MILLER, Justice
(on reassignment).
This is an appeal from the dismissal of a party on the grounds of failure to assert a compulsory counterclaim in a prior action. We reverse.
FACTS '
Appellant Lincoln Ainsworth (Ainsworth) and his wife Elaine, commenced this action seeking damages against First Bank of South Dakota (Bank), Bruce Walker (Walker) an officer of Bank, and Larry Byrne (Byrne). The circuit court dismissed the claim against Bank and this appeal resulted.
A review of the record establishes that in 1982 Byrne developed a process whereby coal by-products, such as fugitive dust and spoilage, could be processed into coal pellets. The process promised to have significant commercial value. Byrne had various business loans with Bank in Sturgis, South [33]*33Dakota, generally related to his farm/ranch/cattle operations. Walker (who at all salient times was president and later vice-president of Bank) worked with Byrne to obtain financing for Byrne’s business venture. Through Walker, Bank made commercial loans to Byrne for the project. Further, Walker was a private investor in the project and allegedly advanced personal monies in the venture.
Prior to October, 1982, Ainsworth was a Bank customer, who had recently become unemployed. In October, 1982, Walker introduced Ainsworth to Byrne and suggested that Ainsworth be hired to provide expertise and a marketing tool for the project. Byrne hired Ainsworth and allegedly agreed to pay him twenty percent of all profits from the venture. Ainsworth worked nearly two and one-half years on the project.
According to the complaint, Byrne’s process met with some success. Ainsworth maintains the venture resulted in a $1 million deal with International Coal Pellet Corporation. Of this amount, Bank allegedly received $120,000 on sums it was due, but Ainsworth received only $20,000.
In a series of loans made between May and December of 1983, Bank (generally through Walker) loaned Ainsworths $71,-000 for living expenses. Elaine Ainsworth co-signed notes in the amount of $38,700. According to Ainsworths, Walker represented that Ainsworths would be treated fairly; that monies loaned to Ainsworth would be repaid from the profits of the venture; and, that Walker and Bank would protect Ainsworth’s interests.
In October, 1984, Bank sued Ainsworths to recover on these loans and in February, 1985, received summary judgment in that action (hereinafter denominated “first action”). Ainsworths did not appear at that motion hearing and did not appeal. Bank’s summary judgment, however, went unsatisfied.
In July, 1985, Ainsworths brought this “second” action against Bank, Walker, and Byrne. The complaint alleged breach of contract against Byrne. The suit also sought damages from Walker and Bank alleging that Bank, through the action and conduct of its employee and officer, Walker (1) violated its fiduciary duty to act with the utmost good faith and honesty in dealing with Ainsworths; (2) failed to comply with banking statutes, regulations, policies, and procedures; (3) failed to inform Ains-worths of their respective interests in the success of Byrne; and, (4) failed to take all necessary steps to protect Ainsworth in his dealings with Byrne and the investors.
In June, 1986, Bank moved that it be dismissed from the lawsuit because of the failure of Ainsworths to raise their complaints against it through counterclaim in the “first action.” The trial court, which based its decision solely on the pleadings and argument of counsel (apparently disregarding depositions and other matters in the record), dismissed Bank from the suit.
ISSUE
WHETHER THE TRIAL COURT ERRED IN FINDING THAT CLAIMS ASSERTED IN AINSWORTHS' COMPLAINT WERE COMPULSORY COUNTERCLAIMS THAT SHOULD HAVE BEEN ASSERTED AGAINST BANK IN A PRIOR ACTION.
The trial court held that Ainsworths’ claims were compulsory counterclaims that should have been asserted in the “first” action brought by Bank on the promissory notes. Ainsworths argue on appeal that their claim against Bank does not “arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim,” in that the “second action” is based on Bank’s alleged breach of fiduciary and statutory duties and intentional conduct by Bank toward Ainsworths.
We have ruled that the “logical relation” test is the appropriate standard to apply when determining whether a counterclaim is compulsory or permissive. Staab v. Skoglund, 89 S.D. 470, 234 N.W.2d 45 (1975); Olawsky v. Clausen, 87 S.D. 578, 212 N.W. 2d 653 (1973). The purpose of our compulsory counterclaim statute, SDCL 15-6-[34]*3413(a),1 is “to reduce the volume of litigation and promote the just, speedy, and inexpensive determination of controversies by barring relitigation of the same set of facts.” Staab, 89 S.D. at 479, 234 N.W.2d at 50. In fact, “[hjarsh consequences [will] result from the failure to plead a compulsory counterclaim.” Olawsky, 87 S.D. at 582, 212 N.W.2d at 655 citing National Equipment Rental, Ltd. v. Fowler, 287 F.2d 43 (2d Cir.1961).
A critical circumstance here is that the trial court, under the compulsory counterclaim ruling, dismissed only Bank from the lawsuit. Remaining are Byrne (for whom this entire business enterprise was created) and Walker (a former president and current vice president of Bank). Byrne and Walker were the principal players in the factual scenario centering around Ainsworths’ lawsuit. Since Byrne and Walker were not parties to the “first action” on the notes, Ainsworths obviously could not have asserted a compulsory counterclaim against them, even had their former attorney2 considered that possibility.
Bank, which had the burden to present the merits of its motion to dismiss, presented no evidence to the trial court. In their argument, which was not controverted by Bank, Ainsworths state that the loans involved in the “first case” were personal loans for living expenses. We believe that the record, taken as a whole, supports Ainsworths’ argument that the loans were for private purposes and not logically connected with the transactions involved in this present litigation. Some facts garnered from the record which support this proposition are as follows:
1.In his deposition, Mayer (Bank’s vice president) indicates that he, in addition to Walker, was involved in the personal loans to plaintiffs and that his assumption was that these loans were for living expenses, travel, etc. There is no indication whatsoever that the loans were for anything other than private purposes.
2. Mayer further testified in his deposition that Walker was principally in charge of the credit line for both Byrne and Ainsworths until 1984, when he (Mayer) took charge of Ainsworths’ loans.
3. Attached to Mayer’s deposition are various bank records including loan applications, review reports, and memos of the oversight committee dealing with Byrne’s business venture involving the coal pelletizing machinery, processes, and its general dealings.
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MILLER, Justice
(on reassignment).
This is an appeal from the dismissal of a party on the grounds of failure to assert a compulsory counterclaim in a prior action. We reverse.
FACTS '
Appellant Lincoln Ainsworth (Ainsworth) and his wife Elaine, commenced this action seeking damages against First Bank of South Dakota (Bank), Bruce Walker (Walker) an officer of Bank, and Larry Byrne (Byrne). The circuit court dismissed the claim against Bank and this appeal resulted.
A review of the record establishes that in 1982 Byrne developed a process whereby coal by-products, such as fugitive dust and spoilage, could be processed into coal pellets. The process promised to have significant commercial value. Byrne had various business loans with Bank in Sturgis, South [33]*33Dakota, generally related to his farm/ranch/cattle operations. Walker (who at all salient times was president and later vice-president of Bank) worked with Byrne to obtain financing for Byrne’s business venture. Through Walker, Bank made commercial loans to Byrne for the project. Further, Walker was a private investor in the project and allegedly advanced personal monies in the venture.
Prior to October, 1982, Ainsworth was a Bank customer, who had recently become unemployed. In October, 1982, Walker introduced Ainsworth to Byrne and suggested that Ainsworth be hired to provide expertise and a marketing tool for the project. Byrne hired Ainsworth and allegedly agreed to pay him twenty percent of all profits from the venture. Ainsworth worked nearly two and one-half years on the project.
According to the complaint, Byrne’s process met with some success. Ainsworth maintains the venture resulted in a $1 million deal with International Coal Pellet Corporation. Of this amount, Bank allegedly received $120,000 on sums it was due, but Ainsworth received only $20,000.
In a series of loans made between May and December of 1983, Bank (generally through Walker) loaned Ainsworths $71,-000 for living expenses. Elaine Ainsworth co-signed notes in the amount of $38,700. According to Ainsworths, Walker represented that Ainsworths would be treated fairly; that monies loaned to Ainsworth would be repaid from the profits of the venture; and, that Walker and Bank would protect Ainsworth’s interests.
In October, 1984, Bank sued Ainsworths to recover on these loans and in February, 1985, received summary judgment in that action (hereinafter denominated “first action”). Ainsworths did not appear at that motion hearing and did not appeal. Bank’s summary judgment, however, went unsatisfied.
In July, 1985, Ainsworths brought this “second” action against Bank, Walker, and Byrne. The complaint alleged breach of contract against Byrne. The suit also sought damages from Walker and Bank alleging that Bank, through the action and conduct of its employee and officer, Walker (1) violated its fiduciary duty to act with the utmost good faith and honesty in dealing with Ainsworths; (2) failed to comply with banking statutes, regulations, policies, and procedures; (3) failed to inform Ains-worths of their respective interests in the success of Byrne; and, (4) failed to take all necessary steps to protect Ainsworth in his dealings with Byrne and the investors.
In June, 1986, Bank moved that it be dismissed from the lawsuit because of the failure of Ainsworths to raise their complaints against it through counterclaim in the “first action.” The trial court, which based its decision solely on the pleadings and argument of counsel (apparently disregarding depositions and other matters in the record), dismissed Bank from the suit.
ISSUE
WHETHER THE TRIAL COURT ERRED IN FINDING THAT CLAIMS ASSERTED IN AINSWORTHS' COMPLAINT WERE COMPULSORY COUNTERCLAIMS THAT SHOULD HAVE BEEN ASSERTED AGAINST BANK IN A PRIOR ACTION.
The trial court held that Ainsworths’ claims were compulsory counterclaims that should have been asserted in the “first” action brought by Bank on the promissory notes. Ainsworths argue on appeal that their claim against Bank does not “arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim,” in that the “second action” is based on Bank’s alleged breach of fiduciary and statutory duties and intentional conduct by Bank toward Ainsworths.
We have ruled that the “logical relation” test is the appropriate standard to apply when determining whether a counterclaim is compulsory or permissive. Staab v. Skoglund, 89 S.D. 470, 234 N.W.2d 45 (1975); Olawsky v. Clausen, 87 S.D. 578, 212 N.W. 2d 653 (1973). The purpose of our compulsory counterclaim statute, SDCL 15-6-[34]*3413(a),1 is “to reduce the volume of litigation and promote the just, speedy, and inexpensive determination of controversies by barring relitigation of the same set of facts.” Staab, 89 S.D. at 479, 234 N.W.2d at 50. In fact, “[hjarsh consequences [will] result from the failure to plead a compulsory counterclaim.” Olawsky, 87 S.D. at 582, 212 N.W.2d at 655 citing National Equipment Rental, Ltd. v. Fowler, 287 F.2d 43 (2d Cir.1961).
A critical circumstance here is that the trial court, under the compulsory counterclaim ruling, dismissed only Bank from the lawsuit. Remaining are Byrne (for whom this entire business enterprise was created) and Walker (a former president and current vice president of Bank). Byrne and Walker were the principal players in the factual scenario centering around Ainsworths’ lawsuit. Since Byrne and Walker were not parties to the “first action” on the notes, Ainsworths obviously could not have asserted a compulsory counterclaim against them, even had their former attorney2 considered that possibility.
Bank, which had the burden to present the merits of its motion to dismiss, presented no evidence to the trial court. In their argument, which was not controverted by Bank, Ainsworths state that the loans involved in the “first case” were personal loans for living expenses. We believe that the record, taken as a whole, supports Ainsworths’ argument that the loans were for private purposes and not logically connected with the transactions involved in this present litigation. Some facts garnered from the record which support this proposition are as follows:
1.In his deposition, Mayer (Bank’s vice president) indicates that he, in addition to Walker, was involved in the personal loans to plaintiffs and that his assumption was that these loans were for living expenses, travel, etc. There is no indication whatsoever that the loans were for anything other than private purposes.
2. Mayer further testified in his deposition that Walker was principally in charge of the credit line for both Byrne and Ainsworths until 1984, when he (Mayer) took charge of Ainsworths’ loans.
3. Attached to Mayer’s deposition are various bank records including loan applications, review reports, and memos of the oversight committee dealing with Byrne’s business venture involving the coal pelletizing machinery, processes, and its general dealings. There are numerous entries in these bank records referring to the business, including those with the Schultz Coal Sales and others dealing in the business operation. The only mention of plaintiffs in any of these records is in the March 2, 1984, comment sheet indicating (1) that of the $100,000 down payment from Schultz Coal Sales, $20,000 was to be paid to Line Ains-worth, and (2) of the $650,000 due from Schultz Coal on June 1, 1984, plaintiffs were to receive $130,000. Of significant importance is the fact that nowhere in any of these comment sheets is any mention made of any loans, personal or otherwise, to Ainsworths.
4. In the “first action,” which was disposed of by a non-contested summary judgment, the affidavit in support of summary judgment was made by Mayer. Nowhere in his affidavit, nor for that matter nowhere in the “first action” file, is there any mention of any relationship between Ainsworths and Byrne or his enterprise. Further, Walker’s name is not reflected on any of the notes or other documents. In fact, Mayer’s affidavit indicates that it was he (Mayer) who had met on several occasions with Ains-worths and who had requested payment in full (again no mention of Walker).
[35]*35Thus, we conclude that, as a matter of law, there is no “logical relationship” between the personal loans to Ainsworths and the litigation centering around the coal pelletization process. The record does not support the conclusion that the loans arose out of the same transaction or occurrence. Therefore, there is no compulsory counterclaim and Bank should not have been dismissed from this suit.
Reversed.
MORGAN and HENDERSON, JJ., concur.
WUEST, C.J., and SABERS, J., dissent.