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

## 111991 DOOLING, and ANN DOOLING, 

# CdSmitL Defendants

## ,Appellants and Cross-Respondents

# . 

# CLE~~fi~~~P~~~~~~UR~

APPEAL FROM: District Court of the Fifth Judicial District, In and for the County of Beaverhead, The Honorable Thomas Olson, Judgepresiding.

COUNSEL OF RECORD: ForAppellant: 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 'ClerkJustice Fred J. Weber delivered the opinion of the Court.

Theplaintiff,Byron C. Keller, initiated this suitto 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. Followingtrial, the~istrict Court entered judgment for the plaintiff for $26,395.37 for defendant's breach of contract, $10,000.00 for defendant sbreach of thecovenant of good faithand fairdealing,and $5,000.00 for punitive damages for thebreach of the covenant of good faith and fair dealing. The defendants' counterclaimswere dismissed on themerits. 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 awardingusurious 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 96acres. Theparties agreed to have the property surveyed and to determine a final price of $1,000.00per acre for each acre described in the survey. The 1976 contract called for the Doolings tomake an initial down payment of $27,840.00, annualpayments in 1977,1978,and 1979 in the amount of $12,684.12 and a balloon payment in 1980 of the remainingbalance. 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. Theparties negotiated a rescheduling of theballoon 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 1976contract incorporating the surveyed legal description, the extension of thepayments by fouryears, 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 fordeed, the Doolingswould 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 theDoolings made their finalpayment

on the contract for deed. When Kellers failed to produce such awarranty deed, Doolings refused to make the final payment and Kellers sent notices of default. Therelevant languageintheKeller-Dooling contract provides: (7) The Kellers further agree that prior to the delivery to the Doolings of thewarrantydeed, they will purchase and deliver to the Doolings an owner's title insurancepolicy insuring themerchantable title of the Kellers to theproperty 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 Doolingshave further been advised of the existence of other interests in this property including a mortgagetoConnecticut 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 Doolingsmay at their option make saidpayments whichwould constitute a credit to them of themonies owing on this Contract. The lien of themortgage to Connecticut Mutual Life Insurance Company and the equitable interest of the Harshbargers shall not constitute a defect of title.

(Emphasissupplied.) It is clear from this language that the Keller-Dooling contract is subject to the interest of theunderlyingmortgage and Harshbargercontract. When the language of a contract is clearand 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 andDoolings 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

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Was the Doolingslobligation 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 performancewas ever made. On June 13,1984Mr. Dooling stated in a letter to the Kellers' attorney: Assuminq that the final payment is made on June 29, a Friday,which is the 178thday of the year, 

### I owe Byron the sum of $12,429.14 plus 178days1interestat 13%per year, in the amount of $787.97. (Emphasissupplied.) 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 inJanuary,when Imademy lastpayment. According to theamortization schedule which Iprovided toyou some years ago, theprincipal balance now due onmy contract withyou is $12,429.14. Assuminq that 

### Imake thepayment on the 29th ofJune, Iwill oweyou interest for 178days at 13%, or $787.97. The totalpavment Iexpect tomake, then, will be $13,217.11 

# . . . (Emphasissupplied.) The Doolings cite Lehrkind v. McDonnell (1915), 51Mont 343, 153 P. 1012, fortheproposition that the interest stoppedaccruing at the time he made his tender of performance. That case stated:An unconditional offer ingood faithtoperform,by thepartyuponwhom theobligationrest,coupledwith 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 relevantpart: An offer in writing to pay a particular sum of money 

# .

. 

# . is, if not accepted, equivalent to the actual production and tender of themoney 

# . . . Mr. Doolinglsstatements were statements ofwhat hemight do in the future. These statements do not riseto the level required tomake 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 contractwas not extinguished.

Was evidence of theprovisionsof an amended contract fordeed 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. InRe theMarriage of Merriman (Mont. 1991), 807IV Did the District Court err in awarding punitive damages? Applying the lawas set forth inNicholsonv. 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 ofgood faithand fairdealing. Subsequentto the District Court's award this Court held in Storyv. City of Bozeman

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

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 seeMann 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 faithand fairdealing. We

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

($5,000.00) that representspunitive damages. 

### v Did the District Court err in awarding usurious rates of interest toMr. 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 notobjected toby the Doolingsat the timethe relevantdocumentswere 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 speculatehow 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. Kellerlsfraud claim. The District Court then dismissed the claim. On cross-appealMr. Keller seeks to have this Court order the District Court to reinstatehis 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 theparties to amend thepleadings 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 Kellerlsfraud claim. We reduce the judgment $5,000.00 for punitive damages, and otherwise affirm the District Court.

(

### '~udice We Concur: 

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I 

### hie? Justice