No. 90-508 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

BYRON C. KELLER, 

Plaintiff, Respondent and Cross-Appellant, 

-vTHOMAS A. DOOLING, MARGARET L. JUN 11 1991 

DOOLING, and ANN DOOLING, Cd SmitL 

Defendants , Appellants and Cross-Respondents . CLE~~fi~

APPEAL FROM: District Court of the Fifth Judicial District, 

In and for the County of Beaverhead, 

The Honorable Thomas Olson, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Vincent Kozakiewicz; Dillon, Montana 

William A. Brolin; Anaconda, Montana 

For Respondent: 

W. Cecil Jones; Dillon, Montana 

Filed: 

Submitted on Briefs: May 16, 1991 

Decided: June 11, 1991 

l 

'Clerk 
Justice Fred J. Weber delivered the opinion of the Court. 

The plaintiff, Byron C. Keller, initiated this suit to recover 

damages for breach of contract, fraud, and breach of the implied 

covenant of good faith and fair dealing. Defendants counterclaimed to recover damages for breach of contract, fraud, and 

breach of the implied covenant of good faith and fair dealing. 

The District Court for the Fifth Judicial District, Beaverhead 

County, dismissed the fraud claims under statute of limitations 

defenses. Following trial, the ~istrict Court entered judgment for 

the plaintiff for $26,395.37 for defendant's breach of contract, 

$10,000.00 for defendant s breach of the covenant of good faith and 

fair dealing, and $5,000.00 for punitive damages for the breach of 

the covenant of good faith and fair dealing. The defendants' 

counterclaims were dismissed on the merits. Defendants appeal and 

plaintiff cross-appeals. We affirm in part and reverse in part. 

The issues are: 

(1) Was the contract between the Doolings and the Kellers 

correctly interpreted by the District Court and the jury? 

(2) Was the Doolingst obligation under the contract 

extinguished by their offer of performance? 

(3) Was evidence of the provisions of an amended contract 

for deed barred by the par01 evidence rule? 

(4) Did the District Court err in awarding punitive damages? 

(5) Did the District Court err in awarding usurious rates of 

interest to Mr. Keller? 
(6) Did the District Court err in allowing the Doolings to 

amend their answer at trial to raise a statute of limitations 

defense? 

The plaintiff, Byron C. Keller, and his ex-wife, Karen R. 

Keller, entered into a contract with Thomas Dooling and his exwife, Margaret L. Dooling dated January 13, 1976. Kellers agreed 

to sell to Doolings a tract of land located in Beaverhead County, 

Montana, consisting of approximately 96 acres. The parties agreed 

to have the property surveyed and to determine a final price of 

$1,000.00 per acre for each acre described in the survey. 

The 1976 contract called for the Doolings to make an initial 

down payment of $27,840.00, annual payments in 1977, 1978, and 1979 

in the amount of $12,684.12 and a balloon payment in 1980 of the 

remaining balance. The contract interest rate was 7.5%. Doolings 

made the initial down payment and the annual payments in 1977, 

1978, and 1979. 

Prior to the 1980 balloon payment, the property was surveyed 

and determined to contain 106 acres. The purchase price was thus 

$106,000.00. The parties negotiated a rescheduling of the balloon 

payment over a period of four years. The exact nature of the 

rescheduling was disputed by the parties at trial. The parties 

agreed that the payments remained at $12,684.12. Mr. Keller 

contended that in exchange for extending the payment schedule he 

was to receive interest on the last four annual payments at 13%. 

Mr. Keller had his attorney draft a 1980 amendment to the 1976 
contract incorporating the surveyed legal description, the 

extension of the payments by four years, and changing the interest 

rate to 13%. 

The 1980 amendment to the 1976 contract was never executed. 

However, Mr. Dooling drafted an amortization schedule showing the 

interest payment at 13%, and wrote several letters indicating the 

amount he owed in 1984 and the interest rate at 13%. The final 

payment was not made by Mr. Dooling and this litigation ensued. 

I 

Was the contract between the Doolings and the Kellers 

correctly interpreted by the District Court and the jury? 

The subject property under the contract for deed between the 

parties was part of a larger tract of land owned by the Kellers. 

The Kellers were making payments under a mortgage to Connecticut 

Mutual Life Insurance Company and a contract for deed to Clark and 

Geraldine Harshbarger on the larger tract of land. Under the 

Keller-Dooling contract for deed, the Doolings would pay off their 

obligation to the Kellers several years before the Kellers would 

pay off their obligations on the underlying mortgage and 

Harshbarger contract. 

The Doolings assert that the intent under the contract for 

deed was for the Kellers to provide the Doolings with a warranty 

deed free of the underlying mortgage and Harshbarger contract 

obligations at the time that the Doolings made their final payment 

on the contract for deed. When Kellers failed to produce such a 
warranty deed, Doolings refused to make the final payment and 

Kellers sent notices of default. 

The relevant language in the Keller-Dooling contract provides: 

(7) The Kellers further agree that prior to the 

delivery to the Doolings of the warranty deed, they will 

purchase and deliver to the Doolings an owner's title 

insurance policy insuring the merchantable title of the 

Kellers to the property excewtins, however, mortsases of 

record of which the Doolinss have been advised and the 

usual exceptions with respect to easements of public 

record. 

(8) . . . The Doolings have further been advised 

of the existence of other interests in this property 

including a mortgage to Connecticut Mutual Life Insurance 

Company and an equitable interest in favor of the said 

Clark and Geraldine Harshbarger. It is understood that 

the sellers Keller (sic) are primarily liable and will 

timely discharse these oblisations. Should they fail, 

however, to make the payments to either Connecticut 

Mutual Life Insurance Company or the Harshbargers, then 

and in that event the Doolings may at their option make 

said payments which would constitute a credit to them of 

the monies owing on this Contract. 

The lien of the mortgage to Connecticut Mutual Life 

Insurance Company and the equitable interest of the 

Harshbargers shall not constitute a defect of title. 

(Emphasis supplied.) 

It is clear from this language that the Keller-Dooling 

contract is subject to the interest of the underlying mortgage and 

Harshbarger contract. When the language of a contract is clear and 

unambiguous, the contract does not require the application of the 

rules of construction and the court s duty enforce the 

contract as made by the parties. Morning Star Ent., Inc. v. R.H. 

Grover, Inc. (Mont. 1991), 805 P.2d 553, 556, 48 St.Rep. 112, 113. 

Under the above quoted language Kellers did not have an obligation 

to produce a warranty deed free of the underlying obligations and 
Doolings breached the contract by not making the final annual 

payment. We hold that the contract between the Doolings and the 

Kellers was correctly interpreted by the District Court and the 

jury . 

Was the Doolingsl obligation under the contract extinguished 

by their offer of performance? 

The Doolings contend that they made a tender of performance 

in 1984 and that no interest should accrue beyond the date of 

tender of performance. Nothing in the record establishes that a 

tender of performance was ever made. On June 13, 1984 Mr. Dooling 

stated in a letter to the Kellers' attorney: 

Assuminq that the final payment is made on June 29, a 

Friday, which is the 178th day of the year, I owe Byron 

the sum of $12,429.14 plus 178 days1 interest at 13% per 

year, in the amount of $787.97. (Emphasis supplied.) 

On the same day Mr. Dooling wrote a letter to Mr. Keller which 

stated: 

This letter is formal notice of my intention to prepay 

the balance of my Contract for Deed with you, on or 

before July 1, 1984. I had notified you orally of my 

plans in January, when I made my last payment. According 

to the amortization schedule which I provided to you some 

years ago, the principal balance now due on my contract 

with you is $12,429.14. Assuminq that I make the payment 

on the 29th of June, I will owe you interest for 178 days 

at 13%, or $787.97. The total pavment I expect to make, 

then, will be $13,217.11 . . . (Emphasis supplied.) 

The Doolings cite Lehrkind v. McDonnell (1915), 51 Mont 343, 

153 P. 1012, for the proposition that the interest stopped accruing 

at the time he made his tender of performance. That case stated: 
An unconditional offer in good faith to perform, by 

the party upon whom the obligation rest, coupled with the 

ability to perform, if rejected by the other party, is 

equivalent to full performance and extinguishes the 

obligations as to the party making the offer. 

The Doolings also cite 5 28-1-1202(1), MCA, which states in 

relevant part: 

An offer in writing to pay a particular sum of money . . . is, if not accepted, equivalent to the actual 

production and tender of the money . . . 

Mr. Doolingls statements were statements of what he might do in the 

future. These statements do not rise to the level required to make 

an unconditional tender of performance that triggers the Lehrkind 

rule or constitute an offer to pay under 5 28-1-1202(1), MCA. 

We hold that the Doolings failed to prove that they made an 

unconditional tender of performance or offer to pay and therefore 

their obligation under the contract was not extinguished. 

Was evidence of the provisions of an amended contract for deed 

barred by the par01 evidence rule? 

The critical documents establishing the amended contract for 

deed, the interest rate in that amended contract for deed and the 

payment schedule of that amended contract for deed were admitted 

without objection from the Doolings. This Court will not consider 

for the first time on appeal an issue which was not raised in the 

District Court. In Re the Marriage of Merriman (Mont. 1991), 807 
IV 

Did the District Court err in awarding punitive damages? 

Applying the law as set forth in Nicholson v. United Pac. Ins. 

(1985), 219 Mont. 32, 710 P.2d 1342, the District Court awarded 

$5,000.00 in punitive damages for the tortious breach of the 

implied covenant of good faith and fair dealing. Subsequent to the 

District Court's award this Court held in Story v. City of Bozeman 

(Mont. 1990), 242 Mont. 436, 450-51, 791 P.2d 767, 776, that absent 

a special relationship, tort damages are not available for breach 

of the implied covenant of good faith and fair dealing in common 

contract actions. Also see Mann Farms, Inc. v. Traders State Bank 

(Mont. 1990), 801 P.2d 73, 76. Under Storv and Mann Farms it was 

improper for the District Court to award punitive damages for 

breach of the implied covenant of good faith and fair dealing. We 

reverse and vacate that portion of the District Court's award 

($5,000.00) that represents punitive damages. 

v 

Did the District Court err in awarding usurious rates of 

interest to Mr. Keller? 

The Doolings argue that the $26,395.37 awarded by the jury to 

Mr. Keller by necessity included a usurious 13% rate of compounded 

interest. There is evidence in the record to support the 

conclusion that Doolings agreed to pay 13% interest in return for 

the Kellersl waiver of the balloon payment requirement. The 

question of compounding interest on the taxes and payments was not 
objected to by the Doolings at the time the relevant documents were 

introduced at trial. The Doolings had the opportunity to argue 

their position to the jury regarding the compounding of interest 

and to the nature of the agreements. The Doolings did not ask the 

Court to have the jury break out how they computed their damage 

award in the verdict form. Mr. Dooling cannot now ask this Court 

to speculate how the jury broke out the damage award and what it 

relied on. We hold that Doolings did not establish that the 

District Court erred in awarding usurious rates of interest to Mr. 

Keller. 

VI 

Did the ~istrict Court err in allowing the Doolings to amend 

their answer at trial to raise a statute of limitations defense to 

Mr. Keller's fraud claim? 

At the end of trial, the District Court allowed the Doolings 

to amend their answer to raise a statute of limitations defense to 

Mr. Kellerls fraud claim. The District Court then dismissed the 

claim. On cross-appeal Mr. Keller seeks to have this Court order 

the District Court to reinstate his fraud claim. 

Mr. Keller argues that under Rule 8(c), M.R.Civ.P., the 

Doolings had waived their statute of limitations defense. Rule 

8(c) provides that affirmative defenses shall be set forth in the 

pleadings. However Rule 8(c) does not preclude the District Court 

from allowing the parties to amend the pleadings to conform to the 

evidence under Rule 15(b), M.R.Civ.P. See Butte Teachers' Union 
v. Bd. of Trustees (1982), 201 Mont. 482, 487, 655 P.2d 146, 149. 

We hold that the District Court did not err in allowing the 

Doolings to amend their answer at trial to raise a statute of 

limitations defense to Kellerls fraud claim. 

We reduce the judgment $5,000.00 for punitive damages, and 

otherwise affirm the District Court. 

( ' ~udice 

We Concur: ,/ 

I 

 hie? Justice