No. 91-445 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

NAFTCO LEASING LIMITED 

PARTNERSHIP 301, et al., 

Plaintiffs and Appellants, 

-vsAPPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Robert W. Holmstrom, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Stephen D. Bell and Robert L. Sterup, Dorsey & 

Whitney, Billings, Montana 

For Respondent: 

Paul D. Miller and Kyle Anne Gray, Holland & Hart, 

Billings, Montana 

Filed: 

Submitted on Briefs: April 15, 1992 

~ecided: July 27, 1992 

I 

Clerk 
Justice Fred J. Weber delivered the Opinion of the Court. 

plaintiffs Naftco Leasing Limited Partnerships numbered 301, 

302, 303, 304, and 305, and Moorhead Leasing Limited Partnership, 

(collectively referred to as plaintiffs) brought an action to 

reform lease contracts against defendant Finalco, Inc., in the 

Thirteenth Judicial District Court, Yellowstone County, Montana. 

The District Court found in favor of the defendant. Plaintiffs 

appeal. We affirm in part and reverse in part. 

The dispositive issues in this case are restated as follows: 

1. Did the District Court correctly conclude that plaintiffs' 

action was barred by the statute of limitations? 

2. Did the District Court properly award attorney fees to 

Finalco? 

In this action, plaintiffs seek to reform a number of lease 

contracts executed with the defendant covering computer equipment. 

We will summarize the facts involved in this rather complex series 

of transactions. 

In 1983, defendant, Finalco purchased approximately $22 

million worth of computer equipment and leased such equipment to 

various parties under written lease agreements, which are herein 

called end user leases. The terms of these leases varied but were 

not longer than 60 months. 

Defendant then sold the computer equipment to Lease-Pro, Inc., 

a corporate intermediary owned by Gerald DuBois and Dean Schennum. 

Lease-Pro in turn sold the computer equipment, subject to the end 

user leases, to the six plaintiff limited partnerships which leased 

2 
the equipment back to Finalco. 

Also during 1983, Gerald DuBois and Dean Schennum were 

marketing interests in the six plaintiff limited partnerships to 

various investors as tax shelters. Naftco Leasing, Inc., owned by 

DuBois and Schennum, was one of two general partners in all five of 

the Naftco limited partnerships, and also acted as the managing 

agent for Moorhead Leasing Limited Partnership, the sixth 

plaintiff. Either Gerald DuBois or Dean Schennum were also 

general partners in each of the Naftco limited partnerships. 

During 1983, the plaintiffs entered into extensive 

negotiations on the terms of lease back contracts to be executed 

between the plaintiffs and the defendant. The terms of the lease 

back contracts were to be 96 months in length. The amounts of the 

glresidual rentalst1 were key parts of the lease negotiations. 

I1Residual rentalsu were those lease amounts to be received by the 

defendant from business consumers after the expiration of the 

original end user leases, and prior to the end of the 96 month term 

of the lease back contracts. The distributions of such residual 

rentals by the defendant to the plaintiffs during the first 60 

months of the lease back contracts are the subjects of this suit. 

In December 1983, the plaintiffs, through their agent, Larry 

Hoffman, president of Naftco Leasing, Inc., executed the various 

lease agreements with the defendant. Those agreements provided 

that the defendant was entitled to 85 percent of the residual 

rentals and the plaintiffs were entitled to 15 percent of the 

residual rentals during the first 60 months of the lease 
agreements. After the first 60 months, the agreements provided 

that the plaintiffs would receive 75 percent of such residual 

rentals and the defendant would receive 25 percent of the residual 

rental income. Plaintiffs seek to reform the contracts based upon 

mistake, contending the parties agreed to share the original 

residual rentals on the following basis: 75 percent to the 

plaintiffs and 25 percent to the defendant during the first 60 

months of each of the leases. The District Court found in favor of 

the defendant by concluding that the plaintiffs failed to prove 

mistake. The District Court further held that the statute of 

limitations contained in 5 27-2-203, MCA, barred the plaintiffs 

from bringing their action. Finally, the District Court awarded 

the defendant attorney fees. The plaintiffs appeal these 

determinations. 

I 

Did the District Court properly conclude that the statute of 

limitations barred the plaintiffs' action? 

In 1983, the plaintiffs purchased over $22.6 million worth of 

computer equipment from the defendant. The lease contracts in 

connection with such purchases were executed by the parties in 

December 1983. Plaintiffs filed the present action to reform the 

lease agreements based upon mistake in January 1988. In substance, 

plaintiffs contend that the 21 lease agreements involved in this 

transaction were so lengthy that they failed to verify the 

percentages pertaining to the residual rentals when signing the 

agreements. The District Court concluded that the claims of the 
plaintiffs were barred by the statute of limitations. We agree. 

In a similar action, purchasers brought an action to reform or 

rescind a property contract based on mistake. DtAgostino v. 

Swanson (1990), 240 Mont. 435, 784 P.2d 919. In that case we held 

that where the purpose of the action was to modify the agreement 

rather than enforce the agreement, the applicable statute of 

limitations is 5 27-2-203, MCA. DtAqostino, 240 Mont. at 442, 784 

P.2d at 923. 

section 27-2-203, MCA, provides: 

The period prescribed for the commencement of an action 

for relief on the ground of fraud or mistake is within 2 

years, the cause of action in such case not to be deemed 

to have accrued until the discovery by the aggrieved 

party of the facts constituting the fraud or mistake. 

Thus, the two year limitations period begins to run when the party 

bringing the action discovered the mistake or in the exercise of 

ordinary diligence would have discovered the mistake. DIAqostino, 

240 Mont. at 443, 784 P.2d at 924. 

Here the ~istrict Court found that the statute of limitations 

started to run by no later than October 1985. Accordingly, the 

limitations period in this action ran by October 1987, prior to 

Naftco's initiation of this suit. This Court will not disturb the 

findings of the District Court unless those findings are clearly 

erroneous. Rule 52(a), M.R.Civ.P. 

The plaintiffs do not dispute that the present residual rental 

distribution percentages were clearly delineated in the lease 

agreements signed by Mr. Hoffman as agent for the plaintiffs in 

December 1983. In the same way, such distribution percentages 
again were listed in a December 30, 1983 acceptance letter from 

defendant to the plaintiffs which was signed and returned by Mr. 

Hoffman. Further, the ~istrict Court found that the percentages 

set forth in the contracts were clearly set forth in at least 

eleven separate pieces of correspondence received by the plaintiffs 

during the period July 5, 1984, through October 17, 1985. These 

included an October 3, 1985 letter signed for by Mr. DuBois. 

The District Court found that Mr. DuBois and Mr. Hoffman, both 

officers of Naftco Leasing, had notice of the percentages listed in 

the contracts, and therefore had notice of the alleged discrepancy 

in the residual rental income distribution by no later than October 

1985. After our review of the record, we conclude that the 

District Court was not clearly erroneous in ruling that by the use 

of ordinary diligence plaintiffs should have discovered the alleged 

mistakes by no later than October 1985. 

Plaintiffs next contend that the eight year statute of 

limitations under 5 27-2-202 (I), MCA, should be applied rather than 

the two year statute of limitations. We conclude that as was true 

in DIAqostino, mutual mistake is the essence of the action and not 

contract enforcement. As a result, 9 27-2-203, MCA, governs this 

action. DIAsostino 240 Mont. at 442, 784 P.2d at 923. We also do 

not accept plaintiffs' contentions that the statute of limitations 

should be tolled until plaintiffs' right to receive the payments 

had arisen. 

We hold that the District Court properly concluded that the 

statute of limitations barred the actions on the part of the 
plaintiffs. 

I1 

Did the ~istrict Court properly award attorney fees to 

defendant? 

In this case, Finalco failed to list attorney fees in the pretrial order. Accordingly, plaintiffs contend the District Court 

improperly granted defendant's motion to amend the final judgment 

to include attorney fees. Plaintiffs contend that under Rule 16, 

M.R.Civ.P., the pretrial order controls the course of the action, 

and in this case, the defendant waived its right to recover 

attorney fees by omitting the issue from the pretrial order. 

Rule 16(e) M.R.Civ.P. provides: 

After any conference held pursuant to this rule, an order 

shall be entered reciting the action taken. This order 

shall control the subsequent course of the action unless 

modified by a subsequent order. The order following a 

final pretrial conference shall be modified only to 

prevent manifest injustice. 

Although both parties raised the issue of attorney fees in the 

pleadings, neither side raised the issue of attorney fees in the 

final pretrial order. Finalco admits it failed to include the 

issue of attorney fees in its pretrial order; however, it contends 

that the District Court properly amended the judgment and awarded 

attorney fees under this Court's holding in Bell v. Richards 

(1987), 228 Mont. 215, 741 P.2d 788. 

In that case, the defendants in a contract action failed to 

list attorney fees under "defendant's contentions" in the pretrial 

order. There, this Court reversed a district court's order denying 

the defendant's posttrial motion to amend the judgment to include 

7 
attorney fees . The Bell contract, set forth the following 

language : 

In the event that either party may institute legal action 

for the enforcement of any right, obligation, provision 

or covenant of this Agreement, the prevailing party shall 

be entitled to a reasonable attorney's fee in addition to 

costs of suit. In addition, Seller shall be entitled to 

their reasonable attorney's fee in the event Seller has 

to furnish a default notice to Buyer. 

228 Mont. at 217, 741 P.2d at 789. In Bell, both parties claimed 

attorney fees in the pleadings. Further, the plaintiffs in Bell 

included a right to attorney fees under the "plaintiff ls 

c~ntentions'~ in the pretrial order. In addition, that final 

pretrial order presented the amount of fees to award to the 

prevailing party as an issue of fact to be decided at trial. 228 

Mont. at 219, 741 P.2d at 791. 

The Court in Bell reversed the ~istrict Court and remanded for 

determination of reasonable attorney fees for the defendants, 

stating as follows: 

The defendants did not abandon their right to 

attorney fees by failing to mention the issue under 

Itdefendants contention^^^ on the pretrial order. The 

right is reciprocal. Presumably, since the plaintiffs 

mentioned the issue in the pretrial order, if they had 

been successful in the lawsuit, they would have been 

awarded attorney fees and costs. The plaintiffs had a 

contractual right to attorney fees, and pursuant to 

Section 28-3-704, MCA, so do the defendants. 

The District Court reasoned further that, since 

there was no evidence introduced at trial with respect to 

attorney fees, to award attorney fees after a judgment 

was announced would amount to an issue being raised posttrial. However, the issue of attorney fees is not 

outside the court's record. The contract upon which the 

court relied in deciding the dispute is before the court 

as evidence. A provision of that contract clearly 

provides for attorney fees to the successful party in a 

lawsuit concerning the contract. Also, the issue of 

attorney fees was raised in two places on the pretrial 
order. 

228 Mont. at 219, 741 P.2d at 791. 

Similarly, in this action, both parties claimed attorney fees 

in the pleadings. However, here the final pretrial order did not 

include any reference to attorney fees. Attorney fees were neither 

listed as a contention of the plaintiff nor was the amount to be 

awarded the prevailing party listed as a fact to be determined at 

trial. Further, here, the lease contracts between Naftco and 

Finalco failed to include a provision awarding attorney fees to the 

prevailing party on any action to enforce the leases. The 

contracts provided as follows: "Lessee shall . . . remain liable 

for costs and expenses incurred by lessor arising from such event 

of default or termination including without limitation reasonable 

attorneys' fees. . . II 

In this case, as in u, no evidence was introduced on the 

issue of attorney fees during trial. Contrary to the facts in 

I Bell here the issue of attorney fees is not derived from the 

contract language itself, but is rather derived exclusively from 5 

28-3-704, MCA, Montana's reciprocal attorney fees statute. Since 

Finalco's attorney fees are not recoverable under the contract 

language, and no evidence was presented on this issue at trial; 

failure to raise the issue of attorney fees in the pretrial order 

placed this issue outside the record of the District Court. 

Since the facts in Bell are not comparable to this case, Bell 

is not authority for allowing the defendant to collect attorney 

fees in the present case. We conclude that the District Court 
improperly granted defendant's motion to amend the judgment. 

We hold the District Court improperly awarded attorney fees to 

the defendant. 

Affirmed in part and reversed in part. 

- mst'ice 

We Concur: 
July 27, 1992 

CERTIFICATE OF SERVICE 

1 hereby certify that the following order was sent by United States mail, prepaid, to the following 

named: 

Stephen D. Bell and Robert L. Stemp 

Dorsey & Whitney 

P.O. Box 7188 

BilIings, MT 59103 

Paul D. Miller and Kyle Anne Gray 

Holland & Hart 

175 No. 27th St., Ste. 1400 

Billings, MT 59101 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA