No. 83-272 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

E.C.A. ENVIRONMENTAL MANAGEMENT 

SERVICES, INC., a Montana corp., 

Plaintiff and Appellant, 

JOHN B. TOENYES and MICHAEL 

ROBB, d/b/a TERRA-SPREAD, 

Defendants and Respondents. ........................ 

MONTANA MERCHANDISING, INC., 

a Montana corp., 

Plaintiff and Appellant, 

JOHN B. TOENYES, and MICHAEL 

ROBB, d/b/a TERRA-SPREAD, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable Joel G. Roth, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Dzivi, Conklin & Nybo; L.D. Nybo, Great Falls, 

Montana 

For Respondents: 

Linnell & Newhall, Great Falls, Xontana 

Submitted on Briefs: December 1, 1983 

Decided: March 9, 1984 

Filed: ,I. ' vil",; . !:j94 i .d 

- Clerk 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of 

the Court. 

This appeal is from a iudgment of the Cascade County 

District Court awarding defendants damages for their successful counterclaim on a breach of a commercial contract. 

Plaintiff corporations, ECA Environmental Management Services, Inc. (hereinafter "ECA"), and Montana Merchandising, Tnc. 

(hereinafter "MMI"), originally brought separate actions 

against defendants Toenyes and Robb, d/b/a Terra-Spread 

(defendants hereinafter referred to as "Terra-Spread" ) . 

These actions were consolidated for trial. 

In 1973, John Toenyes incorporated ECA which was engaged in the custom application of mosquito control chemicals 

and the sale of pesticide control equipment. In the spring of 

1976, MMI purchased 100 percent of the shares of ECA retaining Toenyes as manager. MMI began a fertilizer operation and 

built a manufacturing plant on its property. The fertilizer 

operation was known as Agricultural Management Services. MMI 

employed L,inn Stord-ah1 to manage this operation. ECA ' s 

operations were physically relocated and became part of P.IMI1s 

fertilizer operations. 

Toeynes and his brother-in-law Michael Robb began their 

joint venture, Terra-Spread, upon the suggestion of the MMI 

Board of Directors. Toeynes had initially proposed that MMI 

purchase some sophisticated spreading equipment. The Board 

suggested that Toeynes himself purchase the equipment. 

Consequently, Toeynes formed Terra-Spread and entered into a 

contract with Agricultural Management to do its fertilizer 

spreading work. The agreement provided that Terra-Spread 

~,7ould receive a minimum of 4000 tons of fertilizer spreading 

business in the fall of 1978 and spring of 1979. In order to 
finance the new venture, Terra-Spread gave a demand promissory note to JYNI in the amount of $7,000 plus interest at 114 

percent in exchange for a loan of that amount. On Auqust 1, 

1979, Terra-Spread purchased $1,062 worth of diesel fuel on 

credit from Agricultural Management. 

The spreading contract was not fully performed by 

Agricul-tural Management Services. Terra-Spread was provided 

with less than one-fourth of the promised tonnage. 

Terra-Spread left unpaid the balance due for the fuel and 

upon notice of demand, paid only $5,000 of the $7,000 obliqation on the promissory note. After the fertilizer spreading 

agreement expired, the remaining assets of ECA were transferred to FIMI and ECA ceased business. 

ECA filed suit to recover the amount owed for the 

diesel fuel. MMI brouqht action to recover the balance due 

on the promissory note. Terra-Spread counterclaimed in both 

actions for damages arising from breach of the spreading 

agreement. 

Following a nonjury trial, the District Court found 

that ECA was not a party to either the fuel sale or the 

spreading contract. Roth contracts were found to be with 

Agricultural Management as a division of MMI. Thus, MMI was 

the contracting party in both cases. The court held that 

Terra-Spread owed MMI $1,062 plus interest at 6 percent for 

the diesel fuel. It also concluded that the interest rate on 

the promissory note was usurious. After subtracting the 

statutory penalty, Terra-Spread was entitled to a refund of 

$656.94 from the $5,000 it had paid. Finally, the court held 

that Terra-Spread had been damaged by MMI's breach of the 

spreading agreement. After calculating the amount that would 

have been due under the contract and adding the credit from 
the promissory note, the court subtracted the fuel, labor, 

food and 1-odging, and repair and maintenance costs saved by 

Terra-Spread in not performing the contract. Lastly, it 

subtracted the amount of the fuel bill plus interest, and 

came up with a total of $83,412.55 net damaqes. A judgment 

for that amount plus attorney fees of $750 was rendered for 

Terra-Spread. From this judqment, appellants appeal raising 

the following issues: 

1. Js MMI entitled to the rate of interest provided on 

the diesel fuel invoice or only the statutory amount? 

2. Did the trial court correctly determine the statutory usury penalty of section 31-1-108, MCA, j.n allowing 

interest on the demand note to accrue up to the date of 

trial? 

3. Which side was the prevailing party in relation to 

the promissory note for the purposes of awarding attorney 

fees under section 28-3-704, MCA? 

4. Did the trial court err by holding the corporate 

veil of ECA was pierced and mI was liable on the fertilizer 

contract? 

5. Did the District Court deduct all avoided costs of 

completing the spreading contract? 

6. Did the District Court err by failing to consider 

mitigation of damages? 

Appellants' first issue alleges the diesel fuel bill 

was erroneously found to carry a usurious rate of interest. 

We agree with appellants that this bill was not usurious, 

although we reach our result independent of the arguments 

presented to the Court. 

The transaction evidenced by the invoice of P.ugust 1, 

1979, was a bona fide sale of diesel fuel. It was never 
alleged that the transaction was anything more than a good 

faith credit sale in which the purchaser Terra-Spread was 

permitted to take possession of the fuel and defer payment. 

While certain forms of credit sales are statutorily regulated 

in Montana, this type of transaction is not covered by either 

our usury or consumer credit laws. 

The fuel transaction was not a subterfuge devised to 

conceal what was in fact a loan. For loans to be considered 

usurious there must be intent on the part of the lender to 

take more than the legal rate of interest for the sum loaned. 

Hansen v. Bonner (Mont. 1983), 661 P.2d 421, 424, 40 St.Rep. 

245,249-250. Here, there was neither the intent to loan a 

sum of money nor the intent to extract usurious interest. 

Terra-Spread took possession of the goods without paying and 

received a significant benefit. For this benefit, the seller 

is justified in imposing an additional charge. The contractor on receiving the goods, signed and received an invoice 

that contained an agreement providinq for charging an annual 

interest rate of 18 percent on balances more than thirty days 

old. Without more, this agreement constitutes a simple 

commercial charge agreement to which usury laws are inapplicable. Empire Building Supply v. EKO Investments, Inc. 

(1979), 40 Or.App. 739, 596 P.2d 593. 

Certain forms of credit sales are regulated by statute. 

Appellants argue that this fuel sale fits within the regulatory umbrella of the Montana Retail Installment Sales Act, 

section 31-1-201 et seq., MCA. This diesel sale was not a 

retail installment contract whereby the purchaser agreed to 

pay "in one or more deferred installments." Section 

31-1-202(n), MCA. Nor was there a retail charge account 

aqreement that created an open credit card account. Section 
31-1-202 (m) ,, MCA. See also, Cecil v. Allied Stores (1973) , 

162 Mont. 491, 513 P.2d 704. 

The invoice signed by Terra-Spread's agent created an 

obligation to pay within thirty days. If that obligation was 

not fulfill.ed, the agreement provided for assessment of a 

finance charge. Use of these "thirty-day accounts," under 

which the customer is extended credit subject to his agreement to pay the full sales price within thirty days, does not 

involve installment payments and is not subject to the Retail 

Installment Sales Act. Cf., Siebert v. Sears, Roebuck & Co. 

(19751, 45 Cal.App.3d 1, 120 Cal.Rptr. 233. The diesel sale 

was a bona fid.e credit sale outside the scope of usury and 

retail instirll-ment contract statutes. The decision of the 

District Court is vacated to the ext~nt that appellants were 

granted an offset based on 6 percent interest on the $1,062 

bill. Appellants should be granted. an offset that reflects 

the 18 percent annual interest agreed upon by the parties to 

the fuel bill dated August 1, 1979. 

Appellants' second issue concerns the $7,000 promissory 

note which was found usurious by the District Court. On 

appeal, appellants concede that the note is usurious but 

contend that the lower court incorrectly calculated the 

statutory penalty. 

Section 31-1-108, MCA, prescribes the penalty for 

usury. Subsection (1) reads: 

"The taking, receiving, reserving, or 

charging a rate of interest greater than 

is allowed by 31-1-107 shall be deemed a 

forfeiture of a sum double the amount of 

interest which the note, hi 11, or other 

evidence of debt carries or which has 

been agreed to be paid thereon." 

The District Court calculated the forfeiture penalty based on 

the note's interest from the date of its making up to the 
time of trial. The note was payable on demand and such 

demand was made prior to the initiation of this action. 

Appellants assert that upon demand the note matured and thev 

cannot be penalized for usurious interest after that date. 

Obligations on the note in this case continued after 

demand was made for payment. The lender, MMJ, did not cancel 

the rights it had under the note after demand. The note, 

usurious on its face, is usurious as long as its original 

existence continues. In order to purge the note of usury, it 

has to be wholly abandoned and a new obligation undertaken. 

The lender in this instance did not abandon obligations prior 

to trial and now claims amounts outstanding on the usurious 

note. 

There is precedent for calculating the usury penalty by 

assessing interest up to the time of trial. In Bermes v. 

Sylling (1978), 179 Mont. 448, 587 P.2d 377, this Court found 

the District Court acted properly when it simply doubled the 

amount of interest which the lender had charged the borrower 

up to the date of trial and subtracted the amount from the 

principal of the note. The fact that the lender in Bermes, 

like MMI, had made a prior demand for payment was not dispositive. Where the indebtedness on a usurious loan remains 

uncanceled up to the time of trial, assessment of the usury 

penalty up to that date is proper under section 31-1-108, 

MCA . 

Appellants' third issue concerns the award of attorney 

fees to defendants for their defense of the promissory note. 

The usury penalty which we have affirmed totaled $2,656.94. 

The defendants were awarded a refund from MMI to the extent 

that this penalty exceeded the $2,000 balance due on the 

note. After awarding $656.54 to defendants, the District 
Court found them to be the prevailing party for the purposes 

of section 28-3-704, MCA, and awarded an additional $750 in 

attorney fees. 

Section 28-3-704, MCA, provides: 

"Contractual right to attorney fees 

treated as reciprocal. Whenever, by 

virtue of-the provisions of any contract 

or obligation in the nature of a contract 

made and entered into at any time after 

July 1, 1971, one party to such contract 

or obligation has an express right to 

recover attorney fees from any other 

party to the contract or obligation in 

the event the party having that right 

shall bring an action upon the contract 

or obligation, then in any action on such 

contract or obligation all parties to the 

contract or obligation shall be deemed to 

have the same right to recover attorney 

fees and the prevailing party in any such 

action, whether by virtue of the express 

contractual right or by virtue of this 

section, shall be entitled to recover his 

reasonable attorney fees from the losing 

party or parties." 

Appe1.lants brought the action on a note which included an 

express right to collect fees; the statute set forth above 

grants defendants a reci-procal right if they prevail. At 

issue is the proper construction of "prevail-ing party" for 

purposes of the statute. 

No one factor should be considered in determining the 

prevailing party for the purpose of attorney fees. The party 

that is awarded a money judgment in a lawsuit is not necessarily the successful or prevailing party. However, this 

Court agrees with those jurisdictions that have found the 

a.ward of money to be an important item to consider when 

deciding who, in fa.ct, did prevail. Ocean West Contractors 

v. Halec Const. Co. (1979), 123 Ariz. 4701 600 P-2d llo2- 

Here, MMI brought suit to recover sums due it on a note 

usurious on its face. The usury penalty assessed MMI resulted not only in a denial of recovery, but an adverse award. 
The net judgment was in favor of defendantc. The party that 

survives an action involving a counterclaim, setoff, refund 

or penalty with the net judgment should generally be considered the successful or prevailing party. Moss Construction 

Co. v. Wulffsohn (1953), 116 Cal.App.2d 203, 205, 253 P.2d 

483, 485; Szoboszlay v. Glessner (1983), 233 Kan. 475, 664 

P.2d 1327. On the facts presented and viewing the action on 

the note in its entirety, the defendants were properly found 

to he the prevailing party. 

The primary contention of appellants is that MMI was 

wrongly held liable on the contract between Terra-Spread and 

Agricultural Management Services. We affirm the District 

Court's judgment finding MlII liable. 

The first basis of our holding is that Aqricultural 

Management Services is arguably a division of the corporation 

MMI. Secondly, even if Agricultural Management Services were 

considered synonymous with the corporate entity, ECA, this 

entity has been controlled and used by MMI to avoid its 

contractual obligation with Terra-Spread. In light of this 

had faith we would find the parent corporation, MMI, fully 

liable for damages flowing from the breach. 

The contract at issue was signed by John Toenyes for 

the subcontractor Terra-Spread and Linn Stordahl "for Agricultural Management." Agricultural Management, fully known 

as Agricultural Management Services, Tnc. (hereinafter "AMS") 

is not a reqistered corporation despite the obvious representation. As established at trial, the name AMS has been used 

as a registered trade name for ECA, as well as a business 

name for several other companies owned by MMI. Furthermore, 

AMS is identified on the contract stationary, business liter- 
ature and advertisements as "A Division of MMI, A Montana 

Based Corporation." 

Consequently, there is uncertainty as to just what 

corporation was bound by the fertilizer agreement when 

Stordahl signed, for "Agricultural Management." Stordahl, 

who prepared the agreement, was a vice-president and director 

of MMI at the time the contract was executed. He was unsure 

at trial whether AMS was a corporation or whether he was an 

officer or director of ECA. The contract is ambiguous and 

must be construed against whomever caused the uncertainty to 

exist. Section 28-3-206, MCA; Shanahan v. Universal Tavern 

Corp. (1978), 179 Mont. 36, 585 P.2d 1314; Lauterjung v. 

Johnson (1977), 175 Mont. 74, 572 P.2d 511. In this case that 

party is MMI. MPJlI through its business practices permitted 

AMS to he loosely used as a collective term encompassing 

several subsidiaries, a trade name for ECA, and a division of 

MMI. The uncertainty in the contract under which MMI now 

attempts to escape liability is attributable to no party but 

itself. FJe therefore affirm the finding of the District 

Court that the primary intent of Stordahl was to bind MMT as 

principal. 

Assuming arguendo that the contract technically bound 

ECA, we will not allow the parent corporation to hide behind 

the veil of its subsidiary and escape contractual 

obligations. 

ECA was so identified with MMJ in this transaction that 

the subsidiary and parent can be viewed as one and the same 

corporation. MMI owned 100 percent of the capital stock of 

ECA. Virtually all corporate formalities were abandoned by 

ECA prior to execution of the contract. There were no 

minutes of meetings of either stockholders or directors of 
ECA after August 1977. Each of ECA's directors was also a 

director of MMI. It was in the course of a meeting of the 

MMI Board of Directors that the fertilizer spreading agreement was initially proposed. As far as ECAfs capital is 

concerned, IQ1I routinely transferred funds from ECA to its 

own account; ECA's and AMS's bank accounts were managed by 

MMI. At the time of contract, ECA was seriously undercapitalized, owed MMI $1,452,076 and the value of its assets were 

pledged to MIII as security. Finally, ECA's operations were 

financed by MMI. 

With these indicia of control and domination by MMI 

present, its identity with ECA for the purposes of piercing 

the corporate veil is established. The District Court was 

correct in finding ECA the alter ego of its controlling 

shareholder MMI. 

Before a corporate entity can be disregarded or pierced 

there must be e further showing of "subterfuge to defeat 

public convenience, to justify wrong or to perpetrate fraud." 

Flemmer v. Ming (Mont. 1980), 621 P.2d 1038, 1042, 37 St.Rep. 

1916, 1919, quoting from State ex rel. Monarch Fire Ins. Co. 

v. Holmes (1942), 113 Mont. 303, 308, 124 P.2d 994, 996. Our 

holdings in Flemmer and Monarch do not require a positive 

showing of fraud before the corporate form can be set aside. 

Despite appellants' arguments to the contrary, we have previously found a showing of bad faith sufficient to pierce a 

corporate veil. In Stromberq v. Seaton Ranch Company (1972), 

160 Mont. 293, 502 P.2d 41, the beneficial owner and alter 

ego of a ranch corporation was found personally liable when 

she attempted in bad faith to avoid a broker's commission on 

a ranch sale. In Stromberg, as in the present case, there 
was no specific finding of fraudulent intent. See, Brewster, 

Piercing the Corporate Veil, 44 Mt. L. R. 91, 99 (1983). 

After the expiration of the fertilizer contract, WII 

transferred the assets of ECA to its own books in partial 

cancellation of debt owed MMI. ECA effectively ceased business. Consequently, ECA has no assets from which to satisfy 

a judgment. MMI has attempted to use the shell subsidiary 

ECA, its alter ego, to avoid its contractual obligations to 

Terra-Spread. Such bad faith amply justifies piercing the 

corporate entity of ECA and assigning liabilitv to MMI. We 

find no error in the lower court's conclusion of law that the 

fertilizer contract effectively hound WNI. MMI cannot escape 

contractual liabil-ity by asserting that it is not personally 

liable for the obligations of AMS or ECA. 

On the issue of the calculation of the damage award, 

the parties agree on the applicable law. Both appellants and 

respondents acknowledge the general rule that when overhead 

or operating expenses are saved as a result of a breach, the 

proper measure of recovery is net, not gross, profit, and 

when such expenses are constant and no savings occurs, the 

rule is otherwise. Rronken's Goodtime Co. v. J. W. Brown 

(Mont. 1983), 661 P.2d 861, 865, 40 St.Rep. 549, 553. 

Overhead attributable to a particular contract may be 

found to be an avoided cost of performance following a contractual breach. A. T. Klemens and Son v. Reber Plumbing and 

Heating Co. (1961), 139 Mont. 115, 360 P.2d 1005. However, 

where overhead costs are ongoing, negligible or otherwise 

unaffected by a particular performance, they need not be 

considered ~rhen a contractual breach prevents performance. 

At issue is whether the District Court excluded from 

the damage award all the avoided costs of performance. 
Specifically appellants claim that the equipment lease rental, salaries of Toenyes and Robb, and certain overhead 

expenses were erroneously omitted from the District Court's 

calculation of avoided costs. 

The District Court made findings of fact that 

Terra-Spread would have incurred additional expenses for 

fuel, food and lodging, repair and maintenance, and labor. 

These "saved" expenses totaled $12,128.32 and were deducted 

from the $96,122.19 due Terra-Spread on the contract to 

arrive at the $83,993.87 damage award (absent the additional 

offsets for interest on the fuel. bill and credit for overpavment on the promissory note). 

Toeynes testified that the omitted expenses of equipment lease and overhead would not have increased if 

Terra-Spread had spread all the 4,000 tons of fertilizer 

guaranteed by the contract. The financial obligations on the 

spreaders and tender trucks were made prior to performance 

and survived the breach. The cost of Terra-Spread's overhead 

largely remained constant. 

The District Court received appellants' evidence that 

suggested Terra-Spread would have realized no profit had the 

contract been fully performed. However, in reviewing findings of fact in a civil action tried without a jury, this 

Court may not substitute its judgment in place of the trier 

of facts. Our function is confined to determini-nq whether 

there is substantial credible evidence to support the court's 

findings. We view the evidence "in a light most favorable to 

the prevailing party, recognizing that substantial evidence 

may be weak or conflicting with other evidence yet still 

support the findings." Lacey v. Herndon (Mont. 1983), 668 

P.2d 251, 255, 40 St.Rep. 1375, 1380. In light of Toeynes' 
testimony we conclude there was substantial evidence from 

which the District Court could conclude that all of 

Terra-Spread's avoided costs were properly excluded from the 

award. 

Our holding is consistent with our recent decision in 

Bronken' s Goodtime Co. , supra. We remand.ed that case when 

the District Court failed to offset the gross profit awarded 

with expenses associated with the sale of defendant's wine: 

labor, gas, insurance and accounting. In the present case, 

there was no such failure. The District Court here made the 

deductions for the increased costs that it felt were established by the evidence. 

Finally, appellants argue that the trial court failed 

to make findings with regard to Terra-Spread's duty to mitigate. This issue was not raised in the pleadings or otherwise at trial. The issue was raised tangentially within a 

post-trial motion and need not be considered by the Supreme 

Court. Huggans v. Weer (Mont. 1980), 615 P.2d 922, 925, 37 

St.Rep. 1512, 1515. 

Mitigation of damages is properly considered a defense. 

The burden of pleading and proving mitigation falls on the 

party defending the contractual claim of breach, the appellants in this case. See, A. T. Klemens -- and Son, 139 Mont. at 

125, 360 P.2d at 1010. Appellants failed to carry the burden 

in this case. The record. below is devoid of testimony on the 

issue. Appellants' reliance on our holding in Rronken's 

Goodtime - Co. , supra, is misplaced.. The trial record in 

Bronken ' s Goodtime Co. , was replete with testimony on the 

issue of plaintiff's failure to mitigate the loss on his wine 

inventory. Here, the transcript's silence on the issue of 
mitigation provides proof of appellants ' failure to properly 

raise the i-ssue. 

This cause is remanded to the District Court to amend 

its judgment consistent with our holding that appell-ants are 

due 18 percent annual interest on the outstanding fuel bill, 

beginning thirty days after the date of the original invoice 

and ending on the date of this decision. As to all other 

ma.tters, the judgment of the District Court is affirmed. 

a;-, 

Chief Juktyce 

We concur: