Kitchen Krafters, Inc. v. Eastside Bank of Montana
| Decision Date | 24 April 1990 |
| Docket Number | No. 88-518,88-518 |
| Citation | 242 Mont. 155,47 St.Rep. 602,789 P.2d 567 |
| Parties | KITCHEN KRAFTERS, INC., Plaintiff and Respondent, v. EASTSIDE BANK OF MONTANA, Defendant, Counterclaimant and Appellant, EASTSIDE BANK OF MONTANA, Third Party Plaintiff, v. Robert W. SCHELL; Mary Ann Clary, formerly, Mary Ann Schell, former wife of Robert W. Schell; State of Montana, Employment Security Division, Department of Labor & Industry, et al., Third Party Defendants. |
| Court | Montana Supreme Court |
Ward E. Taleff, argued, Alexander, Baucus & Linnell, Great Falls, for defendant, counterclaimant and appellant.
Maxon Davis, argued, Cure, Borer & Davis, Great Falls, for plaintiff and respondent.
Defendant, Eastside Bank of Montana (Bank) appeals from a jury verdict rendered in the Eighth Judicial District, Cascade County in favor of the plaintiff Kitchen Krafters, Inc. (Kitchen Krafters). We reverse.
The issues on appeal are:
1) Whether Kitchen Krafters' claims are barred by the statutes of limitations.
2) Whether Kitchen Krafters claims are supported by substantial evidence.
3) Whether the District Court erred in instructing the jury on causation.
The facts of this case are complicated. In early 1973, Arnold Wirtz (Wirtz) and Don Morris (Morris) of Kitchen Krafters contacted Robert Schell (Schell) about purchasing commercial property in Great Falls, Montana located on 25th Street North. At the initial meeting, a price of $40,000 was settled upon. Approximately one week later, Wirtz and Morris were contacted by Bruce Miller (Miller) of the Bank to review a draft of a proposed contract for deed and escrow agreement naming the Bank as escrow on the property. The contract for deed had been prepared by Schell's attorney. Morris and Wirtz were unrepresented.
At the meeting, Wirtz and Morris learned that Schell and the Bank had negotiated a separate transaction concerning the property. The Bank loaned Schell $30,000 which was secured by a trust indenture on the property. The escrow agreement specified that payments made by Kitchen Krafters would be distributed to the Bank as payments on Schell's underlying trust indenture with the balance going to Schell. The exact wording is as follows:
Special instructions, if any, in addition to the foregoing: In the event Buyers prepay an additional $5,000.00 on or before July 1, 1973, upon such payment there shall be credited against principal an additional $2,000.00. to-wit: upon payment of additional $5,000.00 principal on or before July 1, 1973, Buyers shall be credited with $7,000.00 payment; if said $5,000.00 payment not made on or before July 1, 1973, this special instruction becomes automatically void and cancelled.
3. Payments made hereunder are to be distributed as follows:
Applied first to monthly payments under Trust Indenture dated March 29, 1973, running to Eastside Bank of Montana wherein Sellers are Grantors; balance of payments remitted to Sellers.
4. Terms of prepayment privilege are as follows: (If no such privilege, so state)
Full prepayment privileges, interest to cease on amounts prepaid; but prepayment shall not excuse subsequent monthly payments.
On July 9, 1973, Kitchen Krafters exercised this option and made the prepayment. Although the payment was made beyond the July 1 deadline contained in the escrow agreement, the parties executed a waiver and authorized the Bank to accept the payment which was applied to the contract principal. The Bank did not apply this payment to Schell's note secured by the trust indenture, however. Instead the $5,000 was given to Schell who never applied the money to his debt. Kitchen Krafters was never advised that this payment was not applied to Schell's note.
As a result of the prepayment, the Bank sent Kitchen Krafters a revised amortization schedule which shortened the number of monthly payments from 180 to 125. The amount due monthly remained the same. Schell's repayment schedule under his trust indenture remained the same. As a result, Kitchen Krafters was amortizing its contract for deed at a much faster rate than Schell's debt on his trust indenture.
Finally, in either 1980 or 1981, the president of the Bank called Kitchen Krafters and notified them that because the prepayment had not been applied to Schell's trust indenture, the property would not be fully released until that underlying obligation was paid. Kitchen Krafters then contacted Schell who confirmed that he had not applied the prepayment to the Bank's note. He also stated that he was financially unable to meet the obligation. In 1982 Schell filed a petition in bankruptcy that was subsequently dismissed by the bankruptcy court.
Subsequently, Kitchen Krafters, experienced a number of setbacks. In September of 1981 Wirtz, who managed the sales and business end of Kitchen Krafters, quit and went into direct competition. Kitchen Krafters continued to meet its obligations under the contract for deed. On December 23, 1982, Kitchen Krafters attempted to pay the Bank, as escrow, the balance due on the contract. This final payment was contingent upon a demand made by Kitchen Krafters that the trust indenture be released. Under this condition the Bank refused to accept the payment and the trust indenture was not released.
Kitchen Krafters filed suit against the Bank on February 8, 1983 seeking damages for breach of the covenant of good faith and fair dealing, constructive fraud, failure to disclose and negligent misrepresentation. Both parties amended their pleadings on March 18, 1985. On April 4, 1985, the Bank filed a revised amended answer, counterclaim and a third-party complaint seeking to foreclose the trust indenture.
Trial commenced on June 20, 1988. The Bank's motion for summary judgment, based upon the statute of limitations defense, was denied as was its motion for a directed verdict. On June 28, 1988, the jury returned a verdict in favor of Kitchen Krafters for $285,000. The District Court entered judgment accordingly and this appeal followed.
The Bank maintains that each of Kitchen Krafters claims are barred by the statute of limitations. As stated earlier, Kitchen Krafters brought its lawsuit, which is based in tort, alleging four causes of action--breach of the covenant of good faith and fair dealing, constructive fraud, negligent misrepresentation and breach of a duty to disclose. We hold that there is not substantial evidence to support the allegation of constructive fraud and negligent misrepresentation. This holding will be discussed in greater detail later in this opinion. However, as a result of this conclusion we will only analyze the statute of limitations issue in regard to the remaining two causes.
Each side presents differing theories on how the statute of limitations should be applied. The Bank relies upon the discovery doctrine to argue that Kitchen Krafters' claims are barred. According to this theory, the applicable statute of limitations begins to run once the plaintiff knew or should have known that a cause of action exists. According to the Bank, a dispute exists as to when Kitchen Krafters discovered the discrepancy between the amortization on the trust indenture and the contract for deed. The Bank maintains that it notified Kitchen Krafters of the discrepancy in January of 1980. Kitchen Krafters, on the other hand, maintains that it was notified a year later, in January of 1981.
The dispute, it is argued, should have been submitted to the jury. If the 1980 date is determined to be the date of discovery then all of Kitchen Krafters' claims would be time barred. The allegations of breach of the implied covenant of good faith and fair dealing and the duty of disclosure are both general tort claims which are subject to a three year limitation. See § 27-2-204(1), MCA; Tynes v. Bankers Life Co. (1986), 224 Mont. 350, 730 P.2d 1115. Therefore, using the Bank's analysis, because Kitchen Krafters' claims were not brought until February of 1983, each of its claims would be barred if the 1980 date of discovery is accepted.
Kitchen Krafters, for its part, argues that the discovery doctrine is inapplicable to the case. Instead, they maintain that their cause of action was brought as soon as they could validly assert their claim. According to their argument, they could not bring a lawsuit until their cause of action fully accrued. In order for the cause of action to accrue, they must have sustained an injury. They did not sustain an injury until Eastside refused to release the trust indenture. This refusal occurred in December of 1982, and Kitchen Krafters filed its lawsuit in February of 1983. Therefore, they filed their cause of action well within the statute of limitations.
We agree with Kitchen Krafters' argument insofar as it is applied to the claim of breach of the duty to disclose. However, we disagree with this argument as applied to the bad faith claim.
Section 27-2-102, MCA, states (1) For purposes of statutes relating to the time within which an action must be commenced:
(a) a claim or cause of action accrues when all elements of the claim or cause exist or have occurred, the right to maintain an action on the claim or cause is complete and a court or other agency is authorized to accept jurisdiction of the action.
. . . . .
(2) Unless otherwise provided by statute, the period of limitation begins when the claim or cause of action accrues. Lack of knowledge of the claim of cause of action, or its accrual, by the party to whom it has accrued does not postpone the beginning of the period of limitation.
As the language of this statute makes clear, the statute of limitations does not begin to run until all elements of a cause of action are in existence. For example, in a negligence action the plaintiff must prove four elements:
1) Existence of a duty
2) Breach of the duty
3) Causation
4) Damages.
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