the evidence is so inherently impossible or
improbable as not to be entitled to belief. Strong
v. Williams (1969), 154 Mont. 65, 460 P.2d 90.
Weinberg v; Farmers State Rank (Mont. 1988), 752 P.2d 719, 45
St.Rep. 391.
Donald G. Bottrell and Edward T. Reeve are stockholders
and managing operators of NLL, a corporation resident in
Billings which specialized in burying telephone lines through
contracts with Mountain Bell and other utilities.
The corporation began banking with American Bank on July
31, 1981. Bottrell and Reeve made operating loans from the
Bank through its officers Jim Beaton and Marty Derrig. The
first loan was for $16,000.00, to be repaid in 30 days upon
collection of existing accounts receivable. Small loans were
made available throughout 1981 for the purpose of paying
operating expenses. In each instance, the Bank was told that
repayment was coming from the collection of accounts
receivable. In January, 1982, a larger loan was made in the
amount of $50,000.00. The Bank memoranda indicated that
"this firm will now be doing all of its banking business with
us." On February 8, 1982, a $10,000.00 loan was made again
to be paid from accounts receivable. In May, a larger loan
of $70,000.00 was made for operating capital to be repaid
within 60 days. On July 16, 1982, this $70,000.00 loan was
extended by an increase and renewal. Loan comments in the
Bank records of August 20, 1982 and September 8, 1982 stated
the Bank's understand.ing that NLL's short term loans were
being paid from the collection of accounts receivable and
noted that the company continued "to perform as agreed. " In
1983, there were additional short-term operating loans. Note
No. 14077 was signed on February 15, 1983 for the financing
of certain heavy equipment. This note required that the
corporation make monthly payments of $3,500.00. As of June
6, 1983, the balance due on note No. 14077 was $71,770.49.
On April 18, 1983 new loan No. 14296 in the amount of
$70,008.00 was made for operating capital. This loan was
likewise to be repaid from the collection of accounts
receivable. On June 6, 1983, however, new loan No. 14463 in
the amount of $140,000.00 was taken out for the purpose of
paying further operating expenses. At the time this loan was
made, part of the proceeds paid off Toan No. 14296 in the
amount of $70,008.00.
As of June 6, 1983, NLL had six outstanding loans in
American Bank, identified as follows:
Origination
Loan Number Amount Date

In the years subsequent to July 31, 1981, NLL had over
25 loans in American Bank which had never been delinquent nor
was any payment missed. Generally, the loans were for
purchase of equipment or operating capital. Don Bottrell and
Edward T. Reeve procured each of the loans by simply walking
in and asking. They waited while the loans were processed,
generally for a period of 20 minutes or half an hour, and
received the proceeds the same day as requested. They
provided whatever information the bankers required with
respect to the loans as they were made. There was no
requirement that NLL had to borrow exclusi~reLyor solely at
American Rank.
 NLL had other sources of financing. They horrowed money
for equipment purchases from Cen-Dak Leasing Company, GMAC
Credit Corporation, Case Credit Corporation, and Norwest
Bank. In addition, the company borrowed short-term or
start-up money from one Lyle Tisor, an officer of Tri-State
Equipment Company of Billings, Montana.
Tisor had loaned Don Rottrell money to purchase real
estate lots in 1980 and subsequently had made four other
loans to NLL for operating capital on a short-term 30 to 90
day basis. N J borrowed from Tisor for short-term money
L;
either for start-up jobs in the spring or to carry NLL over
while waiting for checks to come in. The company used
Tisor's help to avoid borrowing short-term money under their
established line of credit at the Bank. NLL borrowed from
Tisor by executing a promissory note and receiving a check
from Tisor drawn on his account at Norwest Bank which NLL
would then deposit in their main checking account at American
Bank. They paid back Tisor with checks drawn on their
American Bank account.
NLL borrowed $45,000.00 from Tisor in 1982. The company
paid back Tisor with checks drawn on its account at American
Bank. One of the checks was for $30,000.00.
In the beginning of the construction season of 1983, NLL
horrowed $75,000.00 in short-term funds from Tisor. The
company repaid Tisor with two American Bank checks, one for
$55,000.00 and the second for $20,718.06. This latter check
had the notation "for short-term loan" in the memo section of
the check.
The Rank produced daily, for its own use, a "Large Item"
report. Nevertheless, Reaton testified that the Bank
officers would not he aware j f a 9;55,000.00 check came
through the Bank.
 On July 11, 1983, NLL borrowed $65,000.00 from Tisor and
executed a promissory note therefor. Of those proceeds,
$61,000.00 was deposited in NLL's main checking account at
the Bank and the other $4,000.00 was put into its two smaller
expense accounts at American Bank. Each of the deposit slips
had written upon them "Tisor loan." The $61,000.00 deposit
was made to the main checking account on July 11, 1983.
Before the deposit was made, the account had a balance of
$5,300.51. In mid-July, NLL decided to return part of the
$65,000.00 to Tisor since all of it was not needed. NLL
issued a check for Tisor in the amount of $26,000.00 on July
14, 1983. It is this check that the Bank claims caused it to
take its action on July 20, 1983, which is the principal
issue of this lawsuit.
On July 18, 1983, Bottrell and Reeve went to the Bank to
discuss note No. 14463, for $140,000.00, which originated on
June 6, 1983. The note was not due until October 4, 1983.
Rottrell and Reeve were concerned that they might have
problems repaying the entire note when it came due and wanted
to make the bankers aware of their concerns at an early date.
Bottrell and Reeve had personally guaranteed the
$140,000.00 note with the Bank. They met with Derrig on July
18, 1983. They discussed work coming up for bid, the
company's chances for picking up some of that work and how
they were going to handle the note. Beaton was out of town
but Derrig said he would set up a meeting with Beaton when he
returned. On that day, Derrig offered to loan the company an
additional $30,000.00, but Reeve informed Derrig that they
did not need the cash at that time, but wanted to discuss the
notes due in the fall. Derrig concluded the meeting by
stating that he would call M I A when Beaton returned and set
up a meeting.
 The meeting between the officers of the Bank and Reeve
and Bottrell was set for July 20, 1983 at the Bank at 9:15
a.m. On July 19, however, Derrig telephoned Evelyn Hodgdon,
a clerical worker at NLL, and informed her that she should
gather titles for titled vehi-cles, serial numbers for
non-titled equipment, and descriptions, for submission to the
Small Business Administration. Evelyn Hodgdon collected all
that information which Derrig told her was necessary and
delivered the material to Derrig.
At the meeting of July 20, 1983, at the Bank, Reaton
discussed the steps which the Bank would take to address the
NLL concerns about the note due in October. He outlined the
loans on a blackboard. He indicated that a $12,000.00
indebtedness would be renewed when it came due in September,
1983, and also indicated the Bank would rewrite loan No.
14077 on which there was a principal balance due of
$64,323.93 at that time. This was the note on which NLL was
paying $3,500.00 a month. Beaton indicated that the Bank
would rewrite this note to reduce the interest rate by 1
percent. The bankers indicated that NLL's debt should be
placed in long-term rather than short-term financing. As to
the $140,000.00 note, Beaton said Derrig would be looking at
a Small Business Administration package or some alternative.
There was no discussion in this morning meetinq about
NLL's performance at the Bank or that it was unsatisfactory
in any manner nor was there any discussion about other debts
owed by NLL to other entities. At the end of the meeting,
the bankers had Bottrell and Reeve sign a completed UCC-1
financing statement listing all of the titles and
descriptions which Evelyn Hodgdon had provided the day
before. In addition, the bankers had Bottrell and Reeve
execute a new note on loan No. 14077 for $65,930.53. The
interest rate on their new note was reduced by 1 percent.
Bottrell and Reeve also signed an instrument which contained
seven pages of security agreements covering equipment that
had been unencumbered on that loan. This instrument was
collateral for loan No. 14077, the $65,930.53 note. NLL had
not requested this note to be rewritten. The meeting was
adjourned and Bottrell and Reeve were told to come back to
the Bank at 3:15 p.m. that afternoon.
There was no further contact between the Bank and NT,L
during July 20, 1983, until Bottrell and Reeve returned at
3:15 p.m., with additional documents and serial numbers that
Derrig had requested. At the Bank, they were approached by
Derrig who said that Beaton wanted to talk to them.
Bottrell and Reeve went into Beaton1s office. Derrig
was present. Beaton said, "We have a problem." He told
Reeve and Bottrell that the Bank had set off $66,000.00 from
NLL1s checking and savings accounts against the $140,000.00
loan which was not due until October 4, 1983. The bankers
said they felt insecure and that NLL would have to "shore up"
its debts. Beaton demanded that NLL either provide
additional collateral or pay down the debt before the Bank
would release the setoff money.
At the time of the setoff at the Bank, NLL had jobs in
progress at Hailey, Idaho, and Sidney, Montana. The Bank
froze checks coming to NLL by demanding of Mountain Bell that
its name be placed on all checks payable to NLL. Derrig
contacted banks in Hailey, Idaho, and Sidney, Montana, and
instructed them not to cash any payroll checks of NLIJ1s
employees. Employees quit immediately. The payroll checks
bounced. Moreover, NLL was unable to pay suppliers to whom
it owed legitimate debts and eventually NLL was sued 18 times
by suppliers resulting in total iudgments of over $46,000.00.
 On July 22, 1983, the Bank refused the demand of a
Lawyer for NLL to release the funds. A lawsuit was commenced
soon thereafter.
The Bank further reversed a federal tax deposit which
Evelyn Hodgdon had deposited at American Bank on the morning
of July 20, 1983 for $3,695.99. This deposit is required of
employers who withhold income taxes and social security
payments from employees. American Bank was the depository
bank acting as trustee for the Internal Revenue Service where
deposits for this item were made by NLL. The deposit was
made by a check drawn on NLL's main checking account at
American Bank. The check was paid by the Bank on July 20,
1983. On July 26, 1983, well after the "midnight deadline,"
the Rank reversed the check which had paid the federal tax
deposit. The amount of the check, $3,695.99 was applied by
the Bank to NLLts note No. 14463. Eventually, the Bank
reversed this whole procedure when the Internal Revenue
Service contacted the Bank.
Reeve and Bottrell had to inject personal cash, and
borrow other monies in order to meet payrolls, and complete
contracts then existing. They could not bid on other jobs
because they had lost their source of financing.
We will refer to other facts where needed further in
this Opinion.
I
The first and principal issue raised by the American
Bank, is whether, when it exercises a right of setoff
existing in the statute and in written agreements with its
borrower, it is then subject to tort liability for so doing.
American Bank contended at the trial that the
$140,000.00 note of June 6, 1983, was a demand note, and that
within the instrument there was language to the effect that
the borrower waived demand for payment. The bank officers
testified that because of the language in the note, they
could declare the demand note immediately due without notice
to the borrower, that the debt then matured, and that the
Bank had a right to setoff against the matured indebtedness
such deposits of NLL as it had in its possession at the time.
No point is made by the Bank on appeal that the instrument is
a demand note, but it contends it had the right of setoff by
common law, and by statute, as well as under the language of
instruments executed along with the note.
NLL answers that the note was not in fact a demand note;
that the right of setoff may only apply to matured debts; and
that under the terms of the note, the entire amount of the
unpaid principal and accrued interest could be declared
immediately due and payable, without notice, only upon
default of the borrower.
The District Court instructed the jury that the
$140,000.00 note was not a demand note. The court also
instructed the jury that "when money is deposited in a bank,
the bank may apply such funds to the satisfaction of any debt
upon which payment is due from the depositor."
A copy of the note is attached to this Opinion for the
convenience of the reader.
In summary, we hold that the note in question was not a
demand note; that the Bank's right of setoff applies only to
a mature debt or one that is due and payable; and that in
this case, the Bank could accelerate payment or performance
by the borrower under the note only if the borrower was in
default, under the terms of the note.
Let us first address the problem of whether the note for
$140,000.00 was a demand note.
It will be seen that under the column "due date" are
inserted the figures "10-4-83" and that in the body of the
note, after the square in which the double x has been
inserted, appears the language, " [ilf no demand is made,
Borrower shall pay 120 days after the date of this note."
Those terms take this note out of the category of a demand
note.
Section 30-3-108, MCA, provides:
Payable on demand. Instruments payable on demand
include those payable at sight or on presentation
and those in which no time for payment is stated.
Here, the instrument states a time for payment. The
legal effect of a note which contains language as here, "upon
demand, borrower promises to pay to bank or order ... If no
demand is made, Borrower shall pay 120 days after the date of
this note," is that an actual demand is necessary to mature
the promissory note prior to the date set. In Peterson v.
Valley National Bank of Phoenix (Ariz. 1967), 432 P.2d 446,
451, the Arizona Supreme Court discussed demand notes:
.
. . As a general rule, notes payable on demand
are due and payable immediately upon execution, and
no further demand is necessary to mature them. But
an exception to this rule applies when the terms of
the instrument disclose an intention by the parties
that the notes would not become due and payable
immediately after the time of delivery. (Citing
authority.) In such circumstances, an actual
demand is necessary to mature the promissory notes.
The terms of the notes in the present case provided
one interest rate for the date of execution until
maturity, and a higher interest rate after
maturity. This discloses a clear intention by the
parties that the notes not be due and payable
immediately. To hold otherwise would be
inconsistent with the express terms of the note,
and render these provisions meaningless.
In the note here before us, 15 percent per annum is the
rate of interest if paid when due and 22 percent per annum
for amounts paid after the due date.
We turn now to the Rank's right of setoff. B y statute,
a bank has a general lien, dependent on possession, upon all
property in its hands belonging to a customer, for the
balance due to it from such customer in the course of
business. Section 71-3-1502, MCA. The right of setoff does
not arise simply from the banker1s lien however. As pointed
out in 10 Am.Jur.2d Banks 5 666, funds on general deposit in
the bank are the property of the bank, for which the bank is
a debtor, and the bank cannot have a lien on its own
property. Rather, the right of a bank to set off general
deposits is more accurately a right which rests upon and is
co-extensive with the common law right to set off mutual
demands between mutual debtors and creditors. 10 Arn.Jur.2d §
636, supra. In Security State Bank v. First National Bank
(1927), 78 Mont. 389, 392, 254 P. 417, 418, this Court said:
It is well settled that when money is deposited in
a bank to the credit of one of its debtors, without
an express agreement to the contrary or direction
to apply to a specific purpose, the bank may apply
the deposit to the satisfaction of a past - due
indebtedness (citing authority), and this rule
applies, although the deposit consists of proceeds
from the sale of mortgaged property, if no
direction is given as to the disposition to be made
of the funds, and the bank has no knowledge of
their origin or of another's claim thereto.
(Citing authority.) (Emphasis added.)
It will be observed that in Security State Bank, supra,
the right of setoff was limited to the satisfaction of "past
due indebtedness." It seems generally agreed that the
indebtedness must be past due or due and payable in order for
the right of setoff to apply. In Crocker-Citizens National
Bank v. Control Metals Corp. (8th Cir. 1977), 566 F.2d 631,
637, the Court said:
.
. . However, a bank may only exercise this
equitable right of setoff in response to and to the
extent of a matured debt owed by a depositor to the
bank. See 9 Cal.Jur.3dI Banking, § $ 125, 127.
 It is undisputed in this case that the Bank applied the
setoff of $66,000.00 to the note for $140,000.00 before any
demand for payment of the note was made upon NLL. In that
situation, the note was not due and payable nor had the
indebtedness matured.
The Bank further contended on trial, however, that it
applied the deposits as a setoff because it felt itself
insecure on the probability that the note might not be paid
when due. It claims the right to act in good faith under the
provisions of 5 30-1-208, MCA:
Option to accelerate at will. A term providing
that one party or his successor in interest may
accelerate performance or require collateral or
additional collateral "at will" or "when he deems
himself insecure" or in words of similar import
shall be construed to mean that he shall have power
to do so only if he in good faith believes that the
prospect of payment or performance is impaired.
The burden of establishing lack of good faith is on
the party against whom the power has been
exercised.
This statute, however, is of no aid to American Rank.
Under the specific terms of this note, the indebtedness may
be accelerated by the Bank only "upon default." It is
uncontradicted that in this case NLL had always paid their
notes on time, had always performed according to their
agreements with respect to payments, and that with respect to
the $140,000.00 note, no default had occurred. NLL was not
in default with respect to any other instrument or agreement
with the Rank so as to trigger a default under the terms of
the note. Much of the briefs of the parties in this case
relate to whether the Bank exercised good faith after deeming
itself insecure, but under the terms of the note in question,
no acceleration was proper unless NLL was actually in
default.
 There is another facet, however, to the Bank's claim of
right of setoff. The note of June 6, 1983, for $140,000.00
was not secured by collateral nor by a security agreement
which specifically applied to that note. American Bank
insisted during trial and on appeal that a security agreement
executed on February 15, 1983, in connection with a separate
note for $71,770.49 was applicable to the $140,000.00 note
and gave the Bank a right of setoff.
The security agreement of February 15, 1983, provided
that "indebtedness" meant all amounts then or thereafter owed
by the borrower to the Bank whether evidenced by a promissory
note or not. American Bank contends that the definition of
indebtedness, which applies to amounts "hereafter" owed by
the borrower to the Bank, makes that security agreement
applicable to the $140,000.00 note.
There are at least three reasons why the February 15,
1983 security agreement may not be construed to grant the
right of setoff in this case: (1) In any event, the
security agreement is limited in its effect to the collateral
named in the security agreement. (2) Again, the $140,000.00
note had not matured at the time of the setoff. (3) The
security agreement in any event cannot be construed to
convert the $140,000.00 note payable at a time certain unless
previous demand is made into a past due obligation.
With regard to the February 15, 1983 security agreement,
we examine its terms more fully. The collateral listed in
the agreement is "all inventory, equipment, and accounts
receivable now owned or hereafter acquired." The definition
of collateral in the agreement extends the described
collat.era1 to accessions, parts or additions thereto,
replacements thereof and all proceeds from the sale or
disposition of the collateral property. The definition of
collateral does not include bank deposits of the borrower,
unless the bank deposits represented proceeds from the sale
or disposition of the collateral listed. The security
agreement, in stating the rights of the Rank upon default
provided that upon default, or if the Bank reasonably deemed
itself insecure, it could exercise any one or more of several
rights in addition to remedies available at law, in equity or
otherwise. All of those rights, however, deal with the
resort of the Bank to its collateral, as listed in the
security agreement. Under the terms of the agreement of
February 15, 1983, therefore, even if the definition of
indebtedness covered the $140,000.00 note, and even if the
Bank felt itself insecure with respect to the $140,000.00
note, its rights under the security agreement applied only to
the collateral listed under the security agreement.
This leads us to the second reason above stated why the
security agreement does not grant a right of setoff for the
reason that the $140,000.00 indebtedness had not matured.
The security agreement provided that the rights of the Bank
were cumulative and that the Bank could exercise any other
rights or remedies of a secured creditor under the Uniform
Commercial Code, at law, in equity or otherwise. Thus, the
security agreement did not increase in any way the rights of
the Bank beyond what the law already provided. It is clear
that the right of setoff does not accrue unless the debt to
the Bank had matured.
The basis of the right of setoff must be clearly
understood because it applies not only to the relations
between a bank and its depositors, but to any relationship
where two parties are mutually debtor and creditor to each
other. When a bank accepts an unrestricted deposit of money,
title to the money passes to the hank and the relationship
between the bank and the depositor is that of
debtor-creditor. If the depositor at the same time owes a
debt to the bank which is due, the right of setoff arises,
under the common law and under the law merchant, because of
the mutuality of the debts. Both the bank and the depositor
are mutually debtors and creditors toward each other. Such
mutuality must exist for the right of setoff to apply. This
was explained in Spratt v. Security Bank of Buffalo, Wyo.
(Wyo. 1982), 654 P.2d 130, 135-136:
We next reach appellant's claim that the hank's
set-off should fail for lack of mutuality between
appellee and Gail Fanning. Before going further,
we need to discuss a bank's right to setoff against
the general deposits in its possession. The bank's
right of set-off to secure the payment of its
depositor's indebtedness is a part of the law
merchant and well established in commercial
transactions. (Citing authority.) For a bank to
establish a right to be setoff, three conditions
must be met: "the fund to be set-off must be the
property of the debtor, the fund must be deposited
without restrictions, and the existing indebtedness
must be due and owing. " (Citing authority. ) The
bank's right to setoff does not arise until the
time the depositor's indebtedness to the bank has
matured. (Citing authority. ) Addressing
appellant's point, for a set-off to be permissible,
there must be mutuality of obligation between the
debtor and his creditor, as well as between the
debt and the fund on deposit. (Citing authority.)
Debts to be used as set-offs must be due to and
from the same persons in the same capacity.
(Citing authority.)
Under the evidence in this case, at no point did the
Bank make demand for the full payment of the $140,000.00
note, before the setoff or afterward. At the afternoon
meeting of July 20, 1983, the demand of the Bank was not for
full payment of the $140,000.00 note, but for additional
collateral, or to "shore up" the collateral.
The third reason stated above why the security agreement
does not aid the Bank in this case is that the security
aqreement cannot amend the terms of the later note. The
language in the security agreement, that the Bank, if it
reasonably deemed "itself insecure" could exercise its rights
under the security agreement may not be utilized to vary the
terms of the note of the $140,000.00 note itself. It is on
its face a promissory note payable at a time certain, unless
a previous demand is made, and under the language of the note
the Bank had no power to declare the entire unpaid principal
and accrued interest believed due and payable without notice
except "upon default." No default existed with respect to
any of the notes due and payable to the Bank when it
attempted its "setoff."

The next issue raised by American Bank is that it should
not have been subjected to tort liability for doing that
which is permitted by law.
As the foregoing discussion indicates, the premise of
the issue is without basis, since the setoff in this case is
not permitted by law. In any event, we now pass on to
determine whether the issue of a breach of the implied
covenant of good faith and fair dealing existed here.
In Nicholson v. United Pacific Insurance Company (Mont.
1985), 710 P.2d 1342, 42 St.Rep. 1822, we set forth:
The Montana cases discussed above focus on the
action of the breaching party in the relationship
to find a breach of the implied covenant, not just
the existence of a breach of contract.
. . . But whether performing or breaching, each
party has a justifiable expectation that the other
will act as a reasonable person. Neal v. Farmers
Ins. Exchange (Cal. 1978), 582 P.2d 980. The
nature and extent of an implied covenant of good
faith and fair dealing is measured in a particular
contract by the justifiable expectations of the
parties. Where one party acts arbitrarily,
capriciously or unreasonably, that conduct exceeds
the justifiable expectations of the second party.
The second party then should be compensated for
 damages resulting from the other's culpable
conduct.

American Bank makes no objection to the instructions
given by the court to the jury in this case. The District
Court adopted the theory that the promissory note and the
security agreements allowed the Bank to declare the
$140,000.00 note immediately due and payable without notice
and that it had a right to setoff if the Bank reasonably
believed it was insecure. The District Court obviously was
relying upon the provisions of 5 30-1-208, MCA, supra.
The other instructions to the jury fairly presented the
implied covenant of good faith issue. The court instructed
that the apparent danger to the prospect of payment or
performance by NLL or the existence of good reason to believe
such danger existed was sufficient to show that the Bank
acted reasonably and in good faith; and that the nature and
extent of an implied covenant of good faith and fair dealing
was measured in a particular contract by the justifiable
expectations of the parties; that the obligation of good
faith and fair dealing was mutual so that if the defendant
breached the implied covenant, the jury must also determine
whether the plaintiff had breached the implied covenant of
good faith in dealing with the Bank.
In First National Bank In Libby v. Twombly (1984), 213
Mont. 66, 689 P.2d 1226, the bank accelerated the payment due
on a promissory note without notice to the horrower and set
off $2,865.00 in Twombly's checking account against the
indebtedness. The issue of good faith for the set off was
submitted to the jury under 5 30-1-208, MCA, as to whether
the bank in good faith believed that the prospect of payment
or performance by the borrower was impaired. This Court
approved the decision of the jury that the obligation of good
faith was breached and remanded the case for determination of
the jury question whether the borrower was entitled to
punitive damages.
In Noonan v. First Rank Butte (Mont. 1987), 740 ~ . 2 d
631, 635, 44 St.Rep. 1124, we said (referring to McGregor v.
Momrner (Mont. 1986), 714 P.2d 536, 43 St.Rep. 206):
We held in McGregor that breach of the UCC standard
of honesty in fact is not enough to constitute a
tort. The minimal requirement for the tortious
breach of the covenant of good faith and fair
dealing is action by the defendant which was
arbitrary, capricious or unreasonable, and exceeded
plaintiffs' justifiable expectation. McGregor, 714
P.2d at 543. The instruction given in this case
inadequately defined the tort. We hold, as in
McGregor, that the giving of this instruction is
reversible error.
Here the court adequately instructed the jury on the
implied covenant of good faith based on Noonan and McGregor,
and on a theory of liability more favorable to the Bank than
the law applying to setoff would allow. The jury found on
the facts according to the instructions.

The jury also found that the Bank in this case was
guilty of negligent misrepresentation to its borrower.
American Bank contends that there is no substantial evidence
to support the charge of negligent misrepresentation.
On this subject, the District Court instructed the jury
as follows:
Plaintiff claims that defendant negligently
misrepresented certain facts. In order to
establish this claim, plaintiff has the burden of
proving:
(1) that defendant supplied false information for
the guidance of plaintiff in his business
transaction;
 (2) that plaintiff justifiably relied upon such
information; and
(3) that defendant failed to exercise reasonable
care or competence in obtaining or communicating
such information.
Reasonable care is that degree of care which a
reasonable and prudent person in the position of
defendant would ordinarily exercise in the
circumstances.
Plaintiff is not entitled to damages for any
representation by defendant, however, unless it was
the cause of damage to plaintiff.
That instruction is drawn from our decision in Brown v.
Merrill Lynch, Pierce, Fenner, Etc. (1982), 197 Mont. 1, 12,
640 P.2d 453, 458. The instruction is based on the
Restatement (Second) of Torts S 552 (1977) as follows:
One who, in the course of his business, profession
or employment, or in any other transaction in which
he has a pecuniary interest, supplies false
information for the guidance of others in their
business transactions, is subject to liability for
pecuniary loss caused to them by the justifiable
reliance upon the information, if he fails to
exercise reasonable care or competence in obtaining
or communicating the information.
Relying on language of Falls Sand and Gravel Co. v.
Western Concrete, Inc. (D. Mont. 1967) 270 F - S ~ P P .
4951 502;
and in Bushnell v. Cook (Mont. 1986), 718 P.2d 665, 668, 43
St.Rep. 825, 828, American Bank contends that in Montana an
action for negligent misrepresentation is in fact an action
for fraud. In this case, after the court decided that it
would instruct the jury as above set forth, plaintiffs
withdrew their instructions relating to constructive fraud.
The jury found, in answer to a special interrogatory, that
American Bank was not guilty of actual fraud. American Bank
therefore contends that absent either constructive fraud or
actual fraud, an action for negligent misrepresentation does
not lie.
This misconception arises from some apparent conflict in
our statements in other cases. In Brown, supra, this Court
correctly said that " [a] tort action in fraud may either be
based on an intentional, fraudulent and deceitful
misrepresentation or it may be based on a negligent
misrepresentation." 640 P.2d at 458. In the federal case of
Falls Sand and Gravel - supra, the District Court
Co.,
concluded that an action for negligent misrepresentation
would be recognized in Montana as an action for fraud. 207
F.Supp. at 502. In Bushnell v. Cook, supra, where the court
did not instruct on negligent misrepresentation, hut did
instruct on constructive fraud, this author stated that in
Montana an action for negligent misrepresentation is an
action for fraud and so the jury was adequately instructed.
718 P.2d at 668.
By statute, constructive fraud consists of: (1) any
breach of duty which, without an actually fraudulent intent,
gains an advantage to the person at fault by misleading
another to his prejudice; or, (2) any act or omission as the
law especially declares to be fraudulent, without respect to
actual fraud. Section 28-2-406, MCA. Thus, a negligent
misrepresentation may constitute a breach of duty, without an
actual fraudulent intent, if it gains an advantage to the
person at fault by misleading another to his prejudice.
Generally, an act or omission of a fiduciary or one in
confidential relationship is necessary to constitute
constructive fraud. Yet, in Roil Energy Corporation v.
Drilcon, Inc. (Mont. 1988), 749 P.2d 1048, 45 St.Rep. 114,
this Court held that a fiduciary relationship was not needed
for a finding of constructive fraud under the special
circumstances of that case. Thus, a negligent
representation, depending on the circumstances, can give rise
to a case of constructive fraud under 5 28-2-406. Yet, under
Restatement (Second) of Torts S 552, supra, a negligent
misrepresentation may be insufficient to constitute actual
fraud or constructive fraud, but nevertheless give rise to
negligence liability under 5 27-1-701, MCA, through the want
of ordinary care of the defendant in managing his property or
person. In the latter case, the test of liability is the
exercise of reasonable care and is subject to comparative
negligence.
The late Justice Cardozo explained the basis of
liability by posing the example: Think of the fields of
liability for constructive fraud and for misrepresentation as
concentric circles with a common center and differing radii,
where the liability in each theory is based on misrepresented
facts. The breach of a legal duty will create liability in
constructive fraud; but a negligent misrepresentation may
create liability even without a constructive fraud; the
first, because the liability is imposed by law, whereas the
liability For a negligent breach is based on lack of ordinary
care and comparative negligence may be considered. See
-
Ultramares Corp. v . Touche (M.Y. 1931), 174 N.E. 441.
Negligent misrepresentation is co-extensive with constructive
fraud, based on the same misrepresentation, where there is a
breach of legal duty; if there is no breach of legal duty,
but the misrepresentation is negligence under Restatement
(Second) of Torts 5 552, negligence is the basis of the
liability.
In this case, therefore, the District Court acted
properly in instructing the jury on negligent
misrepresentation, according to Brown - Merrill Lynch,
v.
supra. It was not necessary that the negligent
misrepresentation constitute constructive fraud, nor actual
fraud .
There is sufficient evidence to support the jury finding
of negligent misrepresentation by American Bank. Its
officers represented that it would assist NLL in obtaining
long-term financing for the $140,000.00 indebtedness in the
form of an SBA loan. At the same time, the Bank took steps
to procure from NLL additional security interests on its
other loans while promising to assist NLL to obtain a SBA
loan. It then accomplished the setoff without any notice to
NLL. NLL relied upon the Bank's representation of
assistance, and provided all of its inventory and equipment
and accounts receivable as security for the other loans,
which had the result of preventing NLL from seeking an
alternate source of financing. A jury determined that the
actions of the Bank were not actually fraudulent, but
constituted negligent misrepresentation.
IV
American Bank attacks both the compensatory and punitive
damage awards on the ground that the evidence was
insufficient.
American Bank's attack on the compensatory damages is
that they were speculative and without foundation, relying on
Agrilease, Inc. v. Gray (1977), 173 Mont. 151, 566 P.2d 1114;
and Walton v. City of Bozeman (1978), 179 Mont. 351, 588 P.2d
518; as well as Stensvad v. Miners & Merchants Bank (1982),
196 Mont. 193, 640 P.2d 1303, cert. denied, 459 U.S. 831.
American Bank's attack is based on its contention that there
was no evidence of lost profits. NLL did not rely completely
upon lost profits.
As a result of American Bank's exercise of setoff, NLL
was left without any operating cash or a line of credit. It
lost all. of its employees, being unable even to pay its
accountant to produce annual financial statements. As a
result, the company was sued many times, resulting in
judgments against NLL totaling $46,000.00. NLL had a net
worth, if the company assets were sold at auction, of
$194,429.00 at the time of the setoff. If the company assets
were sold piece by piece, its value would increase by
$117,000.00, to approximately $312,000.00. The goodwill of
the company as an existing business was destroyed and the
company, in order to exist, had to enter into joint venture
agreements with general contractors, wherein they shared any
profit, and the general contractor paid wages and salaries
necessary. Testimony indicated that NLL's business and
credit reputation were damaged substantially. NLL had been
grossing over $1 million in gross income a year until the set
off.
Tort damages are allowable whether the damages "could
have been anticipated" or not. Section 27-1-317, MCA. When
the fact of damages is established in the evidence, reliance
is given to the trier of fact to determine the amount of the
damages. Crystal Springs Trout Co. v. First State :Bank
(Mont. 1987), 732 P.2d 819, 44 St.Rep. 90. In Laas v.
Montana Highwav Commission (1971), 157 Mont. 130, 483 P.2d
699, damages were allowed for lost profits even though the
plaintiff could not prove with certainty which contracts he
would have received and what amounts. When there is strong
evidence of the fact of damage, a defendant is not allowed to
escape liability because the amount of damages cannot be
proved with precision. Jarussi v. Board of Trustees of
School District No. 28 (1983), 204 Mont. 131, 664 P.2d 316;
Johnson v. Murray (1982), 201 Mont. 495, 656 P.2d 170.
This Court, however, finds considerable difficulty with
respect to the compensatory damages. It is fairly certain
from the evidence that after the Rank acted to cut off NLL
from any further financing, the company was then forced to
look to other sources in order to stay in business. The
company undertook to perform construction jobs for Bonneville
Construction Company of Las Vegas, Nevada, under an
arrangement where Bonneville would pay NLL1s payroll, provide
its payroll taxes, liability insurance, and money for its
operating expenses. Thereafter, Bonneville computed the
profit on the jobs performed by NLL, withheld a "retainage"
and divided the profit from the jobs with NLL. Although it
appears from the testimony of the president of Bonneville
that NLL had received disbursements of $150,000.00 on one
job, and the president was unable to state the amount of
gross payment on another job, the record is incomplete as to
the exact amount of profits lost by NLL because it was forced
to undertake jobs financed by Bonneville. In like manner,
NLL entered into joint ventures with Clyde and Dale Morris
whereby the Morrises provided the financing, Dale worked for
NLL and the profits on any job were split between them.
Again, however, the record is hare of the amount of profits
lost by NLL under this arrangement. We are faced with the
situation where, although there is strong evidence of the
fact of damage, in order to establish the amount of lost
profits reasonable to be ascribed as damages, the court would
have to resort to speculation. The positive figure that we
can extract from the record is that the value of the company
was lost by reason of the cutoff of its financing, and the
figure most favorable to the plaintiffs is $312,000.00.
Under the circumstances, based upon the record, it is
necessary for us to require that the compensatory damages be
reduced to the sum of $312,000.00. As so modified, the
compensatory damages are affirmed, subject to the condition
of remittitur hereafter set forth.
 With respect to punitive damages, the jury awarded
$50,000.00 for breach of the implied covenant of good faith
and fair deal-ing, and $50,000.00 for the negligent
misrepresentation.
There is no complaint here that the jury was not
properly instructed either on the subject of compensatory
damages or punitive damages. Punitive damages are especially
within the province of the jury. Weinberg v. Farmers State
Bank of Worden (Mont. 1988), 752 P.2d 719, 45 St.Rep. 391
states:
. . . The jury was likewise instructed as to what
it must find with respect to punitive damages. The
Bank does not contend that those instructions were
inadequate and indeed they seem to contain the
necessary elements to properly instruct the jury on
this item. The jury having been properly
instructed, once again, we are left to the familiar
appellate rules which are recited above respecting
the sufficiency of the evidence. The jury found a
breach of an implied covenant, and it found that
the breach was oppressive, malicious and arbitrary.
Once having made that determination, the jury
determines the amount of damages.
The actions of the Bank following the setoff are a
sufficient basis to sustain punitive damages. The payroll
checks of NLL were stopped when the Bank officer contacted
banks in Hailey, Idaho, and Sidney, Montana, instructing them
that payroll checks would not be honored at American Bank.
The Bank attempted to get its name placed on any checks for
payments coming to NLL from Mountain Bell. It improperly
reversed the federal tax deposit which represented the income
taxes and Social Security withheld from the incomes of the
employees. Reeve and Bottrell were forced to inject personal
cash, and borrow other monies in order to meet the payrolls
and complete the contracts then existing. The effect of the
setoff was to stop payment on the Tisor check in the sum of
$26,000.00, which, but for the setoff, would properly have
been paid by the Bank. The punitive damages are affirmed.
v
NLL and Donald G. Bottrell and Edward T. Reeve, as
individuals, cross-appealed from the dismissal by the
District Court of Jim Beaton and Marty Derrig, the Bank
officers in this case. In their cross-appeal, the plaintiffs
contend that the wrongful acts of the Bank in connection with
the setoff and subsequent actions were those of Beaton and
Derrig, the officers of the Bank, and as such they incurred a
personal liability for their torts, in addition to or
concurrent with the liability of American Bank. They rely on
Little v. Grizzly Manufacturing (1981), 195 Mont. 419, 636
P.2d 839; Crystal Springs Trout Co. v. First State Bank
(Mont. 1987), 732 P.2d 819, 44 St.Rep. 90; and Poulson v.
Treasure State Industries (1981), - Mont . , 626 P.2d
822.
The officers, Beaton and Derrig rely on our holding in
Phillips v. Montana Education Association (1980), 187 Mont.
419, 610 P.2d 154.
On the evidence of this case, we determine that the
actions of officers Beaton and Derrig were not on behalf of
themselves as individuals or for their own pecuniary benefit,
nor were their actions against the best interests of the
corporation for which they were employed. They acted within
the scope of their employment, and in furtherance of
corporate interest. As such, thev are entitled to the
protection of the corporate shield from personal liability.
Where an officer or director acts against the best
interests of the corporation, acts for his own
pecuniary benefit, or with the intent to harm the
plaintiff, he is personally liah1.e. (Citations
omitted. )
Phillips, 187 Mont. at 425, 610 P.2d at 158.
The tests prescribed in Phillips are not met here and,
accordingly, we affirm the dismissal of the plaintiffs '
action against the officers of the Bank individually.
VI
NLL cross-appeals from the judgment entered against it
in favor of American Bank in the sum of $239,629.43. It is
not clear from the cross-appeal whether Donald G. Bottrell is
also appealing from the separate judgment against him in the
sum of $22,126.31 in favor of American Bank. Since, however,
the same principles apply to each of those judgments, we will
discuss them together.
The basis of the cross-appeal is that the actions of
American Bank in this cause made it impossible for NLL and
Donald G. Bottrell to pay the Bank the amounts due on
promissory notes executed by NLL, and separately by Donald G.
Bottrell.
The cross-appellants rely on 5 28-1-1302, MCA, to the
effect that if the performance of an obligation is prevented
by the creditor, the debtor is entitled to all the benefits
which he would have obtained if it had been performed by both
parties. The District Court entered a directed verdict in
favor of the Bank on the unpaid notes, holding that 5
28-1-1302, did not apply.
The position of the cross-appellants here is that the
promise of NLL and Donald G. Bottrell to make payment on the
notes was dependent upon the Bank's continuing good faith to
follow the terms of the notes and not improperly to
accelerate the payments or set off the bank accounts of MLL,
thereby making it impossible for both NLL and Bottrell to
perform. Under S 28-1-1301 (1), MCA, performance is excused
by one party when it is prevented or delayed by the act of
the creditor. They cite Western National Bank of Love11 T?.

Moncur (Wvo. 1981), 624 P.2d 765.
We determine that inability to pay promissory notes,
even though argument could be made that the inability is
caused by the obligees1 actions, is not in itself a
sufficient defense here to the promissory notes. The
District Court determined that inability to pay is the common
problem of any maker of a promissory note who defaults and
such inability to pay is not in itself a sufficient defense
to the obligations due on the promissory note. We agree.
The cross-appeal against the judgment in favor o f
American Bank in the sum of $239,629.43 is denied, and the
amount affirmed. The same rule would apply to the judqment
of $22,126.31 against Donald G. Bottrell.
VII
Donald G. Bottrell and Edward Reeve cross-appeal from
the District Court's grant of a directed verdict to dismise
their individual claims against American Bank. Bottrell and
Reeve were officers and shareholders of NLL. The question
involved is whether they may individually recover for their
damages, including claims of emotional distress. Their
claims are based upon the fact that they were required to
sign personal guarantees of the corporate indebtedness, and
for that reason, are subject to the same judgment as has been
assessed against NLL, for the corporate notes issued to
American Bank.
Thts issue is controlled by our holding in Moats
Trucking Co., Inc. v. Gallatin Dairies, Inc. (Mont. 1988) ,
?53 P.2d 883, 45 St.Rep. 772. In that case, we said:
In Malcolm v. Stondall Land Co. (1955), 129 Mont.
142, 145, 284 P.2d 258, 260, this Court stated the
general rule regarding a stockholder's personal
riqht to sue in the corporation's cause of action:
 ". .
. As a general rule stockholders may not sue
upon a cause of action belonging to their
corporation whether they are in their own names or
in the name of the corporation itself."

In Malcolm, this Court addressed for the first time
the issue of whether individual shareholders who
control all the stock of the corporation may
disregard the corporate entity and sue as
individuals on the corporation's cause of action.
We held that such individual shareholders do not
have the right to pursue an action on their own
behalf when the cause of action accrues to the
corporation. Malcolm, 129 Mont. at 146, 284 P.2d
at 260.
Here the cause of action rightfully belongs to the
corporation and not to its shareholders. Accordingly, we
affirm the dismissal of the individual claims of Rottrell and
Reeve against American Bank.
VIII
Having determined all of the issues in this cause, we
now turn our attention to the forms of judgment that were
entered in the case and the resulting difficulties that 'have
ensued.
As we noted, the District Court ordered a judgment in
favor of NLL and against American Rank, in the sum of
$500,000.00 compensatory damages and $100,000.00 punitive
damages, based on a jury verdict. In a separate judgment,
based on the corporate notes, the District Court granted
judgment in favor of American Bank and against NLL in the sum
of $239,629.43. In that case, the court delayed the
determination of attorneys fees and costs for a later hearing
to be set by the court.
When these matters came to us on appeal, the District
Court file included an order of the District Court staying
execution on the judgment against American Bank because it
had filed a supersedeas bond in the sum of $600,000.00.
 In the District Court, NLL also moved the court for a
stay of proceedings of the judgment against it on the notes,
asking that it be excused from posting a supersedeas bond.
The District Court denied that motion. NLL then came to this
Court, asking us to reverse the District Court's order
regarding the supersedeas bond and for a stay of execution.
On July 28, 1987, we denied plaintiffs' motion and eventually
NLL filed a supersedeas bond.
We determine that the grant of two separate j~zdgments
arising out of the same general issue was an improper
procedure in this case.
A proper procedure is described as Stensvad v. Miners
and Merchants Bank of Roundup (1982), 196 Mont. 193, 640 P.2d
1303. There, we said:
Appeal is by Miners and Merchants Bank from a
judgment rendered against it on Stensvad's
complaint to the District Court, Fourteenth
Judicial District, Musselshell County. The bank
had counterclaimed against Stensvad on unpaid
promissory notes.
The District Court found that the bank had breached
an agreement to finance Stensvad's corporations and
after that breach had converted or appropriated his
property, resulting in damages to Stensvad of
$1,631,047, plus lost profits in the sum of
$511,695. The court granted a set-off of
$1,750,234, as of January 31, 1979, by reason of
the indebtedness of the plaintiff to the bank. The
court's net judgment of $392,508 against the bank
was subsequently reduced nunc pro tunc by deducting
$117,904 on June 23, 1980. The resulting judgment
against the bank is $274,604.
The same situation as occurred in Stensvad should have
occurred here. NLL brought an action against the Rank
alleging several torts. The Rank counterclaimed for notes
due and owing from NLL against the Bank. In that situation,
but one judgment shoul-d result.
 Where a setoff or counterclaim is pleaded, it
becomes a part of a single controversy between the
parties, requiring only one verdict and one
judgment according to the facts. The general rule
is that where an established setoff for
counterclaim is less than plaintiff's demand,
plaintiff has judgment for the residue only; if it
equals plaintiff's claim, the judgment must be for
defendant; in case it exceeds what is claimed and
established by a plaintiff , defendant has judgment
for the excess. But where a setoff or counterclaim
is used defensively only, a judgment cannot be
recovered against plaintiff for any excess over
plaintiff's claim.
20 Arn.Jur.2d Counterclaim, Recoupment, Etc. 5 157.
In Travelers Express, Inc. v. Acosta (Fl.App.3d 1981),
397 So.2d 733, it was held that if the main claim and a
counterclaim are tried separately, the disposition of the
claim which is earlier decided of the two remains
interlocutory until the final disposition of the other claim.
The final disposition of both the main claim and the
counterclaim should be entered in a single judgment. In the
case at bar, where directed verdict was granted in favor of
the Bank on its notes, that action of the District Court was
interlocutory, and should not have been entered in a separate
judgment untFl a final disposition of both the main claim and
the counterclaim in a single judgment.
We recognized that rule in E.C.A. Environmental
Management v. Toenyes (1984), 208 Mont. 336, 345, 679 P.2d
213, 217-18, where we said:
No one factor should be considered in determining
the prevailing party for the purpose of attorney
fees. The party that is awarded a money judgment
in a lawsuit is not necessarily the successful or
prevailing party. However, this Court agrees with
those jurisdictions that have found the award of
money to be an important item to consider when
deciding who, in fact, did prevail. (Citing
authority.) Here, MMI brought suit to recover sums
due it on a note usurious on its face. The usury
 penalty assessed MMI resulted not only in a denial
of recovery, but an adverse award. The net
judgment was in favor of defendants. The party
that survives an action involving a counterclaim,
setoff, refund or penalty, with a net judgment
should be generally considered the successful or
prevailing party. (Citing authority.) On the
facts presented and viewing the action on the note
in its entirety, the defendants were properly found
to be the prevailing party.
It was pointed out in E.C.A. Environmental Management,
supra, 679 P.2d at 217, that the provisions of 5 28-3-704,
MCA, make the contractual right to attorney fees reciprocal.
There it is provided that in the event that the party having
a contractual right to attorneys fees brings an action upon
the contract or obligation, the other parties are deemed to
have the same right for attorneys fees and "the prevailing
party in any such action, whether by virtue of the express
contractual right or by virtue of this section shall be
entitled to recover attorneys fees from the losing party or
parties. "
In First National Rank of Libby v. Twombly, supra, 689
P.2d at 1230, we reversed an award of attorney fees because
the bank was not the prevailing party. In that case, the
jury had awarded compensatory damages in an amount in excess
of the bank's claim for the balance due on the note, and
accrued interest. That same situation obtains here.
Accordingly, we order that the judgment for compensatory
damages in favor of NLL and against American Bank be modified
to the sum of $312,000.00. NLL is given 30 days from the
date of this judgment in which to file in the District Court
its written acceptance of the compensatory judgment as so
modified. If the modification is not so accepted, the award
of compensatory damages shall be deemed reversed for a new
trial on the issue of compensatory damages. For the purpose
of this remittitur, the time provisions of Rule 34,
M.R.App.P., (Petitions For Rehearing) are postponed for 30
days as to any party.
We further direct on remand that the Bank's judgment be
set off against the plaintiffs' judgment for compensatory and
punitive damages and the net amount be entered as the final
judgment in this case. No award of attorneys fees shall be
granted to either party but NLL shall recover its other
costs. Interest shall be awarded only on the net judgment,
since if judgment were properly entered in this case, the
Bank's judgment would have been satisfied through set off
against the judgment of NLL. Otherwise, we affirm the
separate judgment in favor of American Bank against Donald G.
Bottrell in the sum of $22,126.31. We further affirm the
judgments dismissing from this cause the individual
defendants, Jim Reaton and Marty Derrig, and the individual
plaintiffs, Donald G. Bottrell an

We Concur:

Chief Justice
A
 COMMERCIAL NOTE
Single Advance
Account Loan Disbursement ' Due Principal CaIi ,Collateral Officer Officer's
Number Number Date Date Amount Code Code Number Initials
!a
'

14463 6-6-83 10-4-83 140,000.00 €I PlD -

Borrower: Layers, Inc.
Northern ~ i n e Bank: Western State Bank
P.O. 30643 P.O. Box 50400

Billings, MT 59107 . . Billings, klT 59105

Upon demand, Borrower promises to pay to Bank, or order,
m e h w d r e d 1 0 r t y thous- ------------------------------------------- DOLLARS
($ J 4 Q J X K M O O ), together with interest on the unpaid principalbdance outstanding from time to
time at the rate set out below. Interest will accrue o n the outstanding unpaid principal balance for each day that any amount is
outstanding and will continue to accrue until this note is paid in full. Interest will be at the rate of: . -

. .
percent per annum.

A rate of - point(s) over the prime rate, adjusted ,based upon the
prime rate quoted by
That prime rate currently is percent per annum, and the rate on ihis note currently is
percent per annum.

-. - .. - .. -
Borrower will pay interest: Monthly 0 Quarterly B At Maturity -
- -
lIZd If n o demand is made, Borrower shall p a y 1 2 0 days after the date o this note.
f

If n o demand is made, Borrower will pay under the following schedule:

The interest rate shall not exceed the maximum rate permitted by applicable law. If Borrower does not pay a s agreed, or if Bor-
rower or any guarantor of this note breaches any other agreement with the Bank, Bonower wiP be in default. Upon default. the
Bank may declare the entire unpaid principal and accrued interest immediately due, without notice, and Borrower will then pay
that amount. Upon default Bank also may increase the interest rate ----
points, and include any unpaid interest a s of
the date o acceleration or maturity a s part of the sum d u e and subject to the higher rate.
f

Any payment not paid when due shall bear interest at the rate of 22 percent per annum until paid. Borrower will pay
Bank at the address named above, or such other place as Bank may designate in writing.
The Bank may pay someone else to help collect this note if Borrower does not pay. Borrower a h will pay the Bank that amount.
This includes the Bank's lawyers' fees whether or not there is a lawsuit, including any fees on appeal. Borrower also will pay any
court costs. The Bank may delay enforcing any o its rights under this note without losing them. If there is a lawsuit, Borrower
f
agrees venue may be in the county in which Bank is located.
Bonower waives presentment, demand for payment, protest, notice of dishonor, and notice of every other kind. The obligations
of the Borrower are joint and several.

Northern L i n e Layers, Inc.
Date: June 6, 1983 B&x
Y&-,.
J
Mr. Justice Fred J. Weber dissents as follows:

I dissent because I conclude there was insufficient
evidence to sustain the compensatory damage award. I also
conclude that the Bank properly exercised its right of
set-off.
A brief review of facts during the months of May, June
and July, 1983 will help to demonstrate the financial prob-
lems on the part of NIJTJ. Rank officers testified that it was
their understanding that NLL was doing all of its business
with the Bank. The Rank had no knowledge of the borrowings
from Mr. Tisor. The evidence established that NIIL borrowed
$75,000 from Mr. Tisor in May and another $65,000 on July 11,
1983. On June 6, 3983, the Rank !.oaned N L L $140,000 as
evidenced by the note discussed in the majority opinion. On
June 7, NTAL used $55,000 of that loan to pay to Mr. Tisor.
Bank officer Reeve testified that the Rank would not have
made the Loan had it known that it would have been used to
repay a debt. The understanding on the part of the Rank was
that the $140,000 was to be used for the year's operatinq
expenses.
On July 18, 1983, Mr. Reeve and Mr. Rottrell of NLL came
into the Rank to disclose their serious financial problems.
The $140,000 note was due in October 1993. NT,L was concerned
that they would not be able to pay that note when it came
due. NLL was having significant problems in maintaining its
business at a level comparable to earlier years. Rank presi-
dent Beaton testified that the July 18 disclosures by Mr.
Bottrell and Mr. Reeve caused a great deal of concern. His
basic question was, what happened to the $140,000 which had
been loaned to NI,IJ? This sum had. been expected to finance
NJ,I, through 1983. Mr. Reaton's concern turned to alarm on
Julv 20 when while reviewing the checks going through NLL he
discovered a check to Mr. Tisor in the amount of $26,000,
with a notation on the check that it was for a loan payment.
It became apparent that NLL was borrowing from an unknown
third party. This created a crisis which demanded immediate
action on the part of Mr. Beaton as he had to either pay the
Tisor check or refuse payment. The Bank could choose to
allow a preferential payment to another creditor or to apply
the money to its own indebtedness. At that point Mr. Beaton
concluded that the Bank was insecure and exercised its right
to a set-off. In the next two days NLL did not provide any
satisfactory financial statements. In addition NI,L did not
give any explanation of the Tisor loans.
The evidence submitted at trial demonstrates that on
July 20, 1983, NLL indeed was in serious financial straits.
While the gross revenue figures for NLL showed the following:
1981 - $599,000, 1982 - $538,000, and 1983 - $1,288,000, the
net income was limited to the following: 1981 - $7500, 1982
- $6475, and 1983 - a loss of over $18,000. Originally NLL
had reported to the Bank a 1982 net income of $24,500.
Although this figure was corrected to the $6475, the Bank was
not given the corrected information. In addition, the compa-
ny's own CPA and Mr. Howard, an accounting professor who
analyzed NLL's financial. situation, testified that on July
20, 1983, NLL's asset to liability ratio indicated
insolvency.
The record contains substantial evidence demonstrating
that NLL had significant problems in 1983 arising from its
inability to obtain additional contracts, and that the like-
lihood of making money from which the debts could be repaid
was clearlv questionable. The overall picture reveals a
company with serious financial problems which was attempting
to maintain an appearance of "performing as agreed." Such
picture also reveals that from the Bank's viewpoint, NLL was
"borrowing from Peter (Rank) to pay Paul (Tisor)."
With this background information, let us now consider
the compensatory damages award. The majority concluded that
there was insufficient evidence to justify the judgment of
$500,000 and reduced the same to $312,000. As I review the
evidence, I conclude that the $312,000 award still clearly is
speculative. Even if we assume that the Bank caused injury
to NLL, NLL still failed to prove actual damages which re-
sulted from the Rank's conduct. NLL did not even attempt to
prove its lost profits. While it argued that its net worth
had been reduced, it failed to prove the amount of such
reduction in value. The record does not contain a basis to
justify $312,000 of compensator~rdamages.
The compensatorv damage verdict was not broken down into
its component parts so we do not know the elements which the
jury included in that award. It appears that the basis for
compensatory damages would he a reduction in the net value of
the company, or the loss of profits. While there was testi-
mony indicating that a liquidation value might be $312,000,
no specific evidence was presented to demonstrate the extent
of the reduction in net value as a result of the Bank's
action.
Damages may only be awarded for lost profits if NLL
proved that there were lost profits and that such lost prof-
its resulted from the Bank's action. The amount of lost
profits must be established to a reasonable certainty using
the best evidence available under the circumstances.
In Stensvad v. Miners & Merchants Bank, Etc. (19821, 196
Mont. 193, 640 P.2d 1303, we stated:
 Damages f o r l o s s of p r o f i t s may be awarded i f n o t
speculative. S i l f v a s t v . Asplund (1935) , 99 Mont.
152, 161, 4 2 P.2d 452, 456. The r u l e t h a t p r o h i b -
i t s s p e c u l a t i v e p r o f i t s d o e s n o t a p p l y t o uncer-
t a i n t y a s t o t h e amount o f such p r o f i t s b u t t o
u n c e r t a i n t y o r s p e c u l a t i o n a s t o whether t h e l o s s
o f p r o f i t s i s t h e r e s u l t o f t h e wrong and whether
such p r o f i t would have been d e r i v e d a t a l l .
Tri-Tron I n t e r n . v . V e l t o ( 9 t h C i r . 1 9 7 5 ) , 525 F.2d
432, 437. Once l i a b i l i t y i s shown, t h a t i s t h e
c e r t a i n t y t h a t t h e damages a r e caused by t h e
b r e a c h , t h e n l o s s o f p r o f i t s on a r e a s o n a b l e b a s i s
f o r computation and t h e b e s t e v i d e n c e a v a i l a b l e
under t h e c i r c u m s t a n c e s w i l l s u p p o r t a r e a s o n a b l y
c l o s e e s t i m a t e o f t h e l o s s by a D i s t r i c t C o u r t .
Smith v . Zepp ( 1 9 7 7 ) , 173 Mont. 358, 370, 567 P.2d
923, 930. -t- damages a r e r e c o v e r a b l e which a r e
B u no
n o t c l e a r l y a s c e r t a i n a b l e -t -i n n a t u r e - -
bo h and o r i -
gin, and o n l y p r o f i t s which a r e r e a s o n a b l y c e r t a i n
may - awarded.
be Smith v . F e r g u s County ( 1 9 3 4 ) , 98
Mont. 377, 386, 39 P.2d 193, 195. (Emphasis
supplied. )

While p r e c i s i o n i s n o t r e q u i r e d i n c a l c . u l a t i n g damages,
t h e e v i d e n c e m u s t be s . u f f i c i e n t t o a f f o r d a r e a s o n a b l e b a s i s
for determining the specific amo.unt awarded. Cremer v.
Cremer Rodeo Land and L i v e s t o c k Co. ( 1 9 8 1 ) , 181 Mont. 87, 627
P.2d 1199. I n Cremer t h e lost profit award was s u s t a i n e d
because specific evidence was presented. However, j.n
S t e n s v a d t h e award o f l o s t p r o f i t s was s p e c . u l a t i v e s i n c e no
p r o f i t r e c o r d p r i o r t o t h e b r e a c h o f c o n t r a c t was p r e s e n t e d .
T h i s C o u r t h a s r e c e n t l y v a c a t e d damage awards a s h a v i n g no
fo.undation i n the record. See Bolz v. Myers (1982), 200
Mont. 286, 651 P.2d 606. I n Lenz Const. Co. v. Cameron
( 1 9 8 4 ) , 2 0 7 Mont. 506, 674 P.2d 1 1 0 1 , t h i s Court a f f i r m e d t h e
d i s t r i c t c o . u r t f s d e n i a l o f ,unproven damages.
I n i t i a l l y , NLL m u s t show t h a t it was i n f a c t damaged by
t h e Rank's a c t i o n s . There was t e s t i m o n y i n d i c a t i n g t h a t NLT,
l o s t i t s competitive edge, and was u n a b l e t o b i d on c e r t a i n
Idaho p r o j e c t s a s a r e s u l t o f l o s i n g i t s s o u r c e o f f i n a n c i n g .
NLL did establish that it was required to share profits under
a joint venture-subcontract arrangement with Bonneville.
While there is proof of the sharing of profits, there is no
demonstration that this resulted in actual financial loss to
NLL. Obviously the contract had been let to Bonneville and
this was the means through which NLL participated in another
company's project. The record would allow a conclusion that
NLL would have been required to participate in such a joint
venture arrangement even without regard to conduct on the
part of the Bank.
There was evidence presented indicating that other
factors entered into the company's profitability in the years
1983 and following. Mr. Bottrell testified that the workload
for 1983 prior to the set-off was lighter than usual. Addi-
tionally, Mountain Bell had begun accepting bids from
non-union bidders, making it difficult for NLL to bid compet-
itively since it paid union wages. Mountain Bell had cut its
RTIP contracts in half; thus there were less available pro-
jects to bid on. In addition, all of the 1983 RTIP contracts
had already been awarded by June of 1983.
Even though we accept the evidence which demonstrates a
breach of obligation on the part of the Bank, the amount of
any damage arising from that breach was actually left to
speculation. In addition to the Bonneville joint venture,
there was testimony that NLL paid $130,500 to Morrises
through the joint-venture arrangement, but there is nothinq
to show how that was specifically related to the conduct of
the Bank.
Here NTJL had an accountant familiar with the books and
records of the corporation who testified only as to years
prior to the time in controversy. Had he been given the
opportunity to do so, that accountant could have reviewed the
books and records of NLL and submitted direct testimony of
the net profits earned in 1983, 1984 and any other relevant
year. Obviously NLL chose not to submit that kind of infor-
mation. Instead it made loose references to gross profjt
figures which were large in amount. Witnesses referred to
the value of N I , L and argued for reimbursement for the damage
done to NLI; which had been forced out of business. Clearl\r
NLL chose not to offer specific evidence of lost profits and
other actual losses. I can only assume that its choice arose
from a prior conclusion that there were not sufficient losses
to justify a substantial award.
I therefore disagree with the $312,000 damage award.
Such an award affirms the trial procedure used here. By
focusing on the claimed outrageous conduct on the part of the
Bank, NLL was successful in convincing the jury that a sig-
nificant amount of compensatory damages was required. It
seems likely that. something in the nature of a penalty or
punitive aspect was included. Regardless of any sense of
outrage on the part of the jury, the record fails to disclose
adequate evidence of compensatory damage. I would vacate the
compensatory damage award of $500,000 and remand for a new
trial.
I will now discuss the $140,000 demand note. The Dis-
trict Court determined as a matter of law that the note was
not a demand note, and the majority has reached the same
conclusion. I do not agree. The language of the $140,000
note clearly states, "Upon demand, Borrower promises to pav
to Bank." The instrument also states, "If no demand is made,
Borrower shall pay 120 days after the date of this note." It
also recites an actual due date of 10-4-83. These statements
are consistent with each other. To state that payment is due
in 120 days does not mean that the financial instit.ution
co.uld not demand payment prior to the 120 days.
The majority finds that the d.ue date takes this note out
of the S 30-3-108, MCA, definition of a demand note. Howev-
er, the statutory definition is not this narrow. In refer-
ring to this same definition the Oregon Supreme Court in
Seattle-First Nat. Rank. v. Schriber (0r.App. 19781, 580 P.2d
1012, 1013, stated, "The drafters obviouslv felt no need to
state the obvious, that demand instruments also include
.
instruments made expressly payable 'on demand' " Initial!-v
therefore the note in question meets the definition of a
demand note.
Courts have held as a matter of law that a note with
similar language is a demand note. In Rogers v. Security
Bank of Manchester (8th Cir. 1981), 658 F.2d 638, the borrow-
er argued that a payment schedule contained in the note
demonstrated an intent that the note was to be an installment
obligation. The co.urt, however, ref.used to ignore the lan-
guage of the note which stated "on demand and until demand be
made." The co,urt conc1,uded that the payment sched,ule only
clarified how the debt should be paid, assuminq no demand was
made. Rogers, 658 F. 2d at 639. This is comparable to the
present note which only requires palpent in 120 days assuming
no demand has been previo.usly made.
The Fifth Circ,uit also upheld a determination that a
promissory note was a demand note in International City Bank
and Trust Co. v. Morgan (5th Cir. 1982), 675 F.2d 666. In
that case two notes contained 1ang.uage stating "payable on
demand or two years after date." On each note a due date was
typed in the margin. On a summary judgment motion, the
District Co,urtruled that the language, even coupled with the
marginal d~ledates, was clear and unambiguous, constit,uting a
demand note. The federal court upheld this determination,
stating "the notes were payable on demand, and in the absence
of a demand, two years after execution." Morgan, 675 F.2d at
668. Again this is directly comparable to the present note.
Courts finding that inconsistent language brings a note
out of demand status, often consider several factors which
would tend to negate the demand nature. See Shaughnessy v.
Mark Twain State Bank (Mo.App. 1986), 715 S.W.2d 944, (where
a deed of trust securing the note listed eight events of
default and a modification and extension of the note did not
contain the word "demand"); Reese v. First Missouri Bank &
Trust Co. (Mo.App. 1984), 664 S.W.2d 530, (holding that a
note which stated "upon demand", yet set out a specific
repayment schedule, was not a demand note).
At a minimum, the nature of the note was a jury issue.
In Schriber, the Oregon Supreme Court remanded for a jury
determination of whether the instrument was a demand note.
In that case the note was payable "on demand, but no 1-ater
than 180 days." As in the present case, a due date had been
typed in. The court stated that this language "creates an
ambiguity not susceptible to resolution as a matter of law."
Schriber, 580 P.2d at 1013.
The majority also calls attention to the language in the
note which calls for an increase in the interest rate upon
default. This however, does not take the note out of demand
status, but may mean that an actual demand is necessary.
Peterson, 432 P.2d at 451. See also Bank of Nevada v. United
States (9th Cir. 1958), 251 F.2d 820, 827; 10 C.J.S. Rills
and Notes 5 247 (1938).
The majority goes on to state that no actual demand was
made. I disagree with that conclusion. Initially, it should
be emphasized that no demand is necessary to mature a demand
note. "As a general r.ule, notes payable on demand are d.ue
and payable immediately after execution, and no further
demand is necessary to mature them." Peterson, 4 3 2 P.2d at
451. Further, the note signed by NLL specifically stated,
"Borrower waives presentment, demand for payment, protest,
notice of dishonor, and notice of every other kind." Thus
under the wording of the note, demand was unnecessary. The
majority disregards this express contractual provision.
However, even if actual demand were necessary, the
set-off itself constituted a demand. This was an affirmative
action by the Bank sufficient to put NLL on notice that
payment was due. It is difficult to conceive of a method
which would more clearly convey to the borrower that payment
of the indebtedness was being demanded. In Peterson, cited
by the majority, a letter which called for complete 1iq.uida-
tion of indebtedness was sufficient demand to put parties on
notice that payment was due. In the present case, the Bank
notified Mr. Bottrell and Mr. Reeves on July 20, 1 9 8 3 that
its bank account in the amount of $66,900 had been set off
against this note. In substance both Mr. Rottrell and Mr.
Reeves were advised directly that their $66,000 had been
taken by the Bank and applied on the note. This clearly
conveyed a demand for payment to NLJJ. Both bankers testified
that the note was due at that point. Mr. Reeves testified
that had NLL been able to shore up the note with additional
collateral, money, or a guarantor, the note would have been
rewritten, b,ut in any event, note 14463 was due. I concl.ude
that the set-of by the Bank was sufficient to const.it.ute a
demand for payment.
Even tho.ugh the majority does not accept my analysis of
the demand nat.ure of the note or the making of a demand, I do
not understan? how these become issues of law. At a minimum
it appears that the q,uestions to be submitted to the jury
sho.uld include whether or not this was a demand note and
whether or not an act.ual demand had been made.
The status of the note also governs the Bank's right of
set-off. Since a demand note is a mat.ured obligation, the
Bank can exercise its right of set-off at any time. Allied
Sheet Metal Fab., Inc. v. Peoples National Bank ( w A . A ~ ~ .

Furthermore, the majority states that even if the secu-
rity agreement appl-ied to this note, the Rank must exhaust
the collateral before exercising its right of set-off. While
Montana has not addressed this issue, the majority rule was
expressed in Allied Sheet Metal, as follows:

Allied argues, however, that the foregoing
general rule permitting a setoff in the case of a
demand note does not apply .until after the bank
exhausts its primary collateral security, and
Peoples failed to do this. In this regard, Allied.
relies primarily upon an early California case,
McKean v. German-American Sav. Bank, 118 Cal. 334,
50 P. 656 (1897); however, McKean states a minority
view, and we decline to follow it. The position
adopted by the majority of modern jurisdictions is
well expressed in Olsen v. Valley Nat'l Bank, 91
Ill.App.2d 365, 371, 234 N.E.2d 547, 550 (1968), as
follows:
A bank should not be deprived of its right of
set-off simply because it has the foresight to
obtain collateral in exchange for obligations
owed to it. The majority rule, including
Illinois, is founded on the rationale that a
creditor is able to pursue any one of a number
of remedies against a debtor until the debt is
satisfied. The minority rule is based upon
the rule or statute that there is but one
action for the recoverv of a debt which is
secured by collateral.
518 P.2d a t 7 3 9 .
Accordingly, I would conclude that the Bank was not
required to exhaust the collateral before setting-off the
deposit. As a demand i n s t r u m e n t , t h e n o t e was m a t u r e , and
t h e b o r r o w e r s waived a c t u a l demand. I would t h e r e f o r e con-
c l u d e t h a t t h e Bank p r o p e r l y and l a w f u l l y e x e r c i s e d i t s r i g h t
of set-off against t h i s note.
I would r e v e r s e t h e judgment and remand f o r new t r i a l . .

Mr. J,ustice .son concurs fl the foregoing
dissent.

Mr. Chief J u s t i c e J. A. Turnage c o n c u r s i n t h e f o r e g o i n g
d i s s e n t of M r . J u s t i c e Ideber.
Mr. Justice John C. Sheehy, concurring specially:

26-1-201. Questions - law. Except as provided in
of -
Art. 11, section 7, [liable or slander] of the
Montana Constitution, all questions of law,
including the admissibility of testimony, the facts
preliminarv to such admission, the construction of
statutes and other writings,. and other rules of
evidence, must be dezded by the court. (Emphasis
added. )

26-1-202. Questions - -
of fact. Tf a trial is b 7
5
jury, all questions of fact other than those
mentioned in-26-1-201 must be decided by the jury,
and all evidence must be addressed to them, except
as otherwise provided by law ...
There is a curious ambivalence in the dissent. The
dissenters, dissatisfied with the finding of the majority
that this case did not involve a demand note, now contend
that whether it was a demand note is a question of fact for
the jury. The "construction" or Legal effect of the writing
as to a demand note here is a question of law, wholly to be
determined by the court. The dissenters want a iury to
decide this question of law.
The recitation in the dissent of the alleged financial
problems of NLL ignores the conflicting evidence, some of
which is catalogued in the majority opinion, and particularly
ignores the appellate rule that where there is conflictinq
evidence in the record, the credibility and weight to be
given the evidence is in the premise of the jury and not the
Supreme Court, Anderson ~ 7 . Jacqueth (1983), 205 Mont. 493,
668 P.2d 1063, and that in examining the sufficiency of the
evidence, the reviewer thereof will do so in a light most
favorable to the prevailing party, presuming that the jury
findings are correct. Gilmore v. Mulvihill 11940), 109 Mont.
601, 98 P.2d 335. The decision on questions of fact based on
conflicting evidence is peculiarly within the province of the
jury. The dissent wants questions of fact to be decided by
the court.
The very heart of NLL's case against the Bank is that
the instrument in question was not a demand note.
Recognizing this, the dissenters, giving no regard to the
language of the note, the decisions of courts interpreting
that exact language, and the provisions of the Uniform
Commercial Code persist in calling the instrument here a
demand note.
It is clear that the instrument, a copy of which is
affixed to the majority opinion, does not fit the definition
of a demand instrument in S 30-3-108, MCA.
It is equally clear that the instrument in question fits
the definition of an instrument payable at a definite time:
30-3-109. Definite time. (1) An instrument is
payable at a definite time if by its terms it is
payable :
(a) - - before a stated date or at a
on or fixed
period after a state-6:date; or
(b) at a fixed period after sight; or
(c) at a definite time subject to
- any
acceleration; or . .
- . (Emphasis added..)
The instrument at bar is clearly a note pavable at a
definite time under the foregoing definition. It contains a
stated date when it is due and that definite time is subject
to an acceleration by the Bank, by making a demand.
Typewritten into the note are the due date "10-4-83,"
and the figures "120," setting the days after the date of the
note when it is payable if no demand is made. The dissenters
claim that the note is ambiguous. Yet, if it were ambiguous,
under the UCC, handwritten terms control typewritten and
printed terms, and typewritten control printed. Section
30-3-118 (b), MCA.
The dissenters ignore the language contained in the
note, "upon default, the bank may declare the entire unpaid
principal and accrued interest immediately due, without
notice, and borrower must then pay that amount." An
acceleration clause is completely inconsistent with a demand
instrument.
Because this instrument provides that "if no demand is
made, borrower shall pay - days after the date of this
120
note" by the very terms of the note, an actual demand is
necessary to mature the promissory note. Peterson v. Valley
National Bank of Phoenix (Ariz. 1967), 432 P.2d 446, 451.
Additional authority construing such instruments as not to be
demand notes may be found in Shaughnessy v. Mark Twain State
Rank (Mo. App. 19861, 715 S.W.2d 944, 951-52. That case also
cites Reese v. Fort Missouri Bank and Trust Company (Mo. App.
1983), 664 S.W.2d 530.
The weakness of the dissenter's position as to the
nature of this note is shown in its discussion of the
language of the note which calls for an increase in interest
upon default. Their cited cases indicate that such a
provision means that an actual demand is necessary. It
sounds paradoxical, but if an actual demand is necessary, the
instrument is no longer a demand note. A cause of action
against a maker of a demand instrument accrues upon its date,
and no further demand is necessary. Section 30-3-122, MCA.
I interpose this special concurrence because otherwise
the assertions in the dissent might go unchallenged.
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