Johnson v. District Vii, DA 07-0750.

• Decision Date: 20 March 2009
• Docket Number: No. DA 07-0750.,DA 07-0750.
• Citation: 204 P.3d 714,2009 MT 86
• Parties: Cynthia R. JOHNSON, Plaintiff and Appellant, v. DISTRICT VII, Human Resources Development Council and First Montana Title Company of Billings, Defendants and Appellees.
• Court: Montana Supreme Court

204 P.3d 714

2009 MT 86

Cynthia R. JOHNSON, Plaintiff and Appellant, v. DISTRICT VII, Human Resources Development Council and First Montana Title Company of Billings, Defendants and Appellees.

No. DA 07-0750.

Supreme Court of Montana.

Submitted on Briefs January 7, 2009.

Decided March 20, 2009.

For Appellant: Thomas E. Towe, Towe, Ball, Enright, Mackey & Sommerfeld, Billings, Montana.

For Appellees: Peter T. Stanley, Attorney at Law, Billings, Montana.

Justice BRIAN MORRIS delivered the Opinion of the Court.

¶ 1 Cynthia R. Johnson (Johnson) appeals from an order of the Thirteenth Judicial District Court, Yellowstone County, that required Johnson to pay District VII, Human Resources Development Council (HRDC) $16,612.09 in loan principal and interest, attorney fees, costs, and accrued interest. Johnson's appeal requires us to resolve the following issues:

¶ 2 Whether the District Court correctly converted HRDC's counterclaim of mutual mistake to an affirmative defense.

¶ 3 Whether the District Court properly denied Johnson's motion for partial summary judgment.

¶ 4 Whether the District Court properly granted affirmative relief to HRDC on its counterclaim of mutual mistake when the court deemed the counterclaim to be an affirmative defense.

PROCEDURAL AND FACTUAL BACKGROUND

¶ 5 Johnson applied for a loan with HRDC to purchase an assisted living facility. Denise Jordan (Jordan), HRDC's loan officer, processed Johnson's loan application and determined that HRDC would require extra security on the loan. Johnson agreed to a second mortgage on her home and a lien on her business equipment.

¶ 6 Johnson received a letter from Jordan on February 20, 1998, notifying her that HRDC's loan review board had approved the loan at a 13% fixed interest rate. Jordan prepared all the loan documents including the loan agreement, promissory note (note), and Montana trust indenture.

¶ 7 Johnson and HRDC signed a loan agreement on February 26, 1998. The terms of the agreement included the principal sum of $21,661, for a five-year term with monthly payments at an interest rate of 13% per annum. Johnson and HRDC also signed the note on February 26, 1998. The terms of the note included the correct principal sum of $21,661 and monthly payments in the amount of $362.23 for sixty months. The note incorrectly listed an interest rate of 0.13% per annum. Johnson conveyed her home by issuing a deed of trust on February 26, 1998, that listed First Montana Title Company (FMTC) as the trustee and HRDC as the lender.

¶ 8 Johnson discovered the interest rate error in March 2001 when she applied for a real estate loan. Johnson testified that she called HRDC about the discrepancy in the loan payoff amount. Johnson contended that Jordan asked her to sign new loan papers to repay the $16,000 deficiency at a nine percent interest rate. Johnson understood her balance at that time to be approximately $8,800.

¶ 9 Johnson further testified that she had been willing to pay half of the $16,000 on the grounds that the mistake had not been hers and that she timely had made her monthly payments. Johnson claimed that Jordan failed to return her telephone calls and that Jordan eventually referred her to HRDC's counsel, Peter Stanley (Stanley). Johnson testified that Stanley informed her that the error was a "scrivener's error," a mutual mistake, and thus Johnson owed the entire $16,000 loan balance.

¶ 10 Jordan testified that she had discovered the discrepancy in interest rates at approximately the same time as had Johnson. She immediately contacted Stanley. Jordan testified that she had made the mistake in interest rates and monthly calculations due to her unfamiliarity with HRDC's newly acquired lending software. She simply had input the information incorrectly. Jordan denied Johnson's claim that she had offered Johnson a change in the loan's terms. She lacked authority to approve such a change without approval from the loan committee or HRDC's executive director. Jordan admitted, however, that she had been willing to compromise with Johnson on extending the length of the payment and reducing the interest rate on future payments based on the authority of the executive director.

¶ 11 Jordan further testified that Johnson made her last payment of $362.23 on March 5, 2003, leaving an outstanding loan balance of $11,066.44. Jordan calculated the 13% interest rate on that balance from March 5 2003, through January 8, 2007, to yield an accrued interest amount of $5,545.65. Jordan thus calculated $16,612.09 as the total loan amount due. Jordan acknowledged that she was unaware of any demands by HRDC upon Johnson to pay any interest after her last payment.

¶ 12 Johnson requested both FTMC and HRDC to release the lien on her home about two years after her final payment. FTMC refused. FTMC required a reconveyance request from HRDC and proof that Johnson had satisfied the loan. HRDC refused to request a reconveyance or release the trust indenture mortgage on Johnson's home until Johnson repaid the full amount of the loan.

¶ 13 Johnson filed a complaint for damages on February 10, 2006, based upon HRDC's failure to reconvey her property and other actual damages arising from the lost potential to purchase and sell another piece of property due to the encumbrance on her property. HRDC denied Johnson's entitlement to damages and filed a counterclaim in which it alleged mutual mistake. HRDC claimed that Johnson knew of the clerical error in the note and sought payment of the note's full amount and allowable attorney fees and costs.

¶ 14 Johnson moved for partial summary judgment on the issue of HRDC's liability. Johnson argued that the court should enforce the note's plain language. Johnson further asserted that the two-year statute of limitations had run on HRDC's mutual mistake counterclaim. HRDC asserted that the 0.13% interest was a "scrivener's error" and that the court may correct a mutual mistake made in the preparation of a legal document. HRDC argued that the longer eight-year statute of limitations for action on a written document should apply to its counterclaim.

¶ 15 The District Court denied Johnson's motion for partial summary judgment. The court determined that HRDC improperly had designated its claim of "mutual mistake" as a counterclaim. The court determined instead that the alleged "mutual mistake" constituted an affirmative defense for which no statute of limitations applied.

¶ 16 The District Court held a trial on January 8, 2007. The court determined that Johnson knew before applying for the loan that HRDC offered a 13% interest rate. The court opined that Johnson's claim of 0.13% interest rate conflicted with the nature of HRDC—to offer funds to high-risk borrowers. The court further determined that Johnson had signed the loan agreement and that she had accepted the 13% interest rate. As a result, the court concluded that Johnson knew, or suspected, that the rate offered on the note mistakenly listed the interest rate at 0.13%.

¶ 17 The court ruled that Johnson's loan remained due and owing and therefore Johnson suffered no actual damages from HRDC's refusal to release the Montana trust indenture from her property. The court proceeded to revise the note pursuant to § 28-2-1611, MCA. This statute allows a revision when a party has committed a unilateral mistake that the other party knew, or suspected, at the time of contracting. The court concluded that 13% per annum over the five-year term of the loan constituted the appropriate interest rate to be listed on all documents involved in the transaction. The court held Johnson to be liable for the unpaid balance of $16,612.09. The court recognized that the note allowed HRDC to collect attorney fees and costs. The court's judgment included an award of $6,075 in attorney fees, $115 in costs, plus interest to HRDC. Johnson appeals.

STANDARD OF REVIEW

¶ 18 We review de novo the District Court's decision to convert HRDC's counterclaim to an affirmative defense. Yellowstone County v. Drew, 2007 MT 130, ¶ 11, 337 Mont. 346, 160 P.3d 557. We review for correctness the district court's application of the statute of limitations. Wing v. State ex rel. Dept. of Transp., 2007 MT 72, ¶ 9, 336 Mont. 423, 155 P.3d 1224.

DISCUSSION

¶ 19 The unorthodox procedural history in the District Court continues on appeal as HRDC failed to file a brief. We must decide this matter solely on Johnson's brief and our review of the District Court record. As a result, the Court has been forced to look to legal authorities far beyond those presented by the parties to reach the correct result in this matter.

¶ 20 Whether the District Court correctly converted HRDC's counterclaim of mutual mistake to an affirmative defense.

¶ 21 The District Court relied upon M.R. Civ. P. 8(c) to support its decision to convert HRDC's mutual mistake counterclaim to an affirmative defense. Rule 8(c) permits a court to consider a mistakenly designated counterclaim to be an affirmative defense "if justice so requires." The court determined that justice required it to treat HRDC's mutual mistake counterclaim as an affirmative defense to avoid applying the two-year statute of limitations set forth in § 27-2-203, MCA, to HRDC's mutual mistake counterclaim.

¶ 22 Section 27-2-203, MCA, provides for a two-year period for the initiation of an action for relief on the grounds of fraud or mistake. The cause of action accrues upon discovery by the aggrieved party of the facts that constitute the fraud or mistake. Section 27-2-203, MCA. In D'Agostino v. Swanson, 240 Mont. 435, 784 P.2d 919 (1990), the purchasers of real property brought an action to reform or rescind a property contract based on mistake. We determined that mutual mistake was the essence of the action and applied the two-year statute of limitations pertaining to actions seeking relief on the ground of mutual mistake. D'Agostino, 240 Mont. at 442, 784 P.2d at 923. Similarly, in ...