Opinion ID: 887889
Heading Depth: 2
Heading Rank: 2

Heading: Compensation for Loss of Use Rental Payments

Text: ¶37 Performance claims the District Court erred when it failed to award Performance all the rental payments to which Performance allegedly was entitled. Performance argues that the standard terms and conditions of the Rental Agreement required Yellowstone to return the 40-ton truck in good condition or else pay for its repair or replacement before the obligation to make lease payments would cease. As this has not yet occurred, Performance claims the rental provision remains in effect, i.e., that Yellowstone owes rental payments of $12,000 per month through the present. The District Court determined that Yellowstone had fully compensated Performance when Yellowstone paid Performance $48,000 in rental payments. The District Court reasoned that as Performance had stated that it would incur an estimated $36,000 in lost rent for the time repairs would take, Yellowstone's payment covered this amount. ¶38 In reaching this conclusion, the District Court analyzed Paragraphs 5 and 11 of the Rental Agreement and determined there was an ambiguity. Paragraph 5 states: The loss, destruction or theft of or damage to said personal property from any cause shall not relieve the Lessee from its obligation to make all payment due from it to the Lessor at the time of said loss, destruction or theft and continue to make lease payments while property is being repaired or replaced. [Emphasis added.] Paragraph 11 of the Rental Agreement contains a provision stating, Unless otherwise agreed in writing, rent is calculated on a time out to time in basis (not time in use). The District Court reasoned that Paragraph 11's time in, time out provision conflicted with the obligation in Paragraph 5 of the Rental Agreement requiring the lessee to continue making lease payments while the property is being repaired or replaced. As a result, the District Court construed the Rental Agreement in favor of Yellowstone and concluded Yellowstone's rental obligation continued only for a reasonable period of time. ¶39 Performance asserts that the District Court's conclusion that the Rental Agreement contains an ambiguity is incorrect, and we agree. The construction and interpretation of contracts is a question of law. Ophus, ¶ 19. Whether an ambiguity exists in a contract is a matter of law. Mary J. Baker Revoc. Trust v. Cenex Harvest, 2007 MT 159, ¶ 19, 338 Mont. 41, ¶ 19, 164 P.3d 851, ¶ 19; Klawitter v. Dettmann, 268 Mont. 275, 281, 886 P.2d 416, 420 (1994). The existence of an ambiguity must be determined on an objective basis, and an ambiguity exists only if the language is susceptible to at least two reasonable but conflicting meanings. Mary J. Baker Revoc. Trust, ¶ 20. If an ambiguity in a contract is found, the ambiguity is generally construed against the drafter. Ophus, ¶ 31; Cromwell v. Victor School Dist. No. 7, 2006 MT 171, ¶ 20, 333 Mont. 1, ¶ 20, 140 P.3d 487, ¶ 20. ¶40 As Performance points out, Paragraph 1 requires the property to be returned in good order and condition, save for ordinary wear and tear. If this condition is satisfied, then the time in provision of Paragraph 11 applies and the obligation to make lease payments ceases at the time of return. However, if the truck is not returned in good condition, then the repair or replacement provision of Paragraph 5 applies and the obligation to make lease payments continues while the property is being repaired or replaced. These provisions, as they pertain to rental payments, are not susceptible to at least two reasonable but conflicting meanings. Accordingly, we hold that the District Court erred in concluding Paragraphs 5 and 11 created an ambiguity in the Rental Agreement. ¶41 Where the language of a contract is unambiguous, the duty of the court is to apply the language as written. Mary J. Baker Revoc. Trust, ¶ 19. Here, Performance contends that it has not received sufficient funds to repair or replace the 40-ton truck and, thus, that none of the conditions for cessation of rental payments (returning the 40-ton truck in good condition, or repairing or replacing the truck) have occurred, nor can they occur until Yellowstone provides full compensation. Accordingly, Yellowstone's rental obligation under the Agreement is ongoing. ¶42 Performance's argument is unpersuasive. The rule in Montana is that a nondefaulting party in a contractual arrangement must act reasonably under the circumstances so as not to unnecessarily enlarge damages caused by default. Gierke v. Walker, 279 Mont. 349, 354, 927 P.2d 524, 527 (1996). In terms of repair time, Performance needed to show that a repair period longer than the three months it initially estimated would have been reasonable. By its own admission at trial, Performance took on the obligation of repairing the 40-ton truck; however, Performance never presented a full estimate of all of the damage to the 40-ton truck and the time it would take to complete the full repairs. Because Performance never presented any further estimates of the time it would take to fix the total damage on the truck, there is no evidence that a longer time frame would have been reasonable. ¶43 The same reasoning applies to the replacement option under Paragraph 5; in other words, Performance needed to act within a reasonable time to procure a replacement vehicle for the 40-ton truck in order not to unnecessarily enlarge damages. Yet, the record reflects that Performance never attempted to purchase a replacement vehicle with the combined amount it received from St. Paul, Yellowstone (the deductible payment), and the July 31, 2002 salvage sale (for a total of $132,000). Performance claims that it has been unable to do so because this amount is insufficient for that purpose; however, as noted above, Performance has not established that the 40-ton truck had a replacement value greater than $132,000. ¶44 In addition, we reject Performance's suggestion that if the 40-ton truck is not repaired or replaced, Paragraph 5 obligates Yellowstone to continue making lease payments in perpetuity. If this were the case, what incentive would a lessor have to repair or replace a damaged piece of equipment? It could simply hold the equipment in its damaged state and collect rent indefinitely. Surely, Yellowstone did not contemplate this as a term of the agreement with Performance. Moreover, the law recognizes this problem and imposes a duty to mitigate. [A]n injured party must attempt to mitigate its damages in breach of contract claims. Bitterroot Inter. Sys. v. West. Star Trucks, 2007 MT 48, ¶ 63, 336 Mont. 145, ¶ 63, 153 P.3d 627, ¶ 63. Performance cannot simply choose not to repair or replace the truck and then collect rent in perpetuity, as this would clearly not be reasonable under the law by any standard. ¶45 In sum, Performance was required, by law, to act reasonably in effectuating repairs to or replacement of the 40-ton truck. Performance failed to show that a period longer than three months would have been reasonable to repair or replace the 40-ton truck. Thus, we cannot agree that the District Court erred in concluding that Yellowstone has no further obligation to pay loss of use damages. Because Performance has not demonstrated what additional rental payments it is entitled to, we affirm the District Court's conclusion that Yellowstone has no further obligation to pay loss of use damages to Performance. ¶46 Given the foregoing conclusions, we hold that the District Court did not err when it determined that Performance was fully compensated under the Rental Agreement.