Title: IFG LEASING COMPANY v SCHULTZ
Citation: N/A
Docket Number: 85-056
State: Montana
Issuer: Montana Supreme Court
Date: August 29, 1985

No. 85-56 I N THE SUPREME COURT OF THE STATE OF MONTANA 1 9 8 5 I F G LEASING COMPANY, a Minnesota C o r p o r a t i o n , P l a i n t i f f and R e s p o n d e n t , JOHN SCHULTZ, J R . , ESTHER SCHULTZ, K.O. DEK LAND COMPANY, LELAND TRAILER AND EQUIPMENT, D e f e n d a n t s and A p p e l l a n t s . APPEAL FROF4: D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , I n and for t h e C o u n t y of Y e l l o w s t o n e , T h e H o n o r a b l e C h a r l e s L u e d k e , Judge presiding. COUNSEL OF RECORD: F o r A p p e l l a n t s : B e r g e r Law F i r m ; C h r i s N e l s o n , B i l l i n g s , Montana F o r R e s p o n d e n t : L y n a u g h , F i t z g e r a l d & H i n g l e ; C h a r l e s W. H i n g l e , B i l l i n g s , M o n t a n a S u b m i t t e d on B r i e f s : May 9 , 1985 D e c i d e d : A u g u s t 2 9 , 1 9 8 5 F i l e d : ~ u t i 2 ;j 1985 C l e r k 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 I F G Leasing Company for failure to pay 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 I F G 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 to pay the rental due on June 25, 1979, and all subsequent payments. I F G 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 respondent has not been able to locate it. The parties entered into a second lease on February 27, 1979, for refrigerated trailer. Leland Trailer and Equipment, the vendor, guaranteed the performance 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 trailer was sold by Leland for the amount of $17,500. I F G and Leland entered into an agreement whereby Leland would pay I F G the sum of $17,500 for the ownership of the trailer. IFG c r e d i t e d S c h u l t z l s account i n t h e amount of $17,500. A judgment was obtained a g a i n s t Schultz i n t h e amount o f $15,553.46 p l u s i n t e r e s t a t 10% p e r annum. The District Court determined t h e interest r a t e by t h e t e r m s o f both l e a s e agreements which provided f o r i n t e r e s t on d e f a u l t t o be p a i d "at t h e h i g h e s t c o n t r a c t u a l r a t e permitted by law," and S 31-1-107 (1) , MCA (1979) which provided f o r 10% p e r annum. The t o t a l i n t e r e s t due on s a i d o b l i g a t i o n s e q u a l l e d $29,745.80 f o r t h e period between J u l y 5, 1979, and t h e d a t e o f t r i a l , November 5 , 1984. Two i s s u e s a r e r a i s e d on appeal: (1) Whether respondent f a i l e d t o m i t i g a t e h i s damages regarding t h e d i s p o s i t i o n o f t h e Leland T r a i l e r . (2) Whether respondent i s e n t i t l e d t o prejudgment i n t e r e s t a t a r a t e o f 10% p e r annurn. I n i t i a l l y , t h i s Court recognizes t h a t t h e d i s p u t e a t i s s u e i s n o t governed by t h e p r o v i s i o n s o f t h e Uniform Commercial Code. In circumstances where t h e purported l e a s e g i v e s t h e l e s s e e t h e o p t i o n t o a c q u i r e t h e leased goods upon e x p i r a t i o n o f t h e l e a s e , t h e l e a s e i s commercially i n d i s t i n g u i s h a b l e from a n i n s t a l l m e n t s a l e s c o n t r a c t , and i s governed by t h e Uniform Commercial Code. Section 30-1-201(37), MCA; F i r e Supply and S e r v i c e , Inc. v. Chico Hot Springs (Mont. 1982), 639 P.2d 1160, 39 St.Rep. 231. However, t h e f a c t s o f t h i s c a s e i n d i c a t e t h a t t h e lessee d i d n o t have t h e option t o o b t a i n t i t l e t o t h e p r o p e r t y a t no f u r t h e r charge a t t h e termination o f t h e l e a s e . Therefore, w e f i n d t h e c h a r a c t e r i z a t i o n o f t h e t r a n s a c t i o n i n t h e m a t t e r b e f o r e u s was a l e a s e o f equipment. Diede v. Davis (Mont. 1983), 661 P.2d 838, 40 S t . Rep. 394. Appellants argue t h a t t h e respondent f a i l e d t o m i t i g a t e damages by a c c e p t i n g $17,500 f o r t h e t r a i l e r . This amount i s a l l e g e d t o be less than i t s market value. M r . Schultz t e s t i f i e d t h a t a t t h e t i m e t h e t r a i l e r was taken, i t s v a l u e was between $20,000 and $22,000. The r u l e i n Montana i s t h a t a nondefaulting p a r t y i n a c o n t r a c t u a l arrangement must a c t reasonably under t h e c i r c u m s t a n c ~ s s o a s n o t t o u n n e c e s s a r i l y e n l a r g e damages caused by d e f a u l t . Diede v. Davis, supra; Town Pump, Inc. v. Diteman (Mont. 1981), 622 P.2d 212, 38 St.Rep. 54. The s u f f i c i e n c y o f t h e e f f o r t t o m i t i g a t e is a determination f o r t h e trier o f f a c t . Bronken's Good Time Company v. J. W. Brown and Associates (Mont. 1983), 661 P.2d 861, 40 St.Rep. 549. This m a t t e r was i n i t i a t e d a s a c o l l e c t i o n a c t i o n by respondent t o recover r e n t upon a p p e l l a n t s ' two equipment l e a s e s which were i n d e f a u l t . The D i s t r i c t Court i n its f i n d i n g s o f f a c t found t h e a p p e l l a n t s had d e f a u l t e d on t h e i r o b l i g a t i o n t o pay t h e r e n t a l due o n t h e two l e a s e s . A s a consequence, t h e t r a i l e r was s o l d and t h e proceeds o f t h e s a l e w e r e c r e d i t e d a g a i n s t t h e d e b t due t o respondent. The c o u r t a l s o determined t h a t both l e a s e s r e q u i r e d i n t e r e s t t o be paid on d e l i n q u e n t payments. Based upon t h e D i s t r i c t C o u r t ' s f i n d i n g s o f f a c t and conclusions o f law t h e c o u r t ordered a p p e l l a n t t o pay respondent s p e c i f i c amounts, less t h e amount c r e d i t e d a s represented by t h e s a l e of t h e t r a i l - e r , r e p r e s e n t i n g p r i n c i p a l and i n t e r e s t on t h e two l e a s e agreements. From o u r review o f t h e r e c o r d , we conclude t h a t t h e r e was s u b s t a n t i a l evidence i n t h e r e c o r d t o support t h e $17,500 v a l u e f o r which t h e t r a i l e r was s o l d , and which amount was c r e d i t e d t o t h e account o f t h e a p p e l l a n t s . W e hold t h a t t h e r e s p o n d e n t ' s e f f o r t s t o m i t i g a t e i t s damages w e r e reasonable under t h e circumstances. Appellant n e x t argues t h a t t h e l e g a l r a t e of i n t e r e s t , 6 % p e r annum, should have been assigned t o t h e o b l i g a t i o n s i n q u e s t i o n r a t h e r t h a n t h e c o n t r a c t u a l r a t e , 10% p e r annum. The District Court i n i t s f i n d i n g s o f f a c t and conclusi.ons of law s t a t e d t h a t each l e a s e e n t e r e d i n t o by t h e p a r t i e s provided t h a t : i n t e r e s t t o be paid on d e l i n q u e n t payments a t " t h e h i g h e s t c o n t r a c t u a l r a t e permitted by law." Section 31-1-107(1), MCA (1979) f i x e s t h a t r a t e a t 10% p e r annum, and is a p p l i c a b l e under t h e f a c t s and circumstances of t h i s case. The a p p e l l a n t s maintain because t h e l e a s e s do n o t s t a t e t h e amount of i n t e r e s t t o be charged on t h e s e o b l i g a t i o n s , t h e l e g a l r a t e , 6% should be a p p l i e d . Section 31-1-107 (1) , MCA (1979) , t h e s t a t u t e i n e f f e c t a t t h e t i m e o f t h e execution o f t h e two l e a s e s provided t h a t : [ t h e ] p a r t i e s may agree i n w r i t i n g f o r t h e payment o f any r a t e o f i n t e r e s t n o t more t h a n 10% p e r annum o r more t h a n 4 percentage p o i n t s i n excess o f t h e d i s c o u n t r a t e on 90-day commercia 1 paper i n e f f e c t a t t h e f e d e r a l reserve bank i n t h e n i n t h f e d e r a l r e s e r v e d i s t r i c t , whichever i s g r e a t e r , and such i n t e r e s t s h a l l be allowed according t o t h e t e r m s o f t h e agreement. Section 31-1-107(1, MCA, p r i o r t o amendment by (1981) Kont.Laws, Chapter 275, Sec. 8; (1983) Mont. Laws, Chapter 9 , Sec. 1; (1983) Mont. Laws, Chapter 567, Set. 1. Appellants p r i m a r i l y r e l y on Big Sky Livestock, Inc. v. Herzog (1976), 171 Mont. 409, 558 P.2d 1107. The c a s e involved i n t e r e s t based upon an a c t i o n on an account f o r v e t e r i n a r y drugs. The j u r y ' s award o f 10% p e r annum was reversed an.d t h e l e g a l r a t e was i n s t a t e d . However, i n t h e summary r e v e r s a l , t h i s Court d i d n o t a d d r e s s any w r i t t e n agreement o r an i n t e r e s t r a t e e s t a b l i s h e d by t h e p a r t i e s . In t h e p r e s e n t m a t t e r , t h e terms o f t h e w r i t t e n l e a s e agreement addressed t h e r a t e of i n t e r e s t . The p r o v i s i o n of t h e agreement which r e q u i r e d i n t e r e s t t o be paid on d e l i n q u e n t payments a t " t h e h i g h e s t c o n t r a c t u a l r a t e permitted by law" c l e a r l y r e q u i r e d t h e c o n t r a c t u a l r a t e a t 10% a s e s t a b l i s h e d by S 31-1-107 (1) , MCA (1979), t o apply. Accordingly, t h e o r d e r of t h e D i s t r i c t Court i s affirmed. W e concur: / I J u s t i c e s