NO. 90-575 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

THE VILLAGE BANK, a banking association, 

Plaintiff and Respondent, 

LEO J. CLOUTIER, RUTH M- CLOUTIERr JUN 11 1991 

E. KITS SMITH, and BRIAN CLOUTIER, Lf 3rnit~ 

cLERKOF~~~~~~~COURT Defendants, counterclaimants and A~~ellants- STATE OF IMONTA~J~ 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable Thomas M. McKittrick, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Chris Christensen; Kalispell, Montana 

For Respondent: 

Ward E. Taleff; Alexander, Baucus & Linnell; Great 

Falls, Montana 

Filed: 

Submitted on briefs: March 7, 1991 

Decided: June 11, 1991 

_ , nd" 

Clerk 
Justice R. C. McDonough delivered the Opinion of the Court. 

Defendants, Leo Cloutier, Ruth Cloutier, Brian Cloutier and 

E. Kits Smith (hereinafter Cloutiers) appeal from an order of the 

Eighth Judicial District, Cascade County granting summary judgment 

in favor of plaintiff, village Bank. We reverse and remand. 

The sole issue we find necessary for review is: 

Whether the District Court erred in granting summary judgment 

in favor of Village Bank. 

Over ninety percent of the stock of Treasure State Bank of 

Glasgow, a Montana State Banking Corporation, was owned by a group 

of ten persons, that included James G. Edmiston, Roger W. Kornder 

and David A. Anderson. This same group of individuals owned the 

majority of stock of Intermountain Bancorporation which is a bank 

holding company that owns several banks located within this state. 

In 1984, James Edmiston informed the Cloutiers that he and 

several other people owned the Treasure State Bank of Glasgow. He 

further informed the Cloutiers that due to certain banking 

regulations, the owners had to divest themselves of their stock 

interest in the Treasure State Bank. He then offered to sell the 

stock of Treasure State Bank to the Cloutiers for the sum of 

$1,835,000. 

In order to assist the Cloutiers in obtaining funding for this 

transaction, Edmiston devised a rather complicated plan. He told 

the Cloutiers that $1,500,000 could be borrowed from the First 

National Bank of St. Paul, Minnesota. Apparently this sum could 
be obtained by executing a note that was secured by the stock of 

Treasure State Bank. The remaining $335,000 could be obtained from 

banks owned by the Intermountain Bancorporation. 

According to the Cloutiers, this entire scheme was represented 

as virtually risk-free on their part. They maintain that they were 

told that the dividends from Treasure State Bank stock would be 

adequate to repay the loans. They further state that they were 

given up to ten years to repay the $335,000 borrowed through the 

Intermountain Bancorporation and that this loan could be renewed 

annually with only interest being paid. 

In reliance upon these representations, the Cloutiers 

purchased the stock of Treasure State Bank. The funds necessary 

to complete the purchase were advanced by one of the banks owned 

by Intermountain Bancorporation (Columbia Falls Bank). Notes were 

executed and $33,245.00 was loaned to Brian Cloutier, $33,245.00 

was loaned to Leo and Ruth Cloutier and $32,000.00 was loaned to 

E. Kits Smith. These defendants never actually received these 

funds; however they did receive the stock which was purchased with 

the money. The funds were distributed to the sellers of Treasure 

State Bank. 

After these transactions were completed, the Cloutiers 

discovered that the solvency of the bank was misrepresented. 

According to their brief, Treasure State Bank held $400,000 worth 

of "bad loans.uu As a result of these "bad loansI1, they did not 

obtain any dividends from Treasure State Bank stock and could not 

repay their loans. 
On August 20, 1987, the then present owner of the notes, the 

original Village Bank, which was owned by Intermountain 

Bancorporation, sued the Cloutiers to collect upon the promissory 

notes obtained from the Bank of Columbia Falls, the original payee, 

which was also owned by Intermountain Bancorporation. Apparently 

these notes were obtained by Village Bank, for consideration, from 

the Bank of Columbia Falls. 

On April 22, 1988, the original Village Bank was declared 

insolvent. The bank was closed and the Montana Department of 

Commerce took possession of its assets. Eventually the Federal 

Deposit Insurance Corporation was appointed as liquidating agent 

of the bank. 

Subsequently a newly created bank acquired the promissory 

notes as an asset from FDIC. This new bank is named the Village 

Bank of Great Falls. It is not related in any manner to the 

original Village Bank, which was declared insolvent. 

The Village Bank of Great Falls continued to press the lawsuit 

to collect on the promissory notes. The Cloutiers filed an answer 

and counterclaim alleging failure of consideration, fraud and 

misrepresentation, breach of contract and breach of the covenant 

of good faith and fair dealing. On April 28, 1989, the Cloutiers 

filed a motion for leave to file an amended answer and third party 

complaint. In their proposed amended answer, the ~loutiers raised 

the defenses of fraud, that the Village Bank of Great Falls was not 

a holder in due course and therefore subject to all claims or 

defenses available in common contract actions, failure of 
consideration, illegality, laches, equitable estoppel, breach of 

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

According to the Cloutiers the District Court did not rule 

upon their motion to amend. Instead it granted summary judgment 

in favor of Village Bank of Great Falls on September 14, 1990, and 

in effect denied the motion to amend. From this order the 

Cloutiers appeal. 

As stated above, the District Court granted summary judgment 

and entered judgment against the Cloutiers without allowing them 

to amend their complaint. Montana follows the general rule that 

leave to amend pleadings should be freely given when justice so 

requires. See State Highway Commission v. Schmidt (1966) , 48 Mont. 

316, 420 P.2d 153. Refusal to permit an amendment offered at an 

opportune time and which should be made in the furtherance of 

justice is an abuse of discretion. State ex rel. Gold Creek Mining 

Co. v. District Court (1935), 99 Mont. 33, 43 P.2d 249. 

In the case now before us, it is clear that the District Court 

abused its discretion by not allowing the Cloutiers to amend their 

complaint. Many of the defenses that the Cloutiers sought to 

assert had previously been included in their original answer as 

counterclaims. The amendments sought only to redesignate these 

counterclaims as defenses. The other amendments, such as 

illegality and the fact that Village Bank of Great Falls is not a 

holder in due course, appear to be appropriate. Their inclusion 

would therefore result in little if any prejudice to the 

plaintiffs. 
In their amended complaint, the Cloutiers also sought to file 

a third party complaint against Intermountain Bancorporation, its 

member banks and shareholders. Rule 19, M.R.Civ.P., contemplates 

the liberal use of joinder. Rule 19 (a), M.R.Civ.P., makes it clear 

that whenever feasible, persons materially interested in the 

subject of an action be joined so that they may be heard and a 

complete disposition of the case be made. 

Here, the Cloutiers maintain that they were induced to enter 

into the financing arrangement through fraudulent activity 

perpetrated by the shareholders and officers of Intermountain 

Bancorporation and its member banks. These issues are an integral 

part of the lawsuit asserted against the defendants. Its 

resolution could prevent a multiplicity of lawsuits surrounding one 

transaction and would therefore further the goal of judicial 

economy. We make no ruling on their validity. However, we hold 

that the issues arising out of the amendments were not addressed 

by the court before granting summary judgment. Accordingly the 

court's order of summary judgment should be reversed. 

While this appeal was pending, the parites submitted 

supplemental briefing on the issue of whether the Village Bank of 

Great Falls, as a purchaser from the FDIC of the promissory notes, 

is a holder in due course and therefore is not subject to the 

defenses and claims asserted by the Cloutiers. This has not been 

considered by the District Court. It would be inappropriate for 

us to rule on this issue considering the record before us and its 

possible further factual development. 
We reverse the order of summary judgment and remand for 

further proceedings in accordance with this opinion.