No. 13164

I N THE SUPREME COURT O THE STATE O M N A A F F O T N

1977

GEORGE R. WEVIN e t a l . ,

P l a i n t i f f s and R e s p o n d e n t s ,

-vs- THE COUNTY O SILVER BOW e t a l . , F

D e f e n d a n t s and A p p e l l a n t s .

Appeal from: D i s t r i c t C o u r t o f t h e Second J u d i c i a l D i s t r i c t , H o n o r a b l e J a c k D. S h a n s t r o m , J u d g e p r e s i d i n g .

C o u n s e l of Record:

For Appellants:

S t i m a t z a n d E n g e l , B u t t e , Montana Lawrence G. S t i m a t z a r g u e d , B u t t e , Montana

For Respondents:

McCaffery a n d P e t e r s o n , B u t t e , Montana J o h n L. P e t e r s o n a r g u e d , B u t t e , Montana

Submitted: March 1 6 , 1977 "fiQ" 7- ,

Decided : -. -.'. . ; :TT /

- *itr;%" ?- [:<I/~( Filed: - M r . J u s t i c e Gene B . Daly d e l i v e r e d t h e Opinion of t h e Court.

T h i s i s an a p p e a l by S i l v e r Bow County from an adverse

judgment i n a breach of c o n t r a c t c a s e involving t h e l e a s e of t h e

r e s t a u r a n t and lounge f a c i l i t y a t t h e county a i r p o r t . The cause

was t r i e d b e f o r e Hon. J a c k D. Shanstrom, s i t t i n g without a j u r y ,

i n t h e d i s t r i c t c o u r t , S i l v e r Bow County, on January 27, 1975.

Judgment was e n t e r e d A p r i l 23, 1975. From t h i s judgment i n f a v o r o f

p l a i n t i f f s , defendant county a p p e a l s .

I n 1968, t h e commissioners of S i l v e r Bow County e s t a b l i s h e d

by r e s o l u t i o n a n a i r p o r t commission t o a c t a s a n a d v i s o r y commis-

s i o n t o t h e Board of County Commissioners and charged i t w i t h t h e

duty of a n o v e r a l l program o f development and c o n t r o l of t h e a i r -

port. Day t o day c o n t r o l f o r t h e a i r p o r t o p e r a t i o n was v e s t e d

i n t h e a i r p o r t manager and engineer.

I n 1968, Wm. J . V i o l e t l e a s e d t h e premises s e t a s i d e f o r a

lounge and r e s t a u r a n t c o n s i s t i n g of approximately 4,100 square

feet. A t t h i s time t h e lounge and r e s t a u r a n t were n o t completed.

L a t e r V i o l e t abandoned t h e l e a s e and t h e premises were i d l e f o r

approximately 8 months. The county ( l e s s o r ) then executed a l e a s e

agreement w i t h p l a i n t i f f s George R. Nevin and Geraldine Nevin,

(Lessees). Paragraph 2 of t h e l e a s e recognized some d e f i c i e n c i e s

i n t h e premises and agreed t o i n s t a l l a dumb w a i t e r , c a r p e t on t h e

second f l o o r , and f u r t h e r r a i l i n g on t h e balcony. Paragraph 3

of t h e l e a s e breaks t h e r e n t a l of $300 p e r month i n t o $175 r e n t ,

and $125 a s l e s s e e s ' s h a r e o f water and e l e c t r i c i t y u n t i l t h e i m -

provements were completed; then t h e b a s i c r e n t would be $375, p l u s

$125 f o r l e s s e e s ' s h a r e of water and e l e c t r i c i t y , o r a t o t a l r e n t a l

of $500 p e r month. The l e a s e became e f f e c t i v e November 30, 1968 and l e s s e e s

paid t h e f i r s t month's r e n t a l r e q u i r e d under t h e l e a s e i n December 5 1968. paragraphlo£ t h e l e a s e agreement provides:

"For t h e c o n s i d e r a t i o n a f o r e s a i d , l e s s o r hereby g i v e s - - and g r a n t s unto l e s s e e , h i s s u c c e s s o r s and a s s i g n s , t h e r i g h t , p r i v i l e g e and o p t i o n of renewing t h i s Lease, a t t h e e x p i r a t i o n of t h e aforementioned term, f o r a n a d d i t i o n a l term of f i v e (5) y e a r s , upon t h e same c o n d i t i o n s , covenants and agreements h e r e i n s e t f o r t h and a t a r e n t a l t o be nego- t i a t e d by t h e p a r t i e s , by g i v i n g t o t h e l e s s o r a t l e a s t n i n e t y days' w r i t t e n n o t i c e p r i o r t o t h e e x p i r a t i o n of such term of l e s s e e ' s d e s i r e t o e x e r c i s e s a i d o p t i o n and renew t h i s Lease f o r such a d d i t i o n a l term; provided, however, t h a t t h e r e n t a l f o r t h e a d d i t i o n a l term s h a l l n o t be i n c r e a s e d o r decreased beyond a reasonable sum, t a k i n g i n t o c o n s i d e r a t i o n c o n d i t i o n s e x i s t i n g a t t h e time of renewal and c a p i t a l improve- ments, i f any, on t h e premises d u r i n g t h e term." (Emphasis supplied. )

On August 28, 1973, l e s s e e s mailed t h e r e q u i r e d n o t i c e t o e x e r c i s e

t h e i r o p t i o n provided i n paragraph 5 of t h e l e a s e t o extend t h e term of . .

the lease f o r an additional f i v e years. On August 31, 1973, l e s s o r

responded t h a t t h e n o t i c e was n o t t i m e l y , based on i t s copy of t h e

l e a s e which i n d i c a t e d an e f f e c t i v e d a t e of November 1, 1968, inked

i n , r a t h e r than November 30, 1968, a s shown on l e s s e e s ' copy.

There was c o n s i d e r a b l e argument back and f o r t h between t h e p a r t i e s

from August 1973 u n t i l October 30, 1973, concerning t h e renewal.

- On October 30, 1973, l e s s o r proposed a new l e a s e f o r a term of

3 y e a r s w i t h a r e n t a l of $1,500 per month and/or t h e premises

vacated a s of October 31, 1973, t h e d a t e t h e l e s s o r a l l e g e d t h e

old lease expired. A s a r e s u l t of t h i s communication a n agreement

was then made t o continue o p e r a t i o n of t h e a i r p o r t f a c i l i t y on a

r e s e r v a t i o n of r i g h t s f o r both p a r t i e s . On November 15, 1973,

l e s s o r agreed t h e t e r m i n a t i o n d a t e o f t h e l e a s e was n o t u n t i l

November 30, 1973 and n o t i c e of renewal was r e c e i v e d on time.

Lessees o f f e r e d a 20% i n c r e a s e i n r e n t o r $600. November 20,

1973, l e s s o r responded w i t h a r e n t a l of $1,200 p e r month and i n

a d d i t i o n requested c e r t a i n changes i n t h e p r o v i s i o n s of t h e "old"

lease. On November 30, t h e l e a s e terminated. Lessees f i n a l l y vacated t h e premises, a f t e r f i l i n g a n a c t i o n

t o determine t h e r i g h t s of t h e p a r t i e s on January 3 , 1974 and

amended t h e a c t i o n on January 25, 1974 t o breach of c o n t r a c t .

Lessor on February 24, 1974 f i l e d an answer g e n e r a l l y denying a l l

a l l e g a t i o n s , admitted t h e l e a s e b u t denied t h e e f f e c t i v e d a t e of

November 30, 1968 and a l l e g e d i t t o be November 1, 1968. Based

on t h i s d a t e , t h e l e s s o r t h e n by a f f i r m a t i v e d e f e n s e , p l e a d e s t o p p e l

because t h e l e a s e terminated b e f o r e n o t i c e was received and

f u r t h e r a l l e g e d t h e l e s s e e s knew t h e d a t e t o be wrong.

A f t e r t r i a l , t h e c o u r t made f i n d i n g s of f a c t and conclusions

of law s t a t i n g i n essence:

"1. That P l a i n t i f f s e n t e r e d i n t o a l e a s e agreement w i t h t h e County of S i l v e r Bow, a body p o l i t i c and p o l i t i c a l s u b d i v i s i o n of t h e S t a t e o f Montana, and t h e A i r p o r t Commis- s i o n of S i l v e r Bow County, Montana, a s l e s s o r s , on October 31, 1968, f o r t h e l e a s e of c e r t a i n premises i n t h e S i l v e r Bow County A i r p o r t Terminal Building, beginning t h e 30th day of November, 1968, and ending on t h e same d a t e f i v e y e a r s hence i n t h e year 1973. ** * That a t t h e time of e x e c u t i o n of t h e l e a s e agreement, t h e premises were n o t ready f o r occupancy and were n o t made ready f o r occupancy by l e s s o r s u n t i l November 30, 1968. That a s a p a r t of t h e l e a s e a r r a n g e - ment t h e P l a i n t i f f s r e c e i v e d t r a n s f e r of R e t a i l Beer and Liquor License No. 7847 on December 5 , 1968, * ** and p a i d t h e f i r s t month r e n t i n advance on December 5 , 1968.* * * That i t was t h e i n t e n t i o n of a l l of t h e p a r t i e s t h a t t h e P l a i n t i f f s were t o have a f u l l f i v e year term of a c t u a l occupancy i n t h e l e a s i n g of t h e premises.

''2. * Jc *and a s l a t e a s November 1 5 , 1973, t h e A i r p o r t Board conceded t h e f a c t t h a t t h e l e a s e would n o t t e r m i n a t e u n t i l November 30, 1973, and t h e r e f o r e waived any r i g h t t o contend t h e l e a s e terminated November 1, 1973."

Finding of f a c t No. 3 , s t a t e d p l a i n t i f f s had t h e r i g h t t o

renew under paragraph 5 of t h e l e a s e f o r 5 y e a r s and on August 28,

1973 and a t l e a s t 90 days b e f o r e e x p i r a t i o n , advised defendant of

t h e i r i n t e n t t o renew f o r 5 y e a r s .

Finding of f a c t No. 4 , s t a t e s t h a t on August 31, 1973,

defendant acknowledged p l a i n t i f f s ' l e t t e r t o renew b u t advised

p l a i n t i f f s t h e n o t i c e was t o o l a t e and defendant, without waiving any of i t s r i g h t s because of f a i l u r e t o n o t i f y i n time, advised

t h a t i t would i n essence n e g o t i a t e a "new" l e a s e . The next

c o n t a c t by defendant with p l a i n t i f f s was by l e t t e r dated October

30, 1973 advising t h e l e a s e expired October 31, 1973 and contem-

poraneous therewith presented a new l e a s e w i t h o t h e r terms changed,

i n a d d i t i o n t o the r e n t increase t o $1,500 per month. O November n

1, 1973 defendant requested possession by midnight November 1,

1973, a t a penalty of $50 per day f o r holding over, and then

o f f e r e d a 30-day tenancy t o p l a i n t i f f s t o run t o November 30, 1973.

The c o u r t f u r t h e r s a i d :

"* ** That t h e a c t i o n s by t h e Defendants breached t h e terms and conditions of t h e l e a s e agreement *** by reason of i t s f a i l u r e t o n e g o t i a t e a reasonable i n c r e a s e o r decrease i n r e n t a l p r i o r t o e x p i r a t i o n of t h e term of t h e l e a s e on November 30, 1973. That t h e o f f e r of t h e Defendants by l e t t e r of November 20, 1973, i n o f f e r i n g a r e n t a l change by i n c r e a s e of r e n t t o $1200.00 per month and provided o t h e r provisions of t h e l e a s e agreement were changed *** was an unreasonable demand f o r r e n t i n c r e a s e i n v i o l a t i o n of Paragraph 5 of t h e l e a s e agreement, and a l s o v i o l a t e d Paragraph 5 of s a i d l e a s e by demanding t h a t v a r i o u s o t h e r provisions of t h e l e a s e agreement be changed, even though t h e p a r t i e s had agreed i n t h e option t o renew t h a t t h e l e a s e would be renewed f o r an a d d i t i o n a l f i v e years 'upon t h e same c o n d i t i o n s , covenants and agreements s e t f o r t h ' , except f o r r e n t a l .

"5. That t h e o f f e r of t h e Defendants on November 20, 1973, was an unreasonable r e p l y t o P l a i n t i f f s ' o f f e r of November 15, 1973, t o i n c r e a s e t h e r e n t t o %600.00 per month, *** which t h e c o u r t f i n d s was a reasonable amount f o r r e n t a l under t h e circumstances e x i s t i n g a t t h e time and i n view of t h e moderate amount of c a p i t a l expenditure made during t h e term of P l a i n t i f f s ' lease."

Finding of f a c t No. 6 , s t a t e s t h e a c t i o n s of t h e p a r t i e s i n

an attempt t o n e g o t i a t e a "new" l e a s e a f t e r November 30, 1973 were

e f f o r t s i n compromise of a disputed claim and n o t m a t e r i a l t o

complying with paragraph 5 of t h e l e a s e . Even i f m a t e r i a l , t h i s

i n c r e a s e t o $875 i s s p e c i f i c a l l y found t o be unreasonable i n view

of conditions e x i s t i n g a t t h e time and c a p i t a l improvements made. "7. That Paragraph 5 of the l e a s e agreement c i t e d above i s a v a l i d , binding and enforceable provision of t h e l e a s e agreement given f o r t h e b e n e f i t of t h e l e s s e e s and r e l i e d upon by them a s an inducement t o e n t e r i n t o t h e l e a s e agreement i n October of 1968. That i n l i g h t of s a i d provision, the Court f i n d s t h a t i t could have fixed and determined a f a i r and reasonable i n c r e a s e i n r e n t a l i n t h e absence of agreement by t h e p a r t i e s , and i n t h e f u r t h e r event t h e P l a i n t i f f s sought t o e l e c t t o enforce such remedy. That P l a i n t i f f s , however, a r e e n t i t l e d t o s e l e c t any remedy a v a i l a b l e t o them, including t h i s a c t i o n f o r breach of c o n t r a c t . That t h e p a r t i e s themselves recognized t h a t such clause was v a l i d and enforceable by attempting t o n e g o t i a t e a reasonable r e n t a l ." Finding of f a c t No. 8 , s t a t e d t h a t had defendant adequately

i n v e s t i g a t e d t h e f a c t s i t could have found i n August t h a t t h e

l e a s e terminated November 30, 1973. Upon admission by November

15, 1973 of t h e t r u e f a c t s , defendant was under a firm duty t o

n e g o t i a t e and f i x a reasonable increase o r decrease i n r e n t with

l e s s e e s before November 30, 1973. This duty was breached.

"9. That upon execution of t h e - l e a s e agreement and beginning November 30, 1968, P l a i n t i f f s went i n t o possession of t h e leased premises and f o r a period of f i v e years conducted a r e s t a u r a n t and c o c k t a i l lounge business c o n t i n u a l l y during t h a t period of time, and had a s of t h e termination of t h e l e a s e on November 30, 1973, an e s t a b l i s h e d business i n S i l v e r Bow County, with a good business r e p u t a t i o n f o r good food and s e r v i c e and from which t h e c o u r t does conclude t h a t such business would have enjoyed p r o f i t a b l e success i n t h e next f i v e years of operation.

"10. That t h e business records of t h e P l a i n t i f f s e s t a b l i s h by a preponderance of t h e evidence t h a t by reason of Defendants' breach of t h e l e a s e agreement P l a i n t i f f s would have earned a n e t p r o f i t i n t h e business of a period of f i v e years from November 30, 1973, t h e sum of Twelve Thousand Dollars ($12,000.00) each year, which i s determined a f t e r deducting from t h e expected gross revenue a l l business expenses, including t a x e s , wages, d e p r e c i a t i o n and a reason- a b l e value of P l a i n t i f f s ' s e r v i c e s .

"11. That by reason of t h e conduct of business over a term of f i v e years t h e P l a i n t i f f s earned a good business r e p u t a t i o n and e s t a b l i s h e d good w i l l with t h e community, from which P l a i n t i f f s could reasonably have enjoyed con- tinued p r o f i t a b l e operation by reason of i t s business loca- t i o n , reputation f o r good food and s e r v i c e , general atmos- phere and repeated r e t u r n of t h e i r customers. That by reason of the breach of t h e l e a s e agreement by t h e Defendants, t h e P l a i n t i f f s s u f f e r e d damages by l o s s of good w i l l i n t h e reasonable sum of Five Thousand D o l l a r s ($5,000.00).

"12. That by reason of t h e breach of t h e l e a s e agreement by Defendants, t h e P l a i n t i f f s were f o r c e d t o s e l l t h e i r b u s i n e s s , equipment and inventory i n piecemeal l o t s . That had P l a i n t i f f s been a b l e t o s e l l such equipment a s a going concern, t h e reasonable v a l u e of such equipment was t h e approximate sum of Twenty Five Thousand D o l l a r s ($25,000.00) That by reason of t h e premature and forced s a l e of such equipment, P l a i n t i f f s received .the sum of Nine Thousand Seven Hundred Eighteen and 60/100ths D o l l a r s ($9,718.60). That by reason t h e r e o f t h e P l a i n t i f f s s u f f e r e d damages i n t h e s a l e o f s a i d equipment i n t h e sum of F i f t e e n Thousand D o l l a r s ($15,000.00).

"CONCLUSIONS O L A W F

"I. That P l a i n t i f f s have e s t a b l i s h e d by a preponder- ance of t h e evidence t h a t t h e Defendants breached t h e l e a s e agreement e x i s t i n g between t h e p a r t i e s , and p a r t i - c u l a r l y Paragraph 5 t h e r e o f .

"11. That by reason of t h e breach of such agreement, t h e P l a i n t i f f s have e s t a b l i s h e d by a preponderance of t h e evidence t h a t they s u f f e r e d damages a s follows:

"C. Loss of v a l u e on Equipment ---------- $15,000.00 " f o r t o t a l damages i n t h e sum of F o r t y Five Thousand D o l l a r s ($45,000.00) ." Defendant a p p e a l s and p r e s e n t s t h r e e i s s u e s f o r review:

1. The c o u r t e r r e d i n o v e r r u l i n g d e f e n d a n t ' s o f f e r o f proof

t o show t h e b i d s and t h e amount of r e n t f o r which t h e l e a s e d

premises were l e t t o p l a i n t i f f s ' successor a s t e n a n t a s being

i n d i c a t i v e of t h e reasonableness of t h e d e f e n d a n t ' s o f f e r of a

monthly r e n t of $865.00 t o p l a i n t i f f s .

2. The c o u r t e r r e d i n t h a t i t s f i n d i n g s and judgment o f

breach of l e a s e agreement and of r e f u s a l t o n e g o t i a t e a reasonable

i n c r e a s e i n r e n t by defendant a r e n o t supported by s u b s t a n t i a l ,

c r e d i b l e evidence.

3. The c o u r t e r r e d i n t h a t t h e damages awarded p l a i n t i f f s

a r e e x c e s s i v e , improper and c o n t r a r y t o t h e evidence and t h e law. Lessor generallyargues t h e matter of t h e c o r r e c t termination

d a t e d i d n o t a r i s e during t h e term of t h e l e a s e and t h e r e was no II awareness" of t h i s u n t i l August 31, 1973. That a l l matters

u n t i l t h e defendant agreed t o a November 30, 1973 termination

d a t e a s c o r r e c t on November 15, 1973, should be deemed a c t s i n

good f a i t h . Lessor then simply says a l l n e g o t i a t i o n s a f t e r Nov-

ember 15, 1973, were good f a i t h and reasonable attempts t o s e t

a new r e n t a l f i g u r e and discuss " ( o t h e r *** housekeeping d e t a i l s

i n removing o b s o l e t e provisions from t h e lease)".

This l o g i c simply ignores t h e f a c t s i n t h i s case. The whole

tenor of t h i s s i t u a t i o n a s f a r a s defendant was concerned a f t e r

November 15, was merely t h a t t h e n o t i c e was f i l e d on time, so l e t

us go forward a s i s and n e g o t i a t e a new c o n t r a c t . Examples: (1)

P l a i n t i f f s ' Exhibit No. 14, a l e t t e r from defendant t o p l a i n t i f f s

dated November 20, 1973, which s t a t e s i n essence---we recognize

your November 30 d a t e but we want $1,200 based i n p a r t o n - o f f e r s

from o t h e r s and i n a d d i t i o n t o r e n t t h e r e must be o t h e r changes

i n t h e l e a s e . (2) Exhibit A of defendant, a l e t t e r from defendant

t o p l a i n t i f f s dated December 11, 1973 i n response t o a request of

p l a i n t i f f s f o r j u s t i f i c a t i o n of t h e $1,200 r e n t f i g u r e :

"The Board and t h e Commission a r e i n agreement t h a t no good purpose would be served by providing a d e t a i l e d s e t of f i g u r e s i n support of t h i s $1,200 monthly r e n t a l proposal. I f necessary t h e Board and Commission w i l l supply such f i g u r e s and j u s t i f i c a t i o n of t h e $1,2000 p r i c e i n court". (Emphasis added.)

This communication was signed by t h e t h r e e members of t h e

board of county commissioners. O December 28, a f t e r numerous n

exchanges defendant reminded p l a i n t i f f s t o be gone by t h e end of

January, i f no settlement was reached, and so on and on.

These few examples demonstrate t h e problem, but t h e review

of t h e e n t i r e record amply supports t h e t r i a l court with c r e d i b l e

and s u b s t a n t i a l evidence.

- 8 - Damages have been attacked by defendant a s self-imposed, beyond

t h e contemplation of t h e p a r t i e s when they entered i n t o t h e l e a s e

i n 1968, e t c . However, t h e only proof of damages has been produced

by t h e p l a i n t i f f s . P l a i n t i f f s produced evidence of l o s s of

p r o f i t f o r 5 y e a r s , l o s s of good w i l l , and l o s s of market value

of equipment a t forced s a l e .

I n Laas v. Montana Highway Commission, 157 Mont. 121, 132,

483 P.2d 699, t h i s Court s p e c i f i c a l l y held t h a t under s e c t i o n

17-301, R.C.M. 1947, which provides t h a t t h e measure of damages

i n a breach of c o n t r a c t a c t i o n i s t h e amount t h a t w i l l compen-

s a t e t h e p a r t y aggrieved f o r a l l t h e detriment proximately

caused thereby o r which i n t h e ordinary cause of things would be

l i k e l y t o r e s u l t therefrom, damages a r e recoverable f o r l o s s of

profits :

"'* * Jc t h e r u l e i s t h a t a person may recover f o r l o s s of p r o f i t s where i t i s shown t h a t such l o s s i s t h e n a t u r a l and d i r e c t r e s u l t of t h e a c t of t h e defendant complained of and t h a t such amount i s c e r t a i n and n o t speculative. *** " P r o f i t s which a r e a mere matter of speculation cannot be t h e b a s i s of recovery i n s u i t s f o r breach of c o n t r a c t , while p r o f i t s which a r e reason- ." ably c e r t a i n may be "' 157 Mont. 132.

From p l a i n t i f f s ' testimony and p l a i n t i f f s ' Exhibits 6 and

1 7 , t h e c o u r t found p l a i n t i f f s ' could reasonab1.y i n t h e next 5

years expect a y e a r l y p r o f i t of $12,000 per year ( c o u r t ' s f i n d i n g

No. 10) y e t t h e c o u r t awarded $5,000 per year which i s well within

t h e evidence. The same holds t r u e f o r good w i l l and t h e equipment.

The equipment Exhibit was introduced without o b j e c t i o n and de-

monstrates t h e t r i a l c o u r t ' s award.

I n regard t o t h e o f f e r of proof a s t o j u s t i f i c a t i o n of a

higher r e n t a l , t h e foundation was absent t o make t h e proposed

evidence m a t e r i a l o r r e l e v a n t t o t h e considerations allowable

under t h e c o n t r a c t which governs t h e method of a r r i v i n g a t a new r e n t f i g u r e and was t h e r e f o r e properly denied by t h e t r i a l

court.

Finding no e r r o r and t h e r e i s s u b s t a n t i a l c r e d i b l e evidence

t o support t h e judgment of the t r i a l c o u r t , t h a t judgment i s

affirmed.

W Concur: e - ..--- .--,-7 .

Chief J u s t i c e