No. 12969
I N THE SUPREME C U T O THE STATE O M N A A
OR F F OTN
1975
STC , I N C . , a Montana Corpora t i o n ,
P l a i n t i f f and A p p e l l a n t ,
CITY O BILLINGS, MONTANA,
F
a municipal c o r p o r a t i o n ,
Defendant and Respondent.
Appeal from: D i s t r i c t Court of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t ,
Honorable M. James S o r t e , Judge p r e s i d i n g ,
Counsel of Record:
For Appellant :
Anderson, Symmes, Forbes, P e e t e and Brown,
B i l l i n g s , Montana
Benjamin N. Forbes argued, B i l l i n g s , Montana
For Respondent :
William J , Speare argued, B i l l i n g s , Montana
Submitted : September 25, 1975
Decided :
DEC 2 1175
Mr. Justice Frank I. Haswell delivered the opinion of the Court.
Plaintiff building owner sued the City of Billings for
damages based on an alleged anticipatory breach of a lease.
Following a nonjury trial the district court of Yellowstone
County entered judgment for defendant city. Plaintiff appeals
from this judgment.
The controlling issue on appeal is whether a vote by the
Billings city council on February 5, 1973 "to not re-affirm the
provisions of the original lease" with STC constituted a repudia-
tion or anticipatory breach of the lease agreement. The district
court held it did not. We agree.
The facts are largely undisputed. Plaintiff is a Montana
nonprofit corporation named STC., 1NC.- It was formed for the
purpose of renovating and preserving the Old Chamber Building in
downtown Billings as a historical landmark. Its funds were de-
rived essentially from donations and loans. It had no capital
stock.
In 1972 plaintiff corporation purchased the land and a
building known as the Old Chamber Building. It was purchased
from a group known as the Executive Investors by paying it about
$37,000 and assuming an indebtedness of $115,000 on a contract
for deed with the Billings Chamber of Commerce.
In June 1972, a written lease agreement was executed be-
tween plaintiff corporation and the City of Billings covering a
part of the Old Chamber Building. The agreement provided that
plaintiff corporation agreed to remodel the premises to suit the
needs of the city, and the city agreed to lease the remodeled
premises for ten years at a monthly rental of $3,290. The re-
modeling was to be done generally in accordance with exhibits
attached to the agreement, and was required to begin by the end
of March 1973. The agreement was subject to the following condition;
"This Lease is subject to the condition subse-
quent that Lessor is able to obtain the neces-
sary financing to remodel the premises in
accordance with the needs of Lessee as aforesaid.
In the event the Lessor is unable to obtain such
financing in order to satisfactorily remodel the
same premises, then this Lease shall be deemed
void and of no effect, and neither of the parties
shall have any obligation to the other. Such
refinancing and remodeling shall be obtained
and commenced, respectively, by the end of March,
1973, or this condition shall be deemed to have
occurred."
The lease covered the main floor, second floor, and part
of the basement of the Old Chamber Building. It did not cover
the third floor. The city was also given an option to purchase
the land and building during the term of the lease by assuming
the indebtedness against the property and agreeing to preserve
the building.
On June 5, 1972, the lease was approved by the city council
by a 5-4 vote. Plaintiff corporation then proceeded with attempts
to secure the financing necessary for remodeling. It attempted
to secure funds from HUD, a federal agency, but found there were
no funds available from this source. It applied to the Billings
Clearing House, an association of local banks, and received this
letter dated November 28, 1972:
"The Billings Clearing House Association is
willing to consider a real estate loan appli-
cation on the former Chamber of Commerce Building,
located at 301 North 27 Street, subject to com-
pletion of the following:
"1. Firm ten-year leases sufficient to cover
operating expenses and loan amortization. Leases
to be acceptable to lender.
"2. Outstanding indebtedness to the Billings
Chamber of Commerce be paid in full, and there be
no secondary real estate financing, all equity funds
in first.
"3. Acceptable plans and specifications.
"4. Firm bids from acceptable contractors.
"5. Structural engineers report.
"The maximum loan considered would be $250,000.00
based on an economic valuation, with a 10-year
term and 17-year amortization. The interest
rate on the loan would be based on the pre-
vailing commercial real estate loan rate at the
time the above conditions had been accomplished.
Presently that rate is 8 1/2% to 9%.
"This letter is not to be construed to be a
commitment. "
Plaintiff corporation also had a letter of intent dated
December 8, 1972 from a Billings law firm to lease the entire
third floor of the building for a 10-year term at $1,650 per
month, subject to remodeling and availability of the remodeled
premises by approximately July 1, 1973.
Plaintiff corporation had additional prospects of secur-
ing financing from a Seattle firm, a local limited partnership,
and through the sale of limited partnership interests in the
enterprise. None of these prospects was beyond the talking stage.
The architect's estimate of the projected cost of the
necessary remodeling was originally $288,980, later reduced to
approximately $285,000.
On February 5, 1973 at a meeting of the City Council the
minutes indicate the following proceedings:
"REPORT OF COUNCIL OF THE WHOLE that the
Council not re-affirm provisions of the orig-
inal lease with the Save-The-Chamber Committee.
Moved by alderman Lidderdale, seconded by
alderman Leuthold that the recommendation of the
Council of the Whole be approved. A substitute
motion was made by alderman Schoenthal, seconded
by alderman Fillner that the Council approve re-
affirming the provisions of the original lease.
The substitute motion lost. The Council then
proceeded to vote upon the original motion to
not re-affirm the provisions of the original
lease. Upon roll call alderman Leuthold, Lidder-
dale, Rye, Riedl, Lesniak, Schoenthal voted aye.
Alderman Fillner, Chapel voted no. Motion carried
6 to 2."
Thereafter no further efforts to secure financing were
pursued by plaintiff corporation, remodeling was never done,
and the city never went into possession under the lease.
On February 22, 1973, plaintiff corporation sued the
city for specific performance of the lease agreement, or in the
alternative for damages for breach of the lease. The complaint
alleged that the city repudiated its lease with plaintiff cor-
poration by the action of the city council on February 5 , 1973;
that this repudiation of the lease constituted an anticipatory
breach of contract by the city; and that plaintiff was entitled
to judgment. Subsequently plaintiff abandoned its claim for
specific performance.
Defendant answered, in effect contending (1) the original
lease was invalid, (2) plaintiff corporation was never ready,
willing and able to proceed with the required financing and re-
modeling, (3) the action of the city council on February 5, 1973,
did not repudiate or breach the lease, and (4) denying the claimed
damages.
A nonjury trial was held on September 5, 1974, in the
district court of Yellowstone County before the Hon. M. James
Sorte, district judge presiding. Following trial, both parties
submitted proposed findings of fact, conclusions of law and briefs.
Judge Sorte adopted the proposed findings and conclusions of de-
fendant city and entered judgment in its favor.
The basis of the district court's decision is focused in
two findings of fact and two conclusions of law:
"FINDINGS OF FACT
I * * * *
"7. That the evidence revealed the only loan
obtainable by the plaintiff at times material
to this action was in the maximum amount of
$250,000.00 and it was conditioned upon plaintiff
having free and clear title to the subject premises,
which premises were then encumbered by contract
for deed in the amount of $114,616.80 and that
necessary remodeling costs were estimated to be not
less than $288,980.00.
"8. That plaintiff was not ready, willing and able
to perform the financing and remodeling requirements
on its part to be performed on February 5, 1973,
March 31, 1973 or at any other time material to
this action.
"CONCLUSIONS OF LAW
I t * * *
"2. That the action of the defendant City Council
on February 5, 1973 did not amount to a repudiation
or an anticipatory breach of said written agreement
of June 30, 1972.
"3. That plaintiff failed to perform the conditions
of obtaining financing and commencing remodeling as
prescribed by the terms of said written agreement
of June 30, 1972 and therefore said agreement by its
terms is void.
Plaintiff corporation has appealed from the judgment,
assigning two issues for review: (1) Did the city breach the
lease agreement? (2) Is plaintiff entitled to damages?
Plaintiff corporation's contentions on appeal can be
summarized in this manner: (1) the original lease of June 30,
1972 is valid and enforceable; (2) the action of the city council
on February 5. 1973 amounted to an anticipatory repudiation and
breach of the lease; (3) because of the city's breach on February
5, 1973, the lease was terminated and further performance by
plaintiff corporation thereunder was excused; and (4) that plain-
tiff corporation is entitled to damages of $95.340 representing
the difference between the rental provided in the lease and the
reasonable rental value of the premises, discounted to its present
worth.
The contentions of the city can be summarized as follows:
(1) The original lease agreement is invalid because it was not
approved by a vote of the people, the city loaned its credit to a
private corporation in violation of the Montana Constitution, and
the agreement lacks mutuality of obligation and remedy. (2) The
action of the city council on February 5, 1973 did not constitute
a repudiation of the lease nor a breach of its provisions.
(3) That at no time was plaintiff ready, willing and able to
perform the financing and remodeling requirements on its part
to be performed under the lease so the lease became void by its
terms and neither party has any obligation to the other. (4)
Plaintiff corporation is entitled to no damages because there
was no breach by the city, and in any event the measure of
damages claimed by plaintiff corporation is incorrect.
Our decision in this appeal is bottomed squarely on one
issue: Did the action of the city council on February 5, 1973
constitute a breach of the lease?
Plaintiff claims the council's action constituted an
anticipatory repudiation of the lease giving rise to an immediate
action for damages against the city. This Court has never ruled
directly one way or the other on whether such action is maintain-
able in Montana.
An anticipatory breach of contract by the promisor is a
repudiation of his contractual duty before the time fixed in the
contract for his performance has arrived. 4 Corbin on Contracts
g 959, p. 855; New York Life Ins. Co. v. Viglas, 297 U.S. 672,
56 S.Ct. 615, 80 L ed 971. The legal effect of an anticipatory
breach of contract is described in 17A C.J.S. Contracts §472(1),
pp. 653-655, in this language:
"Where a party bound by an executory contract
repudiates or renounces his obligation before the
time for performance, the promisee has, according
to the great weight of authority, an option to
treat the contract as ended, as far as further
performance is concerned, and to maintain an
action at once for the damages occasioned by such
anticipatory breach, repudiation, or renunciation,
even in the absence from the contract of a spec-
ific provision authorizing the maintenance of an
action or the declaring of a forfeiture."
To like effect see: 11 Williston on Contracts Section 1324,
p. 139; 17 Am Jur 2d, Contracts 910; 14 Cal Jur 3d Contracts
/§295, p. 625; 4 Corbin on Contracts
S959,pp. 852-853. Also see the leading English case from which
the doctrine arose, Hochster v. De La Tour, 2 El. & B1. 678,
and the leading American case adopting the English rule, Roehm
v. Horst, 178 U.S. 1, 20 S.Ct. 780, 44 L Ed 953.
The reasons supporting an action for anticipatory breach
of contract have been variously stated to be: the uselessness
and inequity of requiring the promisee to hold himself in readi-
ness to perform his contractual obligation on the date perform-
ance is due where the promisor has already repudiated his reciprocal
obligations under the contract; the present injury to the implied
right of each of the contracting parties to refrain from impair-
ing the ability or willingness of the other to perform when per-
formance is due; the duty of the promisee to mitigate damages by
withholding expenditures in preparation for carrying out his con-
tractual obligations where the promisor will not perform in any
event; the social and economic waste incident to prolonging a
contractual status that is effectively at an end; and the neces-
sity that the law recognize the commercial desirability of fixing
legal rights, liabilities and damages as promptly as possible.
This doctrine has been specifically applied to anticipa-
tory repudiation of leases by the lessee. Hawkinson v. Johnston,
122 F.2d 724; dalin v. Lovell, 257 Wis. 82, 42 N.W.2d 456, 49
Am Jur 2d Landlord & Tenant, S178, p. 202; 51C C.J.S. Landlord &
Tenant S250 (2), p. 653.
In Montana there is language in one prior decision of
this Court indicating that an anticipatory repudiation by one
party to a contract excuses further performance by the other,
this rule being quoted with approval in McCaull-Dinsmore Co. v.
Jackson, 57 Mont. 555, 560, 189 P. 771:
"'Where one party repudiates in advance his
obligations under the contract and refuses to
be longer bound thereby, communicating such
repudiation to the other party, the latter party
is excused from further performance on his part.'"
This case strongly suggests recognition in Montana of an action
based on anticipatory repudiation of a contract.
Montana statutes and case law generally support the bases
on which the doctrine of anticipatory breach rests, for example,
"The law neither does nor requires idle acts." Section 49-124,
R.C.M. 1947; "For every wrong there is a remedy." Section 49-115,
R.C.M. 1947; and the duty to mitigate damages in an action for
breach of contract, Brown v. First Fed. Svgs. & Loan, 154 Mont.
79, 460 P.2d 97. We find no reason in policy or in law for deny-
ing an immediate action for damage based on an anticipatory re-
pudiation of a contract.
The crux of the instant case is whether the action of
the city council on February 5, 1973 constituted an anticipatory
repudiation of the lease agreement. The city council voted to
"not re-affirm provisions of the original lease". Plaintiff
treats this as a repudiation or renunciation of the city's obli-
gations under the lease. But was it?
It appears to us that the action of the city council
was subject to different interpretations. It might have meant
the new mayor and council did not want to go on record as approving
the original lease, x t might have meant the new mayor and council
refused to assist plaintiff corporation in its efforts to secure
the necessary financing for remodeling by an affirmative expression
of support. It might have meant the new mayor and council were
repudiating the lease and refused to perform the city's obliga-
tions thereunder.
The language of the proposition on which the council voted
is significant in our view. The council voted "not to re-affirm".
The council did not vote "not to affirm". The council did not
vote to repudiate, renounce, or cancel the lease, nor adopt any
language manifesting an intention not to carry out its obli-
gations under the lease. The language of the proposition on
which the council voted was equivocal, ambiguous, and subject
to conflicting interpretations.
The circumstances support a like conclusion. A city
election intervened between the execution of the lease and the
vote of the council on February 5, 1973. Some new aldermen and
a new mayor had been elected who opposed the lease. STC, INC.
had not secured the necessary financing despite some seven month's
effort. Time was running out. Less than two months remained be-
fore the lease agreement would expire by its own terms if financ-
ing was not secured. No rational basis existed for the city to
repudiate the lease at this time and under these circumstances,
while a good reason did exist for the new mayor and council to
refuse to go on record as approving the lease negotiated by their
predecessors, or to refuse to assist STC, INC. in obtaining fin-
ancing. At the very least the circumstances are equally consis-
tent with this interpretation of the council's intention. The
collective intention of the city council remains ambiguous and
equivocal.
A repudiation or renunciation must be entire, absolute
and unequivocal to support an action for anticipatory breach.
17A C.J.S. Contracts 5472(2), p. 659; 17 Am Jur 2d, Contracts
5450, p. 914; 14 Cal Jur 3d, Contracts 8298, p. 630; 4 Corbin
on Contracts 5 973, p. 905; Restatement, '48 Supp. Contracts,
5318(a), p. 251; 5 Williston on Contracts (Revised Edition)
51324, p. 3724; Dingley v. Oler, 117 U.S. 490, 6 S.Ct. 850, 29
L ed 984; Kimel v. Missouri State Life Ins. Co., 71 F.2d 921;
Palmiero v. Spada Distributing Co., 217 F.2d 561.
"The doctrine of breach of contract by anticipatory
repudiation works harsh results, and for its
application, there must be a 'positive statement
to the promisee or other person having a right
under the contract, indicating that the promisor
will not or cannot substantially perform his
contractual duties; * * * . I "
Regional Enterprises, Inc. v. Teachers Insurance
and Annuity Ass'n, 352 F.2d 768, 775, and cases
cited therein.
Anticipatory breach must appear only in the clearest
terms of repudiation of the contractual obligation. Guerrieri v.
Severini, 51 Cal.2d 12, 330 P.2d 635; Hertz Drive-Ur-Self Stations,
v. Schenley Distill. Corp., 119 C.A.2d 754, 260 P.2d 93. An
expression of intent not to perform, or not to be bound, stand-
ing alone, is not enough. Campos v. Olson, 241 F.2d 661; Re-
hart v. Klossner, 48 C.A.2d 46, 119 P.2d 148; nor is a mere
assertion that a party will be unable, or will refuse, to per-
form his contract an anticipatory renunciation. City of Buena
Park v. Boyar, 186 C.A.2d 61, 8 Gal-Rptr. 674.
Applying these rules, we hold the action of the city
council on February 5, 1973 to "not re-affirm provisions of
the original lease" was not a positive, unequivocal, absolute
expression of intention by the city not to perform its contrac-
tual obligations under the lease. Accordingly, it will not
support an action for anticipatory breach and plaintiff's action
must fail.
Our ruling on the first issue renders consideration of
the second issue unnecessary.
The judgment of the district court is affirmed.
Justice
We concur:
.............................
C h i e y JusticeA