Corrected Title Page 

NO. 91-432 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1995 

WELDEN DAINES and GREAT FALLS LIMITED, 

Plaintiffs and Appellants, 

KENNETH KNIGHT, GEORGE BUZZAS, and 

NORTHWEST MOTOR INNS, 

Defendants and Respondents. 

GRACIE OIL COMPANY, INC., a corporation, 

Plaintiff, 

WELDEN DAINES and GREAT FALLS LIMLTED, 

a Utah limited partnership, 

Defendants. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable John M. McCarvel, Judge presiding 

COUNSEL OF RECORD: 

For Appellant: 

Ward E. Taleff and Kevin C. Meek, Alexander, 

Baucus & Linnell, Great Falls, Montana 

For Respondent: 

Turner Graybill, Graybill, Ostrem, 

Warner & Crotty, Great Falls, Montana 

r Submitted on Briefs: October 28, 1994 

JAN l S 1995 Decided: January 18, 1995 

Filed: L:/ 2;: 

CLERK OF ~ij~il 

STATE OF I,!;,, :I.. 
Justice William E. Hunt, Sr., delivered the opinion of the Court. 

Appellants Welden L. Daines and Great Falls Limited appeal 

from the findings of fact, conclusions of law, and final judgment 

of the Eighth Judicial District Court, Cascade County, denying the 

claims of appellants and granting judgment in favor of respondents 

Kenneth Knight, George Buzzas, and Northwest Motor Inns. 

Af f irmed. 

Appellants raise the following issues on appeal: 

1. Did the District Court err when it concluded that the 

September 16, 1981, option agreement between the parties was a 

sales contract rather an option contract? 

2. Did the District Court err when it concluded that capital 

contributions were not required from respondents? 

3. Did the District Court err when it concluded that 

respondents were entitled to recover damages under their 

counterclaim? 

4. Did the District Court err when it awarded attorney fees 

and costs to respondents? 

Northwest Motor Inns is a Montana limited partnership formed 

on June 3, 1976, for the purpose of acquiring, developing, and 

operating a Sheraton franchise in Great Falls. The original 

general partners were Welden Daines, George Buzzas, Kenneth Knight, 

and Harlan Nelson. Buzzas and Knight each held a one-third 

interest, while Nelson held a 16-2/3 interest, and Daines held a 

15-2/3 interest. 
Pursuant to the June 3, 1976, partnership agreement, Buzzas 

was the owner of the real property upon which the hotel was to be 

situated. Knight acted as the architect for the project. Daines 

performed the accounting services for the hotel, and Nelson managed 

the hotel jointly with Daines. 

Following the May 4, 1981, death of Nelson, Knight and Buzzas 

terminated the partnership agreement against the wishes of Daines. 

The Eighth Judicial District Court held that Nelson's death was 

grounds for termination, but stayed execution of its order to allow 

Daines to appeal to this Court. Pending appeal, the parties 

resolved their differences on September 16, 1981, by executing the 

following five agreements: 

1. Aqreement Reconstitutinq Partnership: The parties agreed 

that Northwest Motor Inns would be reconstituted with Buzzas, 

Gracie Oil Company, and Welden L. Daines/Great Falls, Ltd. as 

general partners. 

2. Aqreement Reallocatinq Income and Losses: Gracie Oil 

Company and Buzzas agreed to transfer their shares of income to 

Daines, and Daines agreed to bear the losses attributable to Gracie 

Oil Company and Buzzas with the exception of any depreciation or 

investment credits. Northwest Motor Inns agreed to pay Gracie Oil 

Company and Buzzas $7875 per month as partners' salaries from 

September 1981, through January 1985. Default on any payment to 

either Gracie Oil Company or Buzzas was a default of the entire 

agreement. Any default unremedied for 30 days, after notice, 
resulted in termination of the agreement, and each party would then 

return to its original partnership interest in income and losses. 

3. Option Aqreement: Buzzas and Gracie Oil Company granted 

Daines an option to purchase their two-thirds interest in the 

partnership in December 1985. Daines agreed to pay Buzzas and 

Gracie Oil Company $100,000 with the balance of $1,400,000 due in 

1986 or to be financed as stipulated. Under the financing option, 

any uncured default would have resulted in the return of the 

two-thirds partnership interest to Gracie Oil Company and Buzzas. 

4. Letter Aqreement Surrenderinq Manaqement Control To 

Daines: Gracie Oil Company and Buzzas agreed not to participate in 

or interfere with Daines' management of the hotel. Buzzas and 

Gracie Oil Company agreed to remove the names of Buzzas, Gracie Oil 

Company, and Knight from the signature cards of all hotel bank 

accounts. 

5. Indemnity Aqreement: Daines agreed to indemnify former 

partner Knight from liability or loss arising out of potential 

claims against Northwest Motor Inns. 

In connection with the above agreements, the partnership 

interest of Knight in Northwest Motor Inns was transferred to 

Gracie Oil Company, Inc., and the partnership interest of Daines in 

Northwest Motor Inns was transferred to Great Falls Limited. 

Beginning in the late fall of 1984, the $7875 payments to each 

respondent were not made as required under the terms of the 

agreement allocating income and losses. Respondents notified 
appellants of the defaults on April 4, 1985, May 3, 1985, and 

May 16, 1985. In an effort to keep the partnership solvent, 

appellants requested additional capital contributions of $230,375 

from respondents. Respondents did not comply with appellants' 

request. Daines contributed $150,000 to the partnership through 

personal loans to pay for operating expenses. 

On August 2, 1985, as a result of the uncured defaults, 

respondents assumed control of the partnership and the day-to-day 

operations of the hotel. In December 1985, appellants attempted, 

unsuccessfully, to complete the purchase of respondents' two-thirds 

partnership interest in Northwest Motor Inns. 

Appellants brought this action against Northwest Motor Inns, 

Gracie Oil Company, Inc., Buzzas, and Knight. Appellants sought a 

judicial determination that they had properly exercised their 

option to purchase the partnership interests of respondents in 

Northwest Motor Inns. In addition, appellants asked the court to 

determine the purchase price, and appellants sought to recover 

management and accounting fees. On motion of appellants, claims 

against Knight, and a claim to pierce the corporate veil of Gracie 

Oil, were withdrawn. 

The court entered its final order and judgment ordering that 

all claims of appellants were dismissed with prejudice. In 

addition, the court entered judgment in favor of Buzzas in the 

amount of $203,477, and in favor of Gracie Oil in the amount of 

$203,477. The court awarded respondents $102,522.50 in attorney 

fees and $3686.90 in costs. 

5 
Appellants appeal from the court's findings of fact, 

conclusions of law, and final order and judgment. 

ISSUE 1 

Did the District Court err when it concluded that the 

September 16, 1981, option agreement between the parties was a 

sales contract rather than an option contract? 

The standard of review of a district court's findings of fact 

is whether the findings are clearly erroneous. Columbia Grain 

International v. Cereck (1993), 258 Mont. 414, 417, 852 P.2d 676, 

678. In Interstate Production Credit Ass'n v. DeSaye (1991), 250 

Mont. 320, 322, 820 P.2d 1285, 1287, we adopted a three-part test 

to determine whether a finding of fact is clearly erroneous. The 

test provides that: 

1. We will determine if the findings are supported by 

substantial evidence; 

2. If the findings are supported by substantial evidence, we 

will determine if the district court misapprehended the evidence; 

and 

3. If the findings are supported by substantial evidence and 

that evidence has not been misapprehended, this Court may still 

determine whether that "'a finding is 'clearly erroneous' when 

. . . a review of the record leaves the court with the definite and 

firm conviction that a mistake has been committed.'" DeSaye, 820 

P.2d 1287 (quoting United States v. U.S. Gypsum Co. (1948), 333 

U.S. 364, 68 S. Ct. 525, 92 L. Ed. 746). We review conclusions of 

law to determine whether the district court's conclusions were 
correct. In re Marriage of Barnard (1994) , 264 Mont . 103, 106, 870 

P.2d 91, 93 (citing In re Marriage of Burris (1993), 258 Mont. 265, 

269, 852 P. 2d 616, 619) . We will apply the same standard of review 

to Issues 2 and 3. 

The District Court found that Knight and Buzzas intended to 

sell their partnership interests to Daines following the death of 

Nelson. Buzzas and Knight determined that an immediate sale would 

deprive them of their share of depreciation of the partnership and 

would result in unfavorable tax consequences. On September 16, 

1981, the parties executed five agreements, including an option 

agreement, which purported to grant appellants a purchase option 

which could only be exercised between December 1, 1985, and 

December 31, 1985. However, the District Court found that instead 

of executing an option contract, the parties executed a sales 

contract on September 16, 1981, subject to conditions precedent 

which were to be performed by December 31, 1985. 

Under the option agreement, respondents each received $50,000 

from Daines/Northwest Motor Inns upon execution. Under the terms 

of the agreement reallocating income and losses, Northwest Motor 

Inns agreed to pay respondents each a monthly salary of $7875 from 

September 1981 through December 31, 1985. The monthly salary was 

determined by calculating the monthly interest on the unpaid 

purchase price. We note the inconsistency between the agreement 

which allocated $7875 per month salary to each of the two parties, 

and the agreement surrendering management control to Daines under 

which the same two parties agreed not to participate in the 
management of the hotel. As a result, there were no described 

services for which salary properly was due. 

The District Court concluded that taken as a whole, the option 

agreement and the agreement reallocating income and losses 

constituted a conditional sale of respondents' interests in 

Northwest Motor Inns to appellants. 

Appellants argue that the District Court erroneously concluded 

that the five documents executed on September 6, 1981, constituted 

an integrated agreement to sell respondents' partnership interests 

subject to conditions precedent. 

The language of a contract governs its interpretation if the 

language is clear and explicit. Section 28-3-401, MCA. A contract 

may be explained by reference to the circumstances under which it 

was made, and the matter to which it relates. Section 28-3-402, 

MCA. A contract must be interpreted to give effect to the mutual 

intention of the parties as it existed at the time of contracting. 

Section 28-3-301, MCA. The name given to a contract, in this case 

"Option Agreement," is not conclusive as to its intent. It is the 

intention of the parties which is controlling, and that intention 

is to be determined by the applicable facts. Transcontinental 

Refrigeration Co. v. Figgins (1978), 179 Mont. 12, 18, 585 P.2d 

1301, 1305. 

Substantial testimony was offered at trial to support the 

District Court's conclusion that taken as a whole, the five 

agreements of September 16, 1981, reflect the parties' intention to 

execute a condition sale subject to conditions precedent. 
Daines testified that the negotiations which resulted in the 

five agreements began with the premise that Daines would purchase 

the partnership interests of Buzzas and Knight in Northwest Motor 

Inns. Daines testified further that the original intent of the 

parties was that Daines would purchase the partnership interests of 

respondents through a long-term contract. 

Knight, as a representative of Gracie Oil, and Buzzas 

testified that Daines offered to purchase their partnership 

interests for $700,000 each. Knight and Buzzas were advised that 

if they sold their interests to Daines in 1981, the depreciation 

recapture provisions of the Internal Revenue Code would reduce the 

$700,000 selling price to a $500,000 gain. To avoid this result, 

the parties negotiated a sale subject to conditions precedent to be 

performed by December 31, 1985. Knight testified that the option 

agreement and the agreement reallocating income and losses were 

negotiated together and operated in tandem to produce the desired 

result. The documents were drafted so that profits and losses 

belonged to Daines. In exchange, respondents would each receive 

$50,000 in September 1981; a monthly salary of $7875; and $700,000 

in December 1985. 

The parties agreed that respondents would not interfere on any 

level with Daines' management of the hotel. Also, the names of 

Buzzas and Knight were removed from the signature cards of all 

partnership bank accounts. From September 16, 1981, through 

August 1985, appellants had complete control over partnership funds 

and the operation of the hotel. 
A sale is a contract by which one transfers to another an 

interest in property for a price. Section 30-11-101, MCA. By 

contrast, "an option contract confers a privilege and a right to 

elect to buy, but it does not impose any obligation to buy." 

Pollard v. City of Bozeman (l987), 228 Mont. 176, 180, 741 P.2d 

776, 778. We are not persuaded by appellant's argument that the 

option agreement should be read in isolation and interpreted as an 

option conferring a privilege but imposing no obligation. A sales 

contract may be a single document or " [sleveral contracts relating 

to the same matters, between the same parties, and made as part of 

substantially one transaction . . . ." Section 28-3-203, MCA. The 

September 16, 1981, agreements were related to the same matters, 

were between the same parties, and were part of the same 

transaction. Reading the five agreements as an integrated 

document, it is clear that respondents transferred to appellants 

their interests in property for a price. 

Performance of the transfer was subject to conditions 

precedent. "A condition precedent is one which is to be performed 

before some right dependent thereon accrues or some act dependent 

thereon is performed." Section 28-1-403, MCA. Before appellants' 

right to the partnership shares of respondents accrued, appellants 

were required to pay respondents $100,000 on September 16, 1981, 

and $1,400,000 by December 31, 1985. Northwest Motor Inns was 

required to pay respondents each $7875 per month until December 31, 

1985. 
The court's finding that the five September 16, 1981, 

agreements constituted an integrated sales agreement subject to 

conditions precedent is supported by substantial evidence. 

We hold that the District Court did not err when it concluded 

that the September 16, 1981, option agreement between the parties 

was a sales contract rather than an option contract. 

ISSUE 2 

Did the District Court err when it concluded that capital 

contributions were not required from respondents? 

On June 10, 1985, appellants requested additional capital 

contributions of $230,375 from respondents. The District Court 

concluded that in view of its finding that a sale took place in 

September 1981, appellants were not entitled to require capital 

contributions from respondents. 

Appellants argue that the District Court's finding that a 

sale, rather an option agreement, was executed on September 16, 

1981, lead to the illogical conclusion that respondents were not 

required to make capital contributions. Appellants argue further 

that because the September 16, 1981, agreements do not constitute 

a sale, the 1976 management and partnership agreements of Northwest 

Motor Inns requiring general partners to provide capital 

contributions to prevent insolvency were still in effect. 

We disagree. In our discussion of Issue 1, we pointed out 

that the five September 16, 1981, agreements constituted an 

integrated sales agreement rather than an option to purchase. 

Consequently, the 1976 management and partnership agreements no 

11 
longer applied to the reconstituted partnership. In addition, the 

reallocation agreement provided that appellants would bear the 

losses and receive the income previously attributable to 

respondents with the exception of any depreciation or interest 

credits. As a result, the losses that threatened the solvency of 

the Northwest Motors Inns were the responsibility of appellants, as 

were any capital contributions needed to prevent insolvency. 

We hold that the District Court did not err when it concluded 

that capital contributions were not required from respondents. 

ISSUE 3 

Did the District Court err when it concluded that respondents 

were entitled to recover damages under their counterclaim? 

Pursuant to the reallocation agreement, respondents agreed to 

transfer their shares of income from the partnership to appellants. 

Appellants agreed to bear any losses attributable to respondents. 

In consideration, appellants agreed to pay through Northwest Motor 

Inns, $7875 per month to each respondent until December 31, 1985. 

Appellants began to default on their payments to respondents in the 

late fall of 1984. The reallocation agreement provided that in the 

case of an uncured default, it would be automatically terminated 

and the parties would return to their original partnership 

positions. 

On August 2, 1985, respondents resumed control of the 

partnership and the day-to-day operations of the hotel. As of that 

date, the District Court found that the partnership showed losses 

totalling $666,678, minus credits due appellants in the amount of 

12 
$56,245, for a net loss to the partnership of $610,432. Upon 

resuming control of the partnership and the day-to-day operations 

of the hotel, respondents guaranteed a $500,000 line of credit, of 

which the partnership borrowed approximately $250,000. The 

District Court found that respondents paid all past due accounts 

totalling $628,547. The District Court held that appellants were 

responsible to pay each respondent $203,477, one-third of the net 

losses suffered by the partnership between September 16, 1981, and 

August 2, 1985. 

The court's findings are supported by substantial evidence 

provided by certified public accountant, Jack Stevens, who 

determined the partnership's losses by listing invoices unpaid by 

appellants between September 16, 1981, and August 2, 1985, and the 

subsequent payment of those invoices by respondents, less credits 

due appellants. 

The measure of damages for a breach of contract is the amount 

which will compensate the aggrieved party for all detriment 

proximately caused by the breach. Section 27-1-311, MCA. In all 

cases, damages must be reasonable. Section, 27-1-302, MCA. The 

record shows that the District Court's award of damages was 

reasonable and compensated respondents for damages caused by 

appellants' breach of the agreement reallocating income and losses. 

We hold that the District Court did not err when it concluded 

that respondents were entitled to recover damages under their 

counterclaim. 
ISSUE 4 

Did the District Court err when it awarded attorney fees and 

costs to respondents? 

Awarding attorney fees is largely within the discretion of the 

district court and will not be disturbed absent a clear abuse of 

discretion. In re Marriage of Wackler (19931 , 258 Mont 12, 17, 850 

P.2d 963, 967; Smith v. Johnson (lggO), 245 Mont. 137, 145, 798 

P.2d 106, 111; Talmage v. Gruss (l983), 202 Mont. 410, 413, 658 

P.2d 419, 421. 

The reallocation agreement contains a default provision which 

provides that any default under the reallocation agreement is a 

default of the option agreement. The option agreement provides 

that " [ilf either party shall breach this option agreement, the 

defaulting party shall pay a reasonable attorney's fee and costs to 

the prevailing party for the enforcement of this option agreement, 

whether or nor legal process is instituted." 

As previously mentioned, the District Court found that the 

five agreements constituted an integrated sales agreement subject 

to conditions precedent. As a result, we conclude that it is 

appropriate to apply the attorney fee provision contained in the 

option agreement to the default under the integrated sales 

agreement. Notice was given to appellants under that default 

provision, and appellants failed to remedy the default. As a 

result, we affirm the District Court's conclusion that respondents 

were entitled to attorney fees. A review of the record shows that 

the District Court acted within its discretion in fixing 

14 
respondents' attorney fees at $102,522.50. The District Court 

carefully reviewed the billing records of respondents' attorneys, 

and concluded that $102,522.50 properly compensated respondents for 

the expense of litigating the claims brought by appellants. 

The District Court awarded respondents $3686.90 in costs for 

depositions taken in connection with this action brought by 

appellants. As the prevailing party, respondents are entitled to 

recover the cost of depositions used at trial. Section 25-10-201, 

MCA; Cash v. Otis Elevator Co. (1984), 210 Mont. 319, 333, 684 P.2d 

1041, 1048. 

We hold that the District Court did not err when it awarded 

attorney fees and costs to respondents. 

Af f irmed . 

- Justice 

We concur: I 

Chief Justice 
January 18, 1995 

CERTIFICATE OF SERVICE 

I hereby certify that the following certified order was sent by United States mail, prepaid, to the 

following named: 

Ward E. Taleff 

ALEXANDER, BAUCUS & LINNELL, P.C. 

P.O. Box 2629 

Great Falls, MT 59403 

Turner Graybill 

GRAYBILL, OSTREM, WARNER & CROW 

# 18 Sixth St. No., Suite 200 

Great Falls, MT 59403 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA