Court Opinion

ID: 883415
Source: CourtListenerOpinion
Date Created: 2013-06-05 02:19:57.294038+00
Date Added: 2024-06-11T13:14:15.188657
License: Public Domain

No.    94-556
           IN THE SUPREME COURT OF THE STATE OF MONTANA
                                  1995

FEDERAL DEPOSIT INSURANCE CORPORATION, as
RECEIVER OF FIRST SECURITY BANK OF ANACONDA,
          Plaintiff and Respondent,                      EEC 28 1995

     v.
NORTHERN MONTANA GAS COMPANY,
          Defendant and Appellant.

APPEAL FROM:   District Court of the Ninth Judicial District,
               In and for the County of Toole,
               The Honorable R. D. McPhillips, Judge presiding.

COUNSEL OF RECORD:
          For Appellant:
               Kenneth E. O'Brien, Hash, O'Brien & Bartlett,
               Kalispell, Montana
          For Respondent:
               Ward E. Taleff, Alexander, Baucus,        Taleff
               & Paul, Great Falls, Montana

                            Submitted on Briefs:       December 14, 1995
                                            Decided:   December 28, 1995
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
        First Security Bank filed a complaint in the     District Court

for the Ninth Judicial District in Toole County in which it sought
to recover amounts allegedly owed by Northern Montana Gas Company
to Montana Pacific Oil & Gas Company (MOPOG) based on well head
purchase contracts which Northern allegedly breached.     Northern's
answer included defenses in which it claimed a right to offset
against any recovery obtained by the bank the amount of judgments
entered in its favor against First Security's assignor,        MOPOG.
After a trial,       the court   concluded that the Federal Deposit
Insurance Corporation (FDIC), as the bank's receiver, was entitled
to damages and that none of the judgments could be setoff against
FDIC.        Northern appeals that order.     We reverse the court's
conclusion that the judgments may not be used to setoff the bank's
damage award and affirm the court's award of damages to FDIC.
        We restate the issues on appeal as follows:
        1.    Did the District Court err when it concluded that
Northern could not offset any of its claims against MOPOG against
the     amounts   claimed by First Security Bank pursuant       to an
assignment from MOPOG?
        2.    Was the District Court's award of damages      to FDIC
supported by substantial evidence?
                           FACTUAL   BACKGROUND
        In June 1983,   Oil International (011, entered into several
well head purchase contracts (WPCs) to purchase natural gas from

                                     2
Montana Pacific Oil & Gas Company (MOPOG).           In 1984,   appellant,
Northern Montana Gas Company (Northern), purchased a gas sweetening
plant from 01 and as part of this agreement, 01 assigned to

Northern all of its right, title and interest in and to the WPCs.
According to the terms of the WPCs,         Northern agreed to pay MOPOG
$1.50 per thousand cubic feet (mcft) of gas supplied. Adjustments
in price were to be made according to a formula provided for in the
contract.
     As part of the purchase, 01 also assigned to Northern all of
its right,     title,     and interest in and to a November 1982 gas
purchase contract between 01 as seller and Montana Power Company
(MPC) as buyer.          This contract had a term of twenty years and
provided that MPC would pay the lesser of $3.25 per mcft, as
adjusted for inflation, or the maximum lawful price pursuant to the
Natural Gas Policy Acts and applicable regulations.          The contract
did not require MPC to purchase 01's total production ability.
     In July 1985,        MPC advised Northern that it had elected to
purchase the minimum quantity of gas required by the contract which
would in turn reduce the purchases Northern made from its suppliers
such as MOPOG.          In October 1985, MPC reduced the price it paid
Northern for gas to $3.00 per       mcft   and began to reduce the amount
of gas      it purchased from Northern.          As a result,    Northern
"renegotiated"    the terms of the MPC contract and Northern and MPC
signed a new contract in October 1985.          The new contract provided
that MPC would pay $3.00 per mcft instead of the $3.25           per mcft

agreed upon in the 1982 gas purchase contract.
     After Northern and MPC reached their agreement,             Northern
reduced the price paid to the suppliers, including MOPOG, by $0.25,
down to $1.25 per mcft.    This adjustment was not in compliance with
the WPC with MOPOG which also provided that the seller (MOPOG) had
thirty days,    after     receipt of      Northern's   statement of   gas
purchased, to protest the computations underlying those statements.
Any statement not protested within that period was deemed correct.
While a factual dispute exists as to whether MOPOG protested the
decrease, MOPOG did continue to supply Northern with gas.         And, in
April 1986, Northern made a second reduction in the price paid to
suppliers, this time down to $0.40 per mcft.
     On April 27, 1988,      MOPOG assigned all of its rights and
interests in the WPCs to First Security Bank of Anaconda (First
Security).   The assignment provided First Security with any rights
or claims based upon the WPCs,    but First Security did not assume
MOPOG's   liabilities.     In 1989,       Northern and MOPOG entered a
"standstill" agreement pursuant to which MOPOG agreed to delay
action against Northern for breach of the WPCs while Northern
pursued an action against MPC.        Subsequently, Northern received a
summary judgment against MPC.
     First Security filed a complaint against Northern, based on
its assignment from MOPOG, on February 7, 1991.        In that complaint,
which was filed in Toole County, First Security sought to recover

                                      4
amounts allegedly owed by Northern to MOPOG based on the WPCs which
were entered into in 1983.         Specifically,   First Security claimed
that Northern breached its contract with MOPOG when it refused to
pay the agreed amount for gas delivered.
         In June 1991, Gary McDermott, Northern's president, assigned
to Northern a judgment that he had recovered against MOPOG for
accounting      services   that he had performed for that         company
(McDermott judgment).      The McDermott judgment was for the amount of
$23,087.49, plus interest from September 1987.
         On November 29, 1991, Northern filed a two-count complaint in
Flathead County against MOPOG.            In the first count,   Northern
alleged that it had sustained damages based on the defendant's
failure to certify wells from which it produced the gas which was
the subject of the WPC between MOPOG and Northern.          In the second
count,     it alleged that it had sustained damages because MOPOG
failed to make agreed repairs to the natural gas processing plant
that Northern had purchased from 01.
         On January 28,    1992,   the Flathead County District Court
entered judgment for Northern in the amount of $200,211.67 based on
the allegations in Count I, and in the amount of $131,825.40 based
on the allegations in Count II.
     On July 15, 1992,       Northern filed its answer to the bank's
Toole County complaint.       As its third defense, it alleged a right
to offset against any recovery obtained by the bank the amount of
the McDermott judgment.        This defense was based on the terms of

                                      5
§ 27-l-502, MCA. For its fourth defense, Northern claimed a         right

pursuant to the same statute to offset the total judgment entered
in its favor in Flathead County on January 28, 1992.
        The case was tried by the court without a jury on October 14,
1992.     No findings or conclusions were made by the District Court
until nearly two years later on October 11, 1994.           At that time,
the District Court made findings and conclusions based on those
submitted by FDIC which had been appointed as the bank's receiver
and substituted as plaintiff.
        The District Court concluded that pursuant to Rule 13(a),
M.R.Civ.P.,     Count I of Northern's Flathead County claim against
MOPOG arose out of the same transaction which was the basis for
First     Security's   complaint (the WPCs)      and was a compulsory
counterclaim which should have been           filed but was not,      and
therefore,     that it was barred.
        The District Court then concluded that the McDermott claim
against MOPOG which had been assigned to Northern, and Northern's
claim which formed the basis for Count II of its Flathead          County
action, did not arise from the same transaction, and therefore,
were    not   compulsory   counterclaims.   However,   the District Court
concluded that because First Security Bank took an assignment from
MOPOG of its rights under the WPC without assuming its liabilities,
these other obligations (Count II and the McDermott claim) could
not be offset against the bank.

                                      6
      The District Court also concluded that the McDermott judgment
and Count II of the Flathead County judgment could not be setoff
against FDIC because to do so would violate the terms of 12 U.S.C.
§ 1823(e) which invalidates agreements adversely affecting the
assets of a bank unless the agreement is in writing.            However, on
appeal,    FDIC,   which made that argument to the District Court,
concedes    that   "the FDIC was mistaken in asserting 12 U.S.C.
§ 1823(e) as a defense to the Northern counterclaims and the
district court erred in finding that 12 U.S.C. 5 1823(e) was
applicable to this case."
     Finally,      the Court found that MOPOG protested the price
reductions imposed by Northern, that the WPCs were still in force,
and that both Northern and MOPOG continued to operate under the
terms of the WPCs.      It concluded that Northern breached the WPCs
and awarded damages of $255,861.13 to FDIC.
                                   ISSUE 1
     Did the District Court err when it concluded that Northern
could not offset any of its claims against MOPOG against the
amounts claimed by First Security Bank pursuant to an assignment
from MOPOG?
     We review a district court's conclusions of law to determine
whether the court's interpretation and application of the law is
correct.    Jim’sExcuvaiingSew. Inc. v. HKMAssoc. (1994), 265 Mont. 494, 501,

878 P.2d 248, 252.
       The District Court concluded that Count 1 was barred because
it constituted a compulsory counterclaim which was not raised.      It

also    concluded   that even though the McDermott       judgment and
Northern's claim which formed the basis for Count II of its
Flathead County action were not compulsory counterclaims,          the
claims could not be offset against the bank because First Security
took an assignment from MOPOG of its rights under the WPC without
assuming its liabilities.
       Northern has    never   claimed   that   the bank assumed the
obligations of MOPOG, or that the bank would be liable to it for
the full amount owed to Northern by MOPOG pursuant to the Flathead
County judgment and the McDermott judgment.       What Northern claims
is that pursuant to § 27-l-502, MCA,        it has a right to offset
against any claim by MOPOG any amounts that it was owed by MOPOG,
whether or not those obligations arose out of the same transaction;
and that, pursuant to § 27-l-503, MCA, its right to offset could
not be defeated when MOPOG assigned its claim to the bank and when
that claim was ultimately asserted by FDIC.
       Section 27-l-502, MCA, provides as follows:
       When cross-demands have existed between persons under
       such circumstances that if one had brought an action
       against the other a counterclaim could have been set up,
       the two demands shall be deemed compensated so far as
       they equal each other and neither can be deprived of the
       benefit thereof by the assignment or death of the other.
       We conclude that when read in the context of 5 27-l-502, MCA,
llcross-demands"    necessarily refers to claims between the parties.
       Section 27-l-503, MCA, provides as follows:
  I   In the case of an assignment of a thing in action, the
      action by the assignee is without prejudice to any setoff
      or other defense existing at the time of or before notice
      of the assignment, but this section shall apply only to
      the extent not otherwise provided for in the Uniform
      Commercial Code.
      MOPOG assigned its rights pursuant        to the WPC to First
Security on April 27, 1988.     At that time,    its obligation which
formed the basis for Counts I and II of Northern's Flathead County
action (failure to certify wells and make agreed upon repairs to
the plant Northern purchased from 01) already existed and Northern
was entitled to assert that obligation as a basis for setoff.
Therefore, pursuant to § 27-l-503, MCA, Northern's right to do so
survived the assignment MOPOG made to First Security.     However, at
the time of the MOPOG assignment, McDermott had not yet assigned
his judgment against MOPOG to Northern, and therefore, the bank did
not take its assignment from MOPOG subject to setoff by Northern
for that judgment.
      The District Court concluded that pursuant to Rule 13(a),
M.R.Civ.P.,   Northern's claim in Count I, arose out of the same
transaction which was the basis for First Security's complaint (the
WPCs) and was a compulsory counterclaim which should have been
filed but was not, and therefore, that it was barred.        However,
Northern did not have a counterclaim against First Security since
the bank did not assume the producer's obligations.        Therefore,
Count I was not a compulsory counterclaim.
      The District Court also concluded that the McDermott judgment
against MOPOG which had been assigned to Northern, and Northern's

                                  9
claim which formed the basis for Count II of its Flathead                   County
action (failure of MOPOG to make agreed repairs to Northern's                   gas

plant),        did not arise from the same transaction, and therefore,
were     not    compulsory   counterclaims.      However,    the District Court
concluded that because First Security took an assignment from MOPOG
of its rights under the WPC without assuming its liabilities, these
other obligations (Count II and the McDermott claim) could not be
offset against the bank.           The District Court relied on the general
rule that in the absence of an express assumption of liability an
assignee is not liable for an assignor's obligation.
       The District Court's holding fails to recognize the difference
between a counterclaim for affirmative relief and a defense which
simply seeks to reduce the plaintiff's recovery dollar-for-dollar
based on a defense that could have been asserted against the
assignor.         As noted in Nancy’s Product, Inc. V. Fred Meyer, Inc. (Wash. App.

1991),     811 P.2d 250, 253:
       [Wlhen setoff is asserted against an assignee, it
       diminishes or defeats the assignee's claim, although the
       assignee has no liability in excess of the amount sued
       on.   Such avoidance of liability is in the nature of a
       defense, as distinguished from a counterclaim which is a
       demand for affirmative relief.
         Further support for this proposition is found at 6 Am. Jur. 2d
Assignments § 102 (1963),      which provides:

              In an action on a claim assigned, the assignee is
         ordinarily   subject to any setoff or counterclaim
         available to the obligor against the assignor and to all
         other defenses and equities which could have been
         asserted against the chose in the hands of the assignor
         at the time of the assignment.

                                          10
See also Pacific N.W. Life Ins. Co. v. TurnbuN    (Wash. Ct. App. 1999), 754 P.2d
1262,    1267.
        The difference between an affirmative claim for relief and a
defense based on setoff is also illustrated by the follow passage
from Corbin on Contracts:
             A counterclaim, set-off, or recoupment, arising out
        of the same transaction as that by which the claim of the
        assignee was itself created, is usable against the
        assignee in precisely the same cases that it would be so
        usable if it were operative as a complete defense.    Its
        operation against the assignee is not affected by the
        fact that some of the events creating it occurred after
        the assignment or even after notice of the assignment.
        The transaction on which the assignee depends is itself
        a sufficient warning to him that counterclaims may grow
        out of that transaction requiring an adjustment of
        remedies. It is therefore thought just to require him to
        bear the risk that such counterclaims will be used in
        reduction or total extinction of his own claim.      This
        does not mean that the counterclaim asainst the assisnor
        is enforceable also as a counterclaim        asainst the
        assiqnee; it is not so enforceable unless the assiqnee
        himself undertook the dutv of oerformance and has been
        suiltv of a breach.    But the counterclaim. set-off, or
        recoupment is as effective in reducins the assignee's
        remedy as it would have been in reducing the assiqnor's
        remedv if he were the olaintiff.
4 Arthur L. Corbin,             Corbin on Contracts 5 896, at 596 (1951)
(emphasis added).
        While Corbin refers to setoff based on the same transaction,
§ 27-l-502, MCA, does not limit setoff to claims arising out of the
same    transaction.         It refers only to counterclaims which "could
have been set up," in the same action.                     Pursuant to Rule 13(b)

a n d Cc),    M.R.Civ.P.,       any claim that Northern had against MOPOG
could have permissibly been set up as a counterclaim if MOPOG had
sued Northern for breach of the WPC.                       Therefore,   pursuant to

                                                 11
§ 27-l-503, MCA, Northern's right to offset survived the assignment
by MOPOG to the bank.
           FDIC also fails to recognize the difference between an
assignee's liability for an assignor's contract breaches and the
right of an obligor to offset the assignor's obligations against
the assignee's claim pursuant to § 27-l-502, MCA.             It relies on
Bottrell   v.AmericanBank (1989), 237 Mont. 1, 773 P.2d 694, and Advance

Indust. Fin. Co.% WestemEquities,Inc. (Cal. Ct. App. 1959), 343 P.2d 408, and

asserts that setoff requires mutuality and that mutuality requires
that the offsetting debts be due to and from the same persons in
the same capacity.          However, Bottrell is inapposite because it was

based solely on the common law right to setoff mutual demands
between mutual debtors and creditors.          That case had nothing to do
with §§ 27-l-502 and -503, MCA, which expressly provide that the
right to setoff survives an assignment of one of the party's
rights.        If we were to agree with FDIC's contention, there could
never be setoff when one of the original parties assigned his or
her        rights.   More   importantly,    that conclusion would render
meaningless the language in 5 27-l-502, MCA, that "neither [party]
can be deprived of the benefit thereof [setoffl by the assignment
or death of the other."           It would also render meaningless that
language in 5 27-l-503, MCA, which provides that "[iIn the case of
an assignment of a thing in action, the action by the assignee is
without prejudice to any setoff or other defense existing at the
time of or before notice of the assignment . .'I

                                       12
       A setoff does require mutuality:
            In order to be mutual the cross demands set up
       ordinarily must be shown to belong individually to
       defendant, with a corresponding right to sue for them in
       his individual name, and defendant, as a general rule,
       cannot set off a demand on which he is not entitled to
       sue in his own name . . .
80 C.J.S. Set-offand Counterclaim § 48 (1953); see also 20 Am. Jur. 2d

Counterclaim, Recoupment, and Setoff   § 74 (1965)   .   In other words,    all

mutuality requires is that the defendant have a right to assert the
claim against the plaintiff or its assignor which forms the basis
for setoff.
       Montana's law concerning the assignment of contracts has
nothing to do with Northern's statutory right                   to offset its
judgment against MOPOG against any recovery by FDIC based on an
assignment from MOPOG.
       For these reasons, we conclude that Northern was entitled to
offset part of its claim pursuant to the plain terms of §§ 27-l-502
and -503, MCA.      We affirm the District Court's conclusion that the
McDermott judgment against MOPOG, which was assigned to Northern,
could not be offset against FDIC's recovery because Northern did
not have the right to enforce that judgment against MOPOG at the
time   that MOPOG assigned its rights to First Security.            We reverse
the District Court's judgment which held that Northern could not
offset the amount due pursuant to Counts I and II of its Flathead
County action ($200,211.67 and $131,825.40               plus interest) because
pursuant to § 27-l-502, MCA, Northern had a right to offset these
amounts against any claim by MOPOG,              and pursuant to § 27-l-503,
                                          13
MCA,    the right to offset that amount survived the assignment by
MOPOG of its rights to First Security.
                                         ISSUE 2
       Was the District Court's award of damages to FDIC supported by
substantial       evidence?
       We review a district court's findings of fact to determine
whether they are clearly erroneous.                Rule 52(a), M.R.Civ.P.; Brown

v. Tinlinger (1990), 245 Mont. 373, 377, 801 P.2d 607, 609. We review

a district court's conclusions of law to determine whether the
court's interpretation and application of the law is correct.               Jim ‘s

ExcavatingSetv,Inc. v.HRiVfAssoc.    (1994), 265 Mont. 494, 501, 878 P.2d 248,

252.
       Northern asserts that the District Court should not have
awarded damages according to the WPCs because the "renegotiated"
contract Northern signed with MPC on October 1, 1985, terminated
the WPCs, because MOPOG failed to object to the monthly settlement
statements, and because MOPOG acquiesced to the price changes which
bars MOPOG from pursuing its claim.                  We conclude that there is
evidence in the record which contradicts each of Northern's
contentions.
       A review of the record reveals that the 1985 contract did not
terminate the WPCs.                 The WPC provided that it would become
effective on the date 01 and MOPOG signed the contract, "and shall
continue in effect until the MPC Contract (dated 1982) terminates
by its own terms."                  The MPC contract provided that it would

                                            14
continue for twenty years and "thereafter from year to year until
cancelled by one (1) year's written notice."         Also,    Northern's
president testified at trial that the WPCs were never terminated
and the MOPOG president testified that he was not advised that the
WPCs were terminated.     Moreover, Northern failed to state that the
WPCs were terminated in its letter which advised MOPOG of the 1985
contract.
        The evidence also contradicts Northern's assertion that MOPOG
failed to properly object to the monthly settlement statements and
therefore     acquiesced in   the price   reductions.        Letters   and
testimony     reflect that MOPOG did not acquiesce      to the price
reductions.     For example, on April 14, 1986, the MOPOG president
sent a letter to Northern's president in which he stated that the
price reduction did not conform to the WPCs.      Also, on October 8,
1986,    the MOPOG counsel wrote Northern and complained about the
price    reductions and identified the amounts of underpayments.
Finally, the language of the WPC contradicts Northern's contention
that because MOPOG did not object         to the monthly settlement
statements it is exonerated.       The WPC only required that MOPOG
object to the accuracy of the statements provided by Northern; the
objection requirement did not relate to Northern's unilateral
reductions in the price paid.
        A review of the record reveals substantial evidence to support
the District Court's findings that the WPCs were still in force,
that MOPOG protested the price reductions, and that both Northern

                                   15
and MOPOG continued to operate under the terms of the WPCs. We
also conclude that the court's finding is not clearly erroneous.
     We hold that the court did not err when it concluded that
Northern breached the WPCs when it failed to calculate the price
per mcft in accordance with the WPCs and that FDIC was entitled to
damages based on the WPCs.
     We remand to the District Court for entry of judgment
consistent with this opinion,    including any offset    to which
Northern Montana Gas Co. is entitled pursuant to Part One of this
opinion.

                                         us ice
                                 /

           Justices

(Justice James C. Nelson did not participate in this decision.)

                                16
Justice William E. Hunt, Sr., dissenting.

         I     dissent.     A "set-off" is an equitable defense which in this

cause        was     used   to   reach   a potentially       inequitable         result.

         Additional facts not provided by the majority opinion are

necessary to fully understand this case.

         MOPOG's problems began when MPC drastically lowered the amount

it paid for gas.             While it previously had paid Northern $3.00 per

mcft. for gas, in 1986 it began to pay Northern at the rate of only

$1.85 per mcft.             Northern passed this drastic price cut on to its

suppliers,           reducing the amount it paid to MOPOG from $1.25 per

mcft.        to $0.40 per mcft.          MOPOG contested this reduction in

writing,           but continued to provide Northern with gas.             Two years

later,        MOPOG defaulted on various security agreements, and First

Security stepped in.

         Northern subsequently sued MPC for breach of contract, and

agreed to a "standstill" arrangement with MOPOG pending the outcome

of      that       litigation.    Following summary judgment in its favor,

Northern            received a    settlement    from   MPC   in    the     amount of

$1.7 million.               Although testimony at trial indicated that the

calculations           used in    reaching the settlement included certain
amounts for damages to Northern's suppliers, to date none of the

settlement money has been disbursed to MOPOG's                       successor in

interest.

         The Flathead County judgment obtained by Northern against

MOPOG also needs to be explained in greater detail.                      MOPOG    ceased

to exist as a corporate entity in December 1989.                  In February 1991,

                                           17
FDIC,    as MOPOG's        successor in interest,         sued    Northern   in   Toole
County     for    breach    of   contract.        Northern was duly served with
notice of the lawsuit.             Nine months later,          and nearly two years
after MOPOG was dissolved,            Northern filed suit against MOPOG in
Flathead     County for breach of the same contracts which were the

basis of FDIC's Toole County suit against it.

        Northern admittedly made no attempt to contact any of MOPOG'S

former officers or directors to inform them of the Flathead County

suit.       Not     surprisingly,      MOPOG       did   not     appear.     Northern

subsequently received a judgment in excess of $332,000 by default,
without the merits of its claims ever having been addressed.

Northern then filed an answer in the Toole County case, asserting

that,    pursuant    to § 27-l-502, MCA,           its Flathead      County judgment

must be used to offset FDIC's damages.
        Section 27-l-502, MCA,         was first enacted in 1867, and since

that time has never been construed or interpreted by any case in

Montana.         The statute is not a model of clarity.                    To remind,

5 27-l-502, MCA, reads:

        Survival of counterclaim -- death or assignment.    When
        cross-demands have existed between persons under such
        circumstances that if one had brought an action against
        the other a counterclaim could have been set up, the two
        demands shall be deemed compensated so far as they equal
        each other and neither can be deprived of the benefit
        thereof by the assignment or death of the other.

This statute provides the circumstances under which a set-off is

created.         If Party A has an existing demand for a given amount

against Party B,           and Party B also has an existing demand for a

given amount against Party A,                the amounts will be deemed to be

                                             18
"set-off" to the extent that they are equal.                  This   interpretation
it bolstered by Black's Law Dictionary,                     which provides that
U [wlhere    a person against whom a demand is made by another, in his

turn makes a demand against the other, these mutual demands are

called      'cross    demands.'      A    'set-off'   is   a familiar example."

Black's Law Dictionary 375-76 (6th ed. 1990).

      The statute provides for three events in a particular order:

the existence of the cross-demands, the existence of the set-off,

and then the assignment,             which will not affect the existing

set-off.      The statute does not contemplate a situation, as here,

where the set-off follows an assignment of all rights but no

liabilities,     and the assignor has ceased to exist.

      Northern cannot hold FDIC responsible for the actions of MOPOG

because      neither       FDIC    nor     First   Security     assumed    MOPOG's

liabilities.          Therefore,    had Northern brought its claims as a

counter-suit         in FDIC's Toole County case, it could not have

prevailed.       Instead, it obtained a judgment by default in another

court,     then brought that judgment back to Toole County to minimize

the amount of damages collectible by FDIC.                 This limits the amount

FDIC may recover and, therefore, is a breach of contract liability

created by MOPOG but imposed upon MOPOG's successor in interest.

While there is a real legal difference between a counterclaim and

a   "set-off,"       in this case it is a matter of mere semantics and

cannot justify a result which otherwise would not be permitted.

         Even assuming al*g~endo         that I agreed with the majority's

interpretation        of   § 27-l-502, MCA, this Court does not have

                                            19
sufficient facts before it to conclusively determine that the
statute is applicable in this case.                               The statute clearly states
that         a       set-off             is      allowed      I' [wlhen    cross-demands         have
existed.                   .II    (Emphasis       added.)     Whether they must exist before
the assignment or before the cause of action is not clear.                                  Either

way,    in this case it cannot be determined with certainty when, if

ever,        cross-demands were made.

        Both parties allege they were damaged by breach of contract,
and both can pinpoint with some certainty                                 when   they   allege    the

breach occurred.                   The record does not reflect, however, when each
party contacted the other and made a specific demand to recover an

amount allegedly owed.                        The statute requires an actual demand.

        This requirement for an actual demand is reasonable, as is a

statutory            interpretation which places the                       "demand" before the

assignment.               A demand from Northern would have put MOPOG on notice

of the dispute and of what Northern felt was owed to it. It

further would have given                          MOPOG an opportunity to contest the

validity of the demand.                          We cannot say with certainty that this

occurred.             If a demand were not made until after the assignment

took     place,            it would be directed at an incorrect party                            (the

innocent assignee instead of the one who caused the damage).

        The majority glosses                        over this point by noting that, if

Northern            was   in     :Eact   damaged,        its right to recover began at the

time    it    was    damaged;             that    is,      when the contract was breached.

Concededly,               this was before the assignment and the filing of the

Toole County suit.                       However,    §   27-l-502,    MCA, does not refer to a

                                                         20
"right to recover," it refers to demands.   Without the existence of
cross-demands,   the statute is inapplicable.    Since it cannot be
determined from the existing record when, if ever, cross-demands

were made, it is unclear how the majority can so confidently hold

that § 27-l-502, MCA, applies.

     By utilizing this rather obscure statute and obtaining a

default judgment against a defunct party, Northern is attempting to

minimize the damages it must pay to MOPOG's successor in interest

without regard to what amount may justly be owed.    This cannot be
considered an equitable result.

     For these reasons, I would affirm the decision of the District
Court.

                                                Justlce

                                  21

                                        -
                                        December 28, 1YY:

                               CERTIFICATE OF SERVICE

I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:

KENNETH E. O’BRIEN
Hash, O’Brien & Bartlett
P.O. Box 1178
Kalispell, MT 59903-1178

WARD E. TALBFF
Alexander, Baucus Taleff & Paul, P.C.
P.O. Box 3169
Great Falls, MT 59403

                                                     ED SMIT H
                                                     CLERK C-IF THE SUPREME COURT
                                                     STATE OF MONTANA

                                                     BY-m
                                                     Deputy ’