No. 84-190 

IIJ THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

MARTIN DEVELOPMENT CO., a corp., 

et al., 

Defendant and Respondent, 

KEENEY CONSTRUCTION CO., 

a Montana corp., 

Plaintiff and Appellant, 

MOUNTAIN WOOD APARTMENTS and 

WALTER PESCHEL, et al., 

Cross-Defendant and Appellant. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable Robert Boyd, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Larry Elison argued, Missoula, Montana 

For Respondent : 

Donald V. Snavely argued, Missoula, Montana 

Submitted: March 15, 1985 

Decided: [day 24, 1985 

Filed: MAY 2 4: 1985 

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

Court. 

In the action below, Martin Development Company, Inc. 

("Martin") sought to recover damages from Walter H. Peschel 

("Peschel") , an individual, and Mountain Wood Apartments 

("Mountain Wood"), a limited partnership, for breach of a 

construction contract. The District Court of the Fourth 

Judicial District, Missoula County, sitting without a jury, 

the Honorable Robert J. Boyd of the Third Judicial District 

presiding, found for Martin and awarded lost profits, interest, and attorneys' fees. From this judgment Peschel and 

Mountain Wood appeal. 

In 1977, Dr. Walter Peschel undertook negotiations with 

Charles Isaly for the construction of an apartment complex 

known as the Mountain Wood Apartments. Dr. Peschel negotiated as the sole general partner of Mountain Wood Apartments, a 

limited partnership. Charles Isaly negotiated as the managing agent for Martin Development Company, a general construction contractor. The negotiations culminated on or about 

June 5, 1978, when the parties orally agreed to a constuction 

contract known as the MacDonald Agreement. 

The majority, but not all, of the financing for the 

apartment project ("project" ) came from a loan from 

Washington Mortgage Company, Inc. ("Washington Mortgage") of 

Seattle. This loan was guaranteed by the United States 

Department of Housing and Urban Development, Federal Housing 

Administration ("HUD") . Because of this guarantee, Peschel 

and Martin signed a HUD form constuction contract on June 6, 

1978. There are no disputes regarding this contract. 

The loan from Washington Mortgage did not cover the 

entire cost of the project because Peschel wanted to build a 

complex of higher quality than could be constructed with the 
HUD insured funds. Peschel understood that the HUD loan 

would be at least $100,000 short of the amount necessary to 

build the project he desired and that he would have to make 

up the difference. Terms concerning the extra funding required above the HUD loan were contained in the MacDonald 

Agreement. 

Construction commenced on the project in July of 1978. 

Shortly thereafter problems arose concerning Peschel's obligations to fund the cost shortages during the course of 

constuction. Negotiations to resolve the problems were 

undertaken by Peschel, Isaly, and their respective attorneys. 

A crisis stage in the negotiations was reached in late summer 

of 1979 when most subcontractors refused to work due to 

nonpayment of their bills. On October 2, 1979, Washington 

Mortgage gave notice that Peschel had defaulted on the loan 

and indicated that it intended to assign the loan to HUD. 

The halt in construction and the notice of default resulted 

in intense negotiations between the parties. A written 

agreement entitled Addenda No. 1 ("Addenda") was concluded 

and signed on November 10, 1979. The Addenda resolved all 

disputes existing between the parties as of that date, and 

released and discharged the parties from claims arising out 

of prior disputes. Paragraph 14 of the Addenda states that 

the "Addenda and the agreement and Exhibit attached hereto 

constitute the entire agreement between the parties." After 

execution of the Addenda, construction resumed on the 

project. 

On December 7, 1979, approximately one month after the 

signing of the Addenda, construction Draw No. 13 was mailed. 

to Washington Mortgage. Normal time for payment of a draw 

was two or three weeks. Rut Draw No. 13 was not and has 

never been paid. The reason was that Washington Mortgage, 
pursuant to its notice of default, had assigned the loan to 

HUD. On January 24, 1980, Martin sent a notice of default to 

Peschel. The notice specified that the default resulted from 

Peschel's failure to perform acts necessary to allow payment 

of Draw No. 13. Peschel was given fifteen days to cure the 

default but did not do so. 

Trial was held in this matter on May 9th, 10th and 11th 

of 1983. The District Court issued findings, conclusions and 

final judgment on January 27, 1984. Judgment was for Martin 

and against Peschel in the amount of $72,000 plus interest. 

Lost profits accounted for $40,000 and attorneys' fees were 

awarded in the amount of $20,000. The balance ($12,000) was 

interest on the $40,000. In addition, $10.96 per day was 

assessed until satisfaction of the judgment. The court 

ordered that judgment be satisfied from a rent impoundment 

account administered by First Montana Title Company of 

Missoula. 

Peschel did not take any action to stay execution of 

the judgment. On February 6, 1984, Peschel, through his 

attorney, filed a motion for a new trial. On February 10, 

1984, Martin filed a satisfaction of judgment. On February 

23, 1984, Peschel withdrew his motion for a new trial, withdrew his attorney, and substituted himself as counsel pro se. 

On the same day he filed a notice of appeal. 

The following issues are presented: 

(1) Whether the Addenda represents the entire agreement of the parties? 

(2) Whether the District Court properly awarded 

$40,000 to Martin in lost profits? 

(3) Whether the District Court properly awarded attorneys' fees to Martin? 
(4) Whether the District Court properly awarded 

interest to Martin of ten percent on the unpaid profit? 

(5) Whether this appeal should be dismissed as moot 

for the reason that the judgment of the District Court has 

been satisfied? 

We hold that the Addenda represented the complete and 

final agreement of the parties. The introductory paragraph 

of the Addenda reads as follows: "Whereas, it being in the 

best interests of each party signatory to this agreement - to 

- set forth - in writinq - all agreements that exist - as - of 

November 7, 1979, the parties hereby agree as follows: . . ." 

(Emphasis added.) In addition, paragraph 14 of the Addenda 

begins, "This addenda and the agreement and exhibits attached 

hereto constitute the entire agreement between the parties." 

This language is unambiguous: the Addenda, and any agreement 

and exhibits attached to it, is the agreement of the parties. 

This Court has said on numerous occasions that ambiguity 

exists when a contract taken as a whole in its wording or 

phraseology is reasonably subject to two different interpretations. See e.g., Martin v. Community Gas & Oil Co. (~ont. 

1983), 668 P.2d 243, 40 St.Rep. 1385; Sounders v. Montana 

Power Co. (Mont. 1983), 662 P.2d 289, 40 St.Rep. 583. he 

above quoted language from the Addenda is not reasonably 

subject to different interpretations. The Addenda, and only 

the Addenda, controls the obligations of the parties in this 

case. Martin argues that ambiguity exists in the fact that 

paragraph 14 of the Addenda refers to an attached agreement 

when no agreement is attached. Martin further argues that 

sworn testimony establishes that the agreement to be attached 

was the MacDonald Agreement. Unfortunately, respondent 

confuses ambiguity with mistake. It may be true that the 

parties intended to attach the MacDonald Agreement but, 
because of a mistake, did not do so. If that is the case, 

however, respondent, before bringing suit, should have sought 

to reform the Addenda to make it conform to the real agreement of the parties. This was not done and it is not the 

province of this Court to entertain an action for reformation 

on appeal. 

Because the Addenda is the entire agreement of the 

parties, we refer to it in order to determine if the District 

Court properly calculated lost profit, interest on that 

profit, and attorneys' fees. 

Paragraph 3 of the Addenda provides that Martin receive 

$65,000 total profit from the project. Further, it states 

that $22,000 of that total had already been paid. At trial, 

Martin admitted receiving $3,000 additional profit since the 

conclusion of the Addenda. Therefore, at the conclusion of 

the trial $40,000 in profit provided by the Addenda remained 

unpaid. The District Court awarded that sum to Martin. We 

concur. 

Peschel argues that he was not in breach, but, assuming 

arguendo that he was in breach, he should only have to pay a 

pro rata share of lost profit, or $20,000. There is no merit 

in either of these contentions. The evidence is conclusive 

that Peschel breached his contract with Martin. At the time 

the Addenda was executed, Peschel signed a letter to an 

official of HUD indicating that Martin was not responsible 

for previous problems with the project. After the Addenda, 

- Martin resumed work on the project and continued until Draw 

No. 13 was not timely paid. When work stopped., HUD considered 

the possibility of bringing a claim against Martin's bonding 

company but concluded that such claim would fail because 

Martin was not the primary cause for the failure of the 

project. There is nothing in the record to indicate that 
Martin was either in breach, or caused the breach. While it 

is true that the Addenda does not explicitly make the payment 

of Draw No. 13 a condition of performance, it goes without 

saying that a construction contractor will not work without 

being paid. Peschel's problems with his lender were not the 

fault of Martin. Martin's obligation under the Addenda was 

to construct apartment buildings; Peschel's obligation was to 

pay for that construction. Martin was willing and able to 

meet its obligations; Peschel failed to meet his. It is the 

law in this State that a non-breaching party should be placed 

in as good a position as if the contract had been performed. 

Kirby v. Kenyon-Noble Lumber Company (1976) , 171 Mont. 329, 

558 P.2d 452. $40,000 profit was due Martin upon completion 

of the project. That amount was thus properly awarded when 

Peschel's breach prevented completion. 

The District Court properly awarded ten percent interest on the lost profit, but for the wrong reason. In paragraph 4 of its conclusions of law, the District Court stated 

that Martin was entitled to ten percent interest per annum on 

the lost profits as provided by contract. There is, however, 

no provision in the Addenda., the controlling instrument in 

this case, relating to interest rates on lost profits. 

However, ten percent interest per annum on the lost profits 

is provided by section 25-9-205, MCA. The judgment of the 

District Court pertaining to lost profit and interest 

therefore remains undisturbed. 

Section 25-10-301, MCA, provides that "The measure and 

mode of compensation of attorneys and couselors at law is 

left to agreement, express or implied, of the 

parties, . . . " The trial court awarded $20,000 in attorneys' fees to Martin "pursuant to the agreement of the parties. " There is, however, no provision in the Addenda 
regarding attorneys' fees, and any prior agreement, express 

or implied, is made a nullity by the terms of the Addenda. 

Notwithstanding this, Martin argues that attorneys' fees may 

be recovered as an element of damages where the conduct of 

one party causes another party to become invloved in litigation with a third party. In support of this proposition 

Martin cites to McCarty v. Berryman (Mont. 1980) , 620 P. 2d 

1221, 37 St.Rep. 2007. In McCarty this Court affirmed the 

inclusion of attorneys' fees as part of an award of damages 

in an action for negligent misrepresentation. The statute 

relied on was section 27-1-317, MCA, titled "Breach of 

obligation other than contract." (Emphasis added.) Thus 

McCarty sounds in tort and is not authority for awarding 

attorneys' fees in a breach of contract action where such 

fees are not mentioned in the contract. The other case cited 

by Martin in support of an award of attorneys' fees is Smith 

v. Fergus County (1934), 98 Mont. 377, 39 P.2d 193. smith 

not only does not support an award of attorneys' fees in this 

case, it supports the contra.ry: 

"It is true that, in the absence of 

contractual stipulation therefore or 

statutory allowance thereof, attorneys' 

fees are not allowable in the action in 

which they are incurred . . . This rule 

precludes recovery of attorneys' fees 

paid in an action for breach of contract, 

as a part of the damages for the breach." 

Smith, 98 Mont. at 384, 39 P.2d at 195. 

(Citations omitted. ) 

The Court in Smith then distinguished the above rule by 

holding that the small amount awarded by the trial court was 

not an attorney's fee in the sense used in the rule but was 

rather an amount paid "incidentally to attorneys." Smith, 98 

Mont. at 384, 39 P.2d at 195. Whatever the merits of that 

distinction in Smith, it has no application whatever to the 

present case. The amount at issue here is large and clearly 
is for the rendering of Martin's attorneys' services in this 

litigation. It is in no way incidental. Therefore, there is 

no basis to affirm an award of attorneys' fees to Martin in 

this case. 

Finally, Martin asks this Court to rule this appeal 

moot because the judgment has been satified. We refuse to so 

rule. A cursory review of the Montana case law in the area 

of mootness indicates some confusion. A closer look, however, reveals that the confusion is more apparent than real. 

The basic rule on mootness was stated best in Montana National Bank of Roundup v. State Department of Revenue (1975), 167 

Mont. 429, 432-433, 539 P.2d 722, 724, wherein the Court 

wrote : 

"It is equally well recognized that 

payment of a money judgment by the judgment debtor does not, by itself, render 

the cause moot for purposes of appeal. A 

defeated party's compliance with the 

judgment renders his appeal moot only 

where the compliance makes the granting 

of effective relief by the appellate 

court impossible." (Citations omitted.) 

Martin contends that other and more recent cases contradict 

the rule stated in Roundup and should be followed. The cases 

cited are First Security Bank of Kalispell v. Income Properties, Inc. (Mont. 1984), 675 P.2d 982, 41 St.Rep. 212; Dahl 

v. Petroleum Geophysical Company (Mont. 1981), 632 P.2d 1136, 

38 St.Rep. 1474; and Gallatin Trust and Savings Bank v. Henke 

(1969), 154 Mont. 170, 461 P.2d 448. These cases are not in 

conflict with Roundup. In First Security Bank the defendants 

surrendered real property pursuant to a court order. They 

neither sought a stay of judgment nor requested a supersedeas 

bond. This Court dismissed the appeal as moot because it was 

not able to render the relief defendants sought. This holding is in perfect accord with the rule in Roundup, quoted 

above. In Dahl this Court was faced with a "novel appellate 
situation." 632 P.2d at 1137, 38 St.Rep. at 1475. Plaintiffs 

had prevailed below and had been awarded actual and punitive 

damages. The defendant paid the judgment for actual damages 

but appealed the punitives. The appeal was ruled moot because to rule otherwise might have placed the Court "at odds 

with the underlying grounds of the satisfied judgment," which 

the appellant had accepted. Dahl, 632 P.2d at 1137, 38 

St.Rep. at 1476. The holding in Dahl on the question of 

mootness is limited to the special fact situation of that 

case. Finally, Martin cites to Gallatin Trust and Savings 

Bank in support of the contention that this appeal should be 

ruled moot. The Court in Gallatin Trust, however, 

anticipated the rule expressed in Roundup. It was noted in 

Gallatin that in State ex re1 Hagerty v. Rafn (1956), 130 

Mont. 554, 304 P.2d 918, the Court modified the rigid rule 

that when a judgment is satisfied it passes beyond review. 

"This Court in the [Hagerty] case appeared to have set up a 

new rule to the effect that where rights of third persons are 

involved and the parties cannot be restored to their original 

position the appeal becomes moot." Gallatin, 154 Mont. at 

177, 461 P.2d at 451-452. Indeed, this rule was further 

refined in Roundup, which cited to Hagerty. Moreover, the 

holding in Gallatin, is in conformance with the rule 

expressed six years later in Roundup. Various changes of 

position occurred in Gallatin, in the course of satisfaction 

of judgment, which would have made it very difficult, if not 

impossible, for this Court to reverse. In the present case a 

simple money judgment was satisfied. No property changed 

hands pursuant to the judgment nor are there third party 

interests involved. There is no reason why this Court cannot 

grant effective relief. 
In summary, the judgment of the District Court is 

affirmed in part and reversed in part. We hold: 1. The 

Addenda represents the entire agreement of the parties. 2. 

The District Court properly awarded $40,000 to Martin in lost 

profit. 3. The District Court properly awarded ten percent 

interest on the lost profit. 4. There is no provision for 

attorneys' fees in the Addenda and therefore the District 

Court's award of attorneys' fees is reversed. 5. This 

appeal was not rendered moot because the judgment below was 

satisfied. 

We co cur: A/.;;>