No. 1.2147 

TN WE SUPREME COURT OF THE STATE OF MONTANA 

1972 

PRENTICE LUMBER COMPANY, INC., 

Plaintiff and Appellant, 

-vs - 

HENRY J. HUKILL et al., 

Defendants and ~espondents. 

Appeal from: District Court of the Third Judicial District, 

Honorable Sid G. Stewart, Judge presiding. 

Counsel of Record: 

For Appellant : 

Boone, Karlberg & Haddon, Missoula, Montana. 

Sam E. Haddon argued, Missoula, Montana. 

For Respondents: 

Boyd and Radonich, Anaconda, Montana. 

Robert J. Boyd argued, Anaconda, Montana. 

Bolkovatz and Romine, Helena, Montana. 

William L. Romine appeared, Helena, Montana. 

Loble, Picotte and Loble, Helena, Montana. 

William G. Sternhagen appeared, Helena, Montana. 

Garlington, Lohn and Robinson, Missoula, Montana. 

George D. Goodrich appeared, Missoula, Montana. 

Submitted: September 20, 1972 

Decided : DEC 1 1972 

Filed: - OEC - 1 1572 
Mr. Justice Frank I. Haswell delivered the Opinion of the Court, 

Plaintiff corporation filed this action against defendant 

directors of Elliston Lime Company, a Montana corporation, seeking 

a joint and several judgment against the directors for an obligation allegedly owed by Ellistan Lime Company to plaintiff. The 

action seeks to impose a statutory personal liability on the 

directors by reason of their failure to file annual statements 

of the corporation, pursuant to section 15-811, R,C.M, 1947. 

From an order of the district court of Powell County denying 

plaintiff's motion to file a second amended complaint and dismissing the action, plaintiff appeals, 

A history of the litigation between plaintiff and Elliston 

Lime Company and its directors furnishes the background for determination of the issues in this appeal. Case !,I was filed on 

July 14, 1967, in the district court of Missoula County by 

plaintiff herein against the Elliston Lime Company, seeking judgment for the balance owed on an itemized account dated June 30, 

1967, in the sum of $20,752,13. An attachment was levied against 

Elliston's property, Subsequently a default judgment was entered 

in favor of plaintiff Prentice Lumber Co. against Elliston for 

$20,971.15, An execution sale was held at which plaintiff purchased the attached property of Elliston for $500. 

Thereafter on August 2, 1968, Case #2, the instant action, 

was filed by plaintiff against the directors of Elliston seeking 

a joint and several judgment against the directors of Elliston 

Lime Company for the balance of the judgment against Elliston in 

Case #I. The amount sought was $20,903.76 as of January 10, 1968, 

representing the amount of the original judgment in Case 81, less 

a credit for plaintiff's purchase of ~lliston's property at the 

execution sale plus interest on the balance of the judgment. 
Thirteen days later on August 15, 1968, Elliston filed 

Case #3, a separate and independent action to set aside the 

default judgment i.n Case 81. On March 2, 1970, the district 

court of Missoula County set aside this default judgment and 

on appeal to this Court was affirmed on March 16, 1971. Elliston 

Lime Co, v. Prentice Lumber Co., 157 Mont. 64, 483 P.2d 264, 

In the meantime on September 3, 1968, plaintiff herein 

filed a first amended complaint in Case #2, the instant action. 

This did not differ substantially from the original complaint, 

but supplied certain factual omissions in the original complaint 

relating to the directors' failure to file the required annual 

statements, The individual directors filed consolidated motions 

(1) to dismiss the first amended complaint, (2) to change the 

venue of the action to Powell County, and (3) to continue further 

proceedings pending judgment in Case #3, On January 20, 1969, 

the district court of Missoula County (1) denied the motion to 

dismiss, (2) granted the change of venue to Powell County, and 

(3) reserved ruling on continuance for the district court of 

Powell County. 

On June 25, 1971, some three months after we afftrmed the 

setting aside of the default judgment in Case !/I, plaintiff herein 

moved the district court of P~well County for leave to file a 

second amended complaint in the instant action. In substance, 

the proposed second amended complaint substituted the alleged 

underlying indebtedness of Elliston to plaintiff for the balance 

owing on the judgment set aside in Case #I., and sought to hold 

the directors personally liable for the same by reason of their 

failure to file annual statements during the period this indebtedness was incurred pursuant to section 15-811, R.C.M. 1947, The 

amount sought in the prayer was $19,845.11, together with interest 

from January 10, 1968. 

After hearing, the district court of Powell County denied 

plaintiff's motion for leave to file the second amended complaint 
and granted the "motion of defendants to dismiss the cause of 

action". Plaintiff now appeals from the order of the district 

court denying plaintiff leave to file the second amended complaint 

and dismissing the action. 

The issue which p1ainti.ff assigns for review is the correctness of the district court's order, Additionally, defendants 

raise a second issue---whether the order from which the appeal 

is taken is an appealable order? 

Initially, we direct our attention to the appealability 

of the district court's order denying leave to amend and dismissing 

the action. Defendants point out that this order is not enumerated 

as one of the orders from which an appeal may be taken under 

Rule 1, M.R.App.Civ.P, They liken the order here to an order 

sustaining a demurrer under Montana's former practice prior to 

adoption of the Montana Rules of Civil Procedure and cite Pentz 

v, Corscadden, 49 Mont. 581, 144 P, 157, as authority that an 

order sustaining a demurrer under ~ontana's former practice was 

not appealable. Defendants point out that under the present 

Montana Rules of Civil Procedure a motion to dismiss under Rule 

12, M.R,Civ,P., is equivalent to the use of demurrers under our 

former practice, citing Payne v. Mountain States Tel, & Tel., 

142 Mont. 406, 385 P.2d 100, and Rambur v. Diehl Lumber Co,, 

1.43 Mont. 432, 391 P.2d 1, in support. Accordingly, they contend 

that a motion to dismiss is not an appealable order. 

At the outset, we observe that no judgment was entered for 

defendants pursuant to the district court's order of dismissal. 

Had a judgment been entered, it would clearly be appealable as a 

final judgment under Rule l(a), M.R.App.Civ.P. In reviewing such 

final. judgment, the district court's denial of leave to amend 

could be reviewed as well as its order of dismissal under the 

provisions of Rule 2, M.R,App.Civ.P., which provides in pertinent 

part : 
11 Upon appeal from a final judgment,the court 

may review 9; * any intermediate order or 

decision * * * which involves the merits, or 

necessarily affects the judgment * f:." 

In our view, substance rather than form is controlling. 

The effect of the district court's order is substantially the 

sdme as a judgment for defendants. As matters now stand, plaintiff 

is out of court and denied relief just as completely as if judgment had been entered against it. This Court has recognized this 

situation and has recently rendered decisions on the merits in 

appeals from orders dismissing complaints. See: Rooney v. 

Agricultural Ins. Co,, 156 Mont, 118, 476 P.2d 783; Smith v, 

Davis, 156 Mont. 150, 477 P.2d 114; Kielmann v. Mogan, 156 Mont. 

230, 478 P.2d 275. While we recognize that these cited decisions 

did not involve an express ruling on the appealability of the 

order of dismissal because that issue was not raised therein, 

still the appealability of the order of dismissal is implicit 

in these decisions. We perceive no rational basis in fact or 

in law for denying the aggrieved party the right of appeal 

where the prevailing party neglects to enter a formal judgment 

in conformity with the court's ruling. Nor do we believe that 

the framers of the Montana Rules of Appellate Civil Procedure 

intended to preclude an appeal by the aggrieved party under such 

circumstances. Accordingly, we hold that an order dismissing 

a complaint and denying leave to amend is equivalent to a final 

judgment for purposes of appeal. 

Proceeding to plaintiff's issue, i.e. the correctness of 

the district court's order refusing leave to amend and dismissing 

the complai-nt, we examine the basic contentions of the parties. 

Plaintiff Prentice contends that at the time the original 

complaint and first amended complaint were filed the alleged 

indebtedness of Elliston to Prentice had been merged in the default judgment against Elliston, precluding suit on the underlying 

indebtedness against the directors. Prentice argues that when 
this default judgment was set aside, the underlying obligation 

was reinstated and only then could Prentice seek to impose a 

personal statutory liability against the directors based on 

~lliston's alleged underlying indebtedness to Prentice. Prentice 

further argues that this was sought to be done by its second 

amended complaint which related back to the original complaint 

avoiding the three year statute of limitations, that the amendment should have been allowed, and the action should not have 

been dismissed. 

On the other hand, the directors contend that the proposed 

second amended complaint is based upon a different obligation 

than that contained in the two previous complaints, that it 

seeks recovery of a different amount, covers a different period 

of time, and is based upon an alleged indebtedness on an account 

and not a judgment debt. Accordingly, they argue, it does 

not relate back to the original or first amended complaint and 

is barred on its face by the statute of limitations. Additionally, 

they claim none of the complaints alleges that the action was 

brought within the three year statute of limitations which must 

be affirmatively alleged to state a claim for relief under the 

statute imposing personal liability on the directors. Thus, 

they contend, the district court was correct in dismissing the 

action. 

Two separate considerations underlie determination of the 

correctness of the district court's order: (1) Does the proposed 

amendment relate back to the original or first amended complaint, 

thus avoiding the bar of the statute of limitations? (2) Should 

the amendment have been allowed? 

Directing our attention to the first consideration, we 

note that although the bar of the statute of limitations is an 

af fiwmative defense to be pleaded by answer (Rule 8 (a), M.R.Civ, P.) 

and need not be negatived in the complaint, the better rule 

permits the court to consider, on application for leave to amend, 
whether the proposed amended pleading relates back to the 

original complaint and so avoids the bar of the statute of 

limitations. 3 ~oore's Federal Practice, !$ 15.08[4], p, 906; 

Pasos v. Pan American Airways, Inc., 17 Fed.Rules Serv, 15a.34, 

Case 1; Walker v. Bank of America National Trust & ~av.~ss'n, 

Rule 15 (c), M.R.Civ.P., is the controlling rule and 

provides in pertinent part: 

"Relation Back of Amendments. Whenever the claim 

or defense asserted in the amended pleading arose 

out of the conduct, transaction, or occurrence set 

forth or attempted to be set forth in the orisinal 

pleading, the amendment relates back to the date of 

the original pleading. I I 

We have not previously had occasion to construe this 

rule. Accordingly, we refer for guidance to Federal Rule l5(c) 

which contains identical language to that quoted above, and 

to federal court decisions construing its meaning and application. In speaking of Federal Rule 15(c), LA Barron & Holtzoff, 

Federal Practice and Procedure, !$ 448, p. 757, has this to say: 

"The general rule of 'relation back' is that a 

pleading may not be amended to allege a new or 

different claim or defense unless it arose out of, 

or is based upon or related to, the claim, transaction or occurrence originally set forth or attempted 

to be set forth. If the new claim or 'cause of action' 

meets this requirement, the amendment relates back 

to the time of the original filing so as to prevent 

the runnin of limitations which might otherwise bar 

the claim. 6 

The following statement from 3 ~oore's Federal Practice, 

1 15.15[3], pp. 1025-1027, delineates the types of amendments 

that will relate back: 

"J; * Jc Rule 15 (c) is based on the concept that a 

party who is notified of litigation concerning a 

given transaction or occurrence has been given all 

the notice that statutes of limitations are intended to afford, Thus, if the original pleading 

gives fair notice of the general fact situation 

out of which the claim or defense arises, an amendment which merely makes more specific what has 

already been alleged, such as by specifying particular 

acts of negligence under a general allegation of 

negligence, or remedies a defective pleading, will 

relate back even though the statute of limitations 

has run in the interim. Similarly, while it is 
still the rule that an amendment which states 

an entirely new claim for relief based on 

different facts will not relate back, if the 

pleading sufficiently indicates the transaction 

or occurrence on which the claim or defense is 

based, amendments correcting specific factual 

details, such as time and place, as well as other 

items, will relate back," 

An amendment that changes only the legal theory of the 

action will relate back. 3 ~oore's Federal Practice, Q 15.15[3], 

p, 1028, and cases cited therein, It is equally clear that an 

amendment that adds another claim arising out of the same transaction or occurrence will relate back, 3 Moore's Federal Practice, $ 15.15[3], p. 1029, and cases cited therein, 

In the instant case, the proposed second amended complaint 

seeks to substitute an indebtedness on account of goods sold 

and delivered for a judgment indebtedness covering substantially 

the same account because the judgment was subsequently set aside. 

The amount sought is slightly different due to accrued interest 

and credits allowed to a subsequent date. Additionally, the 

proposed second amended complaint pleads with more particularity 

the facts rendering the directors personally liable for the debts 

of the corporation by reason of their failure to file the annual 

statement. In short, the proposed amendment seeks to substitute 

the underlying account indebtedness for the judgment indebtedness 

that was subsequently vacated, and to perfect the basis of 

personal liability. 

In an analogous situation, such amendment was permitted 

in Green v. Walsh, 21 F.R.D. 15. There the plaintiffs had obtained a judgment by confession in state court and suit was commenced on this judgment in federal court; subsequently the state 

court judgment was vacated for lack of jurisdiction. The court 

held that plaintiffs were entitled to amend their pleadings in 

the federal court action to sue on the underlying promissory 

note, guarantee, cognovit, and sellers' recourse endorsement, 

and to have such amendment relate back to the time of filing the 

original complaint, even though the statute of limitations had 
run on part of plaintiffs' underlying claim in the interim. 

The reasoning of the court was that the general wrong suffered 

and the general conduct causing the wrong controlled the determination of whether a new and different claim was stated in the 

amended pleading, and that the specified conduct of defendant 

upon which plaintiff tries to enforce his claim is to be examined 

rather than the theory of law on which the action is brought. 

Accordingly, we hold that the proposed amendment, if permitted, 

would relate back to the first amended complaint and avoid the 

bar of the statute of limitations, 

But, should the amendment have been allowed? Rule 15 (a), 

M.R.Civ.P., governs the allowance of amended pleadings and provides as follows: 

"Amendments. A party may amend his pleading once as a 

matter of course at any time before a responsive pleading 

is sewed or, if the pleading is one to which no responsive pleading is permitted and the action has not been 

placed upon the trial calendar, he may so amend it at any 

time within 20 days after it is served. Otherwise a party 

may amend his pleading only by leave of court or by written 

consent of the adverse party; and leave shall be freely 

iven when justice so requires. A party shall plead in 

fesponse to an amended pleading within the time remaining 

for response to the original pleading or within 10 days 

after service of the amended pleading, whichever period 

may be the longer, unless the court otherwise orders. 11 

(Emphasis supplied) . This Court has not heretofore had occasion to rule on the 

question of when leave to amend should be granted and when it should 

be withheld pursuant to Rule 15. Accordingly, we look to interpretations of identical Federal Rule 15(a) for guidance. 

The purpose of Federal Rule 15 is described in 3 ~oore's 

Federal Practice, 5 15.02[1], p. 813, in this language: 

"Rule 15 is one of the most important of the rules that 

deal with pleadings, It re-emphasizes and assists in 

attaining the objective of the rules on pleadings: that 

pleadings are not an end in themselves, but are only a 

means to the proper presentation of a case; that at all 

times they are to assist, not deter, the disposition of 

litigation on the merits. * 9; *" 

The United States Supreme Court reiterated the philosophy 

of Rule 15 in Foman v, Davis, 371 U.S. 178, 83 S. Ct, 227, 9 L ed 2d 

222, 226, wherein it held the district court's denial of leave to 
amend even after judgment was error where there was no apparent 

or declared reason for denying leave to amend the complaint: 

"Rule 15(a) declares that leave to amend 'shall be 

freely given when justice so requiresf; this mandate 

is to be heeded, [Citing Moore's Federal Practice] 

If the underlying facts or circumstances relied upon 

by a plaintiff may be a proper subject of relief, he 

ought to be afforded an opportunity to test his claim 

on the merits, In the absence of any apparent or 

declared reason---such as undue delay, bad faith or 

dilatory motive on the part of the movant, repeated 

failure to cure deficiencies by amendments previously 

allowed, undue prejudice to the opposing party by 

virtue of allowance of the amendment, futility of 

amendment, etc.--- the leave sought should, as the 

rules require, be 'freely given', Of course, the 

grant or denial of an opportunity to amend is within 

the discretion of the District Court, but outright 

refusal to grant the leave without any justifying 

reason appearing for the denial is not an exercise of 

discretion; it is merely abuse of that discretion and 

inconsistent with the spirit of the Federal Rules, 11 

Applying these principles to the instant case, we note there 

is no stated reason for denying leave to amend in the district 

court's order. Nonetheless the basis for such denial. is apparent. 

The evidence of bad faith on the part of plaintiff appears in the 

record of Case #3, wherein the default judgment against the corportion was set aside. The face of the judgment in Case #3 contains an express finding that: 

"* * * the testimony shows to the satisfaction 

of this Court that the President of Prentice Lumber 

Company by his actions and representations to the 

Elliston Lime Company officers caused Elliston Lime 

Company officers to belteve the litigation was merely 

for the purpose of providing some security to Prentice 

Lumber Company to cover whatever amount was awed to 

them, r 1 

It also contains an express finding: 

"* * * that the judgment should not be for the full 

sum of $20,971.15, and it appears that justice requires 

that the default be set asi.de and the matter be set 

dobm for hearing on the merits, I I 

This judgment was dated March 2, 1970, and affirmed on appeal 

to this Court on March 16, 1971. No further proceedings to 

establish the liability of Elliston to Prentice has been taken. 

Furthermore, the evidence received in Case #3 indicates 

that the default judgment in favor of Prentice against Elliston 

was entered without the k~owledge of the president or directors 
of Elliston; that thereafter the employees of the Elliston cut 

stock plant were carried on the payroll of Prentice as employees 

of Prentice; that the lumber processed at the Elliston cut stock 

plant was sold by Prentice, shipped by Prentice with the shipping 

orders received by the president of Elliston as agent for Prentice, 

and the sale proceeds were received by Prentice and credited against 

the Elliston account. 

The evidence further indicates that all dealings were 

carried on between the president of Elliston and the president of 

Prentice and such dealings were unknown to the other directors 

of Elliston. Also entered in evidence was a complaint in mandamus 

by the other directors and stockholders of Elliston against the 

president of Elliston accusing him of refusal to produce the 

books and records of Elliston for their inspection and of wasting 

and dissipating ~lliston's assets. An alternative writ of mandamus 

was issued requiring ~lliston's president to produce these records, 

including those relating to his dealing with Prentice and the 

indebtedness of the corporation. In short, the evidence indicates 

the default judgment was taken without the knowledge of the 

president or directors of Elliston and that the course of dealings 

between the president of Elliston and the president of Prentice 

was withheld from the directors of Elliston. Under such circumstances, we cannot say that the district court abused its discretion 

in denying Prentice leave to amend in order to assert a personal 

liability against the directors. 

The order of the di.strict court is affirmed. 

Associate Justice 
(gbhe Concur: P 

/ / Chief ~usiice 

~ssoci@e Justices.