Daines v. Knight, No. 91-432

• Docket Nº: No. 91-432
• Citation: 888 P.2d 904, 269 Mont. 320
• Case Date: February 17, 1995
• Court: United States State Supreme Court of Montana

Page 904

888 P.2d 904 269 Mont. 320 Welden DAINES and Great Falls Limited, Plaintiffs and Appellants,
v.
Kenneth KNIGHT, George Buzzas, and Northwest Motor Inns,
Defendants and Respondents.
GRACIE OIL COMPANY, INC., a corporation, Plaintiff,
v.
Weldon DAINES and Great Falls Limited, a Utah limited
partnership, Defendants. No. 91-432. Supreme Court of Montana. Submitted on Briefs Oct. 28, 1994.
Decided Jan. 18, 1995.
Rehearing Denied Feb. 17, 1995.

Page 905

[269 Mont. 322] Ward E. Taleff and Kevin C. Meek, Alexander, Baucus & Linnell, Great Falls, for appellants.

Turner Graybill, Graybill, Ostrem, Warner & Crotty, Great Falls, for respondents.

HUNT, Justice.

Appellants Welden L. Daines and Great Falls Limited appeal from the findings of fact, conclusions of law, and final judgment of the Eighth Judicial District Court, Cascade County, denying the claims of appellants and granting judgment in favor of respondents Kenneth Knight, George Buzzas, and Northwest Motor Inns.

Affirmed.

Appellants raise the following issues on appeal:

1. Did the District Court err when it concluded that the September 16, 1981, option agreement between the parties was a sales contract rather an option contract?

2. Did the District Court err when it concluded that capital contributions were not required from respondents?

3. Did the District Court err when it concluded that respondents were entitled to recover damages under their counterclaim?

4. Did the District Court err when it awarded attorney fees and costs to respondents?

Northwest Motor Inns is a Montana limited partnership formed on June 3, 1976, for the purpose of acquiring, developing, and operating a Sheraton franchise in Great Falls. The original general partners were Welden Daines, George Buzzas, Kenneth Knight, and Harlan Nelson. Buzzas and Knight each held a one-third interest, while Nelson held a 16 2/3 interest, and Daines held a 15 2/3 interest.

Pursuant to the June 3, 1976, partnership agreement, Buzzas was the owner of the real property upon which the hotel was to be situated. Knight acted as the architect for the project. Daines performed the accounting services for the hotel, and Nelson managed the hotel jointly with Daines.

[269 Mont. 323] Following the May 4, 1981, death of Nelson, Knight and Buzzas terminated the partnership agreement against the wishes of Daines. The Eighth Judicial District Court held that Nelson's death was grounds for termination, but stayed execution of its order to allow Daines to appeal to this Court. Pending appeal, the parties resolved their differences on September 16, 1981, by executing the following five agreements:

1. Agreement Reconstituting Partnership: The parties agreed that Northwest Motor Inns would be reconstituted with Buzzas, Gracie Oil Company, and Welden L. Daines/Great Falls, Ltd. as general partners.

2. Agreement Reallocating Income and Losses: Gracie Oil Company and Buzzas agreed to transfer their shares of income to Daines, and Daines agreed to bear the losses attributable to Gracie Oil Company and Buzzas with the exception of any depreciation or investment credits. Northwest Motor Inns agreed to pay Gracie Oil Company and Buzzas $7875 per month as partners' salaries from September 1981, through January 1985. Default on any payment to either Gracie Oil Company or Buzzas was a default of the entire agreement. Any default unremedied for 30 days, after notice, resulted in termination of the agreement, and each party would then return to its original partnership interest in income and losses.

3. Option Agreement: Buzzas and Gracie Oil Company granted Daines an option to purchase their two-thirds interest in the partnership in December 1985. Daines agreed to pay Buzzas and Gracie Oil Company $100,000 with the balance of $1,400,000 due in 1986 or to be financed as stipulated. Under the financing option, any uncured default would have resulted in the return of the two-thirds partnership interest to Gracie Oil Company and Buzzas.

Page 906

4. Letter Agreement Surrendering Management Control To Daines: Gracie Oil Company and Buzzas agreed not to participate in or interfere with Daines' management of the hotel. Buzzas and Gracie Oil Company agreed to remove the names of Buzzas, Gracie Oil Company, and Knight from the signature cards of all hotel bank accounts.

5. Indemnity Agreement: Daines agreed to indemnify former partner Knight from liability or loss arising out of potential claims against Northwest Motor Inns.

In connection with the above agreements, the partnership interest of Knight in Northwest Motor Inns was transferred to Gracie Oil [269 Mont. 324] Company, Inc., and the partnership interest of Daines in Northwest Motor Inns was transferred to Great Falls Limited.

Beginning in the late fall of 1984, the $7875 payments to each respondent were not made as required under the terms of the agreement allocating income and losses. Respondents notified appellants of the defaults on April 4, 1985, May 3, 1985, and May 16, 1985. In an effort to keep the partnership solvent, appellants requested additional capital contributions of $230,375 from respondents. Respondents did not comply with appellants' request. Daines contributed $150,000 to the partnership through personal loans to pay for operating expenses.

On August 2, 1985, as a result of the uncured defaults, respondents assumed control of the partnership and the day-to-day operations of the hotel. In December 1985, appellants attempted, unsuccessfully, to complete the purchase of respondents' two-thirds partnership interest in Northwest Motor Inns.

Appellants brought this action against Northwest Motor Inns, Gracie Oil Company, Inc., Buzzas, and Knight. Appellants sought a judicial determination that they had properly exercised their option to purchase the partnership interests of respondents in Northwest Motor Inns. In addition, appellants asked the court to determine the purchase price, and appellants sought to recover management and accounting fees. On motion of appellants, claims against Knight, and a claim to pierce the corporate veil of Gracie Oil, were withdrawn.

The court entered its final order and judgment ordering that all claims of appellants were dismissed with prejudice. In addition, the court entered judgment in favor of Buzzas in the amount of $203,477, and in favor of Gracie Oil in the amount of $203,477. The court awarded respondents $102,522.50 in attorney fees and $3686.90 in costs.

Appellants appeal from the court's findings of fact, conclusions of law, and final order and judgment.

ISSUE 1

Did the District Court err when it concluded that the September 16, 1981, option agreement between the parties was a sales contract rather than an option contract?

The standard of review of a district court's findings of fact is whether the findings are clearly erroneous. Columbia Grain International v. Cereck (1993), 258 Mont. 414, 417, 852 P.2d 676, 678. In Interstate Production Credit Ass'n v. DeSaye (1991), 250 Mont. 320, [269 Mont. 325] 322, 820 P.2d 1285, 1287, we adopted a three-part test to determine whether a finding of fact is clearly erroneous. The test provides that:

1. We will determine if the findings are supported by substantial evidence;

2. If the findings are supported by substantial evidence, we will determine if the district court misapprehended the evidence; and

3. If the findings are supported by substantial evidence and that evidence has not been misapprehended, this Court may still determine whether that " 'a finding is 'clearly erroneous' when ... a review of the record leaves the court with the definite and firm conviction that a mistake has been committed.' " DeSaye, 820 P.2d at 1287 (quoting United States v. U.S. Gypsum Co. (1948), 333 U.S. 364, 68...