No. 86-170 INTHE SUPREME COURT OF THE STATE OF MONTANA 1986

LARRY LEE DILLREE and BARBARA ANN DILLREE, Plaintiffsand Appellants,

CLAYTON E. DEVOE, Defendantand Respondent.

APPEAL FROM: DistrictCourtof theFourth JudicialDistrict, Inand for the Countyof Missoula, TheHonorableDouglasHarkin, Judge presiding.

COUNSEL OF RECORD:

For Appellant: ByronW. Boggs, Missoula, Montana

For Respondent: DavidRodli, Missoula, Montana

Submittedon Briefs: May 30, 1986 Decided: August 21, 1986

Filed:Mr. Justice Fred J. Weber delivered the Opinion of the Court.

The Dillrees appeal the decision of the District Court for Missoula County declaring certain transactions between the parties to be sales rather than loans and awarding Mr. Devoeproperty and attorney fees. We affirm. The issues are: 1. Did the trial court err in concluding that the transactions were sales rather than secured loans, and in doing so did it fail to apply the principles of Murray v. Butte-Monitor Tunnel Mining Co. (1910), 41 Mont. 449, 110 P. 497? 2. Did the trial court err in holding that the transactions at issue were not usurious secured loans of money? 3. Did the trial court err in holding that the Montana Consumer LoanAct doesnot apply to the transactions? 4. Did the trial court err in awarding attorney fees to Mr. Devoe? In this case, the parties presented directly contradictory evidence in a trial to the District Court, sitting without a jury. The court entered extensive findings and conclusions. It found that the Dillrees had been self-employed in the logging business since 1969. They had owned a number of skidders, tractors, trucks, loaders and vehicles and had obtained financing from six banks and three credit and acceptance corporations. Inmany of these,equipment or vehicles had served as collateral. As a businessman for 16 years Larry Dillree knew that titled property is not held in the name of a lender during the repayment period, that bills of sale on untitled equipment are not provided to a lender, and that a borrower need not obtain reconveyance. He wasaware that the functionof abill of sale is to convey ownership and that one executes a Montana certificate of title only when selling or transferring ownership of motor vehicles. Barbara Dillree demonstrated knowledge of the same facts. In the fall of 1984 the Dillrees were in financial distress and attempted to secure loans from several banks, but were turned down. Larry Dillree approachedMr. Devoe,to whom the Dillrees had several years before sold a contract for deed on some real estate. Mr. Devoe purchases contracts in seven western states, but was not in the business of loaningmoney. The court found that LarryDillree initially requested a loan. Mr. Devoe refused the loan, statinghe was not in the business of loaning money. After being told that Mr. Devoe

was in thebusiness ofbuying property,Mr. Dillree suggested he would sell certainproperty if he could be assured of the opportunity of buying itback. Itwas agreed that two items of property, a 1979 double-wide mobile home and a 30-foot boat,would be purchased for $5,000. Itwas also agreed that the Dillreeswould retain possession of theproperty. After Larry Dillree had taken the titles and a written "Lease-Rental Agreement" home overnight, he and Barbara Dillree executed the lease-rental agreement. Prior to receiving the $5,000, Mr. Dillree provided Mr. Devoe the necessary lien releases and accompanied Mr. Devoe to the county courthouse to transfer the titles to the mobile home and boat. The parties intended that in six months the Dillreescouldpay Mr. Devoe $6,000 and receiveback title to themobile home and theboat.In December 1984 Larry Dillree requested another $2,000 fromMr. Devoe. A second agreementwas reached in which Mr. Devoe took title to a 1968 White truck tractor with log loader and a 1978 Trapper travel trailer. The agreement called for a payment of $2,200 in one month's time. It was also memorialized in a written "Lease-Rental Agreement." Neither of the obligations were paid in a timely fashion. The Dillrees were unable to make any payments except for $1,500. In May 1985,Mr. Devoe demanded they surrender all fourpieces of property. None of the property, with the exception of the mobile home, had been kept in Ovando as required in the written agreements. At the time of trial, Mr. Devoe did not know the whereabouts of the travel trailer

or the truck tractor. The Dillrees filed a complaint and petition for temporary restraining order alleging fraud, usury,breach of good faith and fairdealing,and outrageous conduct. A hearingwasheld, and the District Court concluded that the parties entered into valid contracts by which property was sold to Clayton DeVoe subject to an intended repurchase provision not actually reduced to writing. The court concluded that the subject transactions were not fraudulently arranged, were not loans of money by Clayton Devoe, andwere notusurious transactions. The District Court entered judgment in favor of Mr. Devoe and awarded him the immediate right to possession of the mobile home, the boat, the travel trailer and the White truck tractor. I Did the trial court err in concluding that the transactions were sales rather than secured loans, and in doing so did it fail to properly apply the principles of Murray v.Butte-Monitor Tunnel Mining Co. (1910),41Mont. 449, 110 P. 497?The Dillrees argue that these transactions were not sales. They point out that this Court has listed four factors which, if present, tend to confirm the view that a transaction is a security arrangementor a mortgage and not a sale. The four factors are: 1) the transaction in its inception had for its purpose a loan, not a sale; 2) the grantorwas in financial distress at the time of the transaction; 3) the price appears to have been grossly inadequate; and 4) according to the grantee's own theory,the transaction did not amount to an absolute sale, but to a conditional sale, that is, a sale with an option to repurchase. Bermes

v. Sylling (1978)

## , 179 Mont. 448, 458, 587 P.2d 377, 383, citing Murray v. Butte-Monitor Tunnel Mining Co. (1910), 41 Mont. 449, 110 P. 497. The Dillrees' position is that these four factors are present in this case,and that the District Court's judgment should be reversed. We initially point out that in both the Murray and the Bermes cases,this Court upheld the trial court's findings of fact that the questioned transactionswere loans and that the four factors were present. Here, the fact-finder did not conclude that the transactions were loans. Theparties agree that factors (2)and (4)were present. It isundisputed that the Dillreeswere in financial distress,and Mr. Devoe characterized the transactions as sales with options to repurchase. However, it is not agreed that factors (1) and (3) were present, and the District Court did not find that all four factors were present. Our standard of review of findings of fact is whether the District Court's findings areclearly erroneous. Lacey v. Herndon (Mont. 1983), 668 P.2d

The District Court's finding which goes to factor (1)

## , the purpose of the transaction,was:

Just prior to October 15, 1984, Larry Dillree contacted Clayton Devoels business, initially speaking on the telephone to Mr. Devoe's son, Charles, to request a loan for the purpose of preparing his business equipment for sale in the Spring. Mr. Devoe refused to loanMr. Dillree the money, stating that Mr. Devoewas not in the business of loaning money. The refusalwas in keeping with Mr Devoe's normalbusiness practice, thoughhe regularly is asked for loans ofmoney. After being told by Mr. Devoe that he was in the business of buying property, Mr. Dillree suggested that he would sell certain property to Mr. Devoe if he could be assured of the opportunity of buying it back at the expiration of six months. Mr. Devoe agreed

# ... Mr. Devoelstestimony supported the above finding of fact. He testified thathe conveyed toMr. Dillree thathe "didnot loan money ever," and that itwas Mr. Dillree who brought up the idea of a sale of some of the Dillrees' property with a right of repurchase. We conclude there is substantial evidence that the transactions did not in their inceptionhave for theirpurposes loans. The values of the mobile home,boat, truck tractor,and travel trailer were disputed, and the Dillrees claim factor

(3)was present because their values far exceeded the amount of money received fromMr. Devoe. The adequacy of consideration is tested by the conditionsexisting at the time of the transaction. Boysun v. Boysun (1962), 140Mont. 85, 89, 368 P.2d 439, 441. A Missoula mobile home dealer testified that the value of the mobile home, which would have to be moved from Ovando on a repossessed, cash basis sale, would not significantly exceed $5,000. The boat had its flooring out and, according to Mr. Devoe, had little if any value. Weconclude that there was substantial evidence to support the District Court's finding that $5,000 would not significantly exceed the actualvalue of the mobile home and that "theboat in its present condition would be difficult to sell at any price.

### " Mr. Devoe testified at the time of trial thathe had not located either the truck tractor or the travel trailer. He testified that based on his knowledge of automobiles in general,hewas suspiciousofplacing anyvalue on theunseen truck tractor. He estimated the value of the travel trailer at $2,000. It is true that the Dillreespresented testimony of higher values for both the truck tractor and the travel trailer. However, we conclude that there was substantial evidence to support the finding that Clayton Devoe reasonably assumed "that any sale price that might be had if he took possession of [the truck tractor and travel trailer] would not significantly exceed $2,200." We conclude that the District Court did not err in failing to find that the four factors listed in Murray were present. I1 Did the trial court err inholding that the transactions at issue were notusurious secured loans ofmoney? The trial court concluded that 

### "[tlhe subject transactions were not loans of money by Clayton Devoe and were not usurious transactions." TheDillrees cite theprinciple from Bermes, 587 P.2d at 383, that a transaction which resolves itself into a secured transactionwill be treated as a mortgage,whatever name is given itby theparties. The instant case differs from Bermes in that it involves personal, not real, property. In Bermes, the Court went on to discusstests which indicate whether a deed should be treated as a secured transaction. The first test cited in Bermes is the four-factor test discussed under issue one. We have held that the District Court properly concluded that testwas not met. We conclude that the District Court did not clearly err, because under the four-factor test, these transactions donot resolve themselves into secured transactions. TheDillrees next argue that these transactions meet the definition of loansunder § 31-1-101,MCA:

Loan ofmoney--what constitutes. A loan of money is a contractby which one delivers a sum ofmoney to another and the latter agrees to return at a future time a sum equivalent to that which he borrowed. A loan formere use is governed by the law on loan foruse. The contracts as described in Mr. Devoe's testimony, which

was relieduponby the District Court,were sales ofproperty with the opportunity for the Dillrees to repurchase it. They do not fit the above definition. The Dillrees also contend that these transactions amounted to secured transactions under 5 30-1-201(37), MCA: 

### "[aln agreement that upon compliance with the terms of the lease the lessee shall become orhas the option tobecome the

owner of the property for no additional considerationor for a nominal considerationdoesmake the lease one intended for security." That statement describes the titleof thewritten agreement combined with the oral understanding that the Dillreeswould regain title to the property upon payment of the "lease" amounts. But theparties agree that the written agreement does not accurately reflect their contract. The identification of the agreement as a "lease agreement" is clearly inaccurate. It is more accurately described as a sale with right of repurchase.Since we have concluded the District Court properly found that the transactions were not loans, we need not consider the contention that the transactionswere usurious loans. I11 Did the trial court err in holding that the Montana Consumer LoanAct doesnot apply to the transactions? We have upheld the trial court's conclusion that no loans were made. The Montana Consumer Loan Act, Title 32, Chapter 5,MCA, applies topersons engaged in the business of making loans ofmoney. We need not address this issue further. We affirm the trial court. IV Did the trial court err in awarding attorney fees to Mr. Devoe? The Dillrees' complaint alleged violations of the Montana Unfair Trade Practices and Consumer Protection Act, S 30-14-101, et seq., MCA. Section 30-14-133(3),MCA states that, "In any action brought under this section, the court may award the prevailing party reasonable attorney fees incurred in prosecuting or defending the action." The District Court concluded that I'[tlheprovisions of the Montana Unfair Trade Practices and Consumer Protection Act do not apply to the subject matter of this action" and that "[plursuant to the provisions of the Montana Unfair Trade Practices and Consumer Protection Act, Defendant is entitled to his reasonable attorney's fees for defending the action

# ..

# ." The Dillrees argue that attorney fees should not be awarded toMr. Devoebecause he did not prevail on the main issue in controversy and because the court concluded the Act did not apply. Mr. Devoe prevailed on the counts offraud, usury, breach of good faith and fair dealing, and outrageous conduct. His title in the property was affirmed. We conclude that Mr. Devoe is the prevailing party in this action which was brought under the Unfair Trade Practicesand Consumer ProtectionAct, and that theDistrict Courtproperly awarded him reasonableattorney fees. A£firmed

# .

We Concur: