No. 85-56 INTHE SUPREME COURT OF THE STATE OF MONTANA 1985

IFGLEASING COMPANY, 

### a Minnesota Corporation, Plaintiff and Respondent,

JOHN SCHULTZ, JR., ESTHER SCHULTZ, K.O. DEK LAND COMPANY, LELAND TRAILER AND EQUIPMENT, Defendantsand Appellants.

APPEAL FROF4: DistrictCourtof theThirteenthJudicial District, 

### Inand for the Countyof Yellowstone, TheHonorable CharlesLuedke, Judge presiding.

COUNSEL OF RECORD:

ForAppellants: BergerLaw Firm; ChrisNelson, Billings, Montana

ForRespondent: Lynaugh, Fitzgerald & Hingle; CharlesW. 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 topay 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 topay 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 respondenthas not been able to locate it. Theparties entered into a second lease on February 27, 1979, for refrigerated trailer. Leland Trailer and Equipment, the vendor,guaranteed theperformance 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 trailerwas 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 theperiod between July 5, 1979, and the date of trial, November 5, 1984. Two issuesareraised on appeal: (1) Whether respondent failed tomitigate his damages regarding thedisposition of theLeland Trailer. (2) Whether respondent 

### is entitled to prejudgment interestata rateof 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 toacquire 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 thiscase indicate that the 

### lessee did not have the option to obtain title to the property atno further charge atthe termination of the lease. Therefore,



### we find the characterization of the transaction inthematter before us was a lease of equipment. Diede 

### v. Davis (Mont. 1983), 661P.2d 838, 40 St. Rep. 394.Appellants argue thattherespondent failedtomitigate damages by accepting $17,500 for thetrailer. This amount 

### is alleged to be 

### less than 

### its market value. Mr. Schultz testified that atthe 

### timethe trailerwas taken, 

### itsvalue

was between $20,000 and $22,000. The rule inMontana 

### isthat a nondefaulting party in a contractual arrangement must act reasonably under the circumstanc~sso 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 efforttomitigate 

### 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 appellantshad 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 torespondent. 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 asrepresented by the saleof 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. Wehold that the respondent's efforts to mitigate 

### its damages



### werereasonableunder thecircumstances. Appellant next argues that the legal rateof interest, 

### 6%per annum, should have been assigned totheobligations in question rather than the contractual rate, 10%per annum. The 

### District Court in

### its findings of factand 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 tobe charged on these obligations, the legal rate, 6%shouldbe applied. Section 31-1-107 (1)

## , MCA (1979)

## , the statute ineffect atthe

### timeof theexecution of thetwo leasesprovided 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 commercia1 paper ineffect atthe 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 relyon 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, inthesummary 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.

Weconcur: 

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Justices