No. 90-508
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
BYRON C. KELLER,
Plaintiff, Respondent and Cross-Appellant,
-v-
THOMAS A. DOOLING, MARGARET L. JUN 11 1991
DOOLING, and ANN DOOLING,
C SmitL
d
Defendants, Appellants and Cross-Respondents.C L E ~ ~ f i ~
APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Beaverhead,
The Honorable Thomas Olson, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Vincent Kozakiewicz; Dillon, Montana
William A. Brolin; Anaconda, Montana
For Respondent:
W. Cecil Jones; Dillon, Montana
Submitted on Briefs: May 16, 1991
Decided: June 11, 1991
Filed:
l
'Clerk
Justice Fred J. Weber delivered the opinion of the Court.
The plaintiff, Byron C. Keller, initiated this suit to recover
damages for breach of contract, fraud, and breach of the implied
covenant of good faith and fair dealing. Defendants counter-
claimed to recover damages for breach of contract, fraud, and
breach of the implied covenant of good faith and fair dealing.
The District Court for the Fifth Judicial District, Beaverhead
County, dismissed the fraud claims under statute of limitations
defenses. Following trial, the ~istrictCourt entered judgment for
the plaintiff for $26,395.37 for defendant's breach of contract,
$10,000.00 for defendant s breach of the covenant of good faith and
fair dealing, and $5,000.00 for punitive damages for the breach of
the covenant of good faith and fair dealing. The defendants'
counterclaims were dismissed on the merits. Defendants appeal and
plaintiff cross-appeals. We affirm in part and reverse in part.
The issues are:
(1) Was the contract between the Doolings and the Kellers
correctly interpreted by the District Court and the jury?
(2) Was the Doolingst obligation under the contract
extinguished by their offer of performance?
(3) Was evidence of the provisions of an amended contract
for deed barred by the par01 evidence rule?
(4) Did the District Court err in awarding punitive damages?
(5) Did the District Court err in awarding usurious rates of
interest to Mr. Keller?
(6) Did the District Court err in allowing the Doolings to
amend their answer at trial to raise a statute of limitations
defense?
The plaintiff, Byron C. Keller, and his ex-wife, Karen R.
Keller, entered into a contract with Thomas Dooling and his ex-
wife, Margaret L. Dooling dated January 13, 1976. Kellers agreed
to sell to Doolings a tract of land located in Beaverhead County,
Montana, consisting of approximately 96 acres. The parties agreed
to have the property surveyed and to determine a final price of
$1,000.00 per acre for each acre described in the survey.
The 1976 contract called for the Doolings to make an initial
down payment of $27,840.00, annual payments in 1977, 1978, and 1979
in the amount of $12,684.12 and a balloon payment in 1980 of the
remaining balance. The contract interest rate was 7.5%. Doolings
made the initial down payment and the annual payments in 1977,
1978, and 1979.
Prior to the 1980 balloon payment, the property was surveyed
and determined to contain 106 acres. The purchase price was thus
$106,000.00. The parties negotiated a rescheduling of the balloon
payment over a period of four years. The exact nature of the
rescheduling was disputed by the parties at trial. The parties
agreed that the payments remained at $12,684.12. Mr. Keller
contended that in exchange for extending the payment schedule he
was to receive interest on the last four annual payments at 13%.
Mr. Keller had his attorney draft a 1980 amendment to the 1976
contract incorporating the surveyed legal description, the
extension of the payments by four years, and changing the interest
rate to 13%.
The 1980 amendment to the 1976 contract was never executed.
However, Mr. Dooling drafted an amortization schedule showing the
interest payment at 13%, and wrote several letters indicating the
amount he owed in 1984 and the interest rate at 13%. The final
payment was not made by Mr. Dooling and this litigation ensued.
I
Was the contract between the Doolings and the Kellers
correctly interpreted by the District Court and the jury?
The subject property under the contract for deed between the
parties was part of a larger tract of land owned by the Kellers.
The Kellers were making payments under a mortgage to Connecticut
Mutual Life Insurance Company and a contract for deed to Clark and
Geraldine Harshbarger on the larger tract of land. Under the
Keller-Dooling contract for deed, the Doolings would pay off their
obligation to the Kellers several years before the Kellers would
pay off their obligations on the underlying mortgage and
Harshbarger contract.
The Doolings assert that the intent under the contract for
deed was for the Kellers to provide the Doolings with a warranty
deed free of the underlying mortgage and Harshbarger contract
obligations at the time that the Doolings made their final payment
on the contract for deed. When Kellers failed to produce such a
warranty deed, Doolings refused to make the final payment and
Kellers sent notices of default.
The relevant language in the Keller-Dooling contract provides:
(7) The Kellers further agree that prior to the
delivery to the Doolings of the warranty deed, they will
purchase and deliver to the Doolings an owner's title
insurance policy insuring the merchantable title of the
Kellers to the property excewtins, however, mortsases of
record of which the Doolinss have been advised and the
usual exceptions with respect to easements of public
record.
(8) ... The Doolings have further been advised
of the existence of other interests in this property
including a mortgage to Connecticut Mutual Life Insurance
Company and an equitable interest in favor of the said
Clark and Geraldine Harshbarger. It is understood that
the sellers Keller (sic) are primarily liable and will
timely discharse these oblisations. Should they fail,
however, to make the payments to either Connecticut
Mutual Life Insurance Company or the Harshbargers, then
and in that event the Doolings may at their option make
said payments which would constitute a credit to them of
the monies owing on this Contract.
The lien of the mortgage to Connecticut Mutual Life
Insurance Company and the equitable interest of the
Harshbargers shall not constitute a defect of title.
(Emphasis supplied.)
It is clear from this language that the Keller-Dooling
contract is subject to the interest of the underlying mortgage and
Harshbarger contract. When the language of a contract is clear and
unambiguous, the contract does not require the application of the
rules of construction and the court s duty enforce the
contract as made by the parties. Morning Star Ent., Inc. v. R.H.
Grover, Inc. (Mont. 1991), 805 P.2d 553, 556, 48 St.Rep. 112, 113.
Under the above quoted language Kellers did not have an obligation
to produce a warranty deed free of the underlying obligations and
Doolings breached the contract by not making the final annual
payment. We hold that the contract between the Doolings and the
Kellers was correctly interpreted by the District Court and the
jury .
Was the Doolingsl obligation under the contract extinguished
by their offer of performance?
The Doolings contend that they made a tender of performance
in 1984 and that no interest should accrue beyond the date of
tender of performance. Nothing in the record establishes that a
tender of performance was ever made. On June 13, 1984 Mr. Dooling
stated in a letter to the Kellers' attorney:
Assuminq that the final payment is made on June 29, a
Friday, which is the 178th day of the year, I owe Byron
the sum of $12,429.14 plus 178 days1 interest at 13% per
year, in the amount of $787.97. (Emphasis supplied.)
On the same day Mr. Dooling wrote a letter to Mr. Keller which
stated:
This letter is formal notice of my intention to prepay
the balance of my Contract for Deed with you, on or
before July 1, 1984. I had notified you orally of my
plans in January, when I made my last payment. According
to the amortization schedule which I provided to you some
years ago, the principal balance now due on my contract
with you is $12,429.14. Assuminq that I make the payment
on the 29th of June, I will owe you interest for 178 days
at 13%, or $787.97. The total pavment I expect to make,
then, will be $13,217.11 ... (Emphasis supplied.)
The Doolings cite Lehrkind v. McDonnell (1915), 51 Mont 343,
153 P. 1012, for the proposition that the interest stopped accruing
at the time he made his tender of performance. That case stated:
An unconditional offer in good faith to perform, by
the party upon whom the obligation rest, coupled with the
ability to perform, if rejected by the other party, is
equivalent to full performance and extinguishes the
obligations as to the party making the offer.
The Doolings also cite 5 28-1-1202(1), MCA, which states in
relevant part:
An offer in writing to pay a particular sum of money .
. . is, if not accepted, equivalent to the actual
production and tender of the money ...
Mr. Doolinglsstatements were statements of what he might do in the
future. These statements do not rise to the level required to make
an unconditional tender of performance that triggers the Lehrkind
rule or constitute an offer to pay under 5 28-1-1202(1), MCA.
We hold that the Doolings failed to prove that they made an
unconditional tender of performance or offer to pay and therefore
their obligation under the contract was not extinguished.
Was evidence of the provisions of an amended contract for deed
barred by the par01 evidence rule?
The critical documents establishing the amended contract for
deed, the interest rate in that amended contract for deed and the
payment schedule of that amended contract for deed were admitted
without objection from the Doolings. This Court will not consider
for the first time on appeal an issue which was not raised in the
District Court. In Re the Marriage of Merriman (Mont. 1991), 807
IV
Did the District Court err in awarding punitive damages?
Applying the law as set forth in Nicholson v. United Pac. Ins.
(1985), 219 Mont. 32, 710 P.2d 1342, the District Court awarded
$5,000.00 in punitive damages for the tortious breach of the
implied covenant of good faith and fair dealing. Subsequent to the
District Court's award this Court held in Story v. City of Bozeman
(Mont. 1990), 242 Mont. 436, 450-51, 791 P.2d 767, 776, that absent
a special relationship, tort damages are not available for breach
of the implied covenant of good faith and fair dealing in common
contract actions. Also see Mann Farms, Inc. v. Traders State Bank
(Mont. 1990), 801 P.2d 73, 76. Under Storv and Mann Farms it was
improper for the District Court to award punitive damages for
breach of the implied covenant of good faith and fair dealing. We
reverse and vacate that portion of the District Court's award
($5,000.00) that represents punitive damages.
v
Did the District Court err in awarding usurious rates of
interest to Mr. Keller?
The Doolings argue that the $26,395.37 awarded by the jury to
Mr. Keller by necessity included a usurious 13% rate of compounded
interest. There is evidence in the record to support the
conclusion that Doolings agreed to pay 13% interest in return for
the Kellersl waiver of the balloon payment requirement. The
question of compounding interest on the taxes and payments was not
objected to by the Doolings at the time the relevant documents were
introduced at trial. The Doolings had the opportunity to argue
their position to the jury regarding the compounding of interest
and to the nature of the agreements. The Doolings did not ask the
Court to have the jury break out how they computed their damage
award in the verdict form. Mr. Dooling cannot now ask this Court
to speculate how the jury broke out the damage award and what it
relied on. We hold that Doolings did not establish that the
District Court erred in awarding usurious rates of interest to Mr.
Keller.
VI
Did the ~istrictCourt err in allowing the Doolings to amend
their answer at trial to raise a statute of limitations defense to
Mr. Keller's fraud claim?
At the end of trial, the District Court allowed the Doolings
to amend their answer to raise a statute of limitations defense to
Mr. Kellerls fraud claim. The District Court then dismissed the
claim. On cross-appeal Mr. Keller seeks to have this Court order
the District Court to reinstate his fraud claim.
Mr. Keller argues that under Rule 8(c), M.R.Civ.P., the
Doolings had waived their statute of limitations defense. Rule
8(c) provides that affirmative defenses shall be set forth in the
pleadings. However Rule 8(c) does not preclude the District Court
from allowing the parties to amend the pleadings to conform to the
evidence under Rule 15(b), M.R.Civ.P. See Butte Teachers' Union
v. Bd. of Trustees (1982), 201 Mont. 482, 487, 655 P.2d 146, 149.
We hold that the District Court did not err in allowing the
Doolings to amend their answer at trial to raise a statute of
limitations defense to Kellerls fraud claim.
We reduce the judgment $5,000.00 for punitive damages, and
otherwise affirm the District Court.
(' ~udice
We Concur: ,/
I
hie? Justice