                                         No.    13026

         I N THE SUIJKEME SOUKT O THE STA,TE OF MONTANA
                                 F

                                            1975



TAUTE A.    KOVHSH eT a l . ,

                                P l a i n t i f f s and Xespondent,

         -vs    -
KENNETH K. KNIGHT,

                                Defendant and A p p e l l a n t .



Appeal fr-orn:        District Court of t h e S i x t h J u d i c i a l D i s t r i c t ,
                      Honorable Nat A l l e n , Judge p r e s i d i n g .

Courisel of Record :

     For A p p e l l a n t :

                D z i v i , C o n k l i n , Johnson and Nybo, G r e a t F a l l s ,
                 Montana
                W i l l i a m C o n k l i n a r g u e d , G r e a t F a l l s , Montana

     F o r Respondent:

                Huppert and S w i n d l e h u r s t , L i v i n g s t o n , Montana
                Arnold Huppert, Jr. a r g u e d , L i v i n g s t o n , Montana
                J o s e p h T. S w i n d l e h u r s t a p p e a r e d , L i v i n g s t o n , Montana



                                                  Submitted:          December 8, 1975


Filed:     kB       ; 19ib
M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e
Court    .
             T h i s i s an a p p e a l from a judgment e n t e r e d i n t h e d i s t r i c t
c o u r t , Park County, i n f a v o r of p l a i n t i f f s Louie A. Kovash and
O t t i l i a C. Kovash, i n an a c t i o n t o c o l l e c t a promissory n o t e .
T r i a l was h e l d b e f o r e t h e Hon. Nat A l l e n , s i t t i n g without a j u r y .
             The Kovashes sometime p r i o r t o t h e f a l l of 1972, under-
took t o b u i l d a motel/convention c e n t e r i n L i v i n g s t o n , Montana.
T h e i r t r i a l s and t r i b u l a t i o n s i n developing t h e p r o j e c t p r i o r t o
r e t a i n i n g a r c h i t e c t Kenneth K. Knight, defendant h e r e i n , a r e of
no import t o t h i s opinion o t h e r than t o n o t e t h a t Kovashes had
c o n s i d e r a b l e d i f f i c u l t y i n g e t t i n g n e c e s s a r y f i n a n c i a l backing
t o promote t h e p r o j e c t .
               A f t e r working w i t h s e v e r a l a r c h i t e c t s they c o n t a c t e d
Knight, an a r c h i t e c t i n Great F a l l s , and asked i f he could design
t h e p r o j e c t a t a given f i g u r e .        When Knight agreed t h a t he c o u l d ,
he was h i r e d a s t h e a r c h i t e c t i n t h e f a l l o f 1972.               A f t e r per-
forming about $10,000 i n a r c h i t e c t u r a l s e r v i c e s on t h e p r e l i m i n a r y
p l a n s , i t became c l e a r t o t h e p a r t i e s t h a t Kovashes lacked t h e
f i n a n c i a l r e s o u r c e s t o go ahead.        A proposal was made t o Knight
by Kovashes t h a t he n o t only a c t a s a r c h i t e c t , b u t t h a t he go
ahead and b u i l d t h e p r o j e c t u s i n g h i s c r e d i t t o f i n a n c e i t and
then l e a s e i t back t o Kovashes.                  Knight agreed t o go ahead, sub-
j e c t t o Kovashes o b t a i n i n g c e r t a i n f i n a n c i n g .       O October 9 , 1973,
                                                                                n
an agreement was e n t e r e d i n t o between Kovashes and one John Munn,
a f i s c a l a g e n t , t o g e t them f i s c a l a s s i s t a n c e .       T h i s agreement was
t o run f o r 60 days.
               Knight continued t o prepare p l a n s f o r t h e p r o j e c t t o a
p o i n t where he had i n v e s t e d i n work time a t l e a s t $50,000.                          At
t h a t time Kovashes' proposed f i n a n c i n g r a n i n t o d i f f i c u l t y .                  It
was f i n a l l y decided by t h e p a r t i e s t o f i n a n c e t h e p r o j e c t w i t h an
i n d u s t r i a l revenue bond s a l e by t h e c i t y o f Livingston.                  The
October 9 agreement was followed on October 1 8 , 1973, by an o p t i o n
between Kovashes and Knight wherein Kovashes gave Knight a
w r i t t e n o p t i o n t o purchase t h e land f o r $153,000.                The o p t i o n
provided t h a t Knight could e x e r c i s e same a t any time w i t h i n 130
days by d e l i v e r y of a w r i t t e n n o t i c e .      I n t h a t e v e n t , Kovashes
had 30 days t o f u r n i s h t i t l e i n s u r a n c e and Knight would then have
an a d d i t i o n a l 90 days t o pay t h e purchase p r i c e , a t which t i m e
Kovashes would have t o d e l i v e r a warranty deed.
            According t o Knight, a t t h e time o f t h e October 9 agreement
between Kovashes and John Munn, t h e i r f i s c a l a g e n t , Kovashes
wanted t o be t h e l e s s e e s , and i n t h e months ahead t h e y worked a t
t h e problem of f i n a n c i n g t h e p r o j e c t by means o f t h e i n d u s t r i a l
revenue bond method.               The people who were t o u n d e r w r i t e t h e bonds
t o l d t h e p a r t i e s t h a t i n t h e bond o f f e r i n g t h e y would have t o
r e v e a l t o t h e p u b l i c n o t o n l y t h e f i s c a l c o n d i t i o n o f Knight,
who was t o be t h e owner, b u t a l s o t h a t of t h e l e s s e e s , Kovashes.
They were given 60 days t o come up w i t h a c o s i g n e r of s u f f i c i e n t
f i n a n c i a l s t a t u r e , o r t h e y would l o s e t h e o p p o r t u n i t y t o b e t h e
lessees.       Kovashes f a i l e d i n t h e i r a t t e m p t .
              O January 19, 1974, a t t h e i n s i s t e n c e of Kovashes, a l l
               n
p a r t i e s , w i t h counsel, met i n Livingston where they e n t e r e d i n t o
a new agreement e n t i t l e d "Contract f o r Purchase".                       Under t h i s
c o n t r a c t f o r purchase t h e Kovashes agreed t o s e l l t o Knight f o r a
t o t a l p r i c e of $194,00O,by s e l l i n g i n a d d i t i o n t o t h e r e a l p r o p e r t y ,
t h e l i q u o r l i c e n s e , a Best Western Motel f r a n c h i s e , a l l r i g h t s td
t h e f e a s i b i l i t y s t u d i e s , s o i l t e s t s , s i t e surveys and o t h e r i n -

formation, along w i t h t h e i r goodwill.
            A t t h a t same time, Knight paid $5,000 e a r n e s t money and

agreed t o pay $148,000 w i t h i n 90 days f o r t h e r e a l e s t a t e .                   In
a d d i t i o n , he executed a n o t e i n t h e amount of $41,000 which was
d e l i v e r e d t o t h e F i r s t S e c u r i t y Bank of L i v i n g s t o n , Montana, a s
escrow a g e n t , t o g e t h e r w i t h t h e a s s i g n m e n t o f t h e l i q u o r
license.           Upon payment of t h i s n o t e , t h e escrow a g e n t was t o de-

l i v e r t o Knight t h e assignment of t h e l i q u o r l i c e n s e , b u t was
t o r e t a i n $27,000 u n t i l t h e Montana L i q u o r C o n t r o l Board approved
the transfer.
              When t h e t r a n s a c t i o n was c l o s e d , Knight p a i d $153,000
i n c a s h , r e c e i v e d t h e deed f o r t h e p r o p e r t y and b u i l t h i s m o t e l .
However, he d i d n o t pay t h e $41,000 p r o m i s s o r y n o t e and Kovashes
brought t h i s a c t i o n t o c o l l e c t it.
               These i s s u e s a r e r a i s e d f o r t h i s c o u r t ' s c o n s i d e r a t i o n
on a p p e a l .     Did t h e t r i a l c o u r t e r r :
               1.     I n f i n d i n g t h a t t h e p r o m i s s o r y n o t e was n o t s i g n e d
under d u r e s s ?
               2.     I n f i n d i n g t h a t t h e 15 day w r i t t e n n o t i c e o f d e f a u l t
c o n d i t i o n d i d n o t a p p l y t o t h e promissory n o t e 3
               3.     I n f i n d i n g t h a t Kovashes d i d n o t f a i l t o prove
d e l i v e r y o r ownership o f t h e n o t e ?
               4.     I n f i n d i n g t h a t t h e F i r s t S e c u r i t y Bank was n o t a n
indispensable party?
               5.     I n e n t e r i n g judgment a l l o w i n g Kovashes t o r e t a i n t h e
l i q u o r l i c e n s e i n r e t u r n f o r a c r e d i t o f $27,000 a g a i n s t t h e amount
due on t h e p r o m i s s o r y n o t e , o r i n t h e a l t e r n a t i v e i n computing
i n t e r e s t and a t t o r n e y f e e s on t h e f u l l b a l a n c e o f $41,000, r a t h e r
than on t h e r e d u c e d b a l a n c e of $14,000 a f t e r a l l o w i n g t h e c r e d i t o f

$27 ,OOO?
              W e f i n d no e r r o r i n t h e c o u r t ' s n o t f i n d i n g d u r e s s .      Knight
a r g u e s t h a t he had a d e a l , by t h e O c t o b e r 18 a g r e e m e n t , t o p u r c h a s e
t h e l a n d f o r $153,000; t h a t he f a c e d " c l o s i n g " t h e bond d e a l and
t h a t he had t o have t h e p r o p e r t y b e f o r e d o i n g s o ; t h a t Kovashes
t h r e a t e n e d n o t t o honor t h e o p t i o n , t h e r e b y p u t t i n g t h e bond s a l e
i n q u e s t i o n u n l e s s he purchased t h e l i q u o r l i c e n s e and t h e o t h e r
                                                                                              11
i n t e r e s t s ; and t h a t f o r c i n g t h e s e e x t r a e x p e n s e s p u t him     over a
b a r r e l " i n such a manner a s t o c o n s t i t u t e a s i g n i n g under d u r e s s .
Knight s u p p o r t s h i s argument by c i t i n g Pecos Construction Co. v.
Mortgage Investment Co., 80 N.M.                     680, 459 P.2d 842 and 25 AmCJur,2d,
Duress and Undue I n f l u e n c e , 5 19.
             Assuming arguendo t h a t               night's a l l e g a t i o n s a r e t r u e ,
a l l t h a t Kovashes d i d was t o t h r e a t e n n o t t o honor t h e o p t i o n ,
and a mere t h r e a t t o breach does n o t c o n s t i t u t e d u r e s s . 25 Am,Jur,2d,
Duress and Undue I n f l u e n c e ,           19.     Here t h e r e i s no evidence t h a t
Knight e v e r t r i e d t o e x e r c i s e t h e o p t i o n and was r e f u s e d .        This
d i s t i n g u i s h e s t h i s c a s e from t h e a u t h o r i t y c i t e d by Knight.     Here,
Kovashes d i d nothing.
             Here we n o t e t h a t throughout a l l of t h e e a r l y n e g o t i a t i o n s
between t h e p a r t i e s i t i s c l e a r t h a t Kovashes expected t o o p e r a t e
t h e motel f a c i l i t y .   The October 9 , 1973 agreement w i t h John Munn
i n d i c a t e d Kovashes were t o o p e r a t e t h e f a c i l i t y b u t provided t h a t
i f they could n o t g e t a l e a s e g u a r a n t o r i n 60 days, Munn could

s e l l t h e e n t i r e package, l i q u o r l i c e n s e and a l l f o r $194,000.
W f i n d no reason why a f t e r t h i s agreement, t h a t t h e y would e n t e r
 e
i n t o an agreement a week l a t e r t o s e l l t o Knight f o r $153,000, u n l e s s
i t was t h a t they expected t o o p e r a t e t h e motel and u s e t h e i r l i q u o r

License.       Knight admits he needed a l i q u o r l i c e n s e and t h a t he
intended t o s e l l i t t o t h e u l t i m a t e o p e r a t o r s a t . a hoped f o r p r i c e
of $41,000.         This i n d i c a t e s Knight e n t e r e d i n t o t h e January 1 9 , 1974,
n e g o t i a t i o n s w i t h h i s eyes open and w i t h b e n e f i t of counsel.                We
f i n d no m e r i t t o h i s c l a i m of d u r e s s .
              I s s u e 2, t h e t r i a l c o u r t ' s f i n d i n g t h a t t h e 15 day w r i t t e n
n o t i c e of d e f a u l t d i d n o t apply t o t h e promissory n o t e .             W e find

no m e r i t t o Knight's argument nor were we c i t e d any c a s e a u t h o r i t y

t o support i t .        Here, we a r e faced w i t h two agreements, t h e con-
t r a c t f o r purchase, which contained t h e n o t i c e i n w r i t i n g p r o v i s i o n ,
and t h e s e p a r a t e   promissory n o t e which f e l l due on A p r i l 18, 1974.
Knight f u l f i l l e d t h e c o n t r a c t u a l o b l i g a t i o n by paying t h e
$153,00, b u t t h e r e a f t e r f a i l e d t o pay o f f t h e n o t e when i t be-
came due A p r i l 18, 1974.              The testimony c l e a r l y i n d i c a t e s t h a t
t h e "notice" p r o v i s i o n was intended t o apply only t o t h e                          contract

f o r purchase        and n o t t o t h e promissory n o t e .               Further, the
testimony c l e a r l y i n d i c a t e d he knew t h e n o t e was due A p r i l 18.
I t had been c a l l e d t o h i s a t t o r n e y ' s a t t e n t i o n more than 15 days

b e f o r e t h e due d a t e and he r e f u s e d on cross-examination t o s a y
he would have paid i t .
              I s s u e 3 q u e s t i o n s t h e c o u r t ' s f i n d i n g t h a t Kovashes d i d
n o t f a i l t o prove d e l i v e r y o r ownership of t h e n o t e .                 Knight
argues t h e n o t e i s unenforceable by Kovashes because i t was
d e l i v e r e d t o t h e escrow agent ( t h e bank) and n o t d i r e c t l y t o
Kovashes.        He c a l l s t h i s a " c o n d i t i o n a l d e l i v e r y " and i n e f f e c t u a l .
              I f t h i s ingenious argument were t o p r e v a i l , t h e n o t e was
n o t e n f o r c e a b l e by anyone.        The bank could n o t e n f o r c e i t because
i t i s n o t a 'holcbr" a s d e f i n e d under t h e Uniform Commercial Code

because i t i s n o t a payee o r endorsee.                       12 Am J u r 2d, B i l l s and
Notes, 51070.           Here, Kovashes d e p o s i t e d t h e deed i n escrow and
!(night d e p o s i t e d a n o t e and mortgage.               Even though t h e n o t e was
n o t d e l i v e r e d t o payee d i r e c t l y , we hold t h e r e was a s u f f i c i e n t
d e l i v e r y under t h e s e f a c t s .    The f a c t t h e bank held t h e escrow d i d
n o t make t h e bank an i n d i s p e n s a b l e p a r t y t o t h e a c t i o n .          Stewart
v. 5anta Rosa Mining, 62 C.A.2d                     201, 144 P.2d 31.               Therefore,
w e f i n d no m e r i t t o I s s u e 3 o r I s s u e 4.

              F i n a l l y , t h e t r i a l c o u r t ' s judgment allowing i n t e r e s t
and a t t o r n e y f e e s on the $41,000 was e r r o r .                The c o u r t ' s conclu-
s i o n of law No. I V a u t h o r i z e s t h e c a n c e l l a t i o n of t h e assignment
of t h e l i q u o r l i c e n s e i n r e t u r n f o r a $27,000 c r e d i t on t h e $41,000

p r i n c i p a l and paragraph 111 of t h e judgment c a n c e l s t h e assignment.
              Kovashes used t h e l i q u o r l i c e n s e a t a b a r operated by
them i n Livingston d u r i n g t h e f u l l p e r i o d of t h e l i t i g a t i o n . A t
trial they t e s t i f i e d t h a t they were w i l l i n g ro keep t h e l i c e n s e
and c r e d i t Knight w i t h $27,000, b u t t h e t r i a l c o u r t r e f u s e d on

t h e ground such testimony concerned a m a t t e r of s e t t l e m e n t .
           T h e r e a f t e r , t h e t r i a l c o u r t e n t e r e d judgment accomplishing
t h e very s e t t l e m e n t o f f e r e d by Kovashes.     The e r r o r made by t h e
c o u r t was i n i t s f a i l u r e t o c r e d i t Knight w i t h t h e $27,000 b e f o r e
computing i n t e r e s t and a t t o r n e y f e e s .   The a t t o r n e y f e e s should be
reduced from $4,000 t o $1,410; t h e i n t e r e s t from $3,780.06 t o
$1,303.28.       This reduces t h e t o t a l judgment from $21,880.06 t o
S16,813.28.
             The cause i s remanded t o t h e d i s t r i c t c o u r t t o comply
with t h i s decision.
