author: MR. JUSTICE SHEEHY

text:
    In the MATTER OF THE ADJUDICATION of the Existing Right to the Use of all the Water Both Surface and Underground, Within the DEARBORN DRAINAGE AREA, Including All Tributaries of the Dearborn River in Cascade And Lewis and Clark Counties, Montana.
    No. 88-093.
    Submitted Sept. 9, 1988.
    Decided Oct. 19, 1988.
    766 P.2d 228.

      Robert N. Lane argued, Helena, for appellant.
    Moore, Rice, O’Connell & Refling, Perry J. Moore argued, David C. Moon and Dorothy L. Brownlow, Bozeman, James D. Rector, Glasgow, W.G. Gilbert, Jr., Dillon, James J. Bottomly, Bozeman, William R. Morse, Absarokee, John M. Dietrich, Billings, John C. Doubek, Lisa Leckie, Helena, Chris Mangen, Jr., Billings, for respondent.
    Montana Wildlife Federation and Trout Unlimited, Stan Bradshaw, Helena, Thomas M. France, Missoula, for amicus curiae.
   MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

We hold here that the Water Court was correct in determining on August 27, 1987, that the Department of Fish, Wildlife and Parks (DFWP) does not have a valid pre-1973 appropriation water right claim to the in-lake or in-stream waters of Bean Lake, situated in the Dearborn River Drainage area.

Bean Lake is a natural pothole lake, lying across the four common corners of Sections 13 and 14, Township 18 North, Range 7 West, and Sections 18 and 19, Township 18 North, Range 6 West, M.P.M. There is no defined water inlet to Bean Lake. Its sources are ground water seepage and run-off from precipitation. The lake has a surface area of about 200 acres, a maximum depth of 31 feet and a total average volume of 2,862 acre-feet. Though the lake has a man-made overflow emptying to the north fork of the Dearborn River, no water flows out of the lake under normal circumstances.

The Dearborn River Drainage area, which includes Bean Lake, is subject to the ongoing statewide adjudication of water rights commanded under Title 85, Ch. 2, Part 2 (Sections 85-2-211-243), MCA (1987). Acting under Sections 85-2-221, 223, 224, MCA, DFWP duly filed a claim for a use water right based on recreation to “all the water stored in [Bean] Lake.” The Dearborn River Basin is designated by the Water Court as Basin 41U, and the claim of DFWP was assigned the claim number 41U-W-96936. DFWP claims a “use” right under the Montana prior appropriation doctrine. Its claim is not based in any manner on the public trust doctrine. The claimed use was “recreation,” but the claim was amended at trial before the Water Court to include use for “fish and wildlife” purposes.

DFWP first planted fish in Bean Lake on May 27, 1933. Rainbow trout were planted in 1934, silver salmon in 1935, and then not again until 1951 when fish were planted every year thereafter.

Prior to 1951, privately owned lands completely surrounded Bean Lake, with no public access. On May 15, 1951, Wallace Bean, the owner of lands abutting Bean Lake, entered into a tripartite agreement with the then Montana State Fish and Game Department, and the Augusta Chamber of Commerce, whereby Bean permitted access over his lands to the water’s edge for the public to use in boating and fishing on Bean Lake. In return, the Montana Fish and Game Department instigated a management plan and agreed to stock the lake with suitable fish. The Augusta Chamber of Commerce agreed to set up conveniences for visitors and in effect to police the area. The agreement provided that either party could terminate the agreement after two years, in which case the lake would revert “back to its original management as a privately owned lake.”

In 1964, Wallace R. Bean and Fern L. Bean, his wife, by warranty deed, conveyed to the State Fish and Game Commission (a predecessor of DFWP) 16.33 acres abutting Bean Lake. Under the deed, the grantors had the right to drain and lower the level of Bean Lake to a point on a permanent marker installed at the lake’s edge. The Beans covenanted, to run with the land, that the lake would at all times be maintained at a level equal to or higher than the permanent marker.

In 1963, at about the same time as the warranty deed transaction, the Beans filed a water right claim on Bean Lake for irrigation purposes. At least one other appropriator has an earlier appropriation water claim to Bean Lake for stock water.

It is assumed by the Court that there has been extensive public use of Bean Lake for recreational and fishing purposes through the years herein mentioned, and yearly efforts by DFWP and its predecessors to manage the fisheries resource, compute Bean Lake surface levels, make studies regarding animal wastes in Bean Lake, enforce rules regarding use of motorboats, and other indicia of DFWP involvement regarding the lake.

In the adjudication of the Dearborn River drainage area by the Water Court, a temporary preliminary decree was entered which omitted the claim of DFWP to an appropriative use right in the waters of Bean Lake. The remark of the Water Court in denying the DFWP claim was that the “Water Court finds no legal basis for this purpose to be considered as a beneficial use or appropriation of water.”

DFWP filed an objection to the Water Court’s denial of its claim in adopting the temporary preliminary decree, and eventually the objection came on for a pre-hearing conference. The legal issues in the case were of a precedent-setting nature which required statewide notice by publication. The notice invited and provided for participation by interested persons in the legal issues presented and allowed the equivalent of objections to the potential quantity of DFWP’s claimed right. Those who desired to participate were required to file a Notice of Intent to Appear. Over 50 different individuals or groups exercised an option to participate. DFWP’s claim came on for trial before the Water Court. On August 27, 1987, the Water Court entered its findings of fact, conclusions, judgment and decree to the effect that the claim of DFWP was not a valid appropriation water right “because of the lack of diversion, intent, and notice.” The claim of DFWP was therefore terminated. Appeal by DFWP to this Court followed.

The first problem is whether the decision of the Water Court is appealable to this Court at this stage of the proceedings. No Rule 54(b) certificate was sought or procured from the Water Court.

In the recent consolidated causes No. 87-528 (relating to the Sage Creek Drainage area) and 88-092 (relating to the Boulder River Drainage area) decided October 11, 1988, we dismissed appeals where a Rule 54(b) certificate had not been obtained, in effect holding that the causes were not final for the purposes of appeal. We have decided not to take that course with respect to this case. We are informed that DFWP has filed 15 to 17 claims in various drain-ages which claim a water right based on the doctrine of appropriation, based on facts similar to those here. DFWP is given authority exclusively to represent the public for purposes of establishing any prior and existing public recreational use right in the ongoing water right determinations. Section 85-2-223, MCA. Under this statute, DFWP considers itself duty-bound to file appropriative use claims in this and other drainages. The issue, of course, will recur, and any decision by us now as to the precise validity of such appropriation claims would help speed the water adjudication process. As we said in McDonald v. State (Mont. 1986), [220 Mont. 519,] 722 P.2d 598, 43 St.Rep. 576:

“The issue raised is not limited personally to McDonald and her co-petitioners, but extends throughout the whole process of the adjudication of irrigation of water rights by the Water Courts. The issue affects all of those rights. Adjudication by this Court now as to the issue raised would serve to guide the Water Court in this particularly important matter; would provide judicial economy in avoiding protracted litigation both in the Water Courts and in this Court; and would serve the public policy of the state by expediting the determination of existing water rights. It is therefore appropriate that we accept jurisdiction of this issue by way of declaratory relief, involved as it is with our duty to supervise the Water Courts. We have, moreover, a justiciable issue which does not require further determinations of factual issues either by a master or by a district court. (Citing authority.) . . .”

722 P.2d at 601, 43 St.Rep. at 579.

The parties to this lawsuit are anxious for an early determination of the issues presented, and each urges us to take jurisdiction of the appeal. We could accept jurisdiction under our power to declare rights, status and other legal relations, whether or not further relief is or could be claimed (Section 27-8-201, MCA) and to afford relief on certainty and insecurity with respect to those rights (Section 27-8-102, MCA). Lest there be any dispute about it, however, we accept jurisdiction of this cause under our power of general supervisory control over the Water Courts. Article VII, Section 2(2), 1972 Mont. Const.

The second issue to be disposed of is the contention of DFWP that the Montana Stockgrowers Association has no standing as a party in this cause. DFWP contends that the Association represents no person who had a potential to be adversely affected by the DFWP claim in Bean Lake. The DFWP objected before the Water Court claiming that because there were only two other potential appropriation users in the Bean Lake adjudication, and since the Association did not represent either of them individually in a cause, no justiciable controversy or standing in the Association existed.

The Montana Stockgrowers Association answers that the importance of the issue was recognized by the Water Court which required statewide notice to be given and invitation for others to appear. Because of the large numbers of persons appearing, the law firm of Moore, Rice, O’Connell and Refling was appointed lead counsel for all those appearing to oppose the claim, including their client Montana Stockgrowers Association. The Association further claimed standing on behalf of its membership who could be affected. It appears that both of the appropriators in Bean Lake are also members of the Association. We agree that Stockgrowers must be able to show an interest in the subject matter of litigation which has been injuriously affected by the judgment or order to have standing on appeal. Holmstrom Land Company v. Newland Creek Water District (1979), 185 Mont. 409, 425, 605 P.2d 1060, 1069.

In the very recent case of New York State Club Ass’n., Inc. v. City of New York, et al. (1988)_U.S._, 108 S.Ct. 2225, 101 L.Ed.2d 1, the United States unanimously upheld the right of an association to proceed in an action on behalf of its members. The Supreme Court held an association has standing to sue on behalf of its members when “(a) its members would otherwise have standing to sue in their own right, (b) the interests it seeks to protect are germane to the organization’s purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” Those conditions for standing are all met here. We hold that the tests in New York State Club Ass’n., Inc., supra, also determine the standing of an association to appear as a party on behalf of its members in the state courts of Montana. In this cause, the Montana Stockgrowers Association has standing as a party.

We turn now to the principal issue in this case, which is whether DFWP, for itself or for the people, has an enforceable appropriation water right claim for recreation, fish and wildlife purposes in Bean Lake that pre-existed 1973. The DFWP claim is based exclusively on the doctrine of appropriation, and we can concentrate our discussion on the attributes of that doctrine in making a decision.

. What would be the effect if we agreed with DFWP that an appropriation right existed? DFWP argues for a priority date of 1951, the time that its predecessor entered into a tripartite agreement with the Beans and the Augusta Chamber of Commerce. Its claim is for the use of all the water “stored in Bean Lake.” Thus DFWP’s claim would be junior to the first appropriator’s right, for which the Water Court awarded a priority date of 1864. It would be senior to the Bean appropriation of 1964. From our record, it appears that no other appropriator made claim to the use of Bean Lake waters in the adjudication process.

DFWP urges that its claim of water right can be sustained on two grounds; (1) recreational fish and wildlife purposes are beneficial uses which will support an appropriation right; and (2) for this type of an appropriation, no diversion of the waters is required.

The arguments of DFWP in support of its claim may be summarized: in-stream, in-lake, or in-source recreational fish and wildlife uses without a diversion are beneficial uses which support appropriation by the Department on behalf of the public. There is no question that the use in this case was established well prior to July 1, 1973. Article IX, Section 3, 1972 Montana Constitution recognizes recreation as a beneficial use. The establishment by the legislature of “Murphy rights” in 1969 and 1973 shows that uses for recreational purposes are beneficial.

Further summarizing, we note that DFWP contends the Water Court itself is divided on the necessity of diversion. In this case the Water Court Judge found that a diversion was necessary for a pre1973 use right. In the O’Fallon Creek Basin, (case 42L-5 in the Water Court) and in the Red Water River Basin (case 40P-2 in the Water Court) the Water Court held that the Department of Interior, Bureau of Land Management, would have recognized appropriation claims for wildlife in instances where the Bureau acted under a congressional mandate to protect wildlife. In the Kootenai River Drainage (case 76D-48 in the Water Court) the construction and maintenance of fish ladders, fish passage facilities and the barrier dam and fish trap were recognized as constituting an appropriation by diversion on Young Creek and the Tobacco River. Further, the Department urges that the purpose of diversion is to give notice of the appropriated use by the appropriator and in this case the extensive efforts and expenditures by the Department in developing and managing the fishery clearly gave such notice though no diversion occurred. In other words, the actual application of the water to a beneficial use meets the requirements of intent or notice.

The respondents answer these contentions by insisting that an “existing right” must be a right to the use of water protected under the law as it existed prior to July 1, 1973. They claim that DFWP has not met the basic elements of a valid appropriation under the law prior to 1973, and that the claim of appropriation at this late date is simply an afterthought. The requirement of an intent to appropriate serves several elements, priority, quantity and the purpose of use. The most important function of diversion is notice that a water right is being appropriated. Respondents further contend that in the stocking and managing of Bean Lake, the Department had no intent at the time to make an appropriation on which to base a water right. The diversion requirement provides evidence of an intent that gives notice to other water users of the specifics of the appropriation, citing Holmstrom Land Company v. Newland Creek Water District (1979), 185 Mont. 409, 605 P.2d 160.

These are the principal contentions of the parties. Both sides have also cited to us decisions of other states, but these are somewhat conflicting and depend in some instances on factors not present here, such as legislative action. We should note that DFWP relies particularly on Paradise Rainbows et al. v. Fish and Game Commission (1966), 148 Mont. 412, 421 P.2d 717. In that case Warren De-Puy had constructed a dam on Armstrong Spring Creek, and had taken all of the flow of that water for the construction of fish ponds. He was directed by the Commission (predecessor of DFWP) to construct a fishladder over the dam pursuant to a statute. DePuy refused and the Commission brought an action for mandatory injunction to compel the building of the fish ladder. The Court denied the mandatory injunction but in dictum it stated:

“The Commission does not deny that DePuy has a valid appropriative right to the waters of Armstrong Spring Creek. In fact the Commission made no attempt to prove that the amount of water actually put to beneficial use by DePuy was less than the amount claimed and diverted. The Commission does maintain that the public has a prior right to the waters of the creek which would require DePuy to release some water through a fishladder. The public right urged by the Commission would be based on the fact that the public had used the creek as a fishing stream and natural fish hatchery before DePuy built his dam. Under the rule of Bullerdick v. Hermsmeyer, 32 Mont. 541, 554, 81 P. 334, DePuy could not use the water to the detriment of prior rights.
“Such a public right has never been declared in the case law of this state. California, an appropriation doctrine jurisdiction, whose constitutional provisions relating to water rights are virtually the same as Art. Ill, Sec. 15 of the Montana Constitution [1889] has recognized such a right and has upheld statutes requiring fishways (citing authority). Under the proper circumstances we feel that such a public interest should be recognized. This issue will inevitably grow more pressing as increasing demands are made on our water resources. An abundance of good trout streams is unquestionably an asset of considerable value to the people of Montana.
“While the Commission’s argument is plausible, we cannot yield to it given the facts at hand . . . .”

148 Mont. at 419, 420, 421 P.2d at 721.

We accept as given that the activities of the DFWP in stocking Bean Lake, maintaining the fishery resource, making studies of the Bean Lake surface levels and fish population, enforcing rules relating to motor boats, coupled with the general public use of Bean Lake for the purpose of recreation, wildlife, and fishing constituted a beneficial use of the waters within the meaning of the appropriation doctrine. In this case the Water Court itself determined that use was in fact beneficial. This Court has never closed the list of what comprises a beneficial use. See Stone, “Legal Battle Background on Recreational Use of Montana’s Waters,” 32 Mont. Law Review 1, 14 (1971).

Recreation is recognized as a beneficial use in Article IX, Section 3, 1972 Montana Constitution.

The historical growth of Montana appropriation water law is well documented in our cases. See Stone, “Montana Water Law for the 1980’s” (1981). It began with the needs of miners who engaged in placer mining and mill operations and nearly simultaneously with the needs of irrigators for farm lands. In these cases, the water was “captured” in the sense that the water was diverted from its main stream or channel and put to use by the appropriator. A completed appropriation meant an actual diversion of the water which served any of several purposes. Diversion proved an intent to appropriate the water, Bailey et al v. Tintinger (1912), 45 Mont. 154, 122 P. 575, as did the capacity of the works Bailey, supra. In Toohey v. Camp bell (1900), 24 Mont. 13, 60 P. 396, it was held that intent was determined by the extent of the farm tract actually reduced to possession and cultivated.

It cannot be disputed however that there were beneficial uses for which appropriation rights could he obtained which would not require diversion of the waters. Though some impoundment was involved, such use included hydroelectric power use of dams, and the impoundment of waters in reservoirs, although the latter included a capture of sorts.

The first appropriators in Montana acquired an appropriation right simply by putting the water to a beneficial use. Klienschmidt v. Binzel (1894), 14 Mont. 31, 35 P. 460. The first statutes relating to appropriation were enacted in this state in 1885. Even without complying with the statutes, however, a party, simply by putting the water to beneficial use, could acquire a valid appropriation right, Murray v. Tingley (1897), 20 Mont. 260, 50 P. 723, provided the stream was unadjudicated.

There is not any doubt that in all the time from the first settlers until 1972, the waters of Montana were being put to extensive recreational use by the public. The DFWP and its predecessors have a long history of sustaining fisheries in-lake and in-steam. Yet no court case, and no statute except for a Murphy right statute, recognized any kind of an appropriation right in the waters thus used. In truth, no Montana legal authority, deriving either from common law or statute, acknowledged that recreational, fish or wildlife uses, even though beneficial, gave rise to any water rights by appropriation under Montana law.

It was in this legal climate that the legislature adopted the first Murphy right statute in 1969. Chapter 345, Laws of 1969 amended Section 89-801, R.C.M. (1947), by adding subsection (2) thereto, so that the section read in part as follows:

“89-801. What waters may be appropriated. (1) The right to the use of the unappropriated water of any river, stream, ravine, coulee, spring, lake, or other natural sources of supply may be acquired by appropriation, and an appropriator may impound flood, seepage, and waste waters in a reservoir and thereby appropriate the same.
“(2) But the unappropriated waters of the streams and portions of streams hereafter named shall be subject to appropriation by the fish and game commission of the state of Montana in such amounts only as may be necessary to maintain stream flows necessary for the preservation of fish and wildlife habitat. Such uses shall have a priority of right over other uses until the district court in which lies the major portion of such stream or streams shall determine that such waters are needed for a use determined by said court to be more beneficial to the public. The unappropriated water of other streams and rivers not named herein may be set aside in the future for appropriation by the fish and game commission upon the consideration and recommendation of the water resources board, fish and game commission, state soil conservation committee, the state board of health and approval of the legislature . . .”

Section 89-801, R.C.M. (1947) as amended was in force and effect until 1973 when it was repealed. While it was in effect, the Fish and Game Commission was permitted to appropriate unappropriated waters in 12 blue-ribbon fishing streams named therein. Bean Lake was not named. The amended statute further expressly provided that no other appropriations would be allowed except upon the recommendations of certain boards of the state, and particularly the “approval of the legislature.” Our understanding is that the Fish and Game Commission, and its successors have made Murphy right appropriations as permitted under Section 89-801 R.C.M. (1947).

The foregoing was the state of the law pertaining to water use rights when the state constitutional convention was held in 1972. Before that, in no sense, did DFWP or its predecessors claim any appropriative rights for recreational fish or wildlife purposes except as permitted under the Murphy right statute. Indeed, the evidence in this case shows that the publications issued by DFWP and its predecessors, and public statements made by persons holding responsible positions in the Department, all assumed that an appropriation right could not be acquired for those purposes. In so reporting, we do not intimate that the Department is bound by those expressions of opinion of its publications, or of its officers and employees. We report them as confirming the general opinion of the legal community that existed at the time. It is with that background of opinion that the dictum expressed in Paradise Rainbows, supra, can be understood.

The 1972 Montana Constitution provided that “all existing rights of the use of any waters for any useful or beneficial purpose are hereby recognized and confirmed.” Art. IX, Sec. 3(1), 1972 Mont. Const. In McDonald v. State (Mont. 1986), [220 Mont. 519,] 722 P.2d 598, 601, 34 St.Rep. 576, we said:

“There are two components to the Montana constitutional guarantee: There must be an existing right to the use of water, and the use must be for beneficial purpose ...”

While it might be argued that at the time of the adoption of the 1972 Montana Constitution, the in-stream and in-lake waters of the state were being put to beneficial use for recreation, fish and wildlife purposes, and that therefore an appropriation right existed, it is clear that at the adoption of the Constitution, the constitutional framers thought otherwise.

As a part of Article IX of the new Constitution, the convention adopted Subsections (3) and (4) of Section 3. Those subsections provide:

“(3) All surface, underground, flood, and atmospheric waters within the boundaries of the state are the property of the state for the use of its people and are subject to appropriation for beneficial uses as provided by law.
“(4) The legislature shall provide for the administration, control, and regulation of water rights and shall establish a system of centralized records, in addition to the present system of local records.”

When those subsections came before the convention for adoption, Delegate McNeil, supporting their adoption, spoke to the convention in this wise:

“Subsection 3 is a new provision to establish ownership of all water in the state subject to use by the people. This does not, in any way, affect the past, present, or future right to appropriate water for beneficial uses and is intended to recognize Montana Supreme Court decisions and guarantee the State of Montana’s standing to claim all of its waters for use by the people of Montana in manners involving other states and the United States government. Subsection 4 is a new provision to permit recreation and stockwatering to acquire a water right without the necessity of a diversion. This applies only to future rights and, of course, only to waters listed of which there are no present water rights. This subsection further provides that future agricultural and industrial water development will not be foreclosed by recreation, as it is left up to the Legislature to determine the method of establishing a future water right without a diversion;

Verbatim Transcript, Montana Constitutional Convention, Vol. V, at 1301.

Subsection 4, referred to in the above quotation, was proposed by the Committee on Natural Resources and Agriculture. As proposed, subsection 4 would have provided that a diversion was not required for future acquisition of a water right, and would have given the legislature power to designate priorities between future acquired water rights. (Montana Constitutional Convention, Vol. II, at 552-553.) Subsection 4 did not make it through the convention to be included in the 1972 Montana Constitution. After several hours of debate, the subsection was deleted in its entirety on motion of Delegate McDonough. (Montana Constitutional Convention, Verbatim Transcript, Volume V, at 1301-1343.) By the adoption of Article IX, Section 3 in its present form, the Constitutional Convention left it to the legislature to provide appropriation rights for beneficial uses not theretofore recognized under our law.

The legislature did so act in 1973. It repealed the first Murphy right statute, Section 89-801 R.C.M. (1947). Instead of an appropriation, the legislature provided that a government agency could reserve waters for existing or future beneficial uses in most of the principal streams of the state. Section 85-2-316, MCA. Such reservations, when granted, date from the order reserving the water adopted by the Board of Natural Resources and Conservation; they may not adversely affect any rights in existence at the time; and the Board has no authority to alter a water right that is not a reservation. Section 85-2-316(9), (12), MCA.

It is clear therefore that under Montana law before 1973, no appropriation right was recognized for recreation, fish and wildlife, except through a Murphy right statute. The prevailing legal theory was that some form of diversion or capture was necessary for an appropriation even though some forms of non-diversionary water rights were given appropriation status. In this case the Water Court denied the appropriation water right claim “because of the lack of diversion, intent, and notice.” Whatever the merits of the lack of diversion argument, the DFWP and the public could not have intended an appropriation where none was recognized by law, and for the same reason, adverse appropriators could not have had notice of such a claim. We therefore uphold the Water Court’s decision that DFWP, for itself or for the public, had no appropriation right in Bean Lake, and no “existing right” therein which is' protected by Art. IX, Section 3(1) of the 1972 Montana Constitution.

DFWP raises two other issues, one relating to additional findings of fact requested by the Department which were not considered by the Water Court, and the second that the Water Court precluded the Department from inquiring into the water rights of the other appropriators in this case. At the outset of this opinion, we assumed all the facts for which the Department contended and none of those facts would change our consideration of the applicable law. Since DFWP had no appropriation water rights in Bean Lake, it was irrelevant to inquire into the kinds of water rights of the other appropriators against whom no objections were raised by other parties.

This opinion serves the office of a writ of supervisory control, without the necessity of the issuance of further writs or documents. We acknowledge with appreciation the several briefs submitted by amici curiae in this case. Let remittitur issue forthwith.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, WEBER, GULBRANDSON, HUNT and McDONOUGH concur.


source: Caselaw Access Project

author: MR. JUSTICE McDONOUGH

license: Public Domain

text:
    In re the MARRIAGE OF JULIANNE P. PARRISH, formerly Julianne P. Appleton, Petitioner and Appellant, and JERE THOMAS APPLETON, Respondent and Respondent.
    No. 88-122.
    Submitted on Briefs Sept. 1, 1988.
    Decided Oct. 20, 1988.
    763 P.2d 658.

      Douglas & Sprinkle, S. Charles Sprinkle, Libby, for petitioner and appellant.
    Donald L. Shaffer, Libby, for respondent and respondent.
   MR. JUSTICE McDONOUGH

delivered the Opinion of the Court.

Jere Thomas Appleton (Jere) appeals from the judgment of the District Court of the Nineteenth Judicial District, Lincoln County. The court held it had jurisdiction to enter the original dissolution decree in this case and granted a motion by Julianne P. Parrish, f.k.a. Julianne Appleton (Julie), for increased child support. We affirm the court’s decision, but remand for modification of the child support award.

Jere presents four main issues in his appeal:

1. Did the District Court have jurisdiction to enter the original judgment and decree?

2. Has all or part of the judgment for child support arrearage, obtained by Julie lapsed or become subject to laches and estoppel?

3. Does the absence of responsive pleadings or briefs require reversal under the Uniform District Court Rules?

4. Was there sufficient evidence to support an increase in child support?

The facts are essentially agreed upon by the parties. Jere and Julie were married in Tennessee in 1965. They had two sons: John in 1966 and Michael in 1967. In early 1972, Julie moved with the two children to Texas. In June of that same year, Jere obtained a default judgment in Tennessee dissolving the marriage. Service of the judgment was made by publication in accordance with Tennessee law.

In September, 1972, Julie and Jere reconciled and began living together in Texas. Julie had not received a copy of the Tennessee divorce decree, and Jere did not tell her about it. Two more children were born: Tim in 1973 and Jenny in 1976. In 1979, the family moved to Montana. Relations between Julie and Jere deteriorated: While it is not clear from the record, it appears that approximately six months after they took up residence in Montana, Julie told Jere she wanted him to leave. She also said she was planning to file for divorce. Jere then told Julie they were already divorced. At some point after this conversation Jere left, taking one of the children with him.

On July 30, 1980, Julie executed a petition for dissolution which was then filed in Montana District Court. The petition referred to the 1965 Tennessee marriage. Notice of the proceeding was personally served on Jere in Tennessee on August 11, 1980. Jere did not appear in the original proceeding, but his attorney wrote to counsel for Julie and informed him that the marriage had been dissolved in 1972. Julie’s attorney replied with a letter informing Jere’s attorney that Montana recognizes common-law marriage, and that Julie’s main goal was to obtain child support from Jere. On October 6, 1980, the District Court granted Julie a decree of dissolution.

In April, 1987, Jere filed a motion in the District Court requesting the 1980 dissolution decree be declared invalid on the grounds that the court lacked jurisdiction, or alternatively, that the decree was obtained through “extrinsic constructive fraud.” In June, 1987, Julie filed a motion seeking an increase in child support. Neither party responded to the other’s motion. Hearing on the two motions was had on June 22, 1987, and the court issued its judgment on September 10, 1987. This appeal followed.

I.

Jere attacks the District Court’s jurisdiction to enter the 1980 decree. He argues: (1) the court never obtained in personam jurisdiction over him under Rule 4B, M.R.Civ.P., (2) the judgment is void because it was pre-empted by the Uniform Reciprocal Enforcement of Support Act (URESA), and (3) the proceeding was void because Julie’s petition amounted to “extrinsic constructive fraud.”

Rule 4B, M.R.Civ.P., confers in personam jurisdiction to the courts of Montana over “[a]ll persons found within the state of Montana” and all persons whose actions within the state subject them to long-arm jurisdiction. Jere contends he was residing in Tennessee when served with process and took no action that would subject him to long-arm jurisdiction. He argues the District Court therefore lacked in personam jurisdiction to enter a money judgment against him.

A divorce action is generally in rem as to the status of the parties, and in personam as to other matters. Bad Horse v. Bad Horse (1974), 163 Mont. 445, 517 P.2d 893. The District Court therefore did not need in personam jurisdiction to grant the dissolution. Montana law in effect at the time of the 1980 hearing specifically granted jurisdiction to determine custody where the children involved were living within the state. Section 40-4-211, MCA (1979). The District Court therefore had jurisdiction to grant custody of Michael, Tim and Jenny, who were living in Montana in 1980. The District Court was without jurisdiction in 1980 to grant custody of John, who had left Montana with his father and was living in Tennessee. The court was also without jurisdiction to order child support from Jere, as it did not have in personam jurisdiction over him under Rule 4B, M.R.Civ.P.

In 1985, Julie initiated a URESA action in Montana to obtain payment of child support. Under URESA, she was able to seek the assistance of Tennessee courts in obtaining support. Jere argues the URESA proceedings pre-empted the District Court, because jurisdiction over the divorce had become vested in a Tennessee court. This argument is without merit. URESA, as adopted in Montana and Tennessee, provides:

“The remedies herein provided are in addition to and not in substitution for any other remedies.”

Section 40-5-104, MCA; see, Section 36-5-203, TCA.

Jere’s final attack on the District Court’s jurisdiction asserts the decree was obtained through extrinsic constructive fraud. He points out Julie’s pleading was based on the 1965 marriage, yet did not mention the Tennessee divorce decree. No allegation of common-law marriage was made, nor was there any mention of Jere’s Tennessee residency. Jere argues these errors and omissions, while not intentionally fraudulent, worked fraud upon the court by alleging a legal marriage that did not exist. He asserts a court sitting in equity has inherent power to grant relief from a judgment obtained through fraud, citing Selway v. Burns (1967), 150 Mont. 1, 429 P.2d 640.

A court hearing a divorce action sits in equity. Johnson v. Johnson (1960), 137 Mont. 11, 349 P.2d 310. However, a well-established tenet of equity is that one who seeks equity must do equity. Barbour v. Barbour (1958), 134 Mont. 317, 330 P.2d 1093.

Julie’s 1980 dissolution petition was indeed based on the 1965 marriage; did not mention the Tennessee divorce decree; and listed the address of all family members as Libby, Montana. The petition was nonetheless made in good faith. Jere had concealed the existence of the Tennessee decree from Julie for nearly eight years. His disclosure, when it finally came, was made in response to Julie’s statement that she was contemplating filing for divorce. Given her lack of actual notice of the Tennessee decree, it is understandable that Julie might not believe Jere.

As to the addresses, the petition was filed on August 1, 1980. Jere was found and service effected on him in Tennessee on August 11, 1980. According to the affidavit of John, the eldest child, he and his father left Montana some time in August. When the petition was filed, Julie knew of no address for Jere other than his most recent one in Libby.

Jere and Julie were married when Julie filed her petition in District Court. They had been living together and holding themselves out as husband and wife in Texas and in Montana. A common-law marriage therefore existed between them under Section 26-1-602(30), MCA. Spradlin v. U.S. (D.C. Mont. 1967), 262 F.Supp. 502. The District Court noted in its conclusions of law from the 1987 hearing:

“Whether or not the parties intended to resume the formalized marriage or to create a new marriage by common law is irrelevant since the only prerequisite to a Montana dissolution decree is that a marriage of some form existed between the parties.”

Given Jere’s own acts of deceit and Julie’s good faith in pleading, we see no reason to grant Jere equitable relief by voiding the 1980 decree.

Finally, we note Jere appeared through counsel at the 1987 hearing. At that point, the court obtained in personam jurisdiction over him. Rule 4B(2), M.R.Civ.P. We have held a District Court can award child support retroactively when the issue is properly before the court pursuant to the parties’ pleadings. In re Marriage of DiPasquale (Mont. 1986), 716 P.2d 223, 225, 43 St.Rep. 557, 559. However, no issue of retroactive support was before the court in this case. Julie’s motion for modification sought an increase in support to $200 per month, but did not seek support retroactive to 1980. Therefore, the only issue of child support before the court at the 1987 hearing was whether Julie was entitled to payments of $200 per month.

We affirm the District Court’s decision that it had jurisdiction in this matter, and its award of $200 per month in child support beginning in 1987. However, we hold the court was without in personam jurisdiction to award child support in 1980, and could not in 1987 make an award of retroactive support when it was not sought in the pleadings.

II.

Jere next argues the District Court’s award of arrears in child support has lapsed, or is subject to laches and estoppel. This argument is rendered moot by our determination above that the court could not award child support for periods prior to 1987.

III.

Jere points out no pleading was filed in response to his motion to void the 1980 decree, nor any brief filed in support of Julie’s motion for modification of child support. He argues the Uniform District Court Rules (UDCR) therefore dictate his motion should be deemed “well-taken,” and Julie’s deemed “without merit.”

Julie filed an affidavit in support of her motion, but filed no brief. Jere, however, did no better. His motion was also supported only by an affidavit. While Jere’s affidavit was labeled “Brief in Support of Motion,” it contained nothing more than his sworn statement. Neither party responded to the other’s motion. Accepting Jere’s argument would lead to the absurd conclusion that the court had before it two motions deemed well-taken, and at the same time without merit.

Pursuant to Rule 2, UDCR, the District Court held oral argument on both motions. This gave Jere and Julie an opportunity to argue in support of their own motion and against each other’s motion. The court followed a wise course, and we see no reason to overturn its decision on technical grounds.

IV.

Finally, Jere argues there was not sufficient evidence to support an increase in child support. Because we held above the District Court’s award of support in 1980 was void, discussing modification of that award would be illogical. We will therefore treat the court’s 1987 award of $200 per month as an initial child support award rather than a modification.

The District Court has authority to require either or both parents to pay “reasonable or necessary” child support. Section 40-4-204, MCA. An award of child support made by the District Court will not be overturned unless there has been a clear abuse of discretion resulting in substantial injustice. In re Marriage of Alt (Mont. 1985), [218 Mont. 327,] 708 P.2d 258, 42 St.Rep. 1621.

The record contains affidavits, pleadings and written testimony from the URESA action, and the Tennessee judgment obtained by Julie directing Jere to pay child support. The combination of these documents and Julie’s testimony at the 1987 hearing shows her earning power, financial resources and liabilities; the needs of her children; and the determination of another court that she is entitled to $200 per month in support. Given this evidence, the District Court did not abuse its discretion by awarding child support of $200 per month.

We affirm the decision of the District Court, but remand the case to have stricken that portion of the judgment awarding retroactive child support for periods prior to 1987.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, SHEEHY and GULBRANDSON concur.


author: MR. JUSTICE HUNT

text:
    In re the MARRIAGE OF JANICE JOHNSON COLE, Petitioner and Respondent, and SHERWIN GARY COLE, Respondent and Appellant.
    No. 88-254.
    Submitted on Briefs Aug. 11, 1988.
    Decided Oct. 20, 1988.
    763 P.2d 39.

      Drysdale, McLean, Nellen & Nellen, A. Susanne Nellen, Bozeman, for respondent and appellant.
    Morrow, Sedivy & Bennett, Edmund P. Sedivy, Jr., Bozeman, for petitioner and respondent.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

The husband in a dissolution action appeals from a decree of the Eighteenth Judicial District Court, Gallatin County. We affirm the District Court and remand for a determination of reasonable attorney’s fees incurred by the wife on this appeal.

The issues raised on appeal are:

1. Whether the District Court properly considered the factors delineated in the Montana maintenance statute, Section 40-4-203, MCA, when it awarded maintenance to the wife.

2. Whether the maintenance award is based on substantial credible evidence.

The parties were married on July 18, 1975. Shortly after the marriage, in January, 1976, the husband, his brother and his father formed a farming partnership. The husband and his brother each received a 25 percent share in the business and their father retained the remaining interest.

Prior to December 29, 1987, the partnership was indebted to Norwest Bank of Billings in the amount of approximately $574,000, plus $55,000 interest. On December 29,1987, one day before the dissolution hearing that is the subject of this appeal, the partners restructured their loan with the bank. The agreement does not increase the amount of the original debt but gives the partners the authority to borrow additional funds up to a total approximate debt of $748,000.

The loan agreement allows the partners to take draws of $5,500 per month, with $2,500 going to the father and the husband and his brother splitting equally the remaining $3,000. No other salaries are drawn by the partners and no bonuses are given. The loan agreement requires that all profits be applied toward the debt or the purchase of new equipment.

The District Court found that the husband’s share of the partnership was a minority interest in a closely-held family business and for that reason was not saleable to an outside buyer.

The District Court valued the partnership at $1,019,733, and the husband’s 25 percent share at $254,933. The court then reduced the value of the interest by 30 percent to take into account the share’s nonmerchantability, the partnership’s high debt load and a discount for machinery. The court concluded that, after the 30 percent reduction, the husband’s interest equaled $178,453. The court found that his share of the debt was $158,440.

The husband also owns a 50 percent interest in 105 acres of farmland. He and his brother purchased the land in 1985 with a $130,000 loan. Unfortunately, land values dropped. The husband’s interest in the land, $50,000, is presently valued at less than his share of the debt, $64,000. The partnership farms the land, although it pays no rent for the acreage.

The wife is 34 years old. She has a degree in home economics from Montana State University. During the marriage, she regularly worked outside the home in addition to her duties as homemaker. She has been employed as a teacher, travel agent, employment counselor and door-to-door salesperson. She has also engaged in business ventures, although with little success. Her earnings have averaged approximately $4.00 per hour. In 1987, she earned $5,203 selling cable television subscriptions in Colorado and Nevada.

The wife filed a petition for dissolution of marriage on October 7, 1986. A one day hearing was held on December 30, 1987. The District Court issued its findings of fact and conclusions of law on February 24, 1988.

The trial court awarded the parties joint custody of their one son, Wesley, age 10. The court gave temporary physical custody of the son to the husband while the wife moved to another area to look for a new job. Once the wife is settled, she may apply to the court for physical custody of the child. The husband has agreed to pay child support of $250 per month in the event physical cústody of the child is given to the wife. The wife is not required to pay child support while Wesley resides with the husband.

The court divided the property of the parties, awarding the wife assets valued at a total of $12,975. The award included a 1985 Jeep and camper, a 1953 Chevrolet limousine, and various household furnishings. The wife was also ordered to pay $9,250 in liabilities, leaving her with a net of $3,725.

The court granted the husband his entire interest in the partnership as well as his interest in the 105 acres of land. In addition, the husband was awarded several household items, a 1981 BMW, and the family home. The court found that the home had a value of $48,000 but was mortgaged at $52,231. The total value of the assets awarded to the husband equaled $290,403. The husband was ordered to assume liabilities of $293,671, including the partnership debt and the mortgages on the house and the farmland. Subtracting the liabilities from the assets, the husband received a negative net of $3,268.

The District Court also ordered the husband to pay maintenance to the wife in the sum of $500 per month for 10 years. The husband contends this award of maintenance was improper because the District Court failed to consider the factors set out in Section 40-4-203, MCA, and because the award was not based on substantial credible evidence.

Our standard of review in dissolution cases is limited. We will not disturb a District Court’s judgment that is based on substantial credible evidence unless a clear abuse of discretion is shown. In Re the Marriage of Stewart (Mont. 1988), [232 Mont. 40,] 757 P.2d 765, 767, 45 St.Rep. 850, 852. Although the District Court in the instant case failed to make findings specifically tailored to the elements delineated in Section 40-4-203, MCA, it did not abuse its discretion in making the maintenance award. It is evident from the findings that the lower court considered the proper factors in granting the wife maintenance and that the award was based on substantial credible evidence.

An award of maintenance may be granted only if the spouse seeking maintenance meets the requirements of Section 40-4-203(1), MCA. In Re the Marriage of Johnsrud (1977), 181 Mont. 544, 548, 572 P.2d 902, 905. That section provides:

“(1) In a proceeding for dissolution of marriage or legal separation or a proceeding for maintenance following dissolution of the marriage by a court which lacked personal jurisdiction over the absent spouse, the court may grant a maintenance order for either spouse only if it finds that the spouse seeking maintenance:
“(a) lacks sufficient property to provide for his reasonable needs; and
“(b) is unable to support himself through appropriate employment or is the custodian of a child whose condition or circumstances make it appropriate that the custodian not be required to seek employment outside the home.”

Maintenance payments supplement the property division. If, after an equitable division of the marital assets, one party lacks sufficient property to fulfill his or her reasonable financial needs,- maintenance may be appropriate. In determining whether a spouse has sufficient property, a court should consider whether the spouse seeking maintenance has received income producing or income consuming assets. In Re the Marriage of Goodman (Mont. 1986), [222 Mont. 446,] 723 P.2d 219, 222, 43 St.Rep. 1410, 1414-15. While income producing property generates income to provide for a party’s financial needs, income consuming property requires capital for its upkeep. Therefore, a spouse who receives only income consuming property is more likely to be in need of maintenance.

In the present case, the District Court failed to specifically point out the income producing or consuming nature of the property awarded to the parties. This failure, however, is not fatal. Although in our opinion, In Re the Marriage of Tow (Mont. 1987), [229 Mont. 483,] 748 P.2d 440, 442, 44 St.Rep. 2154, 2157, we stated, “we will require a specific finding regarding the nature of the properties owned by the maintenance seeking spouse,” such a specific finding is not required in this case. It is obvious from the findings and conclusions that the court considered the character of the property when it granted the maintenance award.

There is substantial credible evidence that the property awarded to the wife will not fulfill her reasonable economic needs. The total value of the award, $12,975, was small. Furthermore, what property she did receive, two motor vehicles, furniture and appliances, was income consuming rather than income producing.

Because the wife will be unable to support herself by relying on income produced by the assets distributed to her in the property division, she will be required to find employment in order to provide for her reasonable needs. There is no question regarding the wife’s ability to work. She is a young, healthy individual who has worked outside of the home throughout the marriage. The question is whether she will be able to support herself through “appropriate employment,” a point that must be evaluated in light of the standard of living established during the marriage. In Re the Marriage of Madson (1979), 180 Mont. 220, 224-25, 590 P.2d 110, 112; Goodman, 723 P.2d at 222, 43 St.Rep. at 1414; Tow, 748 P.2d at 442, 44 St. Rep. at 2158.

The District Court made no specific finding regarding the standard of living established during the marriage. Even so, we can infer from the findings that the parties enjoyed a comfortable, though not lavish, lifestyle. They owned their own home and several motor vehicles. The husband was a partner in a successful farming operation from which he received monthly draws ranging from $1,500 to $2,000.

The wife’s standard of living fell drastically once she separated from her husband. Her failure to find work in the Bozeman area that paid more than minimum wage forced her to look for employment outside of the state. The employment she was able to find, selling cable subscriptions door-to-door, required that she work extremely long hours seven days a week. Even though she saved on rent by living out of her camper, she earned only enough money to pay her bills. At the time of the dissolution hearing she was out of funds and without a job. She testified that she planned to move to a metropolitan area where she estimated she could earn $1,200 monthly. Even at that salary, however, she would be unable to meet her projected living expenses of $1,743 per month.

Both the findings and the record reflect that the wife will be unable to support herself in a manner that will approximate the standard of living established during the marriage without the aid of maintenance payments. Therefore, the District Court was correct in determining that an award of maintenance was appropriate.

Once the lower court determines that a grant of maintenance is warranted, it must look to the factors enumerated in Section 40-4-203(2), MCA, to ascertain the duration and amount of the award. That section is as follows:

“(2) The maintenance order shall be in such amounts and for such periods of time as the court deems just, without regard to marital misconduct, and after considering all relevant facts including:
“(a) the financial resources of the party seeking maintenance, including marital property apportioned to him, and his ability to meet his needs independently, including the extent to which a provision for support of a child living with the party includes a sum for that party as custodian;
“(b) the time necessary to acquire sufficient education or training to enable the party seeking maintenance to find appropriate employment;
“(c) the standard of living established during the marriage;
“(d) the duration of the marriage;
“(e) the age and the physical and emotional condition of the spouse seeking maintenance; and
“(f) the ability of the spouse from whom maintenance is sought to meet his needs while meeting those of the spouse seeking maintenance.”

Our discussion above shows that the District Court considered the majority of the elements listed in Section 40-4-203(2), MCA, when it evaluated the need for maintenance. Thus, the only element we need to discuss is that concerning the ability of the husband to meet his needs while making maintenance payments. Here, too, the income producing or income consuming character of the property awarded in. the property distribution is important. In Re the Marriage of Herron (1980), 186 Mont. 396, 407-08, 608 P.2d 97, 103. A spouse who receives income producing property is in a better position to pay a greater amount of maintenance for a longer period of time.

In the instant case, the husband received all the farm assets. Even so, he argues that the maintenance grant was improper, contending that the partnership is income consuming rather than income producing because it is heavily indebted. We do not agree. A loan agreement with a bank that requires that all profits be applied to debt reduction does not change the character of an asset from income producing to income consuming. The partnership is an income producing asset.

The husband further contends that the award was improper because he is unable to pay maintenance and meet his personal expenses at the same time. He argues that his ability to pay should be the deciding factor in determining the propriety of a maintenance award. This is not so. While the husband’s ability to meet his needs is an element that should be given great weight, it is not always the determining factor. Each case depends on its own unique set of facts. In Re the Marriage of Aanenson (1979), 183 Mont. 229, 234, 598 P.2d 1120, 1123.

In the present case, the trial court was forced to choose between awarding the wife an interest in the partnership, an arrangement that would have caused continuing friction between the parties, or maintenance. It chose to grant maintenance of $500 per month for 10 years. Under the circumstances this was not an abuse of discretion. Although the trial court did not make specific findings regarding each element of Section 40-4-203, MCA, the findings that were made show that the court considered the proper factors when making the award. Further, the findings and the award were based on substantial credible evidence found in the record.

Ms. Cole requests attorney’s fees on this appeal in accordance with Section 40-4-110, MCA. That statute allows a court to award costs and attorney’s fees to a party who defends a post-judgment proceeding in a dissolution action. We therefore remand to the District Court for a determination of Ms. Cole’s reasonable attorney’s fees incurred in defending this appeal.

We affirm the grant of maintenance and remand on the matter of Ms. Cole’s attorney’s fees on appeal.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES WEBER, GULBRANDSON and SHEEHY concur.


author: MR. CHIEF JUSTICE TURNAGE

text:
    NORTHWEST PLATING CO., a corporation, and K.H. Hoen, Plaintiff and Appellant, v. IRENE H. HOFFMAN, in her capacity as Personal Representative of the Estate of Ralph MacLaren Hoffman, the Estate of Ralph MacLaren Hoffman and Murray Manufacturing Company, Defendants, Respondents and Cross-Appellants.
    No. 88-283.
    Submitted on Briefs Sept. 23, 1988.
    Decided Oct. 20, 1988.
    763 P.2d 44.

      Pierre L. Bacheller, Billings, for plaintiff and appellant.
    Bruce E. Lee, Billings, for defendants, respondents and cross-appellants.
   MR. CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Plaintiffs appeal a judgment entered in the Thirteenth Judicial District, Yellowstone County, and defendants cross-appeal.

Plaintiffs are K. H. Hoen and Northwest Plating (Northwest), a corporation owned in equal shares by Hoen and defendant Ralph Hoffman, deceased. Defendants are Irene Hoffman as personal representative for the estate of Ralph Hoffman, her deceased husband, and Murray Manufacturing Co., a business solely owned by decedent Ralph Hoffman. Hoen and Hoffman incorporated their business (Northwest) in 1958 and were the only shareholders in the corporation until January 1984 when Hoffman died. This cases arises out of their business relationship and the settling of Hoffman’s estate.

The issues on appeal and cross-appeal are numerous;

1. Did the District Court abuse its discretion in finding that Hoffman converted corporate money?

2. If not, then did the District Court err in applying a three-year statute of limitations for conversion, when plaintiffs urged that their claim was for breach of a verbal agreement bearing a five-year statute and defendants urged the proper limitation for conversion was two years?

3. If the conversion finding is proper, are Hoen’s claims still barred by his acquiescence and laches?

4. Did the District Court err in finding that plaintiff Hoen’s promissory note was canceled?

5. Did the District Court err in determining the buyout price for a deceased shareholder in Northwest Plating Company on January 1, 1984, was $55,000 rather than the alleged $28,000?

6. Did the District Court err in failing to find an oral modification of the written sublease agreement, and if not, are Hoen’s claims to recover the excess rent barred, at least in part, by the two-year statute of limitations?

We affirm in part and reverse in part.

Hoen and Hoffman met in the late 1940s and became close friends. In 1949 they formed a business partnership and went into the industrial hard chrome plating business in Billings, Montana. The year before that, Hoffman’s business, Murray Manufacturing Company (MMC) leased a parcel of property from Northwestern Improvement Company, a subsidiary of Northern Pacific Railroad. Hoen and Hoffman located their new business on that property.

In 1958 Hoen moved to Salt Lake City, Utah. At that time, Northwest was incorporated and a shareholder’s agreement was signed by both parties designating Hoffman as business manager. Likewise, an employment contract was drawn up detailing Hoffman’s powers, duties and his compensation for performance of his duties. Hoffman’s complete compensation as outlined in the contract was to be a salary, car and airplane lease payments and reimbursement for fuel and oil expenses incurred in business travel.

Hoffman’s duties included sole managerial control over Northwest, being responsible for the day-to-day operation, purchases, financial affairs, bookkeeping, and records. Hoffman was only limited in carrying out these duties in that any purchase over $10,000 required prior director’s approval.

About this same time, Northwest began leasing its space from MMC as a sublessee on the primary lease from Northern Pacific. Hoffman and Hoen reached an agreement whereby Northwest would pay to MMC one-half of the rent as established by Northern Pacific.

Hoffman died January 1, 1984, from injuries sustained in a plane crash.

Hoen discovered after Hoffman’s death that in managing the business, he caused Northwest to pay the entire 100 percent of the rent on the MMC lease to Northern Pacific. Hoen made a claim with Hoffman’s estate for that portion of the rent allegedly wrongfully paid.

Hoen also made claims for numerous expenditures by Hoffman during the course of business which were of a personal nature. These included among others, payments for club dues, flowers and magazine subscriptions. The rent claim, along with Hoen’s other claims against the estate, were denied by Irene Hoffman. Litigation of the matter ensued and a bench trial was had August 3, 1987. The District Court found Hoffman to have converted corporate money in the amount of $22,865.34 in personal expenditures and $3,925.00 in excess lease money paid. That amount for excess rent was also subject to prejudgment interest. Both parties appeal this award and dispute the applicable statute of limitations.

Additionally, testimony was had at trial that in April 1981 Hoffman executed a promissory demand note in favor of Hoen in the amount of $9,087.54. The original note is lost. Its whereabouts were disputed at trial, and no one was able to produce it. Hoen testified that it should have been placed with Northwest’s attorney, Sid Kurth, for safekeeping and that is where Hoen assumed it to be.

Kurth testified that he did not have the note, that he could not locate the Northwest file, and that he had no recollection of the note being placed in his possession.

Hoen came to trial with a carbon copy of the note which was signed as an original. However, the signature had been physically cut off with scissors. Hoen testified that he intentionally cut off Hoffman’s signature so that Hoen’s wife could not unfairly make demand on Hoffman. Hoen further testified that since he believed the original to be with Kurth, he did not think that removing the signature on his copy would affect its enforceability.

The District Court refused to enforce the note. It found the note to be canceled by Hoen’s intentional mutilation of the document by removing the signature of the party to be charged. Hoen assigns this as error.

Lastly, Hoen disputes the correct dollar amount of a buyout of a deceased shareholder’s stock in the Northwest company. The buyout price, which changed over the years, was based on several documents. The court found the $55,000 price stated in the 1976 written agreement controlling. Plaintiff assigns that decision as error. This Court affirms on all but one issue.

A District Court’s ruling on these issues will not be overturned when it is based on substantial credible evidence and is not an abuse of discretion. Marriage of Watson (Mont. 1987), [227 Mont. 383,] 739 P.2d 951, 44 St.Rep. 1167. Substantial evidence is any which a reasonable mind would accept as adequate to support a conclusion. State v. Lamb (1982), 198 Mont. 323, 696 P.2d 516.

I. CONVERSION

The District Court specifically found that Hoffman’s compensation was limited to that which was outlined above in the employment contract. Many of Hoffman’s expenditures were scrutinized after Hoen received the corporate books. Hoffman’s estate urged that they were all legitimate business expenditures. Hoen argued that they were compensation in excess of that authorized by Hoffman’s employment agreement and constituted a breach of contract. The court found the purchases to be personal in nature and a conversion of Northwest’s assets. We agree.

Testimony at trial revealed that one of the questioned expenditures was Hoffman’s authorization for Northwest to pay all of his health insurance costs. The largest bill was for accumulated airplane repair, fuel and hangar rental. Although their agreement authorized Northwest to lease the airplane from Hoffman, he continued to use the plane for his own personal and MMC use as well. He then reimbursed himself with Northwest money for the fuel, repair and storage costs. These are clearly unauthorized corporate expenditures for personal expenses. They were made without director’s approval and without Hoen’s knowledge or consent.

The District Court properly found these expenditures to be a conversion and had ample evidence on which to base such a finding.

The court awarded compensation for Hoen’s creditor’s claim against the estate for these expenditures for the years 1981, 1982 and 1983, but barred earlier claims. We disagree with the award for the year 1981 and reverse on this issue.

The District Court made a specific finding of conversion. However, conversion is a tort bearing a two-year statute of limitations. Thus, the claim for damages in the year 1981 is barred, and it was reversible error for the judge to allow it. We reverse on this issue and remand for a new determination of damages allowing only for the years 1982 and 1983.

Mrs. Hoffman additionally asserts that these claims are barred by laches or by Hoen’s acquiescence. We disagree.

The equitable doctrine of laches was fully explained by this Court in Schantz v. Minnow (1966), 147 Mont. 228, 411 P.2d 362, 372-373. See also Clayton v. Atlantic Richfield Company (Mont. 1986), [221 Mont. 166,] 717 P.2d 558, 561, 43 St.Rep. 717, 720. It bars recovery to one who knows of an injury done to him but delays asserting his rights so as to prejudice or injure the other party. It is based on the concept of knowledge and delay. Laches does not apply in this case. There was no evidence that Hoen had knowledge of any of these unauthorized expenditures prior to Hoffman’s death. Upon learning of them, Hoen made a detailed creditor’s claim with Hoffman’s estate within the allotted time, thus defeating the element of delay. Likewise, Hoen could not have acquiesced to conduct of which he had no knowledge. Based on the trial record, Mrs. Hoffman’s assertion of laches and acquiescence must fail.

II. THE PROMISSORY NOTE

The District Court found that the promissory note produced at trial by Hoen was canceled as a matter of law. We agree. Hoen testified that he produced a carbon copy of the original; however, the copy was also signed in ink. The copy had Hoffman’s signature physically cut off the bottom of the note. It was conceded by all that the original was lost. Mrs. Hoffman testified that she believed her husband did not owe Hoen any money on the note. The court took this as some evidence tending to prove that Hoffman’s signature was removed as evidence of cancellation of the debt. Further, Hoen offered no explanation of his actions in mutilating the note. He stated that he did not want his wife to make an unfair demand on Hoffman when Hoen himself had been lenient with Hoffman. However, we fail to see how one can make an unfair demand on a demand note.

Sections 28-2-1702 and -1703, MCA, control. These sections provide that where a contract or a signature thereon has been destroyed intentionally, a cancellation will be effected. Such is the case here. Had Hoen fully expected to make demand on his note and be paid, he should not have cut off the operative signature from his note. Hoen fails to convince this Court that the District Court’s ruling on this issue was an abuse of discretion.

III. THE BUYOUT

Originally, the buyout price agreed on by Hoen and Hoffman in paragraph 15 of the 1958 shareholder agreement was $28,000. However, in September of 1967, Northwest purchased a life insurance policy for each Hoen and Hoffman. This key man insurance policy purchased from Western Life Insurance Company had a face value of $25,000.

The proceeds of the policy were dedicated to the buyout of a deceased shareholder by written agreement in March 1972. The agreement stated that the $25,000 proceeds would be payment in full for a buyout.

In February 1976, Northwest purchased an additional policy from Equitable Life Assurance Society. The policy insured the lives of both Hoen and Hoffman in the amount of $30,000.

In March 1976, Hoen and Hoffman signed an agreement dedicating both policies to the buyout. Thus, $55,000 would be payment in full for a deceased interest in Northwest.

Then, on April 27, 1981, Hoen and Hoffman met and added another addendum to their 1958 shareholders’ agreement. In paragraph 15 during the discussion of a buyout the number $28,000 is handwritten in and initialed. Hoen asserted at trial that this is substantial credible evidence on which to base a finding that they both intended to reduce the buyout price to its 1958 original cost of $28,000, thereby rescinding all previous agreements to the contrary. We disagree.

Nowhere in the 1981 document are any previous documents rescinded or even mentioned. Further, the additional $30,000 policy was never canceled or otherwise dedicated. Lastly, at trial, Mrs. Hoffman testified that Hoen advanced her $5,500 as 10 percent of the buyout and later paid the balance of $49,500. No formal protest came from Hoen until two years later when it was mentioned in his amended complaint.

The evidence is confused even further by Hoen’s trial testimony that he wanted the balance of the $55,000 paid into the court pending the outcome of the dispute but that his lawyer inadvertently paid it over directly to Mrs. Hoffman.

The District Court found that the buyout was $55,000 and the 1976 agreement was not rescinded. Based on the foregoing evidence, Hoen fails to persuade us that the lower court’s ruling was an abuse of discretion and not based on substantial credible evidence. Absent such a showing by the appellant, this Court will defer to the judgment of the District Court judge who heard the testimony and sat in a better position to determine the credibility of the evidence.

IV. THE SUBLEASE AGREEMENT

Mrs. Hoffman asserted an oral modification to the sublease agreement. Originally, Northwest was required to pay 50 percent of the lease payments of MMC to Northern Pacific. However, Mrs. Hoffman asserts that it was within Hoffman’s corporate discretion to modify the lease, even if he was negotiating with himself as lessor and sublessee, and that an oral modification would be valid. We are not persuaded by this argument; nor can we see that was what Hoffman had in mind when he caused Northwest to pay the full MMC lease. His conduct bears that out.

He made no corporate minutes or records of his change, nor did he tell Hoen about the change. Rather, without following any corporate procedure, Hoffman made unauthorized expenditures by unilaterally causing Northwest to pay his full obligation under the MMC lease from 1976 through 1983. The court properly found a breach of an indefinite term sublease agreement and awarded a 50 percent refund on the lease payments for those years plus prejudgment interest.

For the foregoing reasons, we find that the District Court did not err in deciding the issues raised on appeal and cross-appeal with the exception of the correct statute of limitations for conversion.

We remand for a new determination of damages for conversion consistent with this opinion and affirm on all other issues.

MR. JUSTICES GULBRANDSON, WEBER, HUNT and Mc-DONOUGH concur.


author: MR. JUSTICE GULBRANDSON

text:
    ELLIS A. BRUNNER and Gloria A. Brunner, husband and wife, Plaintiffs and Appellants, v. LEO R. LaCASSE and Fried LaCasse, husband and wife, and Ed LaCasse, Defendants and Respondents.
    No. 88-187.
    Submitted on Briefs Sept. 29, 1988.
    Decided Oct. 25, 1988.
    763 P.2d 662.
    Richard R. Buley, Tipp, Frizzell & Buley, Missoula, for plaintiffs and appellants.
    Clinton H. Kammerer, Kammerer Law Offices, Stewart A. Pearce, II, Missoula, for defendants and respondents.
   MR. JUSTICE GULBRANDSON

delivered the Opinion of the Court.

Steven Gross (Gross), Lyle Grenager (Grenager), Allan Davis (Davis), and Ellis and Gloria Brunner (Brunners) appeal a decision from the Fourth Judicial District, Missoula County, denying them prejudgment interest and denying the Brunners’ claim for return of equity in property conveyed when the contract for deed was executed. We reverse.

This case arises from the conveyance of three twenty-acre, undeveloped, agricultural parcels from respondents to appellants Gross, Grenager and Davis in 1978. In 1979, respondents conveyed a parcel to appellant Brunners. At that time, Brunners purchased the property with persons named Wicker who subsequently conveyed their interest to Brunners in settlement of a debt. The real estate broker who put these purchases together is Ed LaCasse, the son of Leo and Frieda LaCasse.

Testimony at trial showed the reason appellants entered the transactions was to divide the parcels into four five-acre parcels and then convey them via gift theory. Using a Certificate of Survey and the gift theory laws of this state, the properties could purportedly be subdivided without going through the expense of a regular subdivision.

Unfortunately for the parties involved, the process fell apart when the county determined the five-acre sites would not sustain individual drainfields. After attempts to remedy the situation failed, appellants sought to rescind the contracts. Letters rescinding the Gross, Grenager and Davis contracts were sent in June 1981, and letters rescinding the contracts for all four appellants were sent in February, 1983. When the 1983 rescission letters failed to elicit a response, the appellants initiated suit, seeking rescission of the contracts, damages for fraud in the inducement to enter the contracts, interest and attorney’s fees.

Integral to the rescission claim was the return to appellants of the monies and property each had conveyed to respondents as down payments and payments on the contracts. In the Brunners’ case this included equity in a house which was transferred to respondents as partial payment for the parcel. This equity was valued at approximately $17,000 at trial.

The District Court after hearing the evidence presented at trial, issued findings of fact, conclusions of law and its opinion and order on January 13, 1987. The court found the plaintiffs were entitled to rescind their contracts based upon mutual mistake between the parties. The judgment dated February 9, 1987, provided for return of the amounts paid under the rescinded contracts, prejudgment interest at the contract rate for each plaintiff’s contract, and the plaintiff’s costs of suit. The judgment also returned $17,000 to the Brunners, an award representing the equity in the property traded to the LaCasses. Finally, the judgment awarded attorney’s fees to the plaintiffs.

Defendant filed timely objections to the judgment on February 11, 1987. Following a hearing on the objections, the court filed an opinion and order on April 23, 1987, wherein the court awarded the plaintiffs their attorney’s fees, but denied them prejudgment interest and denied the Brunners the equity in the traded property.

A new judgment was prepared by counsel and signed by the judge on May 7, 1987. It is from this May 7, 1987 judgment that appellants appeal. Appellants ask for attorney’s fees for this appeal.

Appellants present the following issues:

1. Whether plaintiffs, having rescinded their contracts with defendants, are entitled to prejudgment interest from the defendants who have had use of the monies paid under the rescinded contracts since 1978 and 1979?

2. Were the purchasers (Brunners) entitled to recover the value of their equity in real property conveyed by them to the sellers as partial consideration for the rescinded contract?

Issue No. 1.

It is the general rule in this state that a party lawfully rescinding a contract is entitled “to recover the monies they paid on the contract with interest thereon from the date of the breach, Section 27-1-314, MCA.” Forsythe v. Elkins (Mont. 1985), [216 Mont. 108,] 700 P.2d 596, 601, 42 St.Rep. 680, 685. Respondents contend, however, that an exception to the general rule allowing prejudgment interest exists “where the party seeking to recover the payments made on the purchase price ha[ve] enjoyed the possession of the premises . . .” Silfvast v. Asplund, et al. (1935), 99 Mont. 152, 160, 42 P.2d 452, 456. The respondents further contend the actions of appellant Davis in 1983, allowing one Dean Clinkenbeard to cut hay on the subject parcels on shares, constitutes exercising possession of the property. In denying prejudgment interest to the appellants, the District Court found exercise of dominion and control existed sufficient to deny an award of prejudgment interest. Upon review of the evidence presented and the authority cited, we find the Silfvast case has been misinterpreted and the facts do not support denial of prejudgment interest.

The Silfvast case deals with our present Section 28-2-1716, MCA. The statute authorizes the court to direct the rescinding party to “make any compensation or restoration to the other which justice may require.” Section 28-2-1716, MCA. This statute allows the court to balance the equities of the parties to a rescission action. It is in line with the objective of rescission that the parties be returned to their respective positions as if the contract had not been entered.

Respondents contend that since the District Court found appellant Davis exercised dominion and control over the properties in 1983, by allowing the cutting of the hay on the properties, the Silfvast case requires an automatic finding that appellants are not entitled to prejudgment interest.

In Silfvast, the Court states:

“We do not feel that under [Section 28-2-1716, MCA], it is incumbent upon the trial court to allow or disallow interest in accordance with the strict rules of law which would apply to ordinary transactions, but only to award compensation as justice may require . . .” Silfvast, 42 P.2d at 456. This language does not support respondents’ contention that the Silfvast Court adopted the exception as law in this state. Further, the portion of Silfvast respondents cite to is an excerpt of the Court’s examination of other jurisdictions on this issue.

In the more recent case of Forsythe v. Elkins (Mont. 1985), [216 Mont. 108,] 700 P.2d 596, 601, 42 St.Rep. 680, 685, 686, this Court was again faced with interpreting Section 28-2-1716, MCA, and stated:

“Although the object of Section 28-2-1716, MCA, requiring one rescinding a contract to make compensation or restoration, is to place the other party in status quo, absolute and literal restoration is not required, it being sufficient if restoration is such as is reasonably possible or as may be demanded by the equities of the case. O’Keefe v. Routledge (1940), 110 Mont. 138, 103 P.2d 307.”

Looking at the equities in this case we find the appellants were induced to enter these agreements on the premise they could be subdivided using a gift theory which would avoid the costly subdivision process. Some type of agreement existed in the first few years allowing the sellers to hay the properties, with the purchasers to get credit for the hay removed. No credit on the purchase price appears to have been given. In 1981, after being informed the division was not possible as planned, three of the appellants attempted rescission. The fourth party, the Brunners had signed a separate agreement to attempt to consummate the transaction, but joined with the others in sending the 1983 rescission notice. Later in 1983, appellant Davis authorized Clinkenbeard to cut hay on the properties on shares. However, the appellants’ share was left baled and stacked on the property, purportedly to the time of trial. From 1984 on, by agreement the parties had cut the hay on the properties and placed the profits in escrow. Appellants received no benefit from having cut the hay on the properties. Based on the lack of a showing of any benefit to the appellants by this act, we find the court’s holding denying prejudgment interest is reversible error. The holding fails to balance the equities of this case wherein appellants have been deprived of their monies for eight to nine years to the date of judgment, while respondents received or are able to receive the profits from the use of the land for nearly all the years in question. We therefore reverse the District Court’s judgment regarding the award of prejudgment interest.

Issue No. 2.

In its opinion and order of April 23, 1987, the District Court declined to award the Brunners the equity in the property transferred to the respondents as partial payment. The District Court based its denial on the case of Carey v. Wallner (Mont. 1986), [223 Mont. 260,] 725 P.2d 557, 43 St.Rep. 1706, agreeing with respondents argument that:

“[Restoration in rescission covers only those funds actually expended, it does not cover losses, which occur incidental to the contract, those which arise out of accounting procedures or speculative losses.”

The Carey case on which the court and respondents relied dealt with rescission of a contract for deed involving the sale of a business. The court allowed rescission based upon mutual mistake of the parties at the time of entering the contract, similar to this case. In restoring the parties to their respective status quo, the court denied the Carey’s recovery of “any loss on the discounted contract for deed which they sold.” Carey, 725 P.2d at 561. The Carey case and this case are distinguishable. In Carey, the rescinding party sought recovery for a loss sustained when they sold a separate contract for deed and used the proceeds to pay off their loan obtained for converting a carport to a room. The contract for deed which was sold covered out of state property in no way related to the sellers. No benefit resulted to the sellers.

In the case at hand the buyers transferred property to the sellers as partial consideration paid upon the contract in issue. The transferred property was subject to various indebtedness which was assumed by respondents. The Brunners further agreed to pay $30,000 cash toward the purchase of the property. The contract for deed, however, does not specify a total purchase price for the parcel the Brunners purchased; the record shows only that an exchange of the Brunners’ equity in the transferred parcel to the LaCasses occurred as a partial down payment. It should be noted that the amount of equity the Brunners possessed in the property when it was transferred is estimated at $17,000 according to the testimony of Ellis Brunner.

Sections 28-2-1713(2) and 28-2-1715, MCA, provide “each party must restore to the other everything of value received under the contract.” Carey, 725 P.2d at 561. As the equity in the transferred property constituted partial payment on the contract, they are entitled to its return. For this reason, we direct the District Court on remand to allow a hearing at which both parties may present evidence of the value of the equity at the time of the transfer.

The judgment of the District Court filed May 7, 1987, is reversed and remanded for further proceedings in conformity with this opinion. The District Court shall also award a fair attorney’s fee for this appeal to the appellants.

Reversed and remanded.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, WEBER, SHEEHY, HUNT and McDONOUGH concur.


text:
    GREGG GLASPEY, Plaintiff and Respondent, v. THOMAS WORKMAN, Bernadette Workman, and Bernadette’s, Inc., Defendants and Appellants.
    No. 88-225.
    Submitted Aug. 26, 1988.
    Decided Oct. 27, 1988.
    763 P.2d 666.

      Channing Hartelius, Hartelius, Ferguson & Baker, Great Falls, for defendants and appellants.
    Elizabeth A. Best, Lynch & Best, Great Falls, for plaintiff and respondent.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

Thomas and Bernadette Workman appeal from an order of the Eighth Judicial District, Cascade County, awarding attorney’s fees to respondent Glaspey in the amount of $7,500. We affirm the District Court order and remand for an evidentiary hearing to determine the amount of attorney’s fees incurred by Glaspey on this appeal.

The Workmans raise two issues on appeal.

1. Did the District Court err in awarding attorney’s fees incurred on appeal?

2. Did the District Court abuse its discretion by awarding attorney’s fees of $7,500 on a judgment of $1,589?

This appeal is a continuation of a wage claim action that commenced in 1985. At that time, Glaspey won an administrative judgment of $1,294 for wages due from Bernadette’s, Inc.

Due to Bernadette’s insolvency, Glaspey’s attempts to execute on the judgment resulted in the attainment of a mere $5.49. Glaspey then instituted suit against the Workmans and Bernadette’s, attempting to pierce the corporate veil in order to hold the Workmans personally liable on the claim. The District Court granted summary judgment in the amount of $1,589 to Glaspey but refused to award attorney’s fees.

Glaspey appealed the issue of attorney’s fees to this Court. In Glaspey v. Workman (Mont. 1988), [230 Mont. 307,] 749 P.2d 1083, 45 St.Rep. 226, (Glaspey I), we reversed the District Court. We held that the action to pierce the corporate veil was a continuation of the wage claim action and, therefore, Glaspey was entitled to attorney’s fees. We remanded to the trial court for a determination of such fees and also awarded Glaspey his costs on appeal.

The District Court held an evidentiary hearing on the issue of attorney’s fees on March 21, 1988. During the hearing, the District Court heard the testimony of Glaspey’s attorney as well as that of experts for both sides. In addition, Glaspey’s attorney submitted an affidavit reflecting a total fee of $10,457 for charges incurred from April, 1986, up to the time of the March, 1988, hearing.

On March 28, 1988, the District Court issued its findings of fact, conclusions of law and order awarding attorney’s fees of $7,500 to Glaspey. It is from this award that the Workmans appeal.

The Workmans first contend that the District Court improperly included in its award those attorney’s fees incurred by Glaspey on appeal. This contention is incorrect.

We have previously recognized that an employee in a wage claim action may receive attorney’s fees on appeal. Erdman v. C & C Sales, Inc. (1978), 176 Mont. 177, 577 P.2d 55. The Workmans argue that such an award is discretionary and that, furthermore, Glaspey was granted only his “costs” on appeal, not his attorney’s fees.

It is true that in Glaspey I, we awarded “costs” on appeal. Glaspey I,749 P.2d at 1085, 45 St.Rep. at 228. It is also true that Section 25-10-201, MCA, does not include attorney’s fees on its list of allowable costs. We have consistently held, however, that Section 25-10-201, MCA, does not apply in the presence of another statute that specifically allows attorney’s fees. Masonovich v. School Dist. No. 1 (1978), 178 Mont. 138, 140, 582 P.2d 1234, 1235; Britt v. Cotter Butte Mines (1939), 108 Mont. 174, 179, 89 P.2d 266, 267; Gardiner v. Eclipse Grocery Co. (1925), 72 Mont. 540, 550-51, 234 P. 490, 494.

Section 39-3-214, MCA, mandates the award of attorney’s fees in a wage claim action. The pertinent parts of that statute provide:

“(1) Whenever it is necessary for the employee to enter or maintain a suit at law for the recovery or collection of wages due as provided for by this part, a resulting judgment must include a reasonable attorney’s fee in favor of the successful party, to be taxed as part of the costs in the case.
“(2) Any judgment for the plaintiff in a proceeding pursuant to this, part must include all costs reasonably incurred in connection with the proceeding, including attorneys’ fees.

Section 39-3-214, MCA. (Emphasis added.)

Hence, the statute requiring attorney’s fees in a wage claim action specifically provides that costs include attorney’s fees. Our award of costs in Glaspey I therefore implicitly included a grant of attorney’s fees incurred on the appeal.

The Workmans rely on Thornton v. Comm’r of Dept. of Labor and Industry (Mont. 1980), [190 Mont. 442,] 621 P.2d 1062, 37 St.Rep. 2026, for the proposition that an award of attorney’s fees on appeal is discretionary. This reliance is misplaced. In Thornton, an employee appealed the administrative determination of his wage claim. The District Court dismissed the appeal and we affirmed. Because Thornton was unsuccessful in his appeal, we denied his request for attorney’s fees incurred on appeal. Glaspey, on the other hand, was successful in his appeal. The mandatory language of Section 39-3-214, MCA, requires that a reasonable attorney’s fee must be awarded to an employee who successfully brings an appeal of a wage claim action.

The Workmans next contend that the District Court abused its discretion in awarding attorney’s fees of $7,500 on a judgment of $1,598. They argue that the award was excessive and that it was not based on competent evidence. We do not agree.

The amount a party may be awarded in attorney’s fees is within the discretion of the District Court. Unless an abuse of discretion is shown, an attorney’s fee award that is based on competent evidence will not be disturbed on appeal. Majers v. The Shining Mountains (Mont. 1988), [230 Mont. 373,] 750 P.2d 449, 453, 45 St.Rep. 283, 288.

Before granting attorney’s fees, a district court must hold an evidentiary hearing to determine the reasonableness of the requested fees. Evidence elicited through oral testimony, cross examination, and the introduction of exhibits is competent evidence upon which an attorney’s fee award can be based. Audit Services, Inc. v. Haugen (1979), 181 Mont. 9, 15, 591 P.2d 1105, 1109.

Such a hearing was conducted in the instant case. The District Court heard the testimony of experts for both sides as well as the testimony of Glaspey’s attorney. The court also accepted an affidavit itemizing the number of hours expended on the suit by Glaspey’s counsel. Under these circumstances the Workmans’ argument that the award of attorney’s fees was not based upon competent evidence is without foundation.

The Workmans also maintain that an attorney’s fee of $7,500 on a wage claim of less than $2,000 is unreasonable as a matter of law. We cannot agree. An attorney’s fee that exceeds the amount in controversy is not per se excessive. See Simkins-Hallin Lumber Co. v. Simonson (Mont. 1984), [214 Mont. 36,] 692 P.2d 424, 41 St.Rep. 2305. Each case depends on its own unique set of facts.

The relation between the amount of fees requested and the judgment is just one of several factors a district court should consider when making an award of attorney’s fees. The elements a district court should examine when determining the reasonableness of an attorney’s fee include the following:

“(1) the amount and character of the services rendered; (2) the labor, time, and trouble involved; (3) the character and importance of the litigation in which the services were rendered; (4) the amount of money or the value of the property to be affected; (5) the professional skill and experience called for; (6) the character and standing in their profession of the attorneys; and (7) the result secured by the services of the attorneys.”

Majers, 750 P.2d at 453, 45 St.Rep. at 288. If the evidence supports these factors, we will not upset an attorney’s fee award.

There can be no doubt of the importance of the present litigation. Glaspey had not been paid wages due and owing. The only way he could be made whole was by pursuing action against the Work-mans personally. The legislature has recognized the gravity of an employee’s right to wages by providing penalties against employers who fail to pay wages due, Section 39-3-206, MCA, and by requiring an award of attorney’s fees to employees who successfully maintain suit to collect wages, Section 39-3-214, MCA.

Furthermore, this case presented more than a simple matter of collection. Glaspey was forced to pierce the corporate veil of Bernadette’s in order to collect his claim. The record shows that considerable time and energy was expended toward this end. Glaspey’s attorney engaged in discovery, research and trial preparation to win a judgment against the Workmans. Glaspey was then compelled to pursue an appeal to this Court to secure attorney’s fees that were denied by the District Court.

The District Court judge determined the reasonableness of the requested fees from a most advantageous position. Having presided over the case from the initial filing of the pleadings, he had the opportunity to observe the wrangling of the parties throughout the suit. After an evidentiary hearing he granted attorney’s fees of $7,500, an amount that was less than the $10,457 requested by Glaspey. We can find no abuse of discretion under these circumstances.

Glaspey asks for damages under Rule 32, M.R.App.P., claiming that this appeal by the Workmans was without merit. Although we have not agreed with the Workmans’ contentions, we cannot say that the appeal was taken without reasonable grounds. We therefore deny Glaspey’s request for damages.

Glaspey also requests attorney’s fees incurred on this appeal. In Glaspey I, we stated:

“the legislature’s intent in passing [Section 39-3-214, MCA,] was to provide an employee who wins a judgment for wages due against an employer a vehicle by which to receive attorneys fees and thus be made whole.”

Glaspey I, 749 P.2d at 1084, 45 St.Rep. at 228. That reasoning applies here and Glaspey is entitled to attorney’s fees for this appeal.

We affirm the District Court’s previous order awarding attorney’s fees to Glaspey and remand for an evidentiary hearing on the matter of attorney’s fees incurred on this appeal.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, McDONOUGH and GULBRANDSON concur.