NO. 82-238 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1983 

MICHAEL J. LEMLEY, 

Plaintiff and Appellant, 

VS. 

BARBARA ALLEN, d/b/a 

CACTUS RECORDS, 

Defendant and Respondent. 

Appeal from: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin 

Honorable W. W. Lessley, Judge presiding. 

Counsel of Record: 

For Appellant: 

Bridger Law Office, Bridger, Montana 

Joseph E. Mudd, Bridger, Montana 

Rodney Schwasinger, Bozeman, Montana 

For Respondent: 

Landoe-Brown Law Firm, Bozeman, Montana 

Submitted on briefs: November 5, 1982 

Decided: February 24, 1983 

Filed: 

FEB 2 4 I983 

e& fq, L~&--,/ 

Clerk 
. Mr. Justice Fred J. Weber delivered the Opinion of the 

Court. 

Michael Lemley brought an action in the District Court 

of the Eighteenth Judicial District, Gallatin County, against 

his lessee, Barbara Allen. Lemley sought declaratory relief 

and unspecified damages for Allen's failure to vacate the 

leased premises. Allen counter-claimed, alleging that Lemley 

had converted the premises to his own use and violated her 

peaceful possession. Allen sought $12,000 in general damages 

and $50,000 in punitive damages. The case was tried to the 

judge, who found for Allen. The judge awarded Allen no 

general damages, but did award her $500 in punitive damages, 

plus attorney fees and costs. Lemley appealed. We affirm in 

part and reverse in part. 

Appellant Lemley leases a portion of the Baxter Hotel in 

Bozeman. On March 10, 1978, he and respondent Barbara Allen 

entered into a sub-lease agreement whereby Allen leased an 

area in the basement of the Baxter Hotel from Lemley. The 

sub-lease was for a five-year term and the lease payment wa.s 

originally set at $150 per month. In the fall of 1979 Allen 

decided that she would like to lease more of the basement 

from Lemley. Lemley agreed to lease the additional space, 

and he and Allen orally agreed that the lease payment should 

be raised to $220 per month. Allen began paying this amount 

in January of 1980. 

On January 9, 1980, Lemley executed and delivered to 

Allen a new sub-lease. The term was five years, although the 

term began on March 10, 1978. The new lease reflected the 

new increase in lease payments, but was otherwise essentially 

the same as the previous lease. Allen gave the lease to her 

attorney, who suggested certain changes. The changes were 
not acceptable to Lemley. No further negotiations took 

place. Allen continued in possession and made her $220 

payments, which were accepted by Lemley. 

In late July of 1980 Allen had a telephone conversation 

with Lemley in which she told him that the changes in the 

lease that her attorney had requested weren't that important 

to her and that she would sign the lease and deliver it to 

him. The signed lease was mailed to Lemley in early August. 

Lemley called Allen after he received the lease in the mail 

and told her that he understood that she intended to move her 

business to a different location. Allen confirmed this and 

asked Lemley if he wanted the premises returned to him. 

Lemley said he wasn't sure. Several weeks later Lemley 

called Allen and told her that she must vacate by September 

20 because he had found another sub-lessee. Allen had been 

negotiating with several potential sub-lessees herself, and 

told Lemley that she thought that she and he had a valid 

lease. Lemley disagreed and said that only a month-to-month 

lease was in effect. Lemley's attorney sent Allen a letter 

on September 5 telling her that she was in anticipatory 

breach of the lease because she intended to move. On October 

9 Allen was sent another letter telling her that the only 

lease in effect was a month-to-month oral agreement, and that 

as of November 9 her rent would be $687.50 per month. 

(Lemley had become aware in the late summer that his own 

lease payments would increase substantially in January 1981.) 

Allen continued to pay $220 per month up to the time of trial 

in January 1982. Lemley accepted all of these payments. 

Trial was had on Janua.ry 14, 1982. The judge found that 

the parties had orally amended the original lease, and that 

the original lease with oral amendment was in effect until 

Allen's execution and return of the second lease, which 
constituted a valid. acceptance of that lease. The judge held 

that Lemley had disregarded Allen's right to peaceful 

possession. Allen was awarded $500 in punitive damages plus 

attorney fees. The judge found that there was insufficient 

evidence to warrant an award to Allen for lost rents caused 

by her inability to sublet the premises. 

Lemley appealed, and raises the following issues: 

(1) Was there a valid written lease between the 

parties? 

(2) Was an award of punitive damages proper? 

(3) Was an award of attorney fees proper? 

(4) Were costs properly allowed? 

The judge was correct in finding that the parties had 

orally modified the original lease. A contract in writing 

may be modified by an executed oral agreement. Section 

28-2-1602, MCA. An oral agreement modifying a written 

agreement is executed when its terms have been fully 

performed. Here, Lemley allowed Allen to use more space, and 

she in turn paid more rent. We have previously held that an 

executed verbal agreement to expand the leased premises and 

increase the rental payments modifies a lease agreement. 

Kosena v. Eck (1981), Mont . , 635 P.2d 1287, 1291, 38 

St.Rep. 1736, 1740. Therefore, the original lease was 

modified (but still in effect) in January 1980. 

The judge was also correct in finding that Allen's 

execution of the second lease in July resulted in a validly 

executed contract. Allen never rejected Lemley's offer. At 

most, she had her attorney make an inquiry in regard to the 

possibility of other terms. Such an inquiry does not 

constitute a rejection. W. Jaeger, 1 Williston - on Contracts 

551 at 166, (3rd ed. 1957) . Furthermore, Lemley did nothing 

to revoke his offer. Section 28-2-512, MCA. Although it is 
true that a considerable period of time passed before 

acceptance by Allen, it was not an unreasonable time under 

the circumstances. The parties were operating under an 

orally modified written agreement that was in most respects 

identical to the second agreement. The passage of time did 

not work a revocation. 

The District Court was correct in finding that the 

written leases were effective. The parties were not 

operating under a tenancy at will, and Lemley did not have 

the power to order Allen to vacate or to raise her rent. 

Appellant Lemley argues that the award of punitive 

damages was improper, and we agree. Allen's counter-claim 

was based upon Lemley's supposed conversion of the premises 

and interruption of Allen's peaceful possession. Conversion 

and interruption of peaceful possession both sound in tort, 

and may be proven in order to establish a cause of action 

independent of the contract, which could support punitive 

damages. However, Allen could not be awarded punitive 

damages upon her theory of conversion, because conversion is 

a tort applicable to personal chattels, and any interference 

with her leasehold interest would have been interference with 

a real chattel. Nor does the record support an award of 

punitive damages upon her theory of interference with 

peaceful possession. Allen told Lemley in August that she 

would be moving out in October. There is no indication in 

the record that Lemley's actions caused Allen to vacate the 

premises sooner than she had planned. While it is true that 

Lemley would not agree to allow Allen to sub-lease to a third 

party after she moved, that was his right under the 

agreement. There has been no proof of tortious conduct by 

Lemley . 
In the absence of tortious conduct, an award of punitive 

damages based upon a simple contract action cannot stand. 

Section 27-1-221, MCA; section 27-1-311, MCA. Punitive 

damages should not have been allowed. 

Appellant's third issue, which challenges attorney fees, 

is totally without merit. Both leases contained this clause: 

"In the event that either of the parties is 

required to bring an action at law, then the 

prevailing party shall be entitled to recover all 

costs including a reasonable attorney ' s fee, costs 

of discovery and court costs necessary in 

prosecuting the action." 

A request for attorney fees was contained in Allen's answer. 

Allen prevailed in her defense. Obviously, the award of fees 

was proper. 

It is Lemleyls final contention that costs should not 

have been allowed to Allen because no memorandum of costs was 

served upon him. Section 25-10-501, MCA provides that " [tlhe 

party in whose favor judgment is rendered and who claims his 

costs must deliver to the clerk and serve upon the adverse 

party . . . a memorandum of the items of his costs and 

necessary disbursements in the action. . . " This Court has 

held that the statute governing costs must be strictly 

followed, and a failure to serve a memorandum upon the 

adverse party deprives the district court of jurisdiction in 

the matter. Riddell v. District Court (1906), 33 Mont. 529, 

85 P.367. The award of costs was improper and must be 

reversed. 

We must note that the respondent has attempted use of 

Rule 14, Montana Rules of Appellate Civil Procedure, to 

challenge the failure of the District Court to award her 

actual damages. The respondent did not cross-appeal. 

"Although Rule 14 provides for review of matters by 

cross-assignment of error, this does not eliminate 

the necessity for cross-appeal by a respondent who 

seeks review of rulings on matters separate and 
distinct from those sought to be reviewed by the 

appellant. [citation.] A respondent who has not 

cross-appealed may not seek a determination of the 

amount involved more favorable to him than that 

made bv 4 the court below." Johnson v. Tindall 

(1981) Mont. , 635 P.2d 266, 268, 38 St.Rep. 

1763, 1766. 

The portions of the judgment which awarded punitive 

damages and costs are reversed. The cause is remanded for 

appropriate amend-ment of the judgment. 

We concur: