No. 13026 

IN THE SUIJKEME SOUKT OF THE STA,TE OF MONTANA 

1975 

TAUTE A. KOVHSH eT al., 

Plaintiffs and Xespondent, 

-vs - 

KENNETH K. KNIGHT, 

Defendant and Appellant. 

Appeal fr-orn: District Court of the Sixth Judicial District, 

Honorable Nat Allen, Judge presiding. 

Courisel of Record : 

For Appellant: 

Dzivi, Conklin, Johnson and Nybo, Great Falls, 

Montana 

William Conklin argued, Great Falls, Montana 

For Respondent: 

Huppert and Swindlehurst, Livingston, Montana 

Arnold Huppert, Jr. argued, Livingston, Montana 

Joseph T. Swindlehurst appeared, Livingston, Montana 

Submitted: December 8, 1975 

Filed: kB ; 19ib 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court . 

This is an appeal from a judgment entered in the district 

court, Park County, in favor of plaintiffs Louie A. Kovash and 

Ottilia C. Kovash, in an action to collect a promissory note. 

Trial was held before the Hon. Nat Allen, sitting without a jury. 

The Kovashes sometime prior to the fall of 1972, undertook to build a motel/convention center in Livingston, Montana. 

Their trials and tribulations in developing the project prior to 

retaining architect Kenneth K. Knight, defendant herein, are of 

no import to this opinion other than to note that Kovashes had 

considerable difficulty in getting necessary financial backing 

to promote the project. 

After working with several architects they contacted 

Knight, an architect in Great Falls, and asked if he could design 

the project at a given figure. When Knight agreed that he could, 

he was hired as the architect in the fall of 1972. After performing about $10,000 in architectural services on the preliminary 

plans, it became clear to the parties that Kovashes lacked the 

financial resources to go ahead. A proposal was made to Knight 

by Kovashes that he not only act as architect, but that he go 

ahead and build the project using his credit to finance it and 

then lease it back to Kovashes. Knight agreed to go ahead, subject to Kovashes obtaining certain financing. On October 9, 1973, 

an agreement was entered into between Kovashes and one John Munn, 

a fiscal agent, to get them fiscal assistance. This agreement was 

to run for 60 days. 

Knight continued to prepare plans for the project to a 

point where he had invested in work time at least $50,000. At 

that time Kovashes' proposed financing ran into difficulty. It 

was finally decided by the parties to finance the project with an 
industrial revenue bond sale by the city of Livingston. The 

October 9 agreement was followed on October 18, 1973, by an option 

between Kovashes and Knight wherein Kovashes gave Knight a 

written option to purchase the land for $153,000. The option 

provided that Knight could exercise same at any time within 130 

days by delivery of a written notice. In that event, Kovashes 

had 30 days to furnish title insurance and Knight would then have 

an additional 90 days to pay the purchase price, at which time 

Kovashes would have to deliver a warranty deed. 

According to Knight, at the time of the October 9 agreement 

between Kovashes and John Munn, their fiscal agent, Kovashes 

wanted to be the lessees, and in the months ahead they worked at 

the problem of financing the project by means of the industrial 

revenue bond method. The people who were to underwrite the bonds 

told the parties that in the bond offering they would have to 

reveal to the public not only the fiscal condition of Knight, 

who was to be the owner, but also that of the lessees, Kovashes. 

They were given 60 days to come up with a cosigner of sufficient 

financial stature, or they would lose the opportunity to be the 

lessees. Kovashes failed in their attempt. 

On January 19, 1974, at the insistence of Kovashes, all 

parties, with counsel, met in Livingston where they entered into 

a new agreement entitled "Contract for Purchase". Under this 

contract for purchase the Kovashes agreed to sell to Knight for a 

total price of $194,00O,by selling in addition to the real property, 

the liquor license, a Best Western Motel franchise, all rights td 

the feasibility studies, soil tests, site surveys and other information, along with their goodwill. 

At that same time, Knight paid $5,000 earnest money and 

agreed to pay $148,000 within 90 days for the real estate. In 

addition, he executed a note in the amount of $41,000 which was 

delivered to the First Security Bank of Livingston, Montana, as 
escrow agent, together with the assignment of the liquor 

license. Upon payment of this note, the escrow agent was to deliver to Knight the assignment of the liquor license, but was 

to retain $27,000 until the Montana Liquor Control Board approved 

the transfer. 

When the transaction was closed, Knight paid $153,000 

in cash, received the deed for the property and built his motel. 

However, he did not pay the $41,000 promissory note and Kovashes 

brought this action to collect it. 

These issues are raised for this court's consideration 

on appeal. Did the trial court err: 

1. In finding that the promissory note was not signed 

under duress? 

2. In finding that the 15 day written notice of default 

condition did not apply to the promissory note3 

3. In finding that Kovashes did not fail to prove 

delivery or ownership of the note? 

4. In finding that the First Security Bank was not an 

indispensable party? 

5. In entering judgment allowing Kovashes to retain the 

liquor license in return for a credit of $27,000 against the amount 

due on the promissory note, or in the alternative in computing 

interest and attorney fees on the full balance of $41,000, rather 

than on the reduced balance of $14,000 after allowing the credit of 

$27 ,OOO? 

We find no error in the court's not finding duress. Knight 

argues that he had a deal, by the October 18 agreement, to purchase 

the land for $153,000; that he faced "closing" the bond deal and 

that he had to have the property before doing so; that Kovashes 

threatened not to honor the option, thereby putting the bond sale 

in question unless he purchased the liquor license and the other 

11 interests; and that forcing these extra expenses put him over a 
barrel" in such a manner as to constitute a signing under duress. 

Knight supports his argument by citing Pecos Construction Co. v. 

Mortgage Investment Co., 80 N.M. 680, 459 P.2d 842 and 25 AmCJur,2d, 

Duress and Undue Influence, 5 19. 

Assuming arguendo that night's allegations are true, 

all that Kovashes did was to threaten not to honor the option, 

and a mere threat to breach does not constitute duress. 25 Am,Jur,2d, 

Duress and Undue Influence, 19. Here there is no evidence that 

Knight ever tried to exercise the option and was refused. This 

distinguishes this case from the authority cited by Knight. Here, 

Kovashes did nothing. 

Here we note that throughout all of the early negotiations 

between the parties it is clear that Kovashes expected to operate 

the motel facility. The October 9, 1973 agreement with John Munn 

indicated Kovashes were to operate the facility but provided that 

if they could not get a lease guarantor in 60 days, Munn could 

sell the entire package, liquor license and all for $194,000. 

We find no reason why after this agreement, that they would enter 

into an agreement a week later to sell to Knight for $153,000, unless 

it was that they expected to operate the motel and use their liquor 

License. Knight admits he needed a liquor license and that he 

intended to sell it to the ultimate operators at. a hoped for price 

of $41,000. This indicates Knight entered into the January 19, 1974, 

negotiations with his eyes open and with benefit of counsel. We 

find no merit to his claim of duress. 

Issue 2, the trial court's finding that the 15 day written 

notice of default did not apply to the promissory note. We find 

no merit to Knight's argument nor were we cited any case authority 

to support it. Here, we are faced with two agreements, the contract for purchase, which contained the notice in writing provision, 

and the separate promissory note which fell due on April 18, 1974. 
Knight fulfilled the contractual obligation by paying the 

$153,00, but thereafter failed to pay off the note when it became due April 18, 1974. The testimony clearly indicates that 

the "notice" provision was intended to apply only to the contract 

for purchase and not to the promissory note. Further, the 

testimony clearly indicated he knew the note was due April 18. 

It had been called to his attorney's attention more than 15 days 

before the due date and he refused on cross-examination to say 

he would have paid it. 

Issue 3 questions the court's finding that Kovashes did 

not fail to prove delivery or ownership of the note. Knight 

argues the note is unenforceable by Kovashes because it was 

delivered to the escrow agent (the bank) and not directly to 

Kovashes. He calls this a "conditional delivery" and ineffectual. 

If this ingenious argument were to prevail, the note was 

not enforceable by anyone. The bank could not enforce it because 

it is not a 'holcbr" as defined under the Uniform Commercial Code 

because it is not a payee or endorsee. 12 Am Jur 2d, Bills and 

Notes, 51070. Here, Kovashes deposited the deed in escrow and 

!(night deposited a note and mortgage. Even though the note was 

not delivered to payee directly, we hold there was a sufficient 

delivery under these facts. The fact the bank held the escrow did 

not make the bank an indispensable party to the action. Stewart 

v. 5anta Rosa Mining, 62 C.A.2d 201, 144 P.2d 31. Therefore, 

we find no merit to Issue 3 or Issue 4. 

Finally, the trial court's judgment allowing interest 

and attorney fees on the $41,000 was error. The court's conclusion of law No. IV authorizes the cancellation of the assignment 

of the liquor license in return for a $27,000 credit on the $41,000 

principal and paragraph 111 of the judgment cancels the assignment. 

Kovashes used the liquor license at a bar operated by 

them in Livingston during the full period of the litigation. At 
trial they testified that they were willing ro keep the license 

and credit Knight with $27,000, but the trial court refused on 

the ground such testimony concerned a matter of settlement. 

Thereafter, the trial court entered judgment accomplishing 

the very settlement offered by Kovashes. The error made by the 

court was in its failure to credit Knight with the $27,000 before 

computing interest and attorney fees. The attorney fees should be 

reduced from $4,000 to $1,410; the interest from $3,780.06 to 

$1,303.28. This reduces the total judgment from $21,880.06 to 

S16,813.28. 

The cause is remanded to the district court to comply 

with this decision.