No. 13026 INTHE 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 ;

### 19ibMr. JusticeJohn Conway Harrison delivered the Opinion of the Court

# . This 

### is an appeal from a judgment entered inthe district court, Park County, in favor of plaintiffsLouie A. Kovash and Ottilia C. Kovash, inan action tocollect a promissory note. Trialwas held before the Hon. Nat Allen, sittingwithout a jury. The Kovashes sometime prior tothe fallof 1972, undertook tobuild a motel/convention center inLivingston, Montana. Their trialsand tribulations in developing the project prior to retaining architect Kenneth K. Knight, defendant herein, are of

no import tothis opinion other than tonote that Kovashes had considerable difficulty ingetting necessary financialbacking to promote theproject. After working with several architects they contacted Knight, an architect in Great Falls, and asked ifhe could design the project at

### a given figure. When Knight agreed that he could, he was hired asthe architect in the fallof 1972. After performing about $10,000 in architectural services on the preliminary plans, it became clear tothe parties that Kovashes lacked the financialresources togo ahead. A proposal was made to Knight by Kovashes that he not only act asarchitect, but that he go ahead and build the project using his credit to finance it and then lease it back toKovashes. Knight agreed togo ahead, subject toKovashes obtaining certain financing. On October 9, 1973,

an agreement was entered intobetween Kovashes and one John Munn,

a fiscalagent, toget them fiscalassistance. This agreement was torun for 60 days. Knight continued toprepare plans for the project toa point where he had invested inwork time atleast $50,000. At that time Kovashes' proposed financing ran into difficulty. It

was finallydecided by the parties to finance the project with anindustrialrevenue bond saleby the cityof 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 topurchase 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 tofurnish titleinsurance and Knight would then have

an additional 90 days topay the purchase price, atwhich time Kovashes would have todeliver 

### a warranty deed. According toKnight, atthe time of the October 9 agreement between Kovashes and John Munn, their fiscalagent, Kovashes wanted tobe the lessees, and in the months ahead theyworked at the problem of financing the project by means of the industrial

revenue bond method. The people who were tounderwrite thebonds told the parties that inthebond offering theywould have to reveal tothe public not only the fiscalcondition of Knight, who was tobe 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 theywould lose the opportunity tobe the lessees. Kovashes failed in their attempt. On January 19, 1974, atthe insistence of Kovashes, all parties, with counsel, met inLivingston where they entered into

a new agreement entitled "Contract for Purchase". Under this contract for purchase the Kovashes agreed to selltoKnight for a totalprice of $194,00O,by selling in addition to the real property, the liquor license, a Best Western Motel franchise, allrights td the feasibilitystudies, soiltests, sitesurveys and other information, alongwith their goodwill. Atthat same time, Knight paid $5,000 earnest money and agreed topay $148,000 within 90 days for thereal estate. In addition, he executed a note inthe amount of $41,000 which was delivered tothe First SecurityBank of Livingston, Montana, asescrow agent, together with the assignment of the liquor license. Upon payment of this note, the escrow agent was todeliver to Knight the assignment of the liquor license, but was toretain $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 areraised for this court's consideration

on appeal. Did the trialcourt err: 1. In finding that the promissory notewas 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 failtoprove delivery or ownership of thenote? 4. In finding that the First Security Bank was not an indispensable party? 5. In enteringjudgment allowing Kovashes to retain the liquor license inreturn for a credit of $27,000 against the amount due on the promissory note, or in the alternative incomputing interest and attorney fees on the fullbalance of $41,000, rather than on thereduced 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, topurchase the land for $153,000; that he faced "closing" the bond deal and that he had tohave 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 

### abarrel" 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, allthat Kovashes did was to threaten not tohonor the option, and a mere threat tobreach does not constitute duress. 25 Am,Jur,2d, Duress and Undue Influence, 19. Here there isno evidence that Knight ever tried to exercise the option and was refused. This distinguishes this case from the authority citedby Knight. Here, Kovashes did nothing. Here we note that throughout allof the earlynegotiations between the parties it isclear that Kovashes expected to operate the motel facility. The October 9, 1973 agreement with John Munn indicated Kovashes were tooperate the facilitybut provided that if they could not get 

### a lease guarantor in 60 days, Munn could sell the entirepackage, liquor license and allfor $194,000. We find no reason why after this agreement, that they would enter into an agreement a week later to sellto 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 theultimate operators

### at.a hoped for price of $41,000. This indicatesKnight entered intothe January 19, 1974, negotiations with his eyes open and with benefit of counsel. We find no merit tohis claim of duress. Issue 2, the trialcourt's finding that the 15 day written notice of default didnot apply to the promissory note. We find

no merit toKnight's argument nor were we cited any case authority to support it. Here, we are faced with two agreements, the contract forpurchase, which contained the notice inwriting provision, and the separate promissory note which felldue on April 18, 1974.Knight fulfilled the contractual obligation by paying the $153,00, but thereafter failed topay off thenote when itbecame due April 18, 1974. The testimony clearly indicates that the "notice" provision was intended toapply only to the contract forpurchase and not to the promissory note. Further, the testimony clearly indicated he knew the notewas due April 18. It had been called tohis 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 thenote. Knight argues thenote 

### isunenforceable by Kovashes because it was delivered to the escrow agent (thebank) and not directly to Kovashes. He calls this a "conditional delivery" and ineffectual. If this ingenious argument were toprevail, thenote was not enforceable by anyone. The bank could not enforce it because it 

### isnot a 'holcbr" as defined under the Uniform Commercial Code because it 

### isnot a payee or endorsee. 12Am Jur 2d, Billsand 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 deliveryunder these facts. The fact thebank held the escrow did not make thebank 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 trialcourt's judgment allowing interest and attorney fees on the $41,000 was error. 

### The court's conclusion of law No. IVauthorizes the cancellation of the assignment of the liquor license inreturn for a $27,000 credit on the $41,000 principal and paragraph 111 of the judgment cancels the assignment. Kovashes used the liquor license ata bar operated by them in Livingston during the fullperiod of the litigation. Attrial they testified that they were willing 

### ro keep the license and credit Knight with $27,000, but the trialcourt refused on the ground such testimony concerned a matter of settlement. Thereafter, the trialcourt enteredjudgment accomplishing the very settlement offered by Kovashes. The error made by the court was in itsfailure tocredit 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 totaljudgment from $21,880.06 to S16,813.28. The cause is remanded to the district court to comply with this decision.