No. 91-445 IN THE SUPREME COURT OF THE STATE OF MONTANA

NAFTCO LEASING LIMITED PARTNERSHIP 301, et al., Plaintiffs and Appellants,

-vsAPPEAL FROM: DistrictCourt of theThirteenth Judicial District, In and for the County of Yellowstone, The Honorable Robert W. Holmstrom,Judgepresiding.

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 ClerkJustice 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 concludethatplaintiffs' 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 summarizethe 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 leasesvaried but were not longer than 60months. Defendant then soldthecomputerequipment toLease-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 

### sixplaintiff limited partnershipswhich leased 2the 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 fiveof 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 96months in length. The amounts of the glresidualrentalst1were key parts of the lease negotiations. I1Residualrentalsuwere 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 96month 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 defendantwould receive 25 percent of the residual rental income. Plaintiffs seek to reform the contractsbased 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 limitationsbarred the plaintiffs' action? In 1983,theplaintiffspurchased 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 agreementsbased upon mistake inJanuary 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 theplaintiffs were barred by the statute of limitations. We agree. 

### Ina similaraction,purchasers brought an action to reform or rescind a property contract based on mistake. DtAgostino

### v. Swanson (1990), 240Mont. 435, 784 P.2d 919. In that casewe 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,240Mont. 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 ormistake 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 twoyear limitationsperiod begins to runwhen the party bringing the action discovered the mistake or in the exercise of ordinary diligencewould have discovered themistake. 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. Theplaintiffs donotdisputethat thepresent 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 correspondencereceivedby theplaintiffs during the period July 5, 

### 1984, through October 17, 1985. These included an October 3, 1985 

### letter signed for by Mr. DuBois. TheDistrict Court found thatMr. DuBoisandMr. Hoffman,both officers of Naftco Leasing,had notice of thepercentages listed in the contracts, and thereforehad notice of the alleged discrepancy in the residual rental income distributionby no laterthanOctober 1985. After our review of the record, we conclude that the District Courtwas not clearly erroneous in ruling that by the use of ordinarydiligence plaintiffs shouldhavediscoveredthealleged mistakes by no later than October 1985. 

### Plaintiffs next contend that the eight year statute of limitations under 5 

### 27-2-202(I), MCA, shouldbe applied rather than the two year statute of limitations. We conclude that aswas 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. DIAsostino240 

### 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 theplaintiffs. I1 Did the ~istrictCourt properly award attorney fees to defendant? In this case, Finalco failed to listattorney fees in thepretrial 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 conferenceheldpursuant 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. Althoughboth 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 thepretrial order. There, thisCourt reversed a district court's orderdenying the defendant's posttrial motion to amend the judgment to include

7attorney fees

# . The Bell contract, set forth the following language: Inthe event thateitherpartymay institute legal action for the enforcement of any right, obligation, provision or covenant of thisAgreement, theprevailingparty shall be entitled to a reasonableattorney's fee in additionto 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 "plaintiffls 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 

### therewasno evidence introduced attrial

### with respectto attorney fees, to award attorney fees after a judgment was announcedwould amount toan issue being raised posttrial. However, the issue of attorney fees is not outside the court's record. The contractupon which the court relied in deciding the dispute isbefore the court as evidence. 

### A provision of that contract clearly provides for attorney fees to the successfulparty 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 referenceto attorney fees. Attorney feeswereneither 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 feesto 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 Bell here the issue of attorney fees is not derived from the I 

### 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 Courtimproperly granted defendant's motion to amend the judgment. Wehold theDistrict Court improperly awarded attorney fees to the defendant. Affirmed in part and reversed in part.



## - mst'ice We Concur:July27, 1992 CERTIFICATEOFSERVICE 1herebycertifythatthefollowingorderwas sentbyUnitedStatesmail,prepaid,tothefollowing named: StephenD.BellandRobertL. Stemp Dorsey&Whitney P.O.Box7188 BilIings,MT 59103 PaulD.MillerandKyleAnne

### Gray Holland&Hart 175No.27thSt.,Ste. 1400 Billings,MT 59101 

### EDSMITH CLERKOFTHESUPREME

### COURT STATEOFMONTANA