Title: BUSINESS FINANCE CO v RED BARN

State: montana

Issuer: Montana Supreme Court

Document:

No. 12476 IN THE SUPREME C O U R T O F THE STATE O F M O N T A N A 1973 BUSINESS FINANCE CO. , INC. , a Washington Corporation, P l a i n t i f f and Respondent, THE RED BARN, INC., e t a l . , Defendants and Third Party-Plaintif f s and Appellants, -vs - CHARLES A. PALMER, J R . , e t a 1 , Third Party-Defendants and Respondents. Appeal from: D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t , Honorable Emmet Glore, Judge presiding. Counsel of Record: For Appellants : Larsen and Gliko, Great F a l l s , Montana Dirk Larsen argued, Great F a l l s , Montana For Respondents : Garlington, Lohn and Robinson, Missoula , Montana Robert E. Sheridan argued, Missoula, Montana Worden, Thane, Haines and Williams, Missoula, Montana Shelton Williams argued, Missoula, Montana Submitted: September 14, 1973 Decided : fim'2 8 1813 Filed: HOVE 6 1873 M r . J u s t i c e Gene B. Daly delivered the Opinion of the Court. Defendants Arnold, Leo and A 1 Gaub bring t h i s appeal from a judgment entered i n the d i s t r i c t court, Missoula County, dis- missing t h e i r t h i r d party complaint against t h i r d party de- fendants Charles Palmer, Jr. and Ron Wilkerson, and awarding $2,724.95 t o p l a i n t i f f Business Finance Co., Inc. The cause was t r i e d t o t h e court s i t t i n g without a jury. From the t r i a l record these f a c t s appear: In February 1970 Red Barn, Inc., a Missoula bar and nightclub, leased two cash r e g i s t e r s , an adding machine, a f i l i n g cabinet and an o f f i c e chair of the approximate t o t a l value of $1,633 from Business Finance Co., Inc. Red Barn, Inc. was then owned by the Gaubs, who signed a guaranty agreement with Business Finance Co., Inc. covering the equipment lease agreement. I n October 1970 the Gaubs entered i n t o an agreement with Palmer under which they agreed t o trade businesses -- the ~ a u b s ' Red Barn, Inc. f o r Palmer's Big Sky Distributing Co. Palmer began operating the Red Barn the same month, but the transaction was not completed u n t i l January 1971. It appears t h a t Business Finance Co., Inc. was informed of t h e transaction i n October and, a t t h e ~ r e q u e s t of the Gaubs, prepared forms f o r an assignment of t h e lease agreement t o Palmer. This assignment of lease agreement was never signed by Palmer, nor did Palmer make any payments on the lease agreement. The l a s t payment made t o Business Finance Co., Inc. on the lease agreement was i n October 1970. It appears the equipment remained i n use a t the Red Barn u n t i l June 1971, when Palmer leased the Red Barn t o Wilkerson and the equipment was placed i n storage a t the Red Barn. The equipment was repossessed i n February 1972, some seventeen months a f t e r the l a s t payment was made. Business Finance Co., Inc. informed the Gaubs the repossessed equipment would be sold. The Gaubs o r i g i n a l l y bid $600 but with- drew the bid a f t e r seeing the equipment. The equipment was sold a t a private s a l e t o Woods Business Ma.chines of Missoula f o r Business Finance Go,, Inc. sued the Gaubs on the lease guaranty contract f o r a deficiency judgment. Gaubs f i l e d a t h i r d party complaint against Palmer and Wilkerson, claiming assumption of contract and/or quasi-contract. The d i s t r i c t court dismissed the t h i r d party complaint against Palmer and Wilkerson and entered judgment i n the amount of $2,724.95, of which $850 constituted attorney fees, i n favor of Business Finance Co., Inc. against the Gaubs. Appellants Gaub bring four issues on appeal: 1. Whether Palmer assumed the obligation t o make the lease payments t o Business Finance Co., Inc. under e i t h e r express o r implied contract, thus relieving the Gaubs of t h e i r obligation under the lease3 2. Whether Business Finance Co., Inc. f a i l e d i n i t s duty t o mitigate damages? 3. Whether Business Finance Co., Inc. f a i l e d t o s e l l the equipment i n a commercially reasonable manner? 4. Whether the attorney fee awarded Business Finance Co., Inc. was unreasonable? The t r i a l court made these findings of f a c t which concern the f i r s t issue: "I. That the purchase of the RED BARN by Third- Party Defendants was evidenced by two written agree- ments, one dated October 12, 1970, and the other dated January 20, 1971. "11. That n e i t h e r of said written agreements con- t a i n s any provisions whereby C H A R L E S A. PALMER, J R . agreed t o assume the obligations of the GAUBS and the RED BARN under t h a t c e r t a i n Lease Agreement between BUSINESS FINANCE C O . , I N C . and the RED BARN, I N C . , and guaranteed by the GAUBS, dated February 13, 1970. "111. That on or about October 15, 1970, C H A R L E S A . PALMER, J R . refused t o execute the 'Assignment and Assumption Agreement' brought t o him by A R N O L D A. GAUB, thereby evidencing h i s i n t e n t not t o assume and be bound by the obligations of the Lease with BUSINESS FINANCE CO., I N C . "IV. The testimony of A R N O L D A. GAUB when c a l l e d as an adverse witness c l e a r l y established that C H A R L E S A. PALMER, J R . purchased only the a s s e t s of the RED BARN and did not, i n f a c t , purchase the stock of the RED BARN, I N C . I I These findings of f a c t a r e supported by w r i t t e n agreements i n evidence and by the t r a n s c r i p t of testimony talcen a t t r i a l . Even assuming, arguendo, t h a t a t some point i n time it was the intention of the Gaubs and Palmer t o e f f e c t an assignment, they were prohibited from doing so by the express terms of the lease contract, without obtaining w r i t t e n consent of the lessor Business Finance Co., Inc. The lessor informed Gaubs t h a t con- sent would be given only i f the Gaubs remained a s guarantors on 11 the obligation. The record indicates the Assignment and Assump- tion Agreement" was never signed by Palmer, nor was i t approved by Business Finance Co., Inc. and t h a t the Gaubs were aware of these f a c t s . The record a l s o indicates the Gaubs were given several notices during the period t h a t they were i n default of payment. The remedy of quasi-contract i s equitable i n nature and w i l l not- be applied where the party seeking r e l i e f has f a i l e d t o exercise reasonable prudence and diligence under the circumstances. Builders Sup. Co. v. City of Helena, 116 Mont. 368, 154 P.2d 270. Appellants' second issue--that Business Finance Co., Inc. f a i l e d t o mitigate damages--is based on the f a c t it waited seven- teen months, during which time the payments were i n d e f a u l t , before rcpsssessing the equipment. Again, we r e f e r t o the fre- quent notices of default provided the Gaubs during t h i s period. This was a reasonable e f f o r t t o avoid losses under the circum- stances and should have served notice upon the Gaubs t o take some steps to rectify the situation. Business Finance Co., Inc., the nondefaulting party, was only required to act reasonably under the circumstances, so as to not unnecessarily enlarge damages caused by the default. Hogland v . Klein, 49 Wash.2d 216, 298 P.2d 1099; 25 C.J.S. Damages 5 34. We also find no merit in appellants' third issue that the I I disposition made of the repossessed property was not commer- cially reasonable under the circumstance^'^. Section 87A-9-504, R.C.M. 1947, requires reasonable notice be given the debtor and permits either public or private sale, if commercially reasonable. Here, the record discloses the Gaubs were notified in advance of the sale and given an opportunity to bid on the repossessed items. Appellants' contention that $300 was not a commercially reasonable price is contradicted by the fact they declined to enter a bid in excess of $300. Section 878-9-504, R.C.M. 1947, allo1~7s the secured party to buy at a private sale only if the collateral is the subject of standard price quotations. While it appears appellants are correct in their contention that these type business machines are not the subject of standard price quotations, nothing appears in the record to substantiate their contention that Woods Business Machines was acting as agent for Business Finance Co., Inc. in making the purchase. To prove the sale was not commercially reasonable, appellants rely on the fact that one of the repossessed cash registers purchased by Woods Business Machines was later placed on sale to the public for $295. We find this unconvincing because it fails to take into account expenses of preparation for commercial sale or the commercial mark-up common to the particular trade. The price tag represents only an offer to sell and is not conclusive as to value. 29 Am JurZd, Evidence 5 389. Appellants' fourth issue questions the reasonableness of the attorney fee awarded Business Finance Co., Inc. We find that Under the terms of the lease, Business Finance Co., Inc. was e n t i t l e d t o recover reasonable attorney fees i n t h e event of a breach of contract. Disciplinary Rule 2-106, Cannons of Profes- sional Ethics adopted by t h i s Court, e f f e c t i v e May 1, 1973, l i s t s several factors t o be considered i n determining the reason- ableness of a fee. W e find the attorney fee granted by the t r i a l court was not .unreasonable. The judgment i s affirmed. Chief J u s t i c e I N THE S U P R E M E COURT' OF T H E S'TA.TE OF MOL\I'TAIJA No. 12476 BUSINESS FINANCE C O . , I N C . , A Washington Corporation, Plai-ntif f and Respondent, V S . A R N O L D A. GAUB, LEO W. GAUB, and A L GAUB, Defendants, Third-Party P l a i n t i f f s and Appellants, V S . CHARLES A. PALMER, J R . , and RON WILKERSON, d/b/a THE RED BARN, Third-Party Defendants and Respondents. O R D E R PER CURIAM: P l a i n t i f f ' s p e t i t i o n f o r assessment of a t t o r n e y s f e e s having been duly considered and it appearing t o t h e Court t h a t pursuant t o t h e l e a s e agreement executed by defenda.nt and a p p e l l a n t , The Red Barn, Inc. and guaranteed by defendants and a p p e l l a n t s , Arnold A. Gaub, Leo W. Gaub a.nd A1 Gaub, t h a t s a i d defendants and a p p e l l a n t s owe t o p l a i n t i f f and respondent, Business Finance Co., Inc. i t s reasonable a t t o r n e y s f e e s i n - curred i n t h e above matter; and it further appearing t o t h e Court t h a t such a t t o r n e y s f e e s incurred p r i o r t o t h e t i m e of judgment were assessed and awa.rded within t h e d i s t r i c t c o u r t judgment and it is hereby O R D E R E D t h a t p l a i n t i f f and respondent Business Finance Co., Inc. is awarded its reasonable attorneys fees incurred since the time of judgment in the above matter in the amount of $500.00 against defendants and appellants, The Red Barn, Inc., Arnold A. Gaub, Leo W. Gaub and A1 Gaub and the matter is remanded to the district court to enter judgment for Business Finance, Inc. for said additional attorneys fees together with costs on appeal as are provided by law. DATED this 12th day of December, 1973.