Prentice Lumber Co. v. Hukill ( 1972 )

No. 1.2147
TN WE SUPREME C U T O THE STATE O M N A A
OR F F OTN
1972
PRENTICE L M E COMPANY, INC.,
U BR
P l a i n t i f f and A p p e l l a n t ,
-vs -
HENRY J. HUKILL e t a l . ,
Defendants and ~ e s p o n d e n t s .
Appeal from: D i s t r i c t Court o f t h e Third J u d i c i a l D i s t r i c t ,
Honorable S i d G. S t e w a r t , Judge p r e s i d i n g .
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, P i c o t t e and Loble, Helena, Montana.
William G. Sternhagen appeared, Helena, Montana.
G a r l i n g t o n , Lohn and Robinson, Missoula, Montana.
George D. Goodrich appeared, Missoula, Montana.
Submitted: September 20, 1972
Decided :DEC 1 1972
OEC
F i l e d : -- 1 1572
M r . J u s t i c e Frank I. Haswell d e l i v e r e d t h e Opinion o f t h e Court,
P l a i n t i f f c o r p o r a t i o n f i l e d t h i s a c t i o n a g a i n s t defendant
d i r e c t o r s of E l l i s t o n Lime Company, a Montana c o r p o r a t i o n , seeking
a j o i n t and s e v e r a l judgment a g a i n s t t h e d i r e c t o r s f o r a n o b l i g a -
t i o n a l l e g e d l y owed by E l l i s t a n Lime Company t o p l a i n t i f f . The
a c t i o n s e e k s t o impose a s t a t u t o r y p e r s o n a l l i a b i l i t y on t h e
d i r e c t o r s by r e a s o n of t h e i r f a i l u r e t o f i l e annual s t a t e m e n t s
of t h e c o r p o r a t i o n , pursuant t o s e c t i o n 15-811, R,C.M, 1947.
From a n o r d e r of t h e d i s t r i c t c o u r t of Powell County denying
p l a i n t i f f ' s motion t o f i l e a second amended complaint and dismis-
sing the a c t i o n , p l a i n t i f f appeals,
A h i s t o r y of t h e l i t i g a t i o n between p l a i n t i f f and E l l i s t o n
Lime Company and i t s d i r e c t o r s f u r n i s h e s t h e background f o r de-
t e r m i n a t i o n of t h e i s s u e s i n t h i s a p p e a l . Case !,I was f i l e d on
J u l y 1 4 , 1967, i n t h e d i s t r i c t c o u r t of Missoula County by
p l a i n t i f f h e r e i n a g a i n s t t h e E l l i s t o n Lime Company, s e e k i n g judg-
ment f o r t h e b a l a n c e owed on an itemized account d a t e d June 30,
1967, i n t h e sum of $20,752,13. A attachment was l e v i e d a g a i n s t
n
E l l i s t o n ' s property, Subsequently a d e f a u l t judgment was e n t e r e d
i n f a v o r of p l a i n t i f f P r e n t i c e Lumber Co. a g a i n s t E l l i s t o n f o r
$20,971.15, An execution s a l e was h e l d a t which p l a i n t i f f pur-
chased t h e a t t a c h e d p r o p e r t y of E l l i s t o n f o r $500.
T h e r e a f t e r on August 2 , 1968, Case #2, t h e i n s t a n t a c t i o n ,
was f i l e d by p l a i n t i f f a g a i n s t t h e d i r e c t o r s of E l l i s t o n seeking
a j o i n t and s e v e r a l judgment a g a i n s t t h e d i r e c t o r s of E l l i s t o n
Lime Company f o r t h e b a l a n c e of t h e judgment a g a i n s t E l l i s t o n i n
Case #I. The amount sought was $20,903.76 a s of January 1 0 , 1968,
r e p r e s e n t i n g t h e amount of t h e o r i g i n a l judgment i n Case 81, l e s s
a c r e d i t f o r p l a i n t i f f ' s purchase of ~ l l i s t o n ' sp r o p e r t y a t t h e
e x e c u t i o n s a l e p l u s i n t e r e s t on t h e b a l a n c e of t h e judgment.
T h i r t e e n days l a t e r on August 15, 1968, E l l i s t o n f i l e d
Case #3, a s e p a r a t e and independent a c t i o n t o s e t a s i d e t h e
d e f a u l t judgment i.n Case 81. O March 2, 1970, t h e d i s t r i c t
n
c o u r t of Missoula County s e t a s i d e t h i s d e f a u l t judgment and
on a p p e a l t o t h i s Court was a f f i r m e d on March 16, 1971. Elliston
Lime Co, v . P r e n t i c e Lumber Co., 157 Mont. 64, 483 P.2d 264,
I n t h e meantime on September 3, 1968, p l a i n t i f f h e r e i n
f i l e d a f i r s t amended complaint i n Case #2, t h e i n s t a n t a c t i o n .
This d i d n o t d i f f e r s u b s t a n t i a l l y from t h e o r i g i n a l complaint,
b u t s u p p l i e d c e r t a i n f a c t u a l omissions i n t h e o r i g i n a l complaint
r e l a t i n g t o t h e d i r e c t o r s ' f a i l u r e t o f i l e t h e r e q u i r e d annual
statements, The i n d i v i d u a l d i r e c t o r s f i l e d c o n s o l i d a t e d motions
(1) t o d i s m i s s t h e f i r s t amended complaint, (2) t o change t h e
venue of t h e a c t i o n t o Powell County, and ( 3 ) t o c o n t i n u e f u r t h e r
proceedings pending judgment i n Case # 3 , On January 20, 1969,
t h e d i s t r i c t c o u r t of Missoula County (1) denied t h e motion t o
d i s m i s s , (2) g r a n t e d t h e change of venue t o Powell County, and
(3) r e s e r v e d r u l i n g on continuance f o r t h e d i s t r i c t c o u r t of
Powell County.
On June 25, 1971, some t h r e e months a f t e r we a f f t r m e d t h e
s e t t i n g a s i d e of t h e d e f a u l t judgment i n Case !/I, p l a i n t i f f h e r e i n
moved t h e d i s t r i c t c o u r t o f P ~ w e l lCounty f o r l e a v e t o f i l e a
second amended complaint i n t h e i n s t a n t a c t i o n . I n substance,
t h e proposed second amended complaint s u b s t i t u t e d t h e a l l e g e d
u n d e r l y i n g indebtedness of E l l i s t o n t o p l a i n t i f f f o r t h e balance
owing on t h e judgment s e t a s i d e i n Case #I., and sought t o h o l d
t h e d i r e c t o r s p e r s o n a l l y l i a b l e f o r t h e same by reason of t h e i r
f a i l u r e t o f i l e annual s t a t e m e n t s d u r i n g t h e p e r i o d t h i s indebted-
n e s s was i n c u r r e d pursuant t o s e c t i o n 15-811, R.C.M. 1947, The
amount sought i n t h e p r a y e r w a s $19,845.11, t o g e t h e r w i t h i n t e r e s t
from January 10, 1968.
A f t e r h e a r i n g , t h e d i s t r i c t c o u r t of Powell County denied
p l a i n t i f f ' s motion f o r l e a v e t o f i l e t h e second amended complaint
and g r a n t e d t h e "motion of defendants t o dismiss t h e cause of
action". P l a i n t i f f now appeals from t h e o r d e r of t h e d i s t r i c t
c o u r t denying p l a i n t i f f l e a v e t o f i l e t h e second amended complaint
and d i s m i s s i n g t h e a c t i o n .
The i s s u e which p 1 a i n t i . f f a s s i g n s f o r review i s t h e c o r r e c t -
n e s s of t h e d i s t r i c t c o u r t ' s o r d e r , A d d i t i o n a l l y , defendants
r a i s e a second issue---whether t h e o r d e r from which t h e appeal
i s taken i s an a p p e a l a b l e o r d e r ?
I n i t i a l l y , we d i r e c t our a t t e n t i o n t o t h e a p p e a l a b i l i t y
of t h e d i s t r i c t c o u r t ' s o r d e r denying l e a v e t o amend and d i s m i s s i n g
the action. Defendants p o i n t out t h a t t h i s o r d e r i s n o t enumerated
a s one of t h e o r d e r s from which an appeal may be taken under
Rule 1, M.R.App.Civ.P, They l i k e n t h e o r d e r h e r e t o an o r d e r
s u s t a i n i n g a demurrer under Montana's former p r a c t i c e p r i o r t o
adoption of t h e Montana Rules of C i v i l Procedure and c i t e Pentz
v , Corscadden, 49 Mont. 581, 144 P, 157, a s a u t h o r i t y t h a t an
o r d e r s u s t a i n i n g a demurrer under ~ o n t a n a ' sformer p r a c t i c e was
n o t appealable. Defendants p o i n t out t h a t under t h e p r e s e n t
Montana Rules of C i v i l Procedure a motion t o d i s m i s s under Rule
1 2 , M.R,Civ,P., i s e q u i v a l e n t t o t h e use of demurrers under o u r
former p r a c t i c e , c i t i n g Payne v. Mountain S t a t e s T e l , & T e l . ,
142 Mont. 406, 385 P.2d 100, and Rambur v. Diehl Lumber Co,,
1.43 Mont. 432, 391 P.2d 1, i n s u p p o r t . Accordingly, they contend
t h a t a motion t o d i s m i s s i s n o t an a p p e a l a b l e o r d e r .
A t t h e o u t s e t , we observe t h a t no judgment was e n t e r e d f o r
defendants pursuant t o t h e d i s t r i c t c o u r t ' s o r d e r of d i s m i s s a l .
Had a judgment been e n t e r e d , i t would c l e a r l y be a p p e a l a b l e a s a
f i n a l judgment under Rule l ( a ) , M.R.App.Civ.P. I n reviewing such
f i n a l . judgment, t h e d i s t r i c t c o u r t ' s d e n i a l of l e a v e t o amend
could be reviewed a s w e l l a s i t s o r d e r of d i s m i s s a l under t h e
p r o v i s i o n s of Rule 2 , M.R,App.Civ.P., which provides i n p e r t i n e n t
part :
11
Upon appeal from a f i n a l judgment,the c o u r t
may review 9; * any i n t e r m e d i a t e o r d e r o r
decision *** which i n v o l v e s t h e m e r i t s , o r
n e c e s s a r i l y a f f e c t s t h e judgment * f:."
I n our view, substance r a t h e r than form i s c o n t r o l l i n g .
The e f f e c t of t h e d i s t r i c t c o u r t ' s o r d e r i s s u b s t a n t i a l l y t h e
sdme a s a judgment f o r defendants. As m a t t e r s now s t a n d , p l a i n t i f f
i s o u t of c o u r t and denied r e l i e f j u s t a s completely a s i f judg-
ment had been e n t e r e d a g a i n s t i t . T h i s Court has recognized t h i s
s i t u a t i o n and h a s r e c e n t l y rendered d e c i s i o n s on t h e m e r i t s i n
a p p e a l s from o r d e r s d i s m i s s i n g 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 r e c o g n i z e t h a t t h e s e c i t e d d e c i s i o n s
d i d n o t involve an e x p r e s s r u l i n g on t h e a p p e a l a b i l i t y of t h e
o r d e r of d i s m i s s a l because t h a t i s s u e was n o t r a i s e d t h e r e i n ,
s t i l l t h e a p p e a l a b i l i t y of t h e o r d e r of d i s m i s s a l i s i m p l i c i t
i n these decisions. W p e r c e i v e no r a t i o n a l b a s i s i n f a c t o r
e
i n law f o r denying t h e aggrieved p a r t y t h e r i g h t of a p p e a l
where t h e p r e v a i l i n g p a r t y n e g l e c t s t o e n t e r a formal judgment
i n conformity w i t h t h e c o u r t ' s r u l i n g . Nor do we b e l i e v e t h a t
t h e framers of t h e Montana Rules of A p p e l l a t e C i v i l Procedure
intended t o preclude an appeal by t h e aggrieved p a r t y under such
circumstances. Accordingly, we h o l d t h a t an o r d e r d i s m i s s i n g
a complaint and denying l e a v e t o amend i s e q u i v a l e n t t o a f i n a l
judgment f o r purposes of appeal.
Proceeding t o p l a i n t i f f ' s i s s u e , i . e . t h e c o r r e c t n e s s of
t h e d i s t r i c t c o u r t ' s o r d e r r e f u s i n g l e a v e t o amend and d i s m i s s i n g
t h e complai-nt, w e examine t h e b a s i c c o n t e n t i o n s of t h e p a r t i e s .
P l a i n t i f f P r e n t i c e contends t h a t a t t h e t i m e t h e o r i g i n a l
complaint and f i r s t amended complaint were f i l e d t h e a l l e g e d
indebtedness of E l l i s t o n t o P r e n t i c e had been merged i n t h e de-
f a u l t judgment a g a i n s t E l l i s t o n , p r e c l u d i n g s u i t on t h e underlying
indebtedness a g a i n s t t h e d i r e c t o r s . P r e n t i c e argues t h a t when
t h i s d e f a u l t judgment was s e t a s i d e , t h e underlying o b l i g a t i o n
was r e i n s t a t e d and only then could P r e n t i c e seek t o impose a
personal s t a t u t o r y l i a b i l i t y a g a i n s t t h e d i r e c t o r s based on
~ l l i s t o n ' sa l l e g e d underlying indebtedness t o P r e n t i c e . Prentice
f u r t h e r argues t h a t t h i s was sought t o b e done by i t s second
amended complaint which r e l a t e d back t o t h e o r i g i n a l complaint
avoiding t h e t h r e e y e a r s t a t u t e of l i m i t a t i o n s , t h a t t h e amend-
ment should have been allowed, and t h e a c t i o n should n o t have
been dismissed.
O t h e o t h e r hand, t h e d i r e c t o r s contend t h a t t h e proposed
n
second amended complaint i s based upon a d i f f e r e n t o b l i g a t i o n
than t h a t contained i n t h e two previous complaints, t h a t i t
seeks recovery of a d i f f e r e n t amount, covers a d i f f e r e n t p e r i o d
of time, and i s based upon an a l l e g e d indebtedness on an account
and n o t a judgment d e b t . Accordingly, they a r g u e , i t does
n o t r e l a t e back t o t h e o r i g i n a l o r f i r s t amended complaint and
i s b a r r e d on i t s f a c e by t h e s t a t u t e of l i m i t a t i o n s . Additionally,
they c l a i m none of t h e complaints a l l e g e s t h a t t h e a c t i o n was
brought w i t h i n t h e t h r e e y e a r s t a t u t e of l i m i t a t i o n s which must
be a f f i r m a t i v e l y a l l e g e d t o s t a t e a c l a i m f o r r e l i e f under t h e
s t a t u t e imposing p e r s o n a l l i a b i l i t y on t h e d i r e c t o r s . Thus,
they contend, t h e d i s t r i c t c o u r t was c o r r e c t i n d i s m i s s i n g t h e
action.
Two s e p a r a t e c o n s i d e r a t i o n s u n d e r l i e d e t e r m i n a t i o n of t h e
c o r r e c t n e s s of t h e d i s t r i c t c o u r t ' s o r d e r : (1) Does t h e proposed
amendment r e l a t e back t o t h e o r i g i n a l o r f i r s t amended complaint,
t h u s avoiding t h e b a r of t h e s t a t u t e of l i m i t a t i o n s ? ( 2 ) Should
t h e amendment have been allowed?
D i r e c t i n g o u r a t t e n t i o n t o t h e f i r s t c o n s i d e r a t i o n , we
n o t e t h a t although t h e b a r of t h e s t a t u t e of l i m i t a t i o n s i s an
af fiwmative defense t o b e pleaded by answer (Rule 8 ( a ) , M.R.Civ, P . )
and need n o t be n e g a t i v e d i n t h e complaint, t h e b e t t e r r u l e
permits t h e c o u r t t o c o n s i d e r , on a p p l i c a t i o n f o r l e a v e t o amend,
whether t h e proposed amended p l e a d i n g r e l a t e s back t o t h e
o r i g i n a l complaint and so avoids t h e b a r o f t h e s t a t u t e of
limitations. 3 ~ o o r e ' sF e d e r a l P r a c t i c e , !$ 15.08[4], p , 906;
Pasos v. Pan American Airways, I n c . , 17 Fed.Rules Serv, 15a.34,
Case 1; Walker v. Bank of America N a t i o n a l T r u s t & ~ a v . ~ s s ' n ,
Rule 15 ( c ) , M.R.Civ.P., i s t h e c o n t r o l l i n g r u l e and
provides i n p e r t i n e n t p a r t :
"Relation Back of Amendments. Whenever t h e c l a i m
o r defense a s s e r t e d i n t h e amended p l e a d i n g a r o s e
o u t of t h e conduct, t r a n s a c t i o n , o r occurrence s e t
f o r t h o r attempted t o be s e t f o r t h i n t h e o r i s i n a l
p l e a d i n g , t h e amendment r e l a t e s back t o t h e d a t e o f
t h e o r i g i n a l pleading. I I
W have n o t p r e v i o u s l y had occasion t o c o n s t r u e t h i s
e
rule. Accordingly, we r e f e r f o r guidance t o F e d e r a l Rule l 5 ( c )
which c o n t a i n s i d e n t i c a l language t o t h a t quoted above, and
t o f e d e r a l c o u r t d e c i s i o n s c o n s t r u i n g i t s meaning and a p p l i c a -
tion. I n speaking of F e d e r a l Rule 1 5 ( c ) , LA Barron & H o l t z o f f ,
F e d e r a l P r a c t i c e and Procedure, !$ 448, p. 757, h a s t h i s t o say:
"The g e n e r a l r u l e of ' r e l a t i o n back' i s t h a t a
p l e a d i n g may n o t be amended t o a l l e g e a new o r
d i f f e r e n t c l a i m o r defense u n l e s s i t a r o s e o u t o f ,
o r i s based upon o r r e l a t e d t o , t h e claim, t r a n s -
a c t i o n o r occurrence o r i g i n a l l y s e t f o r t h o r attempted
t o be s e t f o r t h . I f t h e new claim o r 'cause o f a c t i o n '
meets t h i s requirement, t h e amendment r e l a t e s back
t o t h e time o f t h e o r i g i n a l f i l i n g s o a s t o p r e v e n t
t h e runnin of l i m i t a t i o n s which might otherwise b a r
t h e claim. 6
The following statement from 3 ~ o o r e ' sF e d e r a l P r a c t i c e ,
1 15.15[3], pp. 1025-1027, d e l i n e a t e s t h e types of amendments
t h a t w i l l r e l a t e back:
"J; * Jc Rule 15 ( c ) i s based on t h e concept t h a t a
p a r t y who i s n o t i f i e d of l i t i g a t i o n concerning a
given t r a n s a c t i o n o r occurrence h a s been given a l l
the notice t h a t s t a t u t e s of l i m i t a t i o n s a r e i n -
tended t o a f f o r d , Thus, i f t h e o r i g i n a l p l e a d i n g
g i v e s f a i r n o t i c e of t h e g e n e r a l f a c t s i t u a t i o n
o u t of which t h e c l a i m o r defense a r i s e s , an amend-
ment which merely makes more s p e c i f i c what h a s
a l r e a d y been a l l e g e d , such a s by s p e c i f y i n g p a r t i c u l a r
a c t s of n e g l i g e n c e under a g e n e r a l a l l e g a t i o n o f
n e g l i g e n c e , o r remedies a d e f e c t i v e p l e a d i n g , w i l l
r e l a t e back even though t h e s t a t u t e of l i m i t a t i o n s
has run i n the interim. Similarly, while i t i s
s t i l l t h e r u l e t h a t an amendment which s t a t e s
an e n t i r e l y new claim f o r r e l i e f based on
d i f f e r e n t f a c t s w i l l n o t r e l a t e back, i f t h e
pleading s u f f i c i e n t l y i n d i c a t e s t h e t r a n s a c t i o n
o r occurrence on which t h e claim o r defense i s
based, amendments c o r r e c t i n g s p e c i f i c f a c t u a l
d e t a i l s , such a s time and p l a c e , a s w e l l a s o t h e r
items, w i l l r e l a t e back,"
A amendment t h a t changes only t h e l e g a l theory of t h e
n
a c t i o n w i l l r e l a t e back. 3 ~ o o r e ' sFederal P r a c t i c e , Q 15.15[3],
p, 1028, and cases c i t e d t h e r e i n , I t i s e q u a l l y c l e a r t h a t an
amendment t h a t adds another claim a r i s i n g out of t h e same t r a n s -
a c t i o n o r occurrence w i l l r e l a t e back, 3 Moore's Federal Prac-
t i c e , $ 15.15[3], p. 1029, and cases c i t e d t h e r e i n ,
I n t h e i n s t a n t c a s e , t h e proposed second amended complaint
seeks t o s u b s t i t u t e an indebtedness on account of goods s o l d
and d e l i v e r e d f o r a judgment indebtedness covering s u b s t a n t i a l l y
t h e same account because t h e judgment was subsequently s e t a s i d e .
The amount sought i s s l i g h t l y d i f f e r e n t due t o accrued i n t e r e s t
and c r e d i t s allowed t o a subsequent d a t e . Additionally, the
proposed second amended complaint pleads with more p a r t i c u l a r i t y
t h e f a c t s rendering t h e d i r e c t o r s p e r s o n a l l y l i a b l e f o r t h e debts
of t h e corporation by reason of t h e i r f a i l u r e t o f i l e t h e annual
statement. I n s h o r t , t h e proposed amendment seeks t o s u b s t i t u t e
t h e underlying account indebtedness f o r t h e judgment indebtedness
t h a t was subsequently vacated, and t o p e r f e c t t h e b a s i s of
personal l i a b i l i t y .
I n an analogous s i t u a t i o n , such amendment was permitted
i n Green v. Walsh, 21 F.R.D. 15. There t h e p l a i n t i f f s had ob-
t a i n e d a judgment by confession i n s t a t e c o u r t and s u i t was com-
menced on t h i s judgment i n f e d e r a l c o u r t ; subsequently t h e s t a t e
c o u r t judgment was vacated f o r l a c k of j u r i s d i c t i o n . The c o u r t
held t h a t p l a i n t i f f s were e n t i t l e d t o amend t h e i r pleadings i n
t h e f e d e r a l court a c t i o n t o sue on t h e underlying promissory
n o t e , guarantee, cognovit, and s e l l e r s ' recourse endorsement,
and t o have such amendment r e l a t e back t o t h e time of f i l i n g t h e
o r i g i n a l complaint, even though t h e s t a t u t e of l i m i t a t i o n s had
run on p a r t of p l a i n t i f f s ' underlying claim i n t h e i n t e r i m .
The reasoning of t h e c o u r t was t h a t t h e general wrong s u f f e r e d
and t h e general conduct causing t h e wrong c o n t r o l l e d t h e d e t e r -
mination of whether a new and d i f f e r e n t claim was s t a t e d i n t h e
amended pleading, and t h a t t h e s p e c i f i e d conduct of defendant
upon which p l a i n t i f f t r i e s t o enforce h i s claim i s t o be examined
r a t h e r than t h e theory of law on which t h e a c t i o n i s brought.
Accordingly, we hold t h a t t h e proposed amendment, i f permitted,
would r e l a t e back t o the f i r s t amended complaint and avoid t h e
b a r of t h e s t a t u t e of l i m i t a t i o n s ,
But, should t h e amendment have been allowed? Rule 15 (a),
M.R.Civ.P., governs t h e allowance of amended pleadings and pro-
v i d e s a s follows:
"Amendments. A p a r t y may amend h i s pleading once a s a
matter of course a t any time before a responsive pleading
i s s e w e d o r , i f t h e pleading i s one t o which no respon-
s i v e pleading i s permitted and t h e a c t i o n has n o t been
placed upon t h e t r i a l c a l e n d a r , he may so amend i t a t any
time w i t h i n 20 days a f t e r i t i s served. Otherwise a p a r t y
may amend h i s pleading only by leave of c o u r t o r by w r i t t e n
consent of t h e adverse p a r t y ; and leave s h a l l be f r e e l y
iven when j u s t i c e so r e q u i r e s . A p a r t y s h a l l plead i n
fesponse t o an amended pleading w i t h i n t h e time remaining
f o r response t o t h e o r i g i n a l pleading o r w i t h i n 10 days
a f t e r s e r v i c e of t h e amended pleading, whichever period
may be t h e longer, u n l e s s t h e c o u r t otherwise orders. 11
(Emphasis supplied) .
This Court has not h e r e t o f o r e had occasion t o r u l e on t h e
question of when leave t o amend should be granted and when i t should
be withheld pursuant t o Rule 15. Accordingly, we look t o i n t e r -
p r e t a t i o n s of i d e n t i c a l Federal Rule 15(a) f o r guidance.
The purpose of Federal Rule 15 i s described i n 3 ~ o o r e ' s
Federal P r a c t i c e , 5 15.02[1], p. 813, i n t h i s language:
"Rule 15 i s one of t h e most important of t h e r u l e s t h a t
d e a l w i t h pleadings, I t re-emphasizes and a s s i s t s i n
a t t a i n i n g t h e o b j e c t i v e of t h e r u l e s on pleadings: t h a t
pleadings a r e n o t an end i n themselves, but a r e only a
means t o t h e proper p r e s e n t a t i o n of a case; t h a t a t a l l
times they a r e t o a s s i s t , n o t d e t e r , t h e d i s p o s i t i o n of
l i t i g a t i o n on t h e m e r i t s .* 9
; *"
The United S t a t e s Supreme Court r e i t e r a t e d t h e philosophy
of Rule 15 i n Foman v , Davis, 371 U.S. 178, 83 S. C t , 227, 9 L ed 2d
222, 226, wherein i t h e l d t h e d i s t r i c t c o u r t ' s d e n i a l of leave t o
amend even a f t e r judgment was e r r o r where t h e r e was no a p p a r e n t
o r d e c l a r e d reason f o r denying l e a v e t o amend t h e complaint:
"Rule 1 5 ( a ) d e c l a r e s t h a t l e a v e t o amend ' s h a l l b e
f r e e l y given when j u s t i c e s o r e q u i r e s f ; t h i s mandate
i s t o b e heeded, [ C i t i n g Moore's F e d e r a l P r a c t i c e ]
I f t h e underlying f a c t s o r circumstances r e l i e d upon
by a p l a i n t i f f may be a proper s u b j e c t of r e l i e f , h e
ought t o be a f f o r d e d an o p p o r t u n i t y t o t e s t h i s c l a i m
on t h e m e r i t s , I n t h e absence of any apparent o r
d e c l a r e d reason---such a s undue d e l a y , bad f a i t h o r
d i l a t o r y motive on t h e p a r t of t h e movant, r e p e a t e d
f a i l u r e t o c u r e d e f i c i e n c i e s by amendments p r e v i o u s l y
allowed, undue p r e j u d i c e t o t h e opposing p a r t y by
v i r t u e of allowance of t h e amendment, f u t i l i t y o f
amendment, e t c . - - - t h e l e a v e sought should, a s t h e
r u l e s r e q u i r e , be ' f r e e l y g i v e n ' , Of c o u r s e , t h e
g r a n t o r d e n i a l of an o p p o r t u n i t y t o amend i s w i t h i n
t h e d i s c r e t i o n of t h e D i s t r i c t Court, b u t o u t r i g h t
r e f u s a l t o g r a n t t h e l e a v e without any j u s t i f y i n g
r e a s o n appearing f o r t h e d e n i a l i s n o t an e x e r c i s e of
d i s c r e t i o n ; i t i s merely abuse of t h a t d i s c r e t i o n and
i n c o n s i s t e n t with t h e s p i r i t of t h e F e d e r a l Rules, 1 1
Applying t h e s e p r i n c i p l e s t o t h e i n s t a n t c a s e , we n o t e t h e r e
i s no s t a t e d reason f o r denying l e a v e t o amend i n t h e d i s t r i c t
c o u r t ' s order. Nonetheless t h e b a s i s f o r such denial. i s apparent.
The evidence of bad f a i t h on t h e p a r t of p l a i n t i f f appears i n t h e
r e c o r d o f Case #3, wherein t h e d e f a u l t judgment a g a i n s t t h e c o r -
p o r t i o n was s e t a s i d e . The f a c e of t h e judgment i n Case #3 con-
t a i n s an e x p r e s s f i n d i n g t h a t :
"* * * t h e testimony shows t o t h e s a t i s f a c t i o n
of t h i s Court t h a t t h e P r e s i d e n t of P r e n t i c e Lumber
Company by h i s a c t i o n s and r e p r e s e n t a t i o n s t o t h e
E l l i s t o n Lime Company o f f i c e r s caused E l l i s t o n Lime
Company o f f i c e r s t o b e l t e v e t h e l i t i g a t i o n was merely
f o r t h e purpose of providing some s e c u r i t y t o P r e n t i c e
Lumber Company t o cover whatever amount was awed t o
them, r 1
It a l s o c o n t a i n s an e x p r e s s f i n d i n g :
"* * * t h a t t h e judgment should n o t b e f o r t h e f u l l
sum of $20,971.15, and i t appears t h a t j u s t i c e r e q u i r e s
t h a t t h e d e f a u l t be s e t asi.de and t h e m a t t e r be s e t
dobm f o r h e a r i n g on t h e m e r i t s , II
This judgment w a s dated March 2, 1970, and affirmed on a p p e a l
t o t h i s Court on March 1 6 , 1971. N f u r t h e r proceedings t o
o
e s t a b l i s h t h e l i a b i l i t y of E l l i s t o n t o P r e n t i c e h a s been taken.
Furthermore, t h e evidence r e c e i v e d i n Case # 3 i n d i c a t e s
t h a t t h e d e f a u l t judgment i n f a v o r of P r e n t i c e a g a i n s t E l l i s t o n
was e n t e r e d without t h e k ~ o w l e d g eof t h e p r e s i d e n t o r d i r e c t o r s
of E l l i s t o n ; t h a t t h e r e a f t e r t h e employees o f t h e E l l i s t o n c u t
s t o c k p l a n t were c a r r i e d on t h e p a y r o l l of P r e n t i c e a s employees
o f P r e n t i c e ; t h a t t h e lumber processed a t t h e E l l i s t o n c u t s t o c k
p l a n t was s o l d by P r e n t i c e , shipped by P r e n t i c e w i t h t h e shipping
o r d e r s received by t h e p r e s i d e n t of E l l i s t o n a s agent f o r P r e n t i c e ,
and t h e s a l e proceeds were r e c e i v e d by P r e n t i c e and c r e d i t e d a g a i n s t
the E l l i s t o n account.
The evidence f u r t h e r i n d i c a t e s t h a t a l l d e a l i n g s were
c a r r i e d on between t h e p r e s i d e n t of E l l i s t o n and t h e p r e s i d e n t of
P r e n t i c e and such d e a l i n g s were unknown t o t h e o t h e r d i r e c t o r s
of E l l i s t o n . Also e n t e r e d i n evidence was a complaint i n mandamus
by t h e o t h e r d i r e c t o r s and s t o c k h o l d e r s of E l l i s t o n a g a i n s t t h e
p r e s i d e n t of E l l i s t o n a c c u s i n g him of r e f u s a l t o produce t h e
books and r e c o r d s of E l l i s t o n f o r t h e i r i n s p e c t i o n and o f w a s t i n g
and d i s s i p a t i n g ~ l l i s t o n ' sa s s e t s . A a l t e r n a t i v e w r i t of mandamus
n
was i s s u e d r e q u i r i n g ~ l l i s t o n ' sp r e s i d e n t t o produce t h e s e r e c o r d s ,
i n c l u d i n g t h o s e r e l a t i n g t o h i s d e a l i n g w i t h P r e n t i c e and t h e
indebtedness of t h e c o r p o r a t i o n . I n s h o r t , t h e evidence i n d i c a t e s
the d e f a u l t judgment was taken without t h e knowledge of t h e
p r e s i d e n t o r d i r e c t o r s o f E l l i s t o n and t h a t t h e c o u r s e of d e a l i n g s
between t h e p r e s i d e n t of E l l i s t o n and t h e p r e s i d e n t of P r e n t i c e
was withheld from t h e d i r e c t o r s of E l l i s t o n . Under such circum-
s t a n c e s , w e cannot say t h a t t h e d i s t r i c t c o u r t abused i t s d i s c r e t i o n
i n denying P r e n t i c e l e a v e t o amend i n o r d e r t o a s s e r t a p e r s o n a l
l i a b i l i t y against the directors.
The o r d e r of t h e d i . s t r i c t c o u r t i s affirmed.
Associate J u s t i c e
(gbhe Concur: P
/ / Chief ~ u s i i c e
~ssoci@e Justices.