Opinion ID: 885130
Heading Depth: 1
Heading Rank: 5

Heading: Did the District Court err when it denied Ranch Recovery's motion to amend its counterclaim?

Text: ¶ 24 We review a district court's denial of a party's motion to amend the pleadings pursuant to an abuse of discretion standard. See Peuse v. Malkuch (1996), 275 Mont. 221, 226-27, 911 P.2d 1153, 1156. Rule 15(a), M.R.Civ.P., provides in pertinent part that a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. (Emphasis added.) ¶ 25 In this case, Ranch Recovery moved for leave to amend its counterclaim after the entry of summary judgment and after obtaining newly discovered evidence. Ranch Recovery contends that justice requires amendment of the pleadings to address the new counterclaims, while First Security contends that it would be unfairly prejudiced if Ranch Recovery is allowed to amend the pleadings after the entry of judgment. ¶ 26 While favored, amendment can be inappropriate when the party opposing the amendment would incur substantial prejudice as a result of the amendment. See Peuse, 275 Mont. at 227, 911 P.2d at 1156. In Peuse, the defendants sought leave to amend their answer after a motion for summary judgment was made and more than two years after the original pleadings were filed, to reflect claims of which they had knowledge much earlier. The analysis of whether justice requires leave to amend is essentially an equitable one, and the defendants in Peuse fell victim to the following maxim: Vigilantibus non dormientibus aequitas subvenit, or equity aids the vigilant, not those who sleep on their rights. ¶ 27 In this case, Ranch Recovery sought leave to amend its counterclaim as soon as newly discovered evidence came to light. We conclude that the interests of justice and judicial efficiency favor the amendment of Ranch Recovery's pleadings so that all claims arising from the same transaction may be resolved in the same action. This policy, which underlies the rules of civil procedure, outweighs any prejudice to the bank. Therefore, we conclude that the District Court abused its discretion when it failed to allow Ranch Recovery to amend its counterclaim. ¶ 28 First Security also contends that Ranch Recovery is not the real party in interest and, therefore, that it should not be entitled to assert its proposed counterclaims. The bank argues that Ranch Recovery's proposed counterclaims sought to allege causes of action which could only be brought by the original vendors who were parties to the standby agreement. Therefore, it argues, Ranch Recovery did not have a right to prosecute its proposed counterclaims. ¶ 29 In support of its contention, First Security cites Hollingsworth v. Satterwhite (Colo.App.1986), 723 P.2d 169, for the proposition that a real party in interest is a party who, by the substantive law, has the right sought to be enforced. See Hollingsworth, 723 P.2d at 170. However, this proposition would appear to support the conclusion that Ranch Recovery is the proper party to plead the proposed counterclaims. ¶ 30 Rule 17, M.R.Civ.P., requires the prosecution of actions in the name of the real party in interest. It provides that a party with whom or in whose name a contract has been made for the benefit of another, or . . . [who is] authorized by statute may sue in that person's own name without joining the party for whose benefit the action is brought. ¶ 31 Ranch Recovery's proposed counterclaims were for breach of the standby agreement, breach of the covenant of good faith and fair dealing, and constructive fraud by the bank related to the loan. Ranch Recovery is the assignee of the vendors' interest in the contract for deed and, thus, the assignee of a signatory to all of the sale agreements, including the standby agreement and the loan authorization documents incorporated by reference. ¶ 32 This Court has previously held that every contract, regardless of type, contains an implied covenant of good faith and fair dealing. A breach of the covenant is a breach of contract. Story v. City of Bozeman (1990), 242 Mont. 436, 450, 791 P.2d 767, 775. If Ranch Recovery, as the assignee of the vendors' interest in the contract for deed, is, as First Security alleges, the proper party against which the bank may enforce the provisions of the standby agreement, then it must necessarily be the real party in interest for the purpose of asserting defenses and counterclaims based upon the same contract. As the successor to the vendors' interest in the agreement, Ranch Recovery assumed not just the vendors' obligations, but also inherited the vendors' rights. It is therefore the real party in interest for the purpose of asserting those rights. ¶ 33 Finally, First Security contends Ranch Recovery was properly denied leave to amend because its counterclaims are barred by the applicable statutes of limitation. The bank characterized the claims as bad faith, fraud, and unconscionable circumstances and as claims . . . founded neither `upon an instrument in writing' nor upon `a contract, account, or promise.' It therefore argues that the applicable limitation periods are those for tort and fraud claims. We disagree. ¶ 34 Section 27-2-202(1), MCA, provides that [t]he period prescribed for the commencement of an action upon any contract, obligation, or liability founded upon an instrument in writing is within 8 years. Ranch Recovery's claims are based upon the underlying contract for deed and the standby agreement, both of which are written contracts. ¶ 35 More importantly, because Ranch Recovery's claims are counterclaims arising from the same written contract from which First Security asserts its right to foreclose and to priority, Ranch Recovery is entitled to assert those claims notwithstanding any applicable limitation periods. Section 27-2-408(1), MCA, provides that the period of limitation is extended, and [a] defendant is entitled to assert against a plaintiff, by pleading or amendment, any counterclaim arising out of the transaction or occurrence that is the subject matter of the plaintiff's claim against him. Because Ranch Recovery's counterclaims arise out of the same transaction as First Security's foreclosure action, we conclude that the District Court erred when it found that the counterclaims were barred by the applicable statutes of limitation. We furthermore conclude that the District Court abused its discretion when it denied Ranch Recovery's motion to amend its answer.