No. 13164 INTHE SUPREME COURT OF THE STATE OF MONTANA 1977

GEORGE R. WEVIN et al., Plaintiffs and Respondents,

-vsTHE COUNTY OF SILVER BOW et al., Defendants and Appellants.

Appeal from: District Court of the Second Judicial District, Honorable Jack D. Shanstrom, Judge presiding. Counsel of Record: For Appellants: Stimatz and Engel, Butte, Montana Lawrence G. Stimatz argued, Butte, Montana For Respondents: McCaffery and Peterson, Butte, Montana John L. Peterson argued, Butte, Montana

Submitted: March 16, 1977 

### "fiQ"7,- Decided: 

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## *itr;%" ?- [:<I/~( Filed: -Mr. JusticeGene B. Daly delivered the Opinion of the Court.

This 

### is an appealby SilverBow County from an adverse judgment ina breach of contract case involving the lease of the restaurant and lounge facilityatthe county airport. The cause

was triedbefore Hon. Jack D. Shanstrom, sittingwithout a jury, in the districtcourt, SilverBow County, on January 27, 1975. Judgment was enteredApril 23, 1975. From thisjudgment in favor of plaintiffs

## ,defendant county appeals. In 1968, the commissioners of SilverBow County established by resolution an airport commission to act asan advisory commission to theBoard of County Commissioners and charged it with the duty of an overall program of development and control of the airport. Day to day control for the airport operationwas vested inthe airportmanager and engineer. In 1968, Wm. J. Violet leased thepremises set aside for a lounge and restaurant consistingof approximately 4,100 square feet. Atthis time the lounge and restaurant were not completed. Later Violet abandoned the lease and the premises were idle for approximately 8months. The county (lessor) then executed a lease agreement with plaintiffs George R. Nevin and Geraldine Nevin, (Lessees). Paragraph 

### 2 of the lease recognized some deficiencies in the premises and agreed to installa dumb waiter, carpet on the second floor, and further railing on the balcony. Paragraph 3 of the leasebreaks the rental of $300 per month into $175 rent, and $125 as lessees' share of water and electricity until the improvements were completed; then the basic rent would be $375, plus $125 for lessees' share of water and electricity, or a totalrental of $500 per month.The lease became effectiveNovember 30, 1968 and lessees paid the firstmonth's rental required under the lease inDecember 

### 5 1968. paragraphlo£ the lease agreement provides: "For the consideration aforesaid, lessor hereby gives - - and grants unto lessee, his successors and assigns, the right, privilege and option of renewing thisLease, atthe expiration of the aforementioned term, foran additional term of five 

### (5) years, upon the same conditions, covenants and agreements herein set forth and ata rental tobe negotiatedby the parties, by giving tothe lessor atleast ninety days' writtennotice prior to the expirationof such term of lessee's desire to exercise said option and renew thisLease for such additional term; provided, however, that the rental for the additional term shallnot be increased or decreased beyond a reasonable sum, taking into consideration conditions existing atthe time of renewal and capital improvements, if any, on the premises during the term." (Emphasis supplied.) On August 28, 1973, lessees mailed the required notice toexercise their option provided inparagraph 

### 5 of the lease to extend the term of

.. the lease foran additional fiveyears. On August 31, 1973, lessor responded that the noticewas not timely, based on its copy of the leasewhich indicated an effectivedate of November 1, 1968, inked in, rather than November 30, 1968, as shown on lessees' copy. There was considerable argument back and forthbetween the parties from August 1973until October 30, 1973, concerning the renewal. On October 30, 1973, lessorproposed a 

# - new lease for a term of 3years with a rental of $1,500 per month and/or the premises vacated as of October 31, 1973, the date the lessor alleged the old lease expired. As a result of this communication an agreement

was then made to continue operation of the airport facilityon a reservation of rights forboth parties. On November 15, 1973, lessor agreed the termination date of the leasewas not until November 30, 1973and notice of renewal was received on time. Lessees offered a 20%increase in rent or $600. November 20, 1973, lessor responded with a rental of $1,200 per month and in addition requested certain changes inthe provisions of the "old" lease. On November 30, the lease terminated.Lessees finallyvacated the premises, after filing an action to determine the rights of the parties on January 3, 1974 and amended the action on January 25, 1974 tobreach of contract. Lessor on February 

### 24, 1974 filedan answer generally denying all allegations, admitted the lease but denied the effectivedate of November 30, 1968 and alleged it tobe November 

### 1, 1968. Based

on this date, the lessor then by affirmative defense, plead estoppel because the lease terminated before noticewas received and further alleged the lessees knew the date tobe wrong. After trial, the court made findings of fact and conclusions of law stating inessence: 

### "1. That Plaintiffs entered into a lease agreement with the County of SilverBow, a body politic and political subdivisionof the Stateof Montana, and theAirport Commission of SilverBow County, Montana, as lessors, on October 31, 1968, for the lease of certainpremises inthe Silver Bow County Airport Terminal Building, beginning the 30th day of November, 1968, and ending on the same date five years hence inthe year 1973.

# *** That atthe time of execution of the lease agreement, the premises were not ready for occupancy and were not made ready for occupancy by lessors untilNovember 30, 1968. That asa part of the lease arrangement the Plaintiffs received transfer of Retail Beer and Liquor License No. 7847 on December 5, 1968,

# *

# ** and paid the firstmonth rent inadvance on December 5, 1968.* 

# ** That itwas the intention of allof the parties that the Plaintiffswere tohave a full five year term of actual occupancy in the leasing of the premises. ''2. 

# * Jc

# * and as late asNovember 15, 1973, theAirport Board conceded the fact that the leasewould not terminate untilNovember 30, 1973, and therefore waived any right to contend the lease terminated November 

### 1, 1973." Finding of fact No. 3, statedplaintiffs had the right to

renew under paragraph 5 of the lease for 

### 5 years and on August 28, 1973 and at least 90 days before expiration, advised defendant of their intent to renew for 5 years. Finding of fact No. 4, states that on August 31, 1973, defendant acknowledged plaintiffs' letter to renew but advised plaintiffs the noticewas too late and defendant, without waivingany of its rights because of failure tonotify in time, advised that it would inessence negotiate a "new" lease. The next contact by defendant with plaintiffs was by letterdated October 30, 1973 advising the lease expired October 31, 1973 and contemporaneous therewith presented a new leasewith other terms changed, in addition to the rent increase to $1,500 per month. On November 

### 1, 1973 defendant requested possession by midnight November 

### 1, 1973, ata penalty of $50 per day for holding over, and then offered a 30-day tenancy to plaintiffs torun toNovember 30, 1973. The court further said: 

### "*

# ** That the actions by the Defendants breached the terms and conditions of the lease agreement

# *

# ** by reason of its failure tonegotiate a reasonable increase or decrease inrental prior to expiration of the term of the lease on November 30, 1973. That the offer of the Defendants by letterof November 20, 1973, inoffering a rental change by increase of rent to $1200.00 per month and provided other provisions of the lease agreement were changed

# *

# ** was an unreasonable demand for rent increase inviolation of Paragraph 5 of the lease agreement, and alsoviolated Paragraph 5 of said lease by demanding that various other provisions of the lease agreement be changed, even though the parties had agreed inthe option to renew that the leasewould be renewed for an additional five years 'upon the same conditions, covenants and agreements set forth', except for rental. "5. That the offer of the Defendants on November 20, 1973, was an unreasonable reply to Plaintiffs' offer of November 15, 1973, to increase the rent to%600.00 per month, 

# *** which the court findswas a reasonable amount for rental under the circumstances existing at the time and inview of the moderate amount of capital expenditure made during the term of Plaintiffs' lease." Finding of fact No. 

### 6, states the actions of the parties in

an attempt tonegotiate a "new" lease afterNovember 30, 1973were efforts incompromise of a disputed claim and not material to complying with paragraph 5 of the lease. Even ifmaterial, this increase to $875 

### is specifically found tobe unreasonable inview of conditions existing atthe time and capital improvements made.

### "7. That Paragraph 

### 5 of the lease agreement cited above 

### is a valid, binding and enforceable provision of the lease agreement given for the benefit of the lessees and relied upon by them as an inducement to enter into the lease agreement inOctober of 1968. That in light of said provision, the Court finds that it could have fixed and determined a fair and reasonable increase inrental in the absence of agreement by the parties, and in the further event the Plaintiffs sought to elect to enforce such remedy. That Plaintiffs, however, are entitled to select any remedy available to them, including this action forbreach of contract. That the parties themselves recognized that such clause was valid and enforceable by attempting tonegotiate a reasonable rental

# ." Finding of factNo. 

### 8, statedthat had defendant adequately investigated the facts it could have found inAugust that the lease terminated November 30, 1973. Upon admission by November 15, 1973of the true facts, defendant was under a firm duty to negotiate and fixa reasonable increase or decrease inrent with lesseesbefore November 30, 1973. This duty was breached. "9. That upon execution of the-lease agreement and beginning November 30, 1968, Plaintiffs went into possession of the leased premises and for a period of five years conducted a restaurant and cocktail lounge business continually during that period of time, and had as of the termination of the lease on November 30, 1973, an establishedbusiness in SilverBow County, with a good business reputation for good food and service and from which the court does conclude that such business would have enjoyed profitable success in the next five years of operation. "10. That thebusiness records of the Plaintiffs establish by a preponderance of the evidence thatby reason of Defendants' breach of the lease agreement Plaintiffs would have earned a net profit in the business of a period of five years from November 30, 1973, the sum of Twelve Thousand Dollars ($12,000.00) each year, which 

### isdetermined after deducting from the expected gross revenue allbusiness expenses, including taxes, wages, depreciation and a reasonable value of Plaintiffs' services. "11. That by reason of the conduct of business over a term of five years the Plaintiffs earned a good business reputation and established good willwith the community, from which Plaintiffs could reasonably have enjoyed continued profitable operation by reason of 

### itsbusiness location, reputation for good food and service, general atmosphere and repeated return of their customers. That by reason of the breach of the lease agreement by the Defendants, the Plaintiffs suffered damages by loss of good willinthe reasonable sum of Five Thousand Dollars ($5,000.00). "12. That by reason of thebreach of the lease agreement by Defendants, the Plaintiffswere forced to selltheir business, equipment and inventory inpiecemeal lots. That had Plaintiffsbeen able to sell such equipment as a going concern, the reasonable value of such equipment was the approximate sum of Twenty Five Thousand Dollars ($25,000.00) That by reason of the premature and forced sale of such equipment, Plaintiffs received .the sum of Nine Thousand Seven Hundred Eighteen and 60/100ths Dollars ($9,718.60). That by reason thereof the Plaintiffs suffered damages inthe saleof saidequipment inthe sum of Fifteen Thousand Dollars ($15,000.00). "CONCLUSIONS OF LAW "I. That Plaintiffshave established by a preponderance of the evidence that theDefendants breached the lease agreement existingbetween the parties, and particularly Paragraph 5 thereof. "11. That by reason of thebreach of such agreement, the Plaintiffshave established by a preponderance of the evidence that they suffered damages as follows:

"C. Loss of value on Equipment 

# ----------$15,000.00 "for totaldamages inthe sum of Forty Five Thousand Dollars ($45,000.00)

# ."

Defendant appeals and presents three issues for review: 

### 1. The court erred inoverruling defendant's offer of proof to show thebids and the amount of rent forwhich the leased premises were lettoplaintiffs' successor astenant asbeing indicative of the reasonableness of the defendant's offer of a monthly rent of $865.00 toplaintiffs. 2. The court erred inthat its findings and judgment of breach of lease agreement and of refusal tonegotiate a reasonable increase inrent by defendant arenot supported by substantial, credible evidence. 

### 3. The court erred inthat the damages awarded plaintiffs

are excessive, improper and contrary to the evidence and the law.Lessor generallyargues thematter of the correct termination date did not ariseduring the term of the lease and therewas no

IIawareness" of this untilAugust 31, 1973. That allmatters until the defendant agreed toa November 30, 1973termination date as correct on November 15, 1973, should be deemed acts in good faith. Lessor then simply says allnegotiations afterNovember 15, 1973, were good faithand reasonable attempts to set

a new rental figure and discuss "(other

# **

# * housekeeping details inremoving obsolete provisions from the lease)". This logic simply ignores the facts in this case. The whole tenor of this situation as far as defendant was concerned after November 15, was merely that the notice was filed on time, so let

us go forward as 

### is and negotiate a new contract. Examples: (1) Plaintiffs' Exhibit No. 14, a letter from defendant toplaintiffs dated November 20, 1973, which states in essence---we recognize your November 30 date but we want $1,200 based inpart on-offers from others and inaddition to rent there must be other changes inthe lease. 

### (2) Exhibit A of defendant, a letter from defendant to plaintiffs dated December 

### 11, 1973 in response toa request of plaintiffs forjustification of the $1,200 rent figure: "The Board and the Commission are inagreement that no good purpose would be served by providing a detailed set of figures in support of this $1,200 monthly rental proposal. If necessary the Board and Commission

### will supply such figures and justification of the $1,2000 price in court". (Emphasis added.) This communication was signed by the three members of the board of county commissioners. On December 28, afternumerous exchanges defendant reminded plaintiffs tobe gone by the end of January, if no settlement was reached, and so on and on. These few examples demonstrate the problem, but the review of the entire record amply supports the trialcourt with credible and substantialevidence. -8-Damages have been attacked by defendant as self-imposed, beyond the contemplation of the parties when they entered into the lease in 1968, etc. However, the only proof of damages has been produced by the plaintiffs. Plaintiffs produced evidence of loss of profit for 5 years, loss of good 

### will, and loss of market value of equipment at forced sale. InLaas v. Montana Highway Commission, 157Mont. 121, 132, 483 P.2d 699, this Court specificallyheld that under section 17-301, R.C.M. 1947, which provides that the measure of damages ina breach of contract action 

### is the amount thatwillcompensate the party aggrieved for allthe detriment proximately caused thereby orwhich inthe ordinary cause of things would be likely toresult therefrom, damages are recoverable for loss of profits: 

# "'*

# * Jc the rule is that a person may recover for loss of profits where it 

### is shown that such loss 

### is the natural and direct result of the act of the defendant complained of and that such amount is certain and not speculative.

# *** "Profits which are a mere matter of speculation cannot be thebasis of recovery in suits forbreach of contract, while profits which are reasonably certainmay be

# .""' 157Mont. 132. From plaintiffs' testimony and plaintiffs' Exhibits 6 and 

### 17, the court found plaintiffs' could reasonab1.yin the next 5 years expect a yearly profit of $12,000 per year (court's finding No. 10) yet the court awarded $5,000 per year which 

### iswell within the evidence. The same holds true for good 

### willand the equipment. The equipment Exhibit was introduced without objection and demonstrates the trialcourt's award. In regard to the offer of proof as tojustification of a higher rental, the foundationwas absent tomake theproposed evidence material or relevant to the considerations allowable under the contract which governs the method of arriving atanew rent figure and was therefore properly denied by the trial court. Finding no error and there is substantial credible evidence to support thejudgment of the trialcourt, thatjudgment is affirmed.

We Concur:

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Chief Justice