No. 85-56 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

IFG LEASING COMPANY, a Minnesota 

Corporation, 

Plaintiff and Respondent, 

JOHN SCHULTZ, JR., ESTHER SCHULTZ, 

K.O. DEK LAND COMPANY, LELAND TRAILER 

AND EQUIPMENT, 

Defendants and Appellants. 

APPEAL FROF4: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Charles Luedke, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Berger Law Firm; Chris Nelson, Billings, Montana 

For Respondent : 

Lynaugh, Fitzgerald & Hingle; Charles W. Hingle, 

Billings, Montana 

Submitted on Briefs: May 9, 1985 

Decided: August 29, 1985 

Filed: ~uti 2 ;j 1985 

Clerk 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

This is an appeal from a judgment of the Thirteenth 

Judicial District Court, in and for the County of Yellowstone 

which found Schultz in debt to IFG Leasing Company for 

failure to pay monies owed on the lease of certain equipment. 

We affirm. 

John Schultz, Jr. and Esther Schultz were partners 

doing business as K.O. Dek Land Company. On June 28, 1978, 

Schultz leased a combine from IFG Leasing Company. The lease 

called for five annual payments in the amount of $12,150.72, 

the first payment being due on June 27, 1978, and subsequent 

payments due on June 25th of each year thereafter. 

Appellants failed to pay the rental due on June 25, 1979, and 

all subsequent payments. IFG obtained judgment against 

appellant in the principal amount of $57,596.29 plus interest 

at the rate of 10% per annum from the date of default. The 

combine remains in the possession of the appellant because 

respondent has not been able to locate it. 

The parties entered into a second lease on February 27, 

1979, for refrigerated trailer. Leland Trailer and 

Equipment, the vendor, guaranteed the performance of Schultz. 

The lease called for five annual rental payments in the 

amount of $7,536.34, the first payment being due on February 

13, 1979, and subsequent payments due on March 25th of each 

year. Schultz failed to make four installment payments 

required under the lease. As a consequence, the trailer was 

sold by Leland for the amount of $17,500. IFG and Leland 

entered into an agreement whereby Leland would pay IFG the 

sum of $17,500 for the ownership of the trailer. 
IFG credited Schultzls account in the amount of 

$17,500. A judgment was obtained against Schultz in the 

amount of $15,553.46 plus interest at 10% per annum. The 

District Court determined the interest rate by the terms of 

both lease agreements which provided for interest on default 

to be paid "at the highest contractual rate permitted by 

law," and S 31-1-107 (1) , MCA (1979) which provided for 10% 

per annum. The total interest due on said obligations 

equalled $29,745.80 for the period between July 5, 1979, and 

the date of trial, November 5, 1984. 

Two issues are raised on appeal: 

(1) Whether respondent failed to mitigate his damages 

regarding the disposition of the Leland Trailer. 

(2) Whether respondent is entitled to prejudgment 

interest at a rate of 10% per annurn. 

Initially, this Court recognizes that the dispute at 

issue is not governed by the provisions of the Uniform 

Commercial Code. In circumstances where the purported lease 

gives the lessee the option to acquire the leased goods upon 

expiration of the lease, the lease is commercially 

indistinguishable from an installment sales contract, and is 

governed by the Uniform Commercial Code. Section 

30-1-201(37), MCA; Fire Supply and Service, Inc. v. Chico Hot 

Springs (Mont. 1982), 639 P.2d 1160, 39 St.Rep. 231. 

However, the facts of this case indicate that the lessee did 

not have the option to obtain title to the property at no 

further charge at the termination of the lease. Therefore, 

we find the characterization of the transaction in the matter 

before us was a lease of equipment. Diede v. Davis (Mont. 

1983), 661 P.2d 838, 40 St. Rep. 394. 
Appellants argue that the respondent failed to mitigate 

damages by accepting $17,500 for the trailer. This amount is 

alleged to be less than its market value. Mr. Schultz 

testified that at the time the trailer was taken, its value 

was between $20,000 and $22,000. 

The rule in Montana is that a nondefaulting party in a 

contractual arrangement must act reasonably under the 

circumstanc~s so as not to unnecessarily enlarge damages 

caused by default. Diede v. Davis, supra; Town Pump, Inc. v. 

Diteman (Mont. 1981), 622 P.2d 212, 38 St.Rep. 54. The 

sufficiency of the effort to mitigate is a determination for 

the trier of fact. Bronken's Good Time Company v. J. W. 

Brown and Associates (Mont. 1983), 661 P.2d 861, 40 St.Rep. 

549. 

This matter was initiated as a collection action by 

respondent to recover rent upon appellants' two equipment 

leases which were in default. The District Court in its 

findings of fact found the appellants had defaulted on their 

obligation to pay the rental due on the two leases. As a 

consequence, the trailer was sold and the proceeds of the 

sale were credited against the debt due to respondent. The 

court also determined that both leases required interest to 

be paid on delinquent payments. Based upon the District 

Court's findings of fact and conclusions of law the court 

ordered appellant to pay respondent specific amounts, less 

the amount credited as represented by the sale of the trailer, representing principal and interest on the two lease 

agreements. From our review of the record, we conclude that 

there was substantial evidence in the record to support the 

$17,500 value for which the trailer was sold, and which 

amount was credited to the account of the appellants. We 
hold that the respondent's efforts to mitigate its damages 

were reasonable under the circumstances. 

Appellant next argues that the legal rate of interest, 

6% per annum, should have been assigned to the obligations in 

question rather than the contractual rate, 10% per annum. 

The District Court in its findings of fact and conclusi.ons of 

law stated that each lease entered into by the parties 

provided that : 

interest to be paid on delinquent 

payments at "the highest contractual rate 

permitted by law." Section 31-1-107(1), 

MCA (1979) fixes that rate at 10% per 

annum, and is applicable under the facts 

and circumstances of this case. 

The appellants maintain because the leases do not state the 

amount of interest to be charged on these obligations, the 

legal rate, 6% should be applied. 

Section 31-1-107 (1) , MCA (1979) , the statute in effect 

at the time of the execution of the two leases provided that: 

[the] parties may agree in writing for 

the payment of any rate of interest not 

more than 10% per annum or more than 4 

percentage points in excess of the 

discount rate on 90-day commercia 1 paper 

in effect at the federal reserve bank in 

the ninth federal reserve district, 

whichever is greater, and such interest 

shall be allowed according to the terms 

of the agreement. 

Section 31-1-107(1, MCA, prior to amendment by (1981) 

Kont.Laws, Chapter 275, Sec. 8; (1983) Mont. Laws, Chapter 9, 

Sec. 1; (1983) Mont. Laws, Chapter 567, Set. 1. 

Appellants primarily rely on Big Sky Livestock, Inc. v. 

Herzog (1976), 171 Mont. 409, 558 P.2d 1107. The case 

involved interest based upon an action on an account for 

veterinary drugs. The jury's award of 10% per annum was 

reversed an.d the legal rate was instated. However, in the 
summary reversal, this Court did not address any written 

agreement or an interest rate established by the parties. 

In the present matter, the terms of the written lease 

agreement addressed the rate of interest. The provision of 

the agreement which required interest to be paid on 

delinquent payments at "the highest contractual rate 

permitted by law" clearly required the contractual rate at 

10% as established by S 31-1-107 (1) , MCA (1979), to apply. 

Accordingly, the order of the District Court is 

affirmed. 

We concur: / I 

Justices