No. 94-556

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

FEDERAL DEPOSIT INSURANCE CORPORATION, as

RECEIVER OF FIRST SECURITY BANK OF ANACONDA,

Plaintiff and Respondent,

v.

NORTHERN MONTANA GAS COMPANY,

EEC 28 1995

Defendant and Appellant.

APPEAL FROM: District Court of the Ninth Judicial District,

In and for the County of Toole,

The Honorable R. D. McPhillips, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Kenneth E. O'Brien, Hash, O'Brien & Bartlett,

Kalispell, Montana

For Respondent:

Ward E. Taleff, Alexander, Baucus, Taleff

& Paul, Great Falls, Montana

Submitted on Briefs: December 14, 1995

Decided: December 28, 1995

Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.

First Security Bank filed a complaint in the District Court

for the Ninth Judicial District in Toole County in which it sought

to recover amounts allegedly owed by Northern Montana Gas Company

to Montana Pacific Oil & Gas Company (MOPOG) based on well head

purchase contracts which Northern allegedly breached. Northern's

answer included defenses in which it claimed a right to offset

against any recovery obtained by the bank the amount of judgments

entered in its favor against First Security's assignor, MOPOG.

After a trial, the court concluded that the Federal Deposit

Insurance Corporation (FDIC), as the bank's receiver, was entitled

to damages and that none of the judgments could be setoff against

FDIC. Northern appeals that order. We reverse the court's

conclusion that the judgments may not be used to setoff the bank's

damage award and affirm the court's award of damages to FDIC.

We restate the issues on appeal as follows:

1 . Did the District Court err when it concluded that

Northern could not offset any of its claims against MOPOG against

the amounts claimed by First Security Bank pursuant to an

assignment from MOPOG?

2 . Was the District Court's award of damages to FDIC

supported by substantial evidence?

FACTUAL BACKGROUND

In June 1983, Oil International (011, entered into several

well head purchase contracts (WPCs) to purchase natural gas from

2
Montana Pacific Oil & Gas Company (MOPOG). In 1984, appellant,

Northern Montana Gas Company (Northern), purchased a gas sweetening

plant from 01 and as part of this agreement, 01 assigned to

Northern all of its right, title and interest in and to the WPCs.

According to the terms of the WPCs, Northern agreed to pay MOPOG

$1.50 per thousand cubic feet (mcft) of gas supplied. Adjustments

in price were to be made according to a formula provided for in the

contract.

As part of the purchase, 01 also assigned to Northern all of

its right, title, and interest in and to a November 1982 gas

purchase contract between 01 as seller and Montana Power Company

(MPC) as buyer. This contract had a term of twenty years and

provided that MPC would pay the lesser of $3.25 per mcft, as

adjusted for inflation, or the maximum lawful price pursuant to the

Natural Gas Policy Acts and applicable regulations. The contract

did not require MPC to purchase 01's total production ability.

In July 1985, MPC advised Northern that it had elected to

purchase the minimum quantity of gas required by the contract which

would in turn reduce the purchases Northern made from its suppliers

such as MOPOG. In October 1985, MPC reduced the price it paid

Northern for gas to $3.00 per mcft and began to reduce the amount

of gas it purchased from Northern. As a result, Northern

"renegotiated" the terms of the MPC contract and Northern and MPC

signed a new contract in October 1985. The new contract provided
that MPC would pay $3.00 per mcft instead of the $3.25 per mcft

agreed upon in the 1982 gas purchase contract.

After Northern and MPC reached their agreement, Northern

reduced the price paid to the suppliers, including MOPOG, by $0.25,

down to $1.25 per mcft. This adjustment was not in compliance with

the WPC with MOPOG which also provided that the seller (MOPOG) had

thirty days, after receipt of Northern's statement of gas

purchased, to protest the computations underlying those statements.

Any statement not protested within that period was deemed correct.

While a factual dispute exists as to whether MOPOG protested the

decrease, MOPOG did continue to supply Northern with gas. And, in

April 1986, Northern made a second reduction in the price paid to

suppliers, this time down to $0.40 per mcft.

On April 27, 1988, MOPOG assigned all of its rights and

interests in the WPCs to First Security Bank of Anaconda (First

Security). The assignment provided First Security with any rights

or claims based upon the WPCs, but First Security did not assume

MOPOG's liabilities. In 1989, Northern and MOPOG entered a

"standstill" agreement pursuant to which MOPOG agreed to delay

action against Northern for breach of the WPCs while Northern

pursued an action against MPC. Subsequently, Northern received a

summary judgment against MPC.

First Security filed a complaint against Northern, based on

its assignment from MOPOG, on February 7, 1991. In that complaint,

which was filed in Toole County, First Security sought to recover

4
amounts allegedly owed by Northern to MOPOG based on the WPCs which

were entered into in 1983. Specifically, First Security claimed

that Northern breached its contract with MOPOG when it refused to

pay the agreed amount for gas delivered.

In June 1991, Gary McDermott, Northern's president, assigned

to Northern a judgment that he had recovered against MOPOG for

accounting services that he had performed for that company

(McDermott judgment). The McDermott judgment was for the amount of

$23,087.49, plus interest from September 1987.

On November 29, 1991, Northern filed a two-count complaint in

Flathead County against MOPOG. In the first count, Northern

alleged that it had sustained damages based on the defendant's

failure to certify wells from which it produced the gas which was

the subject of the WPC between MOPOG and Northern. In the second

count, it alleged that it had sustained damages because MOPOG

failed to make agreed repairs to the natural gas processing plant

that Northern had purchased from 01.

On January 28, 1992, the Flathead County District Court

entered judgment for Northern in the amount of $200,211.67 based on

the allegations in Count I, and in the amount of $131,825.40 based

on the allegations in Count II.

On July 15, 1992, Northern filed its answer to the bank's

Toole County complaint. As its third defense, it alleged a right

to offset against any recovery obtained by the bank the amount of

the McDermott judgment. This defense was based on the terms of

5
§ 27-l-502, MCA. For its fourth defense, Northern claimed a right

pursuant to the same statute to offset the total judgment entered

in its favor in Flathead County on January 28, 1992.

The case was tried by the court without a jury on October 14,

1992. No findings or conclusions were made by the District Court

until nearly two years later on October 11, 1994. At that time,

the District Court made findings and conclusions based on those

submitted by FDIC which had been appointed as the bank's receiver

and substituted as plaintiff.

The District Court concluded that pursuant to Rule 13(a),

M.R.Civ.P., Count I of Northern's Flathead County claim against

MOPOG arose out of the same transaction which was the basis for

First Security's complaint (the WPCs) and was a compulsory

counterclaim which should have been filed but was not, and

therefore, that it was barred.

The District Court then concluded that the McDermott claim

against MOPOG which had been assigned to Northern, and Northern's

claim which formed the basis for Count II of its Flathead County

action, did not arise from the same transaction, and therefore,

were not compulsory counterclaims. However, the District Court

concluded that because First Security Bank took an assignment from

MOPOG of its rights under the WPC without assuming its liabilities,

these other obligations (Count II and the McDermott claim) could

not be offset against the bank.

6
The District Court also concluded that the McDermott judgment

and Count II of the Flathead County judgment could not be setoff

against FDIC because to do so would violate the terms of 12 U.S.C.

§ 1823(e) which invalidates agreements adversely affecting the

assets of a bank unless the agreement is in writing. However, on

appeal, FDIC, which made that argument to the District Court,

concedes that "the FDIC was mistaken in asserting 12 U.S.C.

§ 1823(e) as a defense to the Northern counterclaims and the

district court erred in finding that 12 U.S.C. 5 1823(e) was

applicable to this case."

Finally, the Court found that MOPOG protested the price

reductions imposed by Northern, that the WPCs were still in force,

and that both Northern and MOPOG continued to operate under the

terms of the WPCs. It concluded that Northern breached the WPCs

and awarded damages of $255,861.13 to FDIC.

ISSUE 1

Did the District Court err when it concluded that Northern

could not offset any of its claims against MOPOG against the

amounts claimed by First Security Bank pursuant to an assignment

from MOPOG?

We review a district court's conclusions of law to determine

whether the court's interpretation and application of the law is

correct. Jim’sExcuvaiingSew. Inc. v. HKMAssoc. (1994), 265 Mont. 494, 501,

878 P.2d 248, 252.
The District Court concluded that Count 1 was barred because

it constituted a compulsory counterclaim which was not raised. It

also concluded that even though the McDermott judgment and

Northern's claim which formed the basis for Count II of its

Flathead County action were not compulsory counterclaims, the

claims could not be offset against the bank because First Security

took an assignment from MOPOG of its rights under the WPC without

assuming its liabilities.

Northern has never claimed that the bank assumed the

obligations of MOPOG, or that the bank would be liable to it for

the full amount owed to Northern by MOPOG pursuant to the Flathead

County judgment and the McDermott judgment. What Northern claims

is that pursuant to § 27-l-502, MCA, it has a right to offset

against any claim by MOPOG any amounts that it was owed by MOPOG,

whether or not those obligations arose out of the same transaction;

and that, pursuant to § 27-l-503, MCA, its right to offset could

not be defeated when MOPOG assigned its claim to the bank and when

that claim was ultimately asserted by FDIC.

Section 27-l-502, MCA, provides as follows:

When cross-demands have existed between persons under

such circumstances that if one had brought an action

against the other a counterclaim could have been set up,

the two demands shall be deemed compensated so far as

they equal each other and neither can be deprived of the

benefit thereof by the assignment or death of the other.

We conclude that when read in the context of 5 27-l-502, MCA,

llcross-demands" necessarily refers to claims between the parties.

Section 27-l-503, MCA, provides as follows:
I In the case of an assignment of a thing in action, the

action by the assignee is without prejudice to any setoff

or other defense existing at the time of or before notice

of the assignment, but this section shall apply only to

the extent not otherwise provided for in the Uniform

Commercial Code.

MOPOG assigned its rights pursuant to the WPC to First

Security on April 27, 1988. At that time, its obligation which

formed the basis for Counts I and II of Northern's Flathead County

action (failure to certify wells and make agreed upon repairs to

the plant Northern purchased from 01) already existed and Northern

was entitled to assert that obligation as a basis for setoff.

Therefore, pursuant to § 27-l-503, MCA, Northern's right to do so

survived the assignment MOPOG made to First Security. However, at

the time of the MOPOG assignment, McDermott had not yet assigned

his judgment against MOPOG to Northern, and therefore, the bank did

not take its assignment from MOPOG subject to setoff by Northern

for that judgment.

The District Court concluded that pursuant to Rule 13(a),

M.R.Civ.P., Northern's claim in Count I, arose out of the same

transaction which was the basis for First Security's complaint (the

WPCs) and was a compulsory counterclaim which should have been

filed but was not, and therefore, that it was barred. However,

Northern did not have a counterclaim against First Security since

the bank did not assume the producer's obligations. Therefore,

Count I was not a compulsory counterclaim.

The District Court also concluded that the McDermott judgment

against MOPOG which had been assigned to Northern, and Northern's

9
claim which formed the basis for Count II of its Flathead County

action (failure of MOPOG to make agreed repairs to Northern's gas

plant), did not arise from the same transaction, and therefore,

were not compulsory counterclaims. However, the District Court

concluded that because First Security took an assignment from MOPOG

of its rights under the WPC without assuming its liabilities, these

other obligations (Count II and the McDermott claim) could not be

offset against the bank. The District Court relied on the general

rule that in the absence of an express assumption of liability an

assignee is not liable for an assignor's obligation.

The District Court's holding fails to recognize the difference

between a counterclaim for affirmative relief and a defense which

simply seeks to reduce the plaintiff's recovery dollar-for-dollar

based on a defense that could have been asserted against the

assignor. As noted in Nancy’s Product, Inc. V. Fred Meyer, Inc. (Wash. App.

1991), 811 P.2d 250, 253:

[Wlhen setoff is asserted against an assignee, it

diminishes or defeats the assignee's claim, although the

assignee has no liability in excess of the amount sued

on. Such avoidance of liability is in the nature of a

defense, as distinguished from a counterclaim which is a

demand for affirmative relief.

Further support for this proposition is found at 6 Am. Jur. 2d

Assignments § 102 (1963), which provides:

In an action on a claim assigned, the assignee is

ordinarily subject to any setoff or counterclaim

available to the obligor against the assignor and to all

other defenses and equities which could have been

asserted against the chose in the hands of the assignor

at the time of the assignment.

10
See also Pacific N.W. Life Ins. Co. v. TurnbuN (Wash. Ct. App. 1999), 754 P.2d

1262, 1267.

The difference between an affirmative claim for relief and a

defense based on setoff is also illustrated by the follow passage

from Corbin on Contracts:

A counterclaim, set-off, or recoupment, arising out

of the same transaction as that by which the claim of the

assignee was itself created, is usable against the

assignee in precisely the same cases that it would be so

usable if it were operative as a complete defense. Its

operation against the assignee is not affected by the

fact that some of the events creating it occurred after

the assignment or even after notice of the assignment.

The transaction on which the assignee depends is itself

a sufficient warning to him that counterclaims may grow

out of that transaction requiring an adjustment of

remedies. It is therefore thought just to require him to

bear the risk that such counterclaims will be used in

reduction or total extinction of his own claim. This

does not mean that the counterclaim asainst the assisnor

is enforceable also as a counterclaim asainst the

assiqnee; it is not so enforceable unless the assiqnee

himself undertook the dutv of oerformance and has been

suiltv of a breach. But the counterclaim. set-off, or

recoupment is as effective in reducins the assignee's

remedy as it would have been in reducing the assiqnor's

remedv if he were the olaintiff.

4 Arthur L. Corbin, Corbin on Contracts 5 896, at 596 (1951)

(emphasis added).

While Corbin refers to setoff based on the same transaction,

§ 27-l-502, MCA, does not limit setoff to claims arising out of the

same transaction. It refers only to counterclaims which "could

have been set up," in the same action. Pursuant to Rule 13(b)

and Cc), M.R.Civ.P., any claim that Northern had against MOPOG

could have permissibly been set up as a counterclaim if MOPOG had

sued Northern for breach of the WPC. Therefore, pursuant to

11
§ 27-l-503, MCA, Northern's right to offset survived the assignment

by MOPOG to the bank.

FDIC also fails to recognize the difference between an

assignee's liability for an assignor's contract breaches and the

right of an obligor to offset the assignor's obligations against

the assignee's claim pursuant to § 27-l-502, MCA. It relies on

Bottrell v.AmericanBank (1989), 237 Mont. 1, 773 P.2d 694, and Advance

Indust. Fin. Co.% WestemEquities,Inc. (Cal. Ct. App. 1959), 343 P.2d 408, and

asserts that setoff requires mutuality and that mutuality requires

that the offsetting debts be due to and from the same persons in

the same capacity. However, Bottrell is inapposite because it was

based solely on the common law right to setoff mutual demands

between mutual debtors and creditors. That case had nothing to do

with §§ 27-l-502 and -503, MCA, which expressly provide that the

right to setoff survives an assignment of one of the party's

rights. If we were to agree with FDIC's contention, there could

never be setoff when one of the original parties assigned his or

her rights. More importantly, that conclusion would render

meaningless the language in 5 27-l-502, MCA, that "neither [party]

can be deprived of the benefit thereof [setoffl by the assignment

or death of the other." It would also render meaningless that

language in 5 27-l-503, MCA, which provides that "[iIn the case of

an assignment of a thing in action, the action by the assignee is

without prejudice to any setoff or other defense existing at the

time of or before notice of the assignment . .'I

12
A setoff does require mutuality:

In order to be mutual the cross demands set up

ordinarily must be shown to belong individually to

defendant, with a corresponding right to sue for them in

his individual name, and defendant, as a general rule,

cannot set off a demand on which he is not entitled to

sue in his own name . . .

80 C.J.S. Set-offand Counterclaim § 48 (1953); see also 20 Am. Jur. 2d

Counterclaim, Recoupment, and Setoff § 74 (1965) . In other words, all

mutuality requires is that the defendant have a right to assert the

claim against the plaintiff or its assignor which forms the basis

for setoff.

Montana's law concerning the assignment of contracts has

nothing to do with Northern's statutory right to offset its

judgment against MOPOG against any recovery by FDIC based on an

assignment from MOPOG.

For these reasons, we conclude that Northern was entitled to

offset part of its claim pursuant to the plain terms of §§ 27-l-502

and -503, MCA. We affirm the District Court's conclusion that the

McDermott judgment against MOPOG, which was assigned to Northern,

could not be offset against FDIC's recovery because Northern did

not have the right to enforce that judgment against MOPOG at the

time that MOPOG assigned its rights to First Security. We reverse

the District Court's judgment which held that Northern could not

offset the amount due pursuant to Counts I and II of its Flathead

County action ($200,211.67 and $131,825.40 plus interest) because

pursuant to § 27-l-502, MCA, Northern had a right to offset these

amounts against any claim by MOPOG, and pursuant to § 27-l-503,

13
MCA, the right to offset that amount survived the assignment by

MOPOG of its rights to First Security.

ISSUE 2

Was the District Court's award of damages to FDIC supported by

substantial evidence?

We review a district court's findings of fact to determine

whether they are clearly erroneous. Rule 52(a), M.R.Civ.P.; Brown

v. Tinlinger (1990), 245 Mont. 373, 377, 801 P.2d 607, 609. We review

a district court's conclusions of law to determine whether the

court's interpretation and application of the law is correct. Jim ‘s

ExcavatingSetv,Inc. v.HRiVfAssoc. (1994), 265 Mont. 494, 501, 878 P.2d 248,

252.

Northern asserts that the District Court should not have

awarded damages according to the WPCs because the "renegotiated"

contract Northern signed with MPC on October 1, 1985, terminated

the WPCs, because MOPOG failed to object to the monthly settlement

statements, and because MOPOG acquiesced to the price changes which

bars MOPOG from pursuing its claim. We conclude that there is

evidence in the record which contradicts each of Northern's

contentions.

A review of the record reveals that the 1985 contract did not

terminate the WPCs. The WPC provided that it would become

effective on the date 01 and MOPOG signed the contract, "and shall

continue in effect until the MPC Contract (dated 1982) terminates

by its own terms." The MPC contract provided that it would

14
continue for twenty years and "thereafter from year to year until

cancelled by one (1) year's written notice." Also, Northern's

president testified at trial that the WPCs were never terminated

and the MOPOG president testified that he was not advised that the

WPCs were terminated. Moreover, Northern failed to state that the

WPCs were terminated in its letter which advised MOPOG of the 1985

contract.

The evidence also contradicts Northern's assertion that MOPOG

failed to properly object to the monthly settlement statements and

therefore acquiesced in the price reductions. Letters and

testimony reflect that MOPOG did not acquiesce to the price

reductions. For example, on April 14, 1986, the MOPOG president

sent a letter to Northern's president in which he stated that the

price reduction did not conform to the WPCs. Also, on October 8,

1986, the MOPOG counsel wrote Northern and complained about the

price reductions and identified the amounts of underpayments.

Finally, the language of the WPC contradicts Northern's contention

that because MOPOG did not object to the monthly settlement

statements it is exonerated. The WPC only required that MOPOG

object to the accuracy of the statements provided by Northern; the

objection requirement did not relate to Northern's unilateral

reductions in the price paid.

A review of the record reveals substantial evidence to support

the District Court's findings that the WPCs were still in force,

that MOPOG protested the price reductions, and that both Northern

15
and MOPOG continued to operate under the terms of the WPCs. We

also conclude that the court's finding is not clearly erroneous.

We hold that the court did not err when it concluded that

Northern breached the WPCs when it failed to calculate the price

per mcft in accordance with the WPCs and that FDIC was entitled to

damages based on the WPCs.

We remand to the District Court for entry of judgment

consistent with this opinion, including any offset to which

Northern Montana Gas Co. is entitled pursuant to Part One of this

opinion.

/

us ice

Justices

(Justice James C. Nelson did not participate in this decision.)

16
Justice William E. Hunt, Sr., dissenting.

I dissent. A "set-off" is an equitable defense which in this

cause was used to reach a potentially inequitable result.

Additional facts not provided by the majority opinion are

necessary to fully understand this case.

MOPOG's problems began when MPC drastically lowered the amount

it paid for gas. While it previously had paid Northern $3.00 per

mcft. for gas, in 1986 it began to pay Northern at the rate of only

$1.85 per mcft. Northern passed this drastic price cut on to its

suppliers, reducing the amount it paid to MOPOG from $1.25 per

mcft. to $0.40 per mcft. MOPOG contested this reduction in

writing, but continued to provide Northern with gas. Two years

later, MOPOG defaulted on various security agreements, and First

Security stepped in.

Northern subsequently sued MPC for breach of contract, and

agreed to a "standstill" arrangement with MOPOG pending the outcome

of that litigation. Following summary judgment in its favor,

Northern received a settlement from MPC in the amount of

$1.7 million. Although testimony at trial indicated that the

calculations used in reaching the settlement included certain

amounts for damages to Northern's suppliers, to date none of the

settlement money has been disbursed to MOPOG's successor in

interest.

The Flathead County judgment obtained by Northern against

MOPOG also needs to be explained in greater detail. MOPOG ceased

to exist as a corporate entity in December 1989. In February 1991,

17
FDIC, as MOPOG's successor in interest, sued Northern in Toole

County for breach of contract. Northern was duly served with

notice of the lawsuit. Nine months later, and nearly two years

after MOPOG was dissolved, Northern filed suit against MOPOG in

Flathead County for breach of the same contracts which were the

basis of FDIC's Toole County suit against it.

Northern admittedly made no attempt to contact any of MOPOG'S

former officers or directors to inform them of the Flathead County

suit. Not surprisingly, MOPOG did not appear. Northern

subsequently received a judgment in excess of $332,000 by default,

without the merits of its claims ever having been addressed.

Northern then filed an answer in the Toole County case, asserting

that, pursuant to § 27-l-502, MCA, its Flathead County judgment

must be used to offset FDIC's damages.

Section 27-l-502, MCA, was first enacted in 1867, and since

that time has never been construed or interpreted by any case in

Montana. The statute is not a model of clarity. To remind,

5 27-l-502, MCA, reads:

Survival of counterclaim -- death or assignment. When

cross-demands have existed between persons under such

circumstances that if one had brought an action against

the other a counterclaim could have been set up, the two

demands shall be deemed compensated so far as they equal

each other and neither can be deprived of the benefit

thereof by the assignment or death of the other.

This statute provides the circumstances under which a set-off is

created. If Party A has an existing demand for a given amount

against Party B, and Party B also has an existing demand for a

given amount against Party A, the amounts will be deemed to be

18
"set-off" to the extent that they are equal. This interpretation

it bolstered by Black's Law Dictionary, which provides that

U [wlhere a person against whom a demand is made by another, in his

turn makes a demand against the other, these mutual demands are

called 'cross demands.' A 'set-off' is a familiar example."

Black's Law Dictionary 375-76 (6th ed. 1990).

The statute provides for three events in a particular order:

the existence of the cross-demands, the existence of the set-off,

and then the assignment, which will not affect the existing

set-off. The statute does not contemplate a situation, as here,

where the set-off follows an assignment of all rights but no

liabilities, and the assignor has ceased to exist.

Northern cannot hold FDIC responsible for the actions of MOPOG

because neither FDIC nor First Security assumed MOPOG's

liabilities. Therefore, had Northern brought its claims as a

counter-suit in FDIC's Toole County case, it could not have

prevailed. Instead, it obtained a judgment by default in another

court, then brought that judgment back to Toole County to minimize

the amount of damages collectible by FDIC. This limits the amount

FDIC may recover and, therefore, is a breach of contract liability

created by MOPOG but imposed upon MOPOG's successor in interest.

While there is a real legal difference between a counterclaim and

a "set-off," in this case it is a matter of mere semantics and

cannot justify a result which otherwise would not be permitted.

Even assuming al*g~endo that I agreed with the majority's

interpretation of § 27-l-502, MCA, this Court does not have

19
sufficient facts before it to conclusively determine that the

statute is applicable in this case. The statute clearly states

that a set-off is allowed I' [wlhen cross-demands have

existed. .II (Emphasis added.) Whether they must exist before

the assignment or before the cause of action is not clear. Either

way, in this case it cannot be determined with certainty when, if

ever, cross-demands were made.

Both parties allege they were damaged by breach of contract,

and both can pinpoint with some certainty when they allege the

breach occurred. The record does not reflect, however, when each

party contacted the other and made a specific demand to recover an

amount allegedly owed. The statute requires an actual demand.

This requirement for an actual demand is reasonable, as is a

statutory interpretation which places the "demand" before the

assignment. A demand from Northern would have put MOPOG on notice

of the dispute and of what Northern felt was owed to it. It

further would have given MOPOG an opportunity to contest the

validity of the demand. We cannot say with certainty that this

occurred. If a demand were not made until after the assignment

took place, it would be directed at an incorrect party (the

innocent assignee instead of the one who caused the damage).

The majority glosses over this point by noting that, if

Northern was in :Eact damaged, its right to recover began at the

time it was damaged; that is, when the contract was breached.

Concededly, this was before the assignment and the filing of the

Toole County suit. However, § 27-l-502, MCA, does not refer to a

20
"right to recover," it refers to demands. Without the existence of

cross-demands, the statute is inapplicable. Since it cannot be

determined from the existing record when, if ever, cross-demands

were made, it is unclear how the majority can so confidently hold

that § 27-l-502, MCA, applies.

By utilizing this rather obscure statute and obtaining a

default judgment against a defunct party, Northern is attempting to

minimize the damages it must pay to MOPOG's successor in interest

without regard to what amount may justly be owed. This cannot be

considered an equitable result.

For these reasons, I would affirm the decision of the District

Court.

Justlce

21

-
December 28, 1YY:

sent by United States mail, prepaid, to the

CERTIFICATE OF SERVICE

I hereby certify that the following certified order was

following named:

KENNETH E. O’BRIEN

Hash, O’Brien & Bartlett

P.O. Box 1178

Kalispell, MT 59903-1178

WARD E. TALBFF

Alexander, Baucus Taleff & Paul, P.C.

P.O. Box 3169

Great Falls, MT 59403

H

-IF THE SUPREME COURT

STATE OF MONTANA

ED SMIT

CLERK C

BY-m

Deputy ’