Summary
The Supreme Court of Montana reviewed a dispute arising from an incorrectly stated interest rate in a promissory note for a loan secured by a deed of trust. The Court held that although the district court could treat the lender's mutual-mistake claim as an affirmative defense, the lender could not use that defense to obtain affirmative recovery barred by the two-year statute of limitations for mistake claims. The Court reversed the award of the unpaid loan balance, attorney fees, and costs, and remanded for reconveyance of the property and other proceedings.
Topics
Practice areas
Questions Presented
- Whether the District Court correctly converted HRDC's mutual-mistake counterclaim into an affirmative defense.
- Whether the District Court properly denied Johnson's motion for partial summary judgment.
- Whether the District Court could grant HRDC affirmative relief on a counterclaim for mutual mistake after treating that counterclaim as an affirmative defense.
Holdings
- The District Court did not abuse its discretion in treating HRDC's time-barred mutual-mistake counterclaim as an affirmative defense because justice required the amendment and Johnson would not suffer undue prejudice under the circumstances.
- The District Court properly denied Johnson's motion for partial summary judgment because the mutual-mistake claim was treated as an affirmative defense rather than a time-barred counterclaim.
- An affirmative defense cannot be used as a vehicle to obtain affirmative relief, including recovery of the unpaid loan balance, when the underlying claim is barred by the statute of limitations.
Key quotations
“An affirmative defense properly seeks to defeat or avoid the other party's cause of action.” (¶ 34)
“HRDC can recover nothing beyond Johnson's last payment of March 5, 2003, as § 27-2-203, MCA, bars any further attempts by HRDC to recover.” (¶ 35)
“We remand to the District Court for entry of judgment in favor of HRDC on Johnson's claim for damages.” (¶ 37)
Factual background
Johnson obtained a $21,661 loan from HRDC to purchase an assisted living facility and executed a loan agreement stating a 13% annual interest rate. The accompanying promissory note mistakenly stated an interest rate of 0.13%, although it contained the correct principal and payment amounts. HRDC and Johnson discovered the error in 2001, but HRDC did not assert its mutual-mistake claim until 2006, after Johnson stopped making payments and sought release of the lien on her home. The District Court revised the note to reflect 13% interest and awarded HRDC the unpaid balance, fees, and costs.
Procedural history
Johnson sued HRDC and First Montana Title Company for damages based on the refusal to reconvey property securing a loan. HRDC answered and asserted a mutual-mistake counterclaim seeking the unpaid loan balance, fees, and costs. The District Court treated the counterclaim as an affirmative defense, denied Johnson's motion for partial summary judgment, revised the note to reflect a 13% interest rate, and awarded HRDC the unpaid balance, fees, and costs. The Montana Supreme Court reversed the award of the unpaid balance and related fees and costs and remanded for judgment against HRDC on Johnson's damages claim and for reconveyance of the property.
Remand instructions
The District Court must enter judgment in favor of HRDC on Johnson's damages claim, order HRDC to issue a deed of reconveyance so First Montana Title Company can release the deed of trust, and order each party to bear its own attorney fees and costs. HRDC may not recover the unpaid balance beyond Johnson's last payment of March 5, 2003, or the attorney fees and costs awarded for recovering that balance.