No. 12969 IN

### THE SUPREME COURT OF THE STATE OF MONTANA 1975

STC

## ,INC., a Montana Corporation, Plaintiff and Appellant,

CITY OF BILLINGS, MONTANA, a municipal corporation, Defendant and Respondent. Appeal from: District Court of theThirteenth JudicialDistrict, Honorable M. James Sorte, Judge presiding, Counsel of Record: ForAppellant

### : Anderson, Symmes, Forbes, Peeteand Brown,

Billings, Montana Benjamin N. Forbes argued, Billings, Montana ForRespondent: WilliamJ, Speare argued, Billings, Montana

Submitted: September 25, 1975 Decided: 

### DEC

### 2 

## 1175Mr. JusticeFrank I. Haswell delivered the opinion of the Court.

Plaintiffbuilding owner sued the City of Billings for damages based on an alleged anticipatorybreach of a lease. Following a nonjury trial the district court of Yellowstone County entered judgment for defendant city. Plaintiff appeals from this judgment. The controlling issue on appeal iswhether a vote by the Billings city council on February 5, 1973 "tonot re-affirm the provisions of the original lease"with STC constituted a repudiation or anticipatory breach of the lease agreement. The district court held it did not. We agree. The facts are largely undisputed. Plaintiff is a Montana nonprofit corporationnamed STC., 1NC.- Itwas formed for the purpose of renovating and preserving the Old Chamber Building in downtown Billings as a historical landmark. Its funds were derived essentially fromdonations and loans. Ithad no capital stock. In 1972plaintiff corporationpurchased the land and a building known as the Old Chamber Building. Itwas purchased from a group known as the Executive Investorsby paying it about $37,000 and assuming an indebtednessof $115,000on a contract for deed with the Billings Chamber of Commerce. In June 1972,a written lease agreement was executed between plaintiff corporation and the City of Billings covering a part of the Old Chamber Building. The agreementprovided that plaintiff corporation agreed to remodel the premises to suit the needs of the city, and the city agreed to lease the remodeled premises for ten years at a monthly rental of $3,290. The remodeling was to be done generally in accordance with exhibits attached to the agreement, and was required to begin by the end of March 1973. The agreement was subject to the following condition;"ThisLease is subject to the condition subsequent that Lessor is able to obtain the necessary financing to remodel the premises in accordancewith the needs of Lessee as aforesaid. In the event the Lessor is unable to obtain such financing in order to satisfactorily remodel the same premises, then this Lease shallbe deemed void and of no effect, and neither of the parties shallhave any obligation to the other. Such refinancing and remodeling shallbe obtained and commenced, respectively,by the end of March, 1973,or this condition shallbe deemed to have occurred." The lease covered themain floor, second floor,and part of the basement of the Old Chamber Building. Itdid not cover the third floor. The city was also given an option to purchase the land and building during the term of the lease by assuming the indebtedness against the property and agreeing to preserve the building. On June 5, 1972, the leasewas approved by the city council by a 5-4 vote. Plaintiff corporation then proceeded with attempts to secure the financing necessary for remodeling. It attempted to secure funds from HUD, a federalagency,but found therewere no funds available from this source. Itapplied to the Billings Clearing House,an association of local banks, and received this letter dated November 28, 1972: "TheBillings Clearing House Association is willing to consider a real estate loan application on the former Chamber of Commerce Building, located at 301North 27 Street, subject to completion of the following: "1. Firm ten-year leases sufficient to cover operating expenses and loan amortization. Leases to be acceptable to lender. "2. Outstanding indebtedness to the Billings Chamber of Commerce be paid in full,and there be no secondary real estate financing, all equity funds in first. "3. Acceptable plans and specifications. "4. Firm bids from acceptable contractors. "5. Structural engineers report. "The maximum loan considered would be $250,000.00based on an economic valuation,with a 10-year term and 17-year amortization. The interest rate on the loanwould be based on the prevailing commercial real estate loan rate at the time the above conditionshad been accomplished. Presently that rate is 8 1/2% to 9%. "This letter is not to be construed to be a commitment.

### " Plaintiff corporation also had a letter of intentdated December 8, 1972 from a Billings law firm to lease the entire third floor of the building for a 10-year term at $1,650per month, subject to remodeling and availability of the remodeled premises by approximately July 1, 1973. Plaintiff corporationhad additional prospects of securing financing from a Seattle firm,a local limited partnership, and through the sale of limited partnership interests in the enterprise. None of these prospectswas beyond the talking stage. The architect's estimate of the projected cost of the necessary remodeling was originally $288,980, later reduced to approximately $285,000. On February 5, 1973 at a meeting of the City Council the minutes indicate the following proceedings: "REPORTOF COUNCIL OF THEWHOLE that the Council not re-affirmprovisions of the original leasewith the Save-The-ChamberCommittee. Moved by alderman Lidderdale, seconded by alderman Leuthold that the recommendationof the Council of the Whole be approved. A substitute motion was made by alderman Schoenthal, seconded by alderman Fillner that the Council approve reaffirming the provisions of the original lease. The substitutemotion lost. The Council then proceeded to vote upon the original motion to not re-affirm the provisions of the original lease. Upon roll call alderman Leuthold, Lidderdale, Rye, Riedl, Lesniak, Schoenthalvoted aye. Alderman Fillner,Chapel voted no. Motion carried 6 to 2." Thereafter no further efforts to secure financingwere pursued by plaintiff corporation, remodeling was never done, and the city never went into possession under the lease. On February 22, 1973,plaintiff corporation sued thecity for specific performance of the lease agreement, or in the alternative for damages for breach of the lease. The complaint alleged that the city repudiated its leasewith plaintiff corporation by the action of the city council on February 5, 1973; that this repudiationof the lease constituted an anticipatory breach of contract by the city; and that plaintiff was entitled to judgment. Subsequently plaintiff abandoned its claim for specific performance. Defendant answered, in effect contending (1)the original leasewas invalid, (2)plaintiff corporation was never ready, willing and able to proceed with the required financingand remodeling, (3)the action of the city council on February 

### 5, 1973, did not repudiate or breach the lease,and (4) denying the claimed damages. A nonjury trial was held on September 5, 1974, in the district court of Yellowstone County before the Hon. M. James Sorte,district judge presiding. Following trial, both parties submitted proposed findingsof fact,conclusions of law and briefs. Judge Sorte adopted the proposed findings and conclusions of defendant city and entered judgment in its favor. The basis of the district court's decision is focused in two findings of fact and two conclusions of law: "FINDINGSOF FACT

I**** "7. That the evidence revealed the only loan obtainableby the plaintiff at timesmaterial to this action was in the maximum amount of $250,000.00 and it was conditioned upon plaintiff having free and clear title to the subject premises, which premises were then encumbered by contract for deed in the amount of $114,616.80 and that necessary remodeling costs were estimated to be not less than $288,980.00. "8. Thatplaintiff was not ready,willing and able to perform the financing and remodeling requirements on itspart to be performed on February 5, 1973,March 31, 1973 or at any other timematerial to this action.

"CONCLUSIONSOF LAW

It*** "2. That the action of the defendant City Council on February 5, 1973 did not amount to a repudiation or an anticipatory breach of said written agreement of June 30, 1972. "3. That plaintiff failed to perform the conditions of obtaining financing and commencing remodeling as prescribed by the terms of said written agreement of June 30, 1972 and therefore said agreement by its terms is void.

Plaintiff corporationhas appealed from the judgment, assigning two issues for review: (1)Did the city breach the lease agreement? (2)Isplaintiff entitled to damages? Plaintiff corporation's contentions on appeal can be summarized in thismanner: (1)the original lease of June 30, 1972 isvalid and enforceable; (2) the action of the city council

on February 5. 1973 amounted to an anticipatory repudiation and breach of the lease; (3)because of the city's breach on February 5, 1973, the lease was terminated and furtherperformance by plaintiff corporation thereunder was excused;and (4)that plaintiff corporation is entitled to damages of $95.340 representing the differencebetween the rental provided in the lease and the reasonable rental value of the premises, discounted to itspresent worth. The contentions of the city can be summarized as follows:

(1) The original lease agreement is invalid because it was not approved by a vote of the people, the city loaned its credit to a private corporation in violation of the Montana Constitution, and the agreement lacks mutuality of obligation and remedy. (2)The action of the city council on February 5, 1973 did not constitutea repudiationof the lease nor a breach of itsprovisions. (3)That at no timewas plaintiff ready,willing and able to perform the financing and remodeling requirementson its part to be performed under the lease so the leasebecame void by its terms and neither party has any obligation to the other. (4) Plaintiff corporation is entitled to no damages because there

was no breach by the city,and in any event themeasure of damages claimed by plaintiff corporation is incorrect. Our decision in this appeal isbottomed squarely on one issue: Did the action of the city council on February 5, 1973 constitute a breach of the lease? Plaintiff claims the council's action constituted an anticipatory repudiation of the leasegiving rise to an immediate action for damages against the city. This Court has never ruled directly oneway or the other onwhether such action ismaintainable in Montana. An anticipatory breach of contractby the promisor is a repudiationof his contractualduty before the time fixed in the contract for his performance has arrived. 4 Corbin on Contracts g 959,p. 855;New York Life Ins. Co. v. Viglas, 297 U.S. 672, 56 S.Ct. 615, 80 L ed 971. The legal effect of an anticipatory breach of contract is described in 17A C.J.S. Contracts §472(1), pp. 653-655, in this language: "Where a party bound by an executory contract repudiatesor renounceshis obligationbefore the time for performance, the promisee has, according to the greatweight of authority,an option to treat the contract as ended, as far as further performance is concerned,and to maintain an action at once for the damages occasioned by such anticipatorybreach, repudiation,or renunciation, even in the absence from the contract of a specific provision authorizing themaintenance of an action or the declaring of a forfeiture." To like effect see: 11Williston on Contracts Section 1324, p. 139; 17

### Am Jur 2d,Contracts 910; 14 Cal Jur 3d Contracts/§295,p. 625; 4 Corbin on Contracts S959,pp. 852-853. Also see the leading English case from which the doctrine arose,Hochster v. De La Tour, 2 El. & B1. 678, and the leadingAmerican case adopting the English rule, Roehm

v. Horst, 178 U.S. 1, 20 S.Ct. 780, 44 L Ed 953. The reasons supporting an action for anticipatory breach of contract have been variously stated to be: the uselessness and inequity of requiring the promisee to hold himself in readiness to perform his contractual obligation on the date performance is due where the promisor has already repudiated his reciprocal obligations under the contract;the present injury to the implied right of each of the contracting parties to refrain from impairing the ability or willingness of the other to perform when performance isdue; the duty of the promisee to mitigate damages by withholding expenditures in preparation for carrying out his contractual obligations where the promisor will not perform in any event; the social and economic waste incident to prolonging a contractual status that is effectively at an end; and the necessity that the law recognize the commercial desirabilityof fixing legal rights, liabilitiesand damages as promptly as possible. This doctrine has been specifically applied to anticipatory repudiationof leases by the lessee. Hawkinson v. Johnston, 122 F.2d 724;dalin v. Lovell, 257 Wis. 82, 42N.W.2d 456, 49 Am Jur 2d Landlord & Tenant, S178,p. 202; 51C C.J.S. Landlord & Tenant S250(2)

## ,p. 653. InMontana there is language in one prior decision of this Court indicating that an anticipatory repudiationby one party to a contract excuses further performance by the other, this rule being quoted with approval in McCaull-Dinsmore Co. v. Jackson, 57 Mont. 555, 560, 189 P. 771: "'Where one party repudiates in advance his obligationsunder the contract and refuses to be longer bound thereby, communicating suchrepudiation to the other party, the latter party is excused from further performance on his part.'" This case strongly suggests recognition in Montana of an action based on anticipatory repudiation of a contract. Montana statutes and case law generally support the bases

onwhich the doctrine of anticipatory breach rests, for example, "The law neither does nor requires idle acts." Section 49-124, R.C.M. 1947; "For every wrong there is a remedy." Section 49-115, R.C.M. 1947; and the duty to mitigate damages in an action for breach of contract,Brown v. First Fed. Svgs. & Loan, 154Mont. 79, 460 P.2d 97. We find no reason in policy or in law for denying an immediate action for damage based on an anticipatory repudiation of a contract. The crux of the instantcase iswhether the action of the city council on February 5, 1973 constituted an anticipatory repudiationof the lease agreement. The city council voted to "notre-affirm provisions of the original lease". Plaintiff treats this as a repudiationor renunciationof the city's obligationsunder the lease. But was it? Itappears to us that the action of the city council

was subject to different interpretations. Itmight havemeant the newmayor and council did notwant to go on record as approving the original lease,xtmight havemeant the newmayor and council refused to assistplaintiff corporation in its efforts to secure the necessary financing for remodeling by an affirmative expression of support. Itmight havemeant the newmayor and councilwere repudiating the lease and refused to perform the city's obligations thereunder. The language of the proposition onwhich the councilvoted is significant in our view. The councilvoted "not to re-affirm". The councildid not vote "notto affirm". The council did not vote to repudiate, renounce,or cancel the lease, nor adopt anylanguagemanifesting an intention not to carry out its obligations under the lease. The language of the proposition on which the council voted was equivocal, ambiguous, and subject to conflicting interpretations. The circumstances support a like conclusion. A city election intervened between the execution of the lease and the vote of the council on February 5, 1973. Some new aldermen and

a newmayor had been elected who opposed the lease. STC, INC. had not secured the necessary financingdespite some sevenmonth's effort. Timewas running out. Less than two months remained before the lease agreementwould expire by its own terms if financing was not secured. No rational basis existed for the city to repudiate the lease at this time and under these circumstances, while a good reason did exist for the newmayor and council to refuse to go on record as approving the lease negotiated by their predecessors,or to refuse to assist STC, INC. in obtaining financing. At the very least the circumstances are equally consistent with this interpretationof the council's intention. The collective intention of the city council remains ambiguous and equivocal. A repudiation or renunciationmust be entire, absolute and unequivocal to support an action for anticipatory breach. 17A C.J.S. Contracts 5472(2), p. 659; 17Am Jur 2d, Contracts 5450,p. 914; 14 Cal Jur 3d, Contracts 8298,p. 630; 4 Corbin

on Contracts 5 973,p. 905;Restatement, '48 Supp. Contracts, 5318(a), p. 251; 5 Williston on Contracts (RevisedEdition) 51324,p. 3724; Dingley v. Oler, 117 U.S. 490, 6 S.Ct. 850, 29 L ed 984;Kimel v. Missouri State Life Ins. Co., 71 F.2d 921; Palmiero

### v. Spada Distributing Co., 217 F.2d 561. "Thedoctrine of breach of contract by anticipatory repudiationworks harsh results, and for its application, theremust be a 'positive statementto the promisee or other person having a right under the contract, indicating that thepromisor will not or cannot substantially perform his contractual duties;

## * 

## * *.I" Regional Enterprises, Inc. v. Teachers Insurance and Annuity Ass'n, 352 F.2d 768, 775, and cases cited therein. Anticipatory breachmust appear only in the clearest terms of repudiation of the contractual obligation. Guerrieriv. Severini, 51 Cal.2d 12, 330 P.2d 635;Hertz Drive-Ur-Self Stations,

v. Schenley Distill. Corp., 119 C.A.2d 754, 260 P.2d 93. An expression of intent not to perform, or not to be bound, standing alone, isnot enough. Campos

### v. Olson, 241 F.2d 661;Rehart 

### v. Klossner, 48 C.A.2d 46, 119 P.2d 148;nor is a mere assertion that a party will be unable, or will refuse, to perform his contractan anticipatory renunciation. City of Buena Park v. Boyar, 186 C.A.2d 61, 8 Gal-Rptr. 674. Applying these rules,we hold the action of the city council on February 5, 1973 to "notre-affirm provisions of the original lease"was not a positive, unequivocal, absolute expression of intentionby the city not to perform its contractual obligationsunder the lease. Accordingly, itwill not support an action for anticipatory breach and plaintiff's action must fail. Our ruling on the first issue renders consideration of the second issue unnecessary. The judgment of the district court is affirmed.

JusticeWe concur:



# ............................. ChieyJustice A