Case Title: SHARP v HOLTHUSEN

Citation: 

Docket Number: 

State: montana

Court: Montana Supreme Court

Date: 1980-09-12T00:00:00Z

Document:
No. 80-102 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980 RAY D . SHARP and FREDA SHARP, Plaintiffs and Appellants, EARNEST D. HOLTHUSEN, DONNA M. HOLTHUSEN and the FIRST NATIONAL BANK OF MISSOULA, et al., Defendants and Respondents. Appeal from: District Court of the Fourth Judicial District, In and for the County of Missoula, Honorable James B . Wheelis, Judge presiding. Counsel of Record: For Appellants: Balyeat, Kammerer and Rodli, Missoula, Montana For Respondents : Tipp, Hoven and Skjelset, Missoula, Montana Submitted on briefs: August 6, 1980 Decided: & P ~ & k / , ? , 19613 Filed: SEP 1 2 1980 M r . J u s t i c e John Conway Harrison d e l i v e r e d t h e Opinion of t h e Court . This i s an appeal from a judgment of t h e D i s t r i c t Court, Fourth J u d i c i a l D i s t r i c t , Missoula County, dismissing p l a i n t i f f ' s claim f o r f o r f e i t u r e under a c o n t r a c t f o r deed. W e s h a l l address two i s s u e s on t h i s appeal: 1. May a c o u r t of e q u i t y r e l i e v e a d e f a u l t i n g buyer, i n a c o n t r a c t f o r deed from a f o r f e i t u r e of h i s e q u i t y , when b e f o r e s u i t t h e buyer tendered f u l l payment under t h e con- t r a c t , p l u s payment of t h e seller's personal expenses and a t t o r n e y f e e s t o t h a t d a t e , and where buyer has f a i l e d t o c u r e a d e f a u l t of nonpayment under t h e c o n t r a c t w i t h i n t h e t i m e r e q u i r e d i n t h e c o n t r a c t and a f t e r proper n o t i c e was s e n t d e c l a r i n g t h a t t h e c o n t r a c t was i n d e f a u l t . 2 . Whether sellers, who sued t o f o r c e a f o r f e i t u r e of t h e buyers' e q u i t y , a r e e n t i t l e d t o a t t o r n e y f e e s a s t h e p r e v a i l i n g p a r t y when judgment i s rendered n o t allowing t h e f o r f e i t u r e , b u t r e q u i r i n g sellers t o a c c e p t buyers tender of performance made b e f o r e s u i t . On October 11, 1976, Ray D. and Freda Sharp, p l a i n t i f f s and sellers, and E a r n e s t D. and Donna M. Holthusen, defen- d a n t s and buyers, e n t e r e d i n t o a w r i t t e n c o n t r a c t f o r deed f o r t h e s a l e and purchase of r e a l property l o c a t e d i n Lake County. T e r m s included monthly i n s t a l l m e n t payments t o p l a i n t i f f s , assumption by defendants of p l a i n t i f f s ' Veterans Administration loan, and d i s c h a r g e i n f u l l of t h e balance due and t h e VA loan by October 11, 1977. P l a i n t i f f gained possession of t h e property on October 11, 1976. P l a i n t i f f s have paid $7,000 cash down and monthly payments t o t a l i n g $1,081. P l a i n t i f f s a l s o made payments on t h e assumed Veterans ~ d m i n i s t r a t i o n loan. The c o n t r a c t f o r deed required defendants t o make a balloon payment t o plain- t i f f s and refinance t h e Veterans Administration loan. The p a r t i e s contemplated t h a t t h e defendants would refinance t h e o b l i g a t i o n s by October 11, 1977, and t h a t p l a i n t i f f s would cooperate i n t h i s refinancing, i f required. A w e l l supplying t h e property with water was found t o be functioning properly a t t h e t i m e of s a l e . Both p a r t i e s believed t h a t t h e w e l l was functioning properly; however, t h i s was i n c o r r e c t . I t was l a t e r discovered t h a t t h e water well was contaminated. The t r i a l c o u r t found n e i t h e r p a r t y i n f a u l t f o r t h e contamination. I n A p r i l 1977 defendants a c t i v e l y sought financing f o r t h e o b l i g a t i o n due under t h e c o n t r a c t . The defendants attempted t o refinance t h e balloon payment due on October 11, 1977, r a t h e r than make a cash payment from t h e i r own re- sources. Because of numerous reasons, defendants were n o t a b l e t o obtain t h e necessary financing within t h e t i m e l i m i t . On October 21, 1977, a n o t i c e of d e f a u l t was s e n t t o defendants a s required i n t h e c o n t r a c t . The d e f a u l t was n o t cured within forty-fivedays as s p e c i f i e d i n t h e c o n t r a c t , and a demand f o r t h e r e t u r n of t h e escrow documents from t h e F i r s t National Bank was made. Subsequently, the p a r t i e s entered i n t o settlement negotiations f o r purposes of com- promising such claims a s each might have a g a i n s t t h e o t h e r . F i n a l l y i n January 1978, financing f o r t h e payoff of t h e e n t i r e c o n t r a c t , t h e balloon payment, a s well as t h e remaining p r i n c i p a l and i n t e r e s t due t h e p l a i n t i f f s was obtained through Lomas and Nettleton of Missoula, Montana. Lomas and Nettleton made t h e c l o s i n g d a t e of the loan January 16, 1978, b u t because they required a t e s t of t h e water p u r i t y on t h e property, t h e loan could n o t be closed a s a r e s u l t of t h e water t e s t showing t h a t t h e water w e l l was contaminated. The Montana S t a t e Department of Health and Environ- . mental Sciences recommended t o defendants t o clean, recap and f i l t e r t h e w e l l water. Later, t h e Department recom- mended t h a t t h e w e l l be relocated. Defendants d r i l l e d a new well and i n s t a l l e d a new pump a t a c o s t of $1,741. I n March 1978 when t h e well was completed, defendants were given financing from Lomas and Nettleton. Defendants tendered payment t o t h e escrow agent. The escrow agent refused t o accept t h e loan on d i r e c t i o n s from p l a i n t i f f s . P l a i n t i f f s required defendants t o pay a l l a t t o r n e y f e e s and r e l e a s e p l a i n t i f f s from a l l claims they may have f o r misre- p r e s e n t a t i o n of t h e water supply. Defendants tendered f u l l payment f o r t h e a t t o r n e y f e e s , b u t refused t o r e l e a s e t h e p l a i n t i f f s from any a c t i o n of misrepresentation. Negotiations continued. However, t h e p a r t i e s w e r e n o t a b l e t o e n t e r i n t o a settlement agreement. P l a i n t i f f s f i l e d s u i t a g a i n s t defendants f o r f o r f e i t u r e of t h e c o n t r a c t and f o r repossession of t h e r e a l property i n May, 1978. De- fendants have been ready, w i l l i n g and a b l e t o pay off t h e e n t i r e amount of t h e c o n t r a c t s i n c e A p r i l , 1978. P l a i n t i f f s have refused tender of payment. "Whenever by t h e t e r m s of an o b l i g a t i o n a p a r t y t h e r e t o i n c u r s a f o r f e i t u r e o r a l o s s i n t h e nature of a f o r f e i t u r e by reason of h i s f a i l u r e t o comply with i t s provisions, he may be r e l i e v e d therefrom upon making f u l l compensation t o t h e o t h e r p a r t y , except i n case of a g r o s s l y negligent, w i l l f u l o r fraudu- l e n t breach of duty." Section 28-1-104, MCA. This Court has allowed a p a r t y t o a c o n t r a c t who i s i n d e f a u l t , and who i s s u b j e c t t o a penalty of f o r f e i t u r e t o redeem h i s r i g h t t o t h e property. Yellowstone County v. Wight (1944), 115 Mont. 4 1 1 , 145 P.2d 516; P a r r o t t v. H e l l e r (1976), 170 Mont. 2 1 2 , 557 P.2d 819. P a r t i e s a r e r e l i e v e d from f o r f e i t u r e " i n any c a s e where he sets f o r t h f a c t s which appeal t o t h e conscience of a c o u r t of e q u i t y . " P a r r o t t v. H e l l e r , 557 P.2d 819, 820. This Court has s a i d t h a t s e c t i o n 28-1-104, MCA, was enacted; ". . . f o r t h e b e n e f i t of o b l i g o r s whose f a i l u r e t o punctually perform would r e s u l t i n l o s s t o them i n t h e m a t t e r s r e s p e c t t o which they have con- t r a c t e d . The i n t e n t i o n of t h e L e g i s l a t u r e i n enacting t h e s t a t u t e was t h a t it should be opera- t i v e and t h a t it should be given f u l l f o r c e and e f f e c t when t h e circumstances i n any c a s e gave it a p p l i c a t i o n . The i n t e n t i o n of t h e law under t h i s s t a t u t e i s t h a t a f o r f e i t u r e should n o t be needlessly enforced. The c o u r t s have e s t a b l i s h e d t h a t as t h e p o l i c y of t h e law i n t h e absence of s t a t u t e . The r u l e a s it has found expression i n both c o u r t d e c i s i o n s g e n e r a l l y i s t h a t both i n law and i n e q u i t y f o r f e i t u r e s a r e abhorred . . ." Yellowstone County v. Wight, 115 Mont. 411, 417, 145 P.2d 516, 518. The p a r t i e s ' c o n t r a c t , which r e q u i r e s f o r f e i t u r e i n t h e c a s e of d e f a u l t , does n o t d i v e s t a c o u r t of e q u i t y of i t s power t o r e l i e v e a p a r t y from t h e consequences of h i s d e f a u l t and need n o t g r a n t f o r f e i t u r e . Defendants' a c t i o n s h e r e w e r e n o t i n t e n t i o n a l , w i l l f u l o r f r a u d u l e n t a c t s . The record d i s c l o s e d t h a t defendants made a good f a i t h e f f o r t t o pay t h e necessary money a t t h e t i m e it was due, b u t because of temporary circumstances o u t s i d e of t h e i r c o n t r o l , t h e c o n d i t i o n of t h e water w e l l , they w e r e unable t o secure t h e necessary financing within t h e t i m e d e s i r e d . P l a i n t i f f s argue t h a t t h e t i m e period between d e f a u l t and a c t u a l tender of payment was n o t reasonable t o allow a c o u r t of e q u i t y t o r e l i e v e t h e defendants from f o r f e i t u r e under s e c t i o n 28-1-104, MCA. W e disagree. Subsequent t o t h e f o r t y - f i v e day period given t h e buyers t o cure t h i s d e f a u l t , t h e p a r t i e s entered i n t o set- tlement n e g o t i a t i o n s f o r t h e purpose of compromising such claims a s each might have a g a i n s t t h e o t h e r . Defendants attended a c l o s i n g a t Lomas and Nettleton i n January of 1978. This c l o s i n g could n o t be completed because of t h e condition of t h e water well. P l a i n t i f f s never objected t o defendants' improvements on t h e land, t h e d r i l l i n g and i n s t a l l i n g of a new water well. When tender was made, p l a i n t i f f s w e r e w i l l - i n g t o accept tender on t h e condition defendants released t h e p l a i n t i f f s from p o s s i b l e s u i t f o r misrepresentation on t h e condition of t h e water w e l l . The t r i a l c o u r t ' s judgment g i v e s t h e p l a i n t i f f s what they a r e equitably e n t i t l e d to,, theamount due under t h e c o n t r a c t , compensation f o r t h e i r personal expenses and at- torney f e e s , a s a r e s u l t of t h e delay from t h e t i m e of per- formance t o t h e time of tender of payment i n March, 1978. There comes a time when f a i l u r e t o perform i s n o t reasonable, and t h e a p p l i c a t i o n of t h e a n t i f o r f e i t u r e s t a t u t e not ap- p l i c a b l e , b u t t h i s i s n o t t h e case. From t h e f a c t s presented here, we f i n d t h e c o u r t w a s c o r r e c t i n i t s e q u i t a b l e judgment. I t appears from t h e record t h a t defendants presented t o t h e D i s t r i c t Court s u f f i c i e n t evidence t o appeal t o t h e "conscience of a c o u r t of equity" which r e s u l t e d i n a s p e c i f i c finding t h a t a p p l i c a t i o n of the d e f a u l t c l a u s e ( f o r f e i t u r e ) would be "harsh and inequitable." Defendants made an i n i t i a l downpayment and monthly payments t o p l a i n t i f f s . They paid on t h e Veterans Administration loan. They spent over $1,700 i n improvements on t h e property i n order t o d r i l l a well t o provide c l e a n water t o t h e house and t o s a t i s f y requirements of loan a p p l i c a t i o n without l i a b i l i t y t o t h e p l a i n t i f f s . I n a d d i t i o n t o the above-mentioned l ~ o s s e s , t h e defendants would l o s e nearly $10,000 i n equity i n t h e land i f f o r f e i t u r e occurred. The f a c t s i n t h i s c a s e p r e s e n t a c l e a r c a s e f o r a p p l i - c a t i o n of s e c t i o n 28-1-104, MCA. Defendants made tender of a l l of t h e amount due, a s w e l l a s t h e p e r s o n a l f e e s , expenses and a t t o r n e y f e e s of t h e p l a i n t i f f t o d a t e . P l a i n t i f f s s u f f e r e d no l o s s . The r i g h t t o r e l i e f under t h e s t a t u t e com- mences when t h e c o n t r a c t i n g p a r t y i s i n d e f a u l t and s u b j e c t t o f o r f e i t u r e . Kovachich v. Metals Bank and T r u s t Co. (1961), 139 Mont. 4 4 9 , 365 P.2d 639. W e a c c e p t p l a i n t i f f s argument t h a t defendants w e r e i n d e f a u l t of t h e c o n t r a c t f o r deed and of t h e i r o b l i g a t i o n s under t h e c o n t r a c t , b u t they s t i l l r e t a i n e d a r i g h t under t h e a n t i f o r f e i t u r e s t a t u t e t o make a tender, t o redeem t h e i r i n t e r e s t i n t h e property, and t o appeal t o t h e e q u i t y of t h e t r i a l c o u r t . Defendants were n o t r e l i e v e d from t h e i r a c t i o n s of d e f a u l t , only p l a i n t i f f s ' claim f o r f o r f e i t u r e . P l a i n t i f f s accepted payment of t h e c o n t r a c t amount b u t r e q u i r e d t h a t defendants a l s o provide a r e l e a s e of a l l claims a r i s i n g o u t of t h e c o n t r a c t . From t h e record, t h e c o u r t found t h a t t h e p l a i n t i f f s d i d n o t o b j e c t t o t h e t e n d e r , only t o t h e r e l e a s e t h a t was demanded a s a c o n d i t i o n f o r t h e acceptance of tender. W e f i n d t h a t tender of payment was made. Defendants w e r e d e l i n q u e n t i n t h e i r payment, and they w e r e i n d e f a u l t , b u t under t h e circumstances a s a r e presented i n t h i s c a s e , t h e a n t i f o r f e i t u r e s t a t u t e allows t h e defendants t o make f u l l payment of i n t e r e s t and a t t o r n e y f e e s f o r t h e d e f a u l t , and allows t h e c o n t r a c t t o be enforced. P l a i n t i f f s argue they a r e e n t i t l e d t o a t t o r n e y f e e s when t h e buyers w e r e i n d e f a u l t on an agreement which en- t i t l e s t h e " p r e v a i l i n g p a r t y t o c o s t s of s u i t and reason- a b l e a t t o r n e y f e e s i n t h e e v e n t s u i t i s f i l e d . " The t r i a l c o u r t found t h a t defendants d i d i n f a c t de- f a u l t on t h e c o n t r a c t between t h e p a r t i e s , b u t a s e q u i t a b l e r e l i e f t o enable them t o avoid f o r f e i t u r e of t h e i r e q u i t y , they should be allowed t o proceed a s i f t h e d e f a u l t w e r e i n s i g n i f i c a n t . The t r i a l c o u r t granted defendants r e l i e f from t h e f o r f e i t u r e . I t d i d n o t g r a n t them r e l i e f from t h e d e f a u l t . O n t h e i s s u e of d e f a u l t , p l a i n t i f f s pre- v a i l e d i n t h e District Court and a r e e n t i t l e d t o reasonable a t t o r n e y f e e s up u n t i l t i m e of tender of payment on March, 1978. The e q u i t a b l e r e l i e f granted t h e defendants is t h e s u b j e c t of t h i s appeal. The defendants d e f a u l t e d on t h e c o n t r a c t between t h e p a r t i e s , and e q u i t y f a v o r s enforcement of t h e c o n t r a c t provisions. I n no way can it be s a i d t h a t t h e defendants p r e v a i l e d on t h i s s u i t , when i n f a c t , it was t h e i r d e f a u l t which n e c e s s i t a t e d t h i s s u i t i n t h e f i r s t place. However, t h i s Court a f f i r m s t h e D i s t r i c t C o u r t ' s e q u i t a b l e judgment a s t o t h e f o r f e i t u r e i s s u e . The t r i a l c o u r t e r r e d i n awarding a l l a t t o r n e y f e e s f o r t h e s u i t and appeal t o defendants. W e , t h e r e f o r e , r e v e r s e t h e t r i a l c o u r t ' s d e c i s i o n awarding a t t o r n e y f e e s and i n s t r u c t : 1. Defendants pay p l a i n t i f f s reasonable a t t o r n e y f e e s u n t i l t h e t i m e of tender of payment on March 1978, pursuant t o t h e c o n t r a c t ; and, 2. Both p a r t i e s pay t h e i r own a t t o r n e y f e e s f o r t h e c o s t s of t h i s s u i t and appeal, thereon. Affirmed i n p a r t and reversed i n p a r t according t o t h i s opinion. W e concur: B i e f J u s t i c e c$&+,,"Q #gL+ J u s t i c e s