Morgan v. Baldwin

• Decision Date: 02 March 1990
• Docket Number: No. 16561,16561
• Citation: 450 N.W.2d 783
• Parties: John W. MORGAN and Diane C. Morgan, Plaintiffs and Appellants, v. Gerald M. BALDWIN, Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 783

450 N.W.2d 783

John W. MORGAN and Diane C. Morgan, Plaintiffs and Appellants, v. Gerald M. BALDWIN, Defendant and Appellee.

No. 16561.

Supreme Court of South Dakota.

Argued Nov. 27, 1989.

Decided Jan. 24, 1990.

Rehearing Denied March 2, 1990.

Rick Johnson of Johnson, Eklund & Davis, Gregory, for plaintiffs and appellants.

Ed Carpenter, Rapid City, for defendant and appellee.

HERTZ, Circuit Judge.

The trial court found that appellants' John W. Morgan and Diane C. Morgan (Morgans) claim against appellee, Gerald M. Baldwin (Baldwin) was essentially a claim for attorney malpractice rather than a contract claim. The trial court applied the three year statute of limitations, SDCL 15-2-14.2, rather than the six year limitation prescribed for contract actions, SDCL 15-2-13(1), and granted Baldwin summary judgment. Morgans appeal. We reverse and remand for trial.

We do not reach the merits of this case since the summary judgment involves only the question of what statute of limitations is applicable. We set out only those facts which are necessary to the appropriate resolution of this appeal.

Morgans owned and operated a KOA campground west of Custer, South Dakota, as well as a gun shop in the city of Custer. Since 1975 they employed Baldwin as their attorney.

Morgans decided to start a second KOA campground north of Custer (North Campground). It is not clear whether Baldwin or Morgans initiated a partnership discussion. In any case, on May 11, 1979, Morgans and Baldwin executed a partnership agreement which Baldwin prepared.

The partnership agreement called for the incorporation of the business. Baldwin was to pay Morgans an amount equal to one-half of Morgans' present cash investment in the purchase of the Northern Campground's real property and $10,000 for the KOA franchise. All cash contributions toward the construction of the North Campground were to be made on a 50/50 basis. Any overpayment by one party would be repaid to that party as funds became available. In addition, Morgans were to have management control and Baldwin was to contribute legal and business management services without expense to the venture.

On July 8, 1981, Morgans and Baldwin restructured their relationship with respect to the North Campground and entered into a limited partnership agreement prepared by Baldwin. Under this agreement, Morgans became solely responsible for the management of the partnership business. Baldwin no longer had anything to do with the management or conduct or control of the business, and was not to be held personally liable for the expenses, liabilities, or obligations of the partnership. The profits of the business were to continue to be divided on a 50/50 basis. Morgans were to be paid $4,000 per month after the payment of all current obligations. The agreement also called for John Morgan to assign his interest in the proceeds from the sale of the West Campground contract to the Custer County Bank to pay off partnership indebtedness.

On July 9, 1981, John Morgan signed an agreement prepared by Baldwin to purchase Baldwin's share of the North Campground for $50,000.

In August of 1983, Baldwin prepared and presented an agreement to Morgans purporting to dissolve their Northern Campground partnership. The sale proceeds from the West Campground contract were not sufficient to satisfy all partnership obligations, so Baldwin and Morgans agreed that portions of the indebtedness due the Custer County Bank would be shared equally.

After the execution of the dissolution of the limited partnership in August 1983, Morgans began consulting with attorneys about their contracts with Baldwin. On September 16, 1987, Morgans instituted the present litigation.

Baldwin contends that all of Morgans' claims arise out of Baldwin's employment as Morgans' attorney and the legal advice Baldwin gave them with respect to their partnership. Thus Baldwin urged the trial court to apply the three year attorney malpractice statute, SDCL 15-2-14.2. Morgans claim that their complaint is basically one founded on breach of contract, and therefore the statute of limitations governing contracts was applicable, SDCL 15-2-13(1). The trial court concluded that the nature of the action Morgans pleaded was essentially one alleging attorney malpractice and accordingly applied the three year statute of limitations, resulting in an order dismissing Morgans' complaint.

The issues raised by this appeal are:

I. Whether the allegations in the complaint are in the nature of a contract cause of action subject to the six year statute of limitations, or one in attorney malpractice subject to the three year statute of limitations?

II. Whether there was sufficient evidence of fraudulent concealment of a cause of action presenting a jury issue rather than a law question for the court?

An initial review of pertinent summary judgment principles is appropriate. The party moving for summary judgment has the burden to show that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. SDCL 15-6-56(c). The evidence, including all pleadings, affidavits and deposition testimony, must be viewed in the light most favorable to the non-moving party, and reasonable doubts should be resolved against the moving party. All reasonable inferences that may be drawn from the facts must be accepted in favor of the non-moving party. Groseth International, Inc. v. Tenneco, Inc., 410 N.W.2d 159 (S.D.1987); Wilson v. Great Northern Railway Co., 157 N.W.2d 19 (S.D.1968). Summary judgment is a drastic remedy, and should not be granted unless the moving party has established the right to a judgment with such clarity as to leave no room for controversy. Jewson v. Mayo Clinic, 691 F.2d 405 (8th Cir.1982).

Issue 1

WHETHER THE ALLEGATIONS IN THE COMPLAINT ARE IN THE NATURE OF A CONTRACT CAUSE OF ACTION SUBJECT TO THE SIX YEAR STATUTE OF LIMITATIONS, OR ONE IN LEGAL MALPRACTICE SUBJECT TO THE THREE YEAR STATUTE OF LIMITATIONS.

It is generally held that the nature of the cause of action or the right sued upon (and not the form of the action) is the test to determine what statute of limitation applies and whether the action is barred by the running of the limitation period. 54 C.J.S. Limitations of Actions Sec. 32; 51 Am.Jur.2d, Limitations of Actions Sec. 62.

As a matter of policy, where there is a substantial question as to which of two or more statutes of limitation within the jurisdiction should be applied, the statute containing the longest limitation should be applied. Williams v. Lee Way Motor Freight, 688 P.2d 1294 (Okla.1984). In other words, if a substantial doubt exists about which statute of limitations applies, the longer rather than the shorter period of limitation is preferred. 51 Am.Jur.2d, Limitations of Actions Sec. 63; 54 C.J.S. Limitations of Actions Sec. 39.

Where the same transaction gives rise to two causes of action having different statutes of limitations, one may be timely while the other is barred. Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (1979). In determining the applicable statute of limitations, it is the gravamen of the claim which governs and not the form in which it is pleaded. Edwards v. State, 95 Misc.2d 516, 407 N.Y.S.2d 804 (1978); Giffin v. United Transp. Union, 190 Cal.App.3d 1359, 236 Cal.Rptr. 6 (1987).

Under certain circumstances potential liability in tort may co-exist with liability in contract. When facts warrant either form of action, an injured party has the right to elect which form of action he will pursue. The general rule applied to situations falling within the twilight zone of contract and tort law is that doubt must be resolved in favor of an action on contract. The choice of which statute of limitations should apply ultimately rests on a characterization of the essence of the claim. Weible v. Ronan State Bank, 776 P.2d 837 (Mont.1989); Thiel v. Taurus Drilling Ltd. 1980-II, 710 P.2d 33 (Mont.1985).

Baldwin, however, urges that the general rule that the statute containing the longest limitation should be applied is contrary to the holding expressed in Deitz v. Bowman, 403 F.Supp. 1111 (D.S.D.1975). In Deitz, Judge Bogue stated that if the rule favoring a longer limitations period is part of the policy against statutes of limitations generally, it is not applicable, in light of Chipperfield v. Woessner, 84 S.D. 13, 166 N.W.2d 727 (S.D.1969). Baldwin thus claims that where there is a substantial doubt about which statute of limitations should apply, a trial court is at liberty to disregard such doubt and apply the shorter limitation period.

In examining the Chipperfield case, relied upon in Deitz, supra, it is clear that the holding only concerned the fact that in South Dakota a statute of limitations defense is a meritorious defense which should not be regarded with disfavor and which should be treated like any other defense. Chipperfield did not involve the issue in Deitz, nor the issue in this case. As a matter of fact, the only pertinent holding in Deitz is that there was no substantial question (doubt) as to the applicability of the shorter statute of limitations. Thus we hold that Deitz is not controlling here.

We have held that the nature of the allegations must be determined from the allegations of the pleadings involved. Baker v. Jewell, 77 S.D. 573, 96 N.W.2d 299 (S.D.1959). This rule is applicable to statutes of limitations. Chipperfield v. Woessner, supra. Accordingly, we hold that in South Dakota, when one of two statutes of limitations may be applicable, such application should always be tested by the nature of the allegations in the complaint, and if there is any doubt as to which statute applies, such doubt be resolved in favor of the longer limitation period.

It is now necessary to apply the nature of the allegations test to Morgans' complaint in this case. Without setting out separate and distinct causes of...