No. 88-130 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

EMPIRE DEVELOPMENT CO., d/b/a 

BILLINGS NEON CO., 

Plaintiff and Respondent, 

-vsBOB JOHNSON, d/b/a RAILS INN, and CLARA 

E. IRONS, d/b/a BEANERY CAFE, SIDETRACK 

LOUNGE, 

Defendants and Appellants. 

BOB JOHNSON, d/b/a PAILS INN, 

Counterclaimant and Appellant, 

EMPIRE DEVELOPMENT CO., d/b/a 

BILLINGS NEON CO., 

Defendant and Cross-Appellant. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Russell K. Fillner, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Calton, Hamman, Calton & Wolff; Rodd A. Hamman, 

Billings, Montana 

For Respondent : 

I-; West & Miller; Jock R. West, Billings, Montana 

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E-7 Submitted on Briefs: Dec 29, 1988 

(11 c Decided: March 21, 1984 

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Mr. Justice William E. Hunt, Sr. delivered the Opinion of the 

Court. 

Rob Johnson, doing business as Rails Inn, appeals from a 

judgment of the District Court of the Thirteenth Judicial 

District, Yellowstone County, awarding damages of $920 to 

Empire Development Company, doing business as Billings Neon 

Company (Billings Neon), for payments and deposit due under 

two sign rental agreements. Billings Neon cross-appeals from 

that part of the judgment relieving Johnson of liability for 

further payments under the leases. We affirm. 

Johnson raises the following issue: 

Did the District Court err by failing to credit Johnson 

for payments made under two lease agreements? 

Billings Neon puts forth an additional issue for review: 

Did the District Court err in concluding that Billings 

Neon failed to properly install and maintain rented signs as 

provided in the lease agreements? 

On February 28, 1981, Bob Johnson, owner of the Rails 

Inn in Forsyth, entered into a contract with Billinqs Neon 

for the lease of one pylon display. The contract provided 

that, for a monthly rental of $565, Billings Neon would erect 

and maintain a pylon display consisting of a four-column 

structure on which a remote control clock and two "Rails Inn" 

signs were posted. The agreement also required Johnson to 

pay an advance deposit of $2,260. 

On December 9, 1982, the parties negotiated a second 

lease, which expressly cancelled and superseded the first. 

The purpose of the second lease, apparently, was to remedy 

some visibility problems with pylon display. The second 

contract covered the existing pylon display and, in addition, 

required Billings Neon to erect and maintain a roof display 
"Motel" sign. The lease called for monthly payments of $600 

for 60 months, plus an advance deposit of $2,400. The 

parties agreed to transfer the $2,260 deposited under the 

first lease to the second, leaving a balance of $140 on the 

advance deposit. Johnson never paid the deposit balance. 

On January 28, 1983, Johnson guaranteed a lease entered 

into between Billings Neon and Clara E. Irons. The contract 

required Irons, who leased the Beanery Cafe and Sidetrack 

Lounge from Johnson, to pay monthly rent of $260 for a "24 

Hour Cafe" sign to be erected and maintained by Billings 

Neon. The contract also provided for an advance deposit of 

$1,040, which Irons paid. 

The "Motel" and "24 Hour Cafe" signs were installed by 

approximately March 23, 1983. On July 20, 1983, a strong 

windstorm wrenched the motel sign off its supports, damaging 

the roof of the Rails Inn. Johnson's insurance paid for all 

but $100 of the repairs to the roof. Billings Neon did not 

compensate Johnson for the $100 although the contract 

required the sign company to carry insurance that indemnified 

against property damage claims. 

The windstorm also damaged the cafe sign. One day after 

the gale, Billings Neon was notified of the damage to the 

signs. Billings Neon never repaired either sign, although it 

retrieved the motel sign and took it to Billings, where it 

was later destroyed. 

Neither Irons nor Johnson made any monthly payments 

under the cafe sign contract. Johnson did not make any 

payments under the motel sign lease until January 19, 1984. 

At that time, Johnson paid $1,000 to Billings Neon. The 

Billings Neon bookkeeper testified that she did not credit 

this payment to the motel sign lease, but instead applied the 

payment to the month of October 1982 and part of November 

1982 under the first lease. On June 25, 1984, Johnson paid 
$1,500 to Billings Neon. The bookkeeper applied part of that 

payment to the first contract and the rest to other accounts 

Johnson kept with Billings Neon. 

On December 5, 1984, Billings Neon notified Johnson in 

writing that he was in default on the motel sign lease, 

giving him five days to pay the balance due. Johnson failed 

to make the payment requested. Therefore, on December 12, 

1984, Billings Neon accelerated the contract, demanding 

payment of $33,740. Johnson did not pay. 

Both the first and second Rails Inn leases provided for 

a remote control clock on the pylon display. Johnson 

testified that he understood that the remote control box was 

to be installed in the motel office. His employees, however, 

could not locate the box, which caused a great deal of 

inconvenience during Forsyth's frequent power outages. 

Apparently, at some point between July 1983 and April 

1985, the pylon display quit working. In April 1985, the new 

manager of the Rails Inn contacted Billings Neon to inquire 

ahout repairing the display. The manager was told that if he 

paid some money, the sign might be fixed. The manaqer sent a 

$600 payment in response. A few days later, a local 

electrician appeared and began to work on the display. When 

the motel manager discovered that the electrician thought he 

was working for the motel, not Billings Neon, the manager 

informed him that Rails Inn would not he responsible for the 

bill. The electrician left. 

The pylon display stood unrepaired until, some time 

later, Johnson hired his own electrician to work on it. This 

electrician discovered that the control box for the remote 

control clock was located on one of the display poles 

approximately 10 or 12 feet from the ground. He was unable 

to repair the controls. 
On October 18, 1985, Billings Neon filed a complaint 

against Bob Johnson, alleging breach of the second lease and 

claiming damages of $33,740. Billings Neon also sought 

damages for breach of the cafe sign lease from either Clara 

Irons, as primary beneficiary of that agreement, or Johnson, 

as guarantor. Irons, however, had filed a petition for 

bankruptcy on June 10, 1983, which barred any action aqainst 

her. 

In response to the complaint, Johnson filed a 

counterclaim against Billings Neon, alleging breach of the 

first and second leases for failure to properly construct and 

maintain the signs and seeking a refund of all monies paid 

under the leases. Johnson additionally sought $129.50 in 

bills incurred by Billings Neon employees at the Rails Inn. 

At trial, Billings Neon admitted that it had authorized these 

bills. Thus, the charges are not at issue in this appeal. 

After a one-day bench trial on April 22, 1987, the 

District Court found that Billings Neon failed to properly 

install and maintain the signs under the two Johnson leases 

and to maintain the sign under the lrons lease. The court 

concluded that Johnson was not liable for any rentals due 

under the leases subsequent to such failures. The court 

found, however, that Johnson was liable for the months of 

April, May and June 1983, under the Irons' lease, for a total 

of $780. It also found that Johnson was liable for the $140 

advance deposit he failed to pay under the second lease. In 

addition, the court awarded Johnson $129.50, representing the 

room and meal charges incurred by the Billings Neon 

employees. The court refused to grant either party attorney 

fees. From this judgment, both parties appeal. 

Johnson argues that the District Court erred by failinq 

to credit him for rental payments made under the first and 

second lease aqr~ements. At the same time we consider 
Johnson's argument, we must examine the question raised on 

cross-appeal, that is, whether the District Court erred in 

ruling that "Billings Neon failed to perform its obligation 

to properly install and maintain the signs under the two 

Johnson leases and failed to maintain and repair the sian 

installed under the Irons lease . . ." 

The facts demonstrate that the first lease was cancelled 

and superseded by the second. By mutually cancelling the 

initial agreement and substituting a new one in its place 

without expressly reserving their rights, the parties 

extinguished any claims they may have accumulated against 

each other under the first contract. Harrison Western Corp. 

v. United States (9th Cir. 1986), 792 F.2d 1391, 1393. 

Johnson therefore abandoned all claims for rental credit 

under the initial lease by failing to reserve his rights when 

he entered into the second. 

The cancellation of the first lease precluded the 

District Court from considering whether either party had 

breached that agreement. Therefore, the District Court erred 

in finding that Billings Neon breached the first agreement. 

This error, however, did no harm to Billings Neon because the 

District Court failed to award Johnson any damages due to the 

alleged breach. 

The trial court found that Billings Neon breached that 

part of the second Johnson agreement pertaining to the 

installation of a remote control for the pylon display clock. 

Billings Neon argues that this finding was in error, 

contending that a "remote control setting clock" as specified 

in the contract referred to a clock that could be reset by a 

means other than manually changing its hands. From this 

argument it follows that the installation of a remote control. 

box at any spot away from the face of the clock adequately 

fulfillec? the contractual term and Billings Neon complied 
with the agreement by installing the controls approximately 

10 feet off the ground on one of the display pillars. 

Both the first and second Johnson lease agreements 

specified that the pylon display would include a remote 

control setting clock. In the second contract, the 

directions for the installation of the clock stated only, 

"Remain as installed." 

A district court must interpret a contract in a manner 

that gives effect to the intent of the parties at the time of 

the execution of the contract. Section 28-3-301, MCA. The 

court must ascertain the parties1 intent from the language 

used in the writing. Section 28-3-303, MCA. When the 

language of the contract is unambiguous, as it is in the 

second lease agreement, a resort to par01 evidence is 

unnecessary. Bunke, Inc. v. Johnson (1983), 205 Mont. 125, 

137, 666 P.2d 1234, 1240. According to the plain language of 

the contract, at the time the parties executed the second 

lease, they had no quarrel with the location of the remote 

controls for the pylon display clock. The District Court 

therefore erred in allowing Johnson's testimony that he 

understood that the controls for the clock would be installed 

in the motel office. Billings Neon complied with the terms 

of the second lease by leaving the remote controls in the 

pylon display where they were originally installed. 

Billings Neon next contends that the District Court 

erred in finding that it breached the second Johnson lease 

and the Irons lease by failing to repair the motel and cafe 

signs after the July 20, 1983 windstorm. Billings Neon 

argues that the failure of either Johnson or Irons to make 

monthly payments under these leases relieved it of the 

obligation to repair the signs. 

"The non-payment of an installment of money when due 

will always create a riqht of action for that money, but it 
will not always he a total breach. A partial breach by one 

party . . . does not justify the other party's subsequent 

failure to perform; both parties may be guilty of breaches, 

each having a right to damages." 4 Corbin on Contracts 5 946 

(1951). Whether the default of an installment payment 

constitutes a total breach thereby relieving the 

non-breaching party of its obligation to perform depends on 

the facts of each case. Gramm v. Insurance Unlimited (!963), 

141 Mont. 456, 461, 378 P.2d 662, 664. 

In the present case, both Johnson and Irons failed to 

remit the monthly rent on their respective leases as the 

payments came due. Both leases provided that, in the event 

of default in payment by the lessees, Billings Neon could, at 

its option and with notice to the lessees, call the entire 

balance due. Although the leases were in default as of April 

1983, Billings Neon failed to exercise the acceleration 

option until December 12, 1984, over one and one-half vears 

later. In the meantime, the cafe and motel signs were each 

damaged by the July 20, 1983, windstorm. Billings Neon 

failed to repair either sign, even though it had actual 

knowledge of the damage. 

The acceleration clause gave Billings Neon the ability 

to treat the lessees' failure to pay as a total breach. 

Billings Neon, however, failed to exercise that option until 

December 12, 1984. Therefore, prior to the exercise of the 

acceleration option, Billings Neon treated the non-payment of 

installments as a partial breach. Hence, as of July 20, 

1983, the date on which the signs were damaged, Billing Neon 

was not excused from performing under the contracts. By 

failing to comply with the contractual duty to maintain the 

signs, Billings Neon breached the agreements. 

Consequently, as of July 1983, both parties were in 

hreach--Johnson for failing to pay rent, Billings Neon for 
failing to repair. Accordingly, each was entitled to 

damages. Under the contracts, Johnson's remedy for Billings 

Neon's breach was a credit on all rentals due after July 

1983. Thus, by failing to repair the signs, Billings Neon 

limited its damages to the three months the motel and cafe 

signs were in operable condition. 

The District Court found Johnson liable, as guarantor of 

the Irons lease, for three months rent. Johnson does not 

contest this finding. He does, however, take issue with the 

District Court's computation of damages under the second 

motel sign lease. Johnson contends that he should be liable 

at most for the three months the motel sign stood atop the 

Rails Inns. If his liability is calculated in this manner, 

the damages suffered by Billings Neon equaled only 

$1,800--three months rent at $600 per month. However, 

Johnson paid Billings Neon $3,100--$1,300 more than $1,800. 

Johnson argues that the District Court erred by failing to 

give him credit for the excess amount. We do not agree. 

The record reflects that Billings Neon applied $600 of 

the total $3,100 paid by Johnson to the second sign contract 

and split the remaining $2,500 between the first sign lease 

and other accounts Johnson retained with the company. 

Clearly, Billings Neon erred by applying any of the payments 

remitted by Johnson after the execution of the second 

contract to the first lease. As we have stated previously in 

this Opinion, the failure of the parties to expressly reserve 

their rights when cancelling the initial contract 

extinguished all claims either party had under that contract. 

Billings Neon abandoned any right to payments it may have ha-d 

under the first lease when it signed the second. 

We do not hold, however, that the District Court erred 

by failing to credit Johnson with any monies paid over and 

above the $1,800 due under the second lease. The record 
reflects that Johnson kept other accounts with Billings Neon. 

The checks paid by Johnson do not indicate to which account 

the payments were directed. When a debtor who owes several 

obligations to a creditor fails to manifest an intent that he 

wishes payment to be applied to a particular account, the 

creditor may apply it to the account of the creditor's 

choosing. Section 28-1-1106(d), MCA. Since Johnson did not 

indicate which account he was paying when he remitted the 

checks, Billings Neon acted fully within its rights by 

applying the checks to other service accounts Johnson held 

with the company. 

Johnson also argues that the District Court erred by 

failing to credit him with the $100 he paid as deductible on 

his insurance when the windstorm tore the motel sign off its 

supports and damaged the F.ails Inn roof. Under the lease, 

Billings Neon agreed to carry insurance to indemnify Johnson 

against claims for damages to property caused by the signs. 

The evidence demonstrated, however, that the severity of the 

storm caused the damage to the roof, not any failure on the 

part of Billings Neon to properly erect the sign. Therefore, 

the District Court did not err by failing to credit Johnson 

with the $100 deductible. 

Lastly, Billings Neon maintains that it prevailed in the 

action because it was awarded a net judgment by the District 

Court. As the prevail-ing party, Billings Neon argues, it 

should have been awarded a reasonable attorney fee as 

provided by the contract. 

Generally, the party who receives the net judgment in an 

action involving a counterclaim will be considered the 

prevailing party for purposes of an award of attorney fees. 

However, this is not always the case. While the award of 

money is an important factor to consider when determining 

which party prevailed, j t is not the sole focus of the 
inquiry. E.C.A. Envtl. Management Services, Inc. v. Toenyes 

(1984), 208 Mont. 336, 345, 679 P.2d 213, 217-18. In a case 

such as this, where the parties have mutually breached the 

same contract, the District Court did not err by refusing to 

grant either party attorney fees. f 

We affirm the District Court. 

Justice 

We Concur: A 

Chief Justice