Title: KOVASH v KNIGHT

State: montana

Issuer: Montana Supreme Court

Document:

No. 13026 I N THE SUIJKEME SOUKT O F THE STA,TE O F MONTANA 1975 TAUTE A. KOVHSH eT a l . , P l a i n t i f f s and Xespondent, -vs - KENNETH K. KNIGHT, Defendant and Appellant. Appeal fr-orn: District Court of t h e Sixth J u d i c i a l D i s t r i c t , Honorable Nat Allen, Judge presiding. Courisel of Record : For Appellant: Dzivi, Conklin, Johnson and Nybo, Great F a l l s , Montana William Conklin argued, Great F a l l s , Montana F o r Respondent: Huppert and Swindlehurst, Livingston, Montana Arnold Huppert, Jr. argued, Livingston, Montana Joseph T. Swindlehurst appeared, Livingston, Montana Submitted: December 8, 1975 F i l e d : k B ; 19ib M r . J u s t i c e John Conway Harrison delivered the Opinion of the Court . This i s an appeal from a judgment entered i n t h e d i s t r i c t court, Park County, i n favor of p l a i n t i f f s Louie A. Kovash and O t t i l i a C. Kovash, i n an action t o c o l l e c t a promissory note. T r i a l was held before the Hon. Nat Allen, s i t t i n g without a jury. The Kovashes sometime p r i o r t o t h e f a l l of 1972, under- took t o build a motel/convention center i n Livingston, Montana. Their t r i a l s and t r i b u l a t i o n s i n developing the project p r i o r t o retaining a r c h i t e c t Kenneth K. Knight, defendant herein, a r e of no import t o t h i s opinion other than t o note t h a t Kovashes had considerable d i f f i c u l t y i n getting necessary financial backing t o promote t h e project. After working with several a r c h i t e c t s they contacted Knight, an a r c h i t e c t i n Great F a l l s , and asked i f he could design t h e project a t a given figure. When Knight agreed t h a t he could, he was hired a s t h e a r c h i t e c t i n the f a l l of 1972. After per- forming about $10,000 i n a r c h i t e c t u r a l services on t h e preliminary plans, it became c l e a r t o the p a r t i e s t h a t Kovashes lacked the f i n a n c i a l resources t o go ahead. A proposal was made t o Knight by Kovashes t h a t he not only a c t a s a r c h i t e c t , but t h a t he go ahead and build t h e project using h i s c r e d i t t o finance it and then lease it back t o Kovashes. Knight agreed t o go ahead, sub- j e c t t o Kovashes obtaining c e r t a i n financing. O n October 9, 1973, an agreement was entered i n t o between Kovashes and one John Munn, a f i s c a l agent, t o get them f i s c a l assistance. This agreement was t o run f o r 60 days. Knight continued t o prepare plans f o r the project t o a point where he had invested i n work time a t l e a s t $50,000. A t t h a t time Kovashes' proposed financing ran i n t o d i f f i c u l t y . It was f i n a l l y decided by the p a r t i e s t o finance the project with an i n d u s t r i a l revenue bond s a l e by the c i t y of Livingston. The October 9 agreement was followed on October 18, 1973, by an option between Kovashes and Knight wherein Kovashes gave Knight a written option t o purchase the land f o r $153,000. The option provided t h a t Knight could exercise same a t any time within 130 days by delivery of a written notice. I n t h a t event, Kovashes had 30 days t o furnish t i t l e insurance and Knight would then have an additional 90 days t o pay the purchase price, a t which t i m e Kovashes would have t o d e l i v e r a warranty deed. According t o Knight, a t t h e time of t h e October 9 agreement between Kovashes and John Munn, t h e i r f i s c a l agent, Kovashes wanted t o be the lessees, and i n the months ahead they worked a t t h e problem of financing the project by means of t h e i n d u s t r i a l revenue bond method. The people who were t o underwrite t h e bonds t o l d the p a r t i e s t h a t i n t h e bond offering they would have t o reveal t o the public not only the f i s c a l condition of Knight, who was t o be the owner, but a l s o t h a t of the lessees, Kovashes. They were given 60 days t o come up with a cosigner of s u f f i c i e n t financial s t a t u r e , o r they would lose the opportunity t o be t h e lessees. Kovashes f a i l e d i n t h e i r attempt. O n January 19, 1974, a t t h e insistence of Kovashes, a l l p a r t i e s , with counsel, met i n Livingston where they entered i n t o a new agreement e n t i t l e d "Contract f o r Purchase". Under t h i s contract f o r purchase the Kovashes agreed t o s e l l t o Knight f o r a t o t a l price of $194,00O,by s e l l i n g i n addition t o the r e a l property, the liquor license, a Best Western Motel franchise, a l l r i g h t s td t h e f e a s i b i l i t y studies, s o i l t e s t s , s i t e surveys and other in- formation, along with t h e i r goodwill. A t t h a t same time, Knight paid $5,000 earnest money and agreed t o pay $148,000 within 90 days f o r t h e r e a l e s t a t e . In addition, he executed a note i n the amount of $41,000 which was delivered t o the F i r s t Security Bank of Livingston, Montana, a s escrow agent, together with t h e assignment of t h e liquor license. Upon payment of t h i s note, t h e escrow agent was t o de- l i v e r t o Knight the assignment of t h e liquor l i c e n s e , but was t o r e t a i n $27,000 u n t i l t h e Montana Liquor Control Board approved t h e t r a n s f e r . When t h e transaction was closed, Knight paid $153,000 i n cash, received t h e deed f o r the property and b u i l t h i s motel. However, he did n o t pay t h e $41,000 promissory note and Kovashes brought t h i s a c t i o n t o c o l l e c t it. These i s s u e s a r e r a i s e d f o r t h i s c o u r t ' s consideration on appeal. Did t h e t r i a l court e r r : 1. In finding t h a t t h e promissory note was not signed under duress? 2 . I n finding t h a t the 15 day w r i t t e n n o t i c e of d e f a u l t condition did not apply t o t h e promissory note3 3 . In finding t h a t Kovashes d i d not f a i l t o prove delivery o r ownership of t h e note? 4. In finding t h a t the F i r s t Security Bank was not an indispensable party? 5. In entering judgment allowing Kovashes t o r e t a i n t h e liquor l i c e n s e i n r e t u r n f o r a c r e d i t of $27,000 a g a i n s t t h e amount due on t h e promissory note, o r i n t h e a l t e r n a t i v e i n computing i n t e r e s t and attorney f e e s on t h e f u l l balance of $41,000, r a t h e r than on t h e reduced balance of $14,000 a f t e r allowing t h e c r e d i t of $27 ,OOO? W e find no e r r o r i n the c o u r t ' s not finding duress. Knight argues t h a t he had a d e a l , by the October 18 agreement, t o purchase the land f o r $153,000; t h a t he faced "closing" the bond d e a l and t h a t he had t o have t h e property before doing so; t h a t Kovashes threatened not t o honor t h e option, thereby putting the bond s a l e i n question unless he purchased t h e l i q u o r l i c e n s e and t h e o t h e r 11 i n t e r e s t s ; and t h a t forcing these e x t r a expenses put him over a barrel" i n such a manner a s t o c o n s t i t u t e a signing under duress. Knight supports h i s argument by c i t i n g Pecos Construction Co. v. Mortgage Investment Co., 80 N.M. 680, 459 P.2d 842 and 25 AmCJur,2d, Duress and Undue Influence, 5 19. Assuming arguendo t h a t night's allegations a r e t r u e , a l l t h a t Kovashes did was t o threaten not t o honor the option, and a mere t h r e a t t o breach does not c o n s t i t u t e duress. 25 Am,Jur,2d, Duress and Undue Influence, 19. Here there i s no evidence t h a t Knight ever t r i e d t o exercise the option and was refused. This distinguishes t h i s case from the authority c i t e d by Knight. Here, Kovashes did nothing. Here we note t h a t throughout a l l of the e a r l y negotiations between the p a r t i e s it i s c l e a r t h a t Kovashes expected t o operate the motel f a c i l i t y . The October 9, 1973 agreement with John Munn indicated Kovashes were t o operate the f a c i l i t y but provided that i f they could not get a lease guarantor i n 60 days, Munn could s e l l the e n t i r e package, liquor license and a l l f o r $194,000. W e find no reason why a f t e r t h i s agreement, t h a t they would enter i n t o an agreement a week l a t e r t o s e l l t o Knight f o r $153,000, unless it was t h a t they expected t o operate the motel and use t h e i r liquor License. Knight admits he needed a liquor license and t h a t he intended t o s e l l i t t o the ultimate operators at. a hoped f o r price of $41,000. This indicates Knight entered i n t o t h e January 19, 1974, negotiations with h i s eyes open and with benefit of counsel. W e find no m e r i t t o h i s claim of duress. Issue 2, the t r i a l c o u r t ' s finding t h a t the 15 day written notice of default d i d not apply t o the promissory note. W e find no merit t o Knight's argument nor were we c i t e d any case authority t o support it. Here, we a r e faced with two agreements, the con- t r a c t f o r purchase, which contained the notice i n writing provision, and t h e separate promissory note which f e l l due on April 18, 1974. Knight f u l f i l l e d the contractual obligation by paying the $153,00, but thereafter f a i l e d t o pay off the note when it be- came due April 18, 1974. The testimony c l e a r l y indicates t h a t the "notice" provision was intended t o apply only t o t h e contract f o r purchase and not t o the promissory note. Further, t h e testimony c l e a r l y indicated he knew the note was due April 18. It had been called t o h i s attorney's a t t e n t i o n more than 15 days before the due date and he refused on cross-examination t o say he would have paid it. Issue 3 questions the c o u r t ' s finding t h a t Kovashes did not f a i l t o prove delivery o r ownership of the note. Knight argues the note i s unenforceable by Kovashes because it was delivered t o the escrow agent (the bank) and not d i r e c t l y t o Kovashes. He c a l l s t h i s a "conditional delivery" and ineffectual. I f t h i s ingenious argument were t o prevail, the note was not enforceable by anyone. The bank could not enforce it because it i s not a 'holcbr" a s defined under the Uniform Commercial Code because it i s not a payee o r endorsee. 12 Am Jur 2d, B i l l s and Notes, 51070. Here, Kovashes deposited the deed i n escrow and !(night deposited a note and mortgage. Even though the note was not delivered t o payee d i r e c t l y , we hold there was a s u f f i c i e n t delivery under these f a c t s . The f a c t the bank held the escrow did not make the bank an indispensable party t o the action. Stewart v. 5anta Rosa Mining, 62 C.A.2d 201, 144 P.2d 31. Therefore, w e find no merit t o Issue 3 or Issue 4. Finally, the t r i a l c o u r t ' s judgment allowing i n t e r e s t and attorney fees on the $41,000 was error. The c o u r t ' s conclu- sion of law No. I V authorizes the cancellation of the assignment of the liquor license i n return f o r a $27,000 c r e d i t on the $41,000 principal and paragraph 111 of the judgment cancels the assignment. Kovashes used the liquor license a t a bar operated by them in Livingston during the f u l l period of the l i t i g a t i o n . A t trial they t e s t i f i e d that they were w i l l i n g ro keep the license and c r e d i t Knight with $27,000, but the t r i a l court refused on the ground such testimony concerned a matter of settlement. Thereafter, the t r i a l court entered judgment accomplishing the very settlement offered by Kovashes. The e r r o r made by the court was i n i t s f a i l u r e t o c r e d i t Knight with the $27,000 before computing i n t e r e s t and attorney fees. The attorney fees should be reduced from $4,000 t o $1,410; the i n t e r e s t from $3,780.06 t o $1,303.28. This reduces the t o t a l judgment from $21,880.06 t o S16,813.28. The cause i s remanded t o the d i s t r i c t court t o comply with t h i s decision.