### 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 

## 121980Mr. Justice John Conway Harrison delivered the Opinion of the Court

# . This 

### is an appeal from a judgment of the District Court, Fourth Judicial District, Missoula County, dismissing plaintiff's claim for forfeiture under a contract for deed. We shall address two issues on this appeal: 1. May a court of equity relieve a defaultingbuyer, ina contract fordeed from a forfeiture of his equity, when before suitthe buyer tendered fullpayment under the contract, plus payment of the 

### seller's personal expenses and attorney fees to thatdate, and where buyer has failed to

cure a default of nonpayment under the contractwithin the 

### timerequired inthe contract and after proper notice was sentdeclaring that the contract was indefault. 2. Whether 

### sellers, who sued to force a forfeiture of the buyers' equity, are entitled toattorney fees as the prevailing party when judgment 

### is rendered not allowing the forfeiture, but requiring 

### sellers to accept buyers tender of performance made before suit. On October 11, 1976, Ray D. and Freda Sharp, plaintiffs and 

### sellers, and Earnest D. and Donna M. Holthusen, defendants and buyers, entered into a written contract for deed for the sale and purchase of real property located inLake County. Terms included monthly installment payments to plaintiffs, assumption by defendants of plaintiffs' Veterans Administration loan, and discharge i n f u l lof the balance due and the VA loan by October 11, 1977. Plaintiff gained possession of the property on October 11, 1976. Plaintiffs have paid $7,000 cash down and monthly payments totaling $1,081. Plaintiffs alsomade payments on the assumed Veterans ~dministration loan. The contract fordeed required defendants tomake a balloon payment toplaintiffsand refinance the Veterans Administration loan. The parties contemplated that the defendants would refinance the obligations by October 11, 1977, and that plaintiffs would cooperate in thisrefinancing, if required. A 

### well supplying the property with water was found to be functioning properly 

### atthe 

### timeof sale. Both parties believed that the

### wellwas functioning properly; however, thiswas incorrect. Itwas later discovered that the water well was contaminated. The trial court found neither party infault for the contamination. InApril 1977 defendants actively sought financing for the obligation due under the contract. The defendants attempted torefinance the balloon payment due on October 11, 1977, rather than make a cash payment from their own 

### resources. Because of numerous reasons, defendants were not able to obtain the necessary financing within the 

### time limit. On October 21, 1977, 

### a notice of defaultwas sent to defendants asrequired inthe contract. The default was not cured withinforty-fivedays 

### as specified inthe contract, and a demand for the return of the escrow documents from the FirstNational Bank was made. Subsequently, the parties entered into settlement negotiations for purposes of compromising such claims as each might have against the other. Finally inJanuary 1978, financing for the payoff of the entire contract, the balloon payment, aswell as the remaining principal and interestdue the plaintiffs was obtained through Lomas and Nettleton of Missoula, Montana. Lomas and Nettleton made the closing date of the loan January 16, 1978, but because they required a testof the water purity on the property, the loan could not be closed

### asa result of thewater test showing that thewater well

was contaminated. The Montana StateDepartment of Health and Environ-

. 

### mental Sciences recommended todefendants to clean, recap and filter the

### wellwater. Later, the Department recommended that the wellbe relocated. Defendants drilled a new well and installed a new pump ata cost of $1,741. InMarch 1978when the well was completed, defendants

were given financing from Lomas and Nettleton. Defendants tendered payment to the escrow agent. The escrow agent refused to accept the loan on directions from plaintiffs. Plaintiffs required defendants topay allattorney fees and releaseplaintiffs from allclaims they may have formisrepresentation of the water supply. Defendants tendered full payment for the attorney fees, but refused torelease the plaintiffs from any action of misrepresentation. Negotiations continued. However, the parties 

### were not able to enter into a settlement agreement. Plaintiffs filed suitagainst defendants for forfeiture of the contract and forrepossession of the real property inMay, 1978. De

### fendants have been ready, willing and able topay off the entire amount of the contract since April, 1978. Plaintiffs have refused tender of payment. "Whenever by the 

### termsof an obligation a party thereto incurs a forfeiture or a loss inthe nature of a forfeiture by reason of his failuretocomply with its

### provisions, he may be relieved therefrom upon making full compensation to the other party, except incase of a grossly negligent, willful or fraudulent breach of duty." Section 28-1-104, MCA. 

### This Court has allowed a party to a contractwho is indefault, and who is 

### subject to a penalty of forfeiture toredeem his right to the property. Yellowstone County v. Wight (1944), 115Mont. 411, 

### 145P.2d 516; Parrott v. Heller(1976), 170Mont. 212, 557 P.2d 819. Parties arerelieved from forfeiture "inany casewhere he 

### sets forth factswhich appeal to the conscience of a court of equity." Parrott

### v. Heller, 557 P.2d 819, 820. This Court has said that section 28-1-104, MCA, was enacted; 

# ".

. . for the benefit of obligors whose failure to punctually perform would resultinloss to them inthe matters respect towhich they have contracted. The intention of the Legislature in enacting the statutewas that 

### it should be operative and that 

### it should be given full force and effectwhen the circumstances inany case gave 

### it application. The intention of the law under this statute 

### is that a forfeiture should not be needlessly enforced. The courts have established that 

### as the policy of the law inthe absence of statute. The rule as

### ithas found expression in both court decisions generally 

### is thatboth inlaw and inequity forfeitures are abhorred



# . .

# ." Yellowstone County v. Wight, 115Mont. 411, 417, 145P.2d 516, 518. The parties' contract, which requires forfeiture inthe case of default, does not divest 

### a court of equity of 

### itspower torelieve a party from the consequences of his default and need not grant forfeiture. Defendants' actions here

### were not intentional, willful

or fraudulent acts. The record disclosed thatdefendants made 

### a good faith effort topay the necessary money atthe 

### timeitwas due, but because of temporary circumstances outside of their control, the condition of the water 

### well, they 

### were unable to secure the necessary financing within the 

### timedesired. Plaintiffs argue that the 

### timeperiod between default and actual tender of payment was not reasonable to allow a court of equity torelieve the defendants from forfeiture under section 28-1-104, MCA. Wedisagree. Subsequent to the forty-five day period given the buyers to cure thisdefault, the parties entered into 

### settlement negotiations for the purpose of compromising suchclaims as each might have against the other. Defendants attended a closing atLomas and Nettleton inJanuary of 1978. This closing could not be completed because of the condition of the water well. Plaintiffs never objected to defendants' improvements on the land, the drilling and installing of a

new water well. When tender was made, plaintiffs 

### were

### willing to accept tender on the condition defendants released the plaintiffs from possible suitformisrepresentation on the condition of the water 

### well. The trial court's judgment gives the plaintiffs what they are equitablyentitledto,,theamount due under the contract, compensation for their personal expenses and 

### attorney fees, as a result of the delay from the 

### timeof performance to the time of tender of payment inMarch, 1978. There comes 

### a time when failure toperform 

### is not reasonable, and the application of the antiforfeiture statute not applicable, but this 

### isnot the case. From the factspresented here, we find the court

### was correct in

### its equitable judgment. It appears from the record that defendants presented to the DistrictCourt sufficient evidence to appeal to the "conscience of a court of equity" which resulted in a specific finding that application of the default clause (forfeiture) would be "harsh and inequitable." Defendants made an initial downpayment and monthly payments toplaintiffs. They paid on the Veterans Administration loan. They spent over $1,700 in improvements on the property inorder to drill a well to provide cleanwater to the house and to satisfy requirements of loan application without liability to the plaintiffs. In addition to the above-mentioned l~osses, the defendants would lose nearly $10,000 inequity in the land if forfeiture occurred.The facts in this case present a clear case for application of section 28-1-104, MCA. Defendants made tender of allof the amount due, as

### well as the personal fees, expenses and attorney fees of the plaintiff 

### to date. Plaintiffs suffered no loss. The right to relief under the statute commences when the contracting party 

### is indefault and subject to forfeiture. Kovachich v. Metals Bank and Trust Co. (1961), 139Mont. 449, 365 P.2d 639. We accept plaintiffs argument that defendants

### were in defaultof the contract for deed and of their obligations under the contract, but they still retained a right under the antiforfeiture statute tomake a tender, to redeem their interest inthe property, and to appeal to the equity of the trial court. Defendants 

### were not relieved from their actions of default, only plaintiffs' claim for forfeiture. Plaintiffs accepted payment of the contract amount but required that defendants alsoprovide a release of all claims arising out of the contract. From the record, the court found that the plaintiffs did not object to the tender, only to the release thatwas demanded as a condition for the acceptance of tender. We find that tender of payment was made. Defendants



### were delinquent intheir payment, and they 

### were indefault, but under the circumstances as arepresented in this case, the antiforfeiture statuteallows the defendants tomake fullpayment of interest and attorney fees for the default, and allows the contract tobe enforced. Plaintiffs argue they are entitled to attorney fees when the buyers 

### were indefaulton an agreement which en

### titles the "prevailingparty to costs of suitand reasonable attorney fees inthe event suit

### is filed."The trial court found that defendants did in factdefaulton the contract between the parties, but asequitable relief to enable them to avoid forfeiture of their equity, they should be allowed toproceed as if the default

### were insignificant. The trialcourt granted defendants relief from the forfeiture. Itdid not grant them relief from the default. On the issue of default, plaintiffs prevailed in the District Court and areentitled to reasonable attorney feesup until 

### timeof tender of payment on March, 1978. The equitable relief granted the defendants 

### is the subject of this appeal. The defendants defaulted on the contract between the parties, and equity favors enforcement of the contract provisions. In no way can 

### it be said that the defendants prevailed on this suit, when infact, 

### it was their defaultwhich necessitated this suitinthe first place. However, this Court affirms the District Court's equitable judgment as to the forfeiture issue. The 

### trial court erred inawarding all attorney fees for the suitand appeal todefendants. We, therefore, reverse the trial court's decision awarding attorney fees and instruct: 1. Defendants pay plaintiffs reasonable attorney fees until the 

### timeof tender of payment on March 1978, pursuant to the contract; and, 2. Both parties pay their own attorney fees for the costs of this suitand appeal, thereon. Affirmed inpart and reversed inpart according to this opinion.We 

### concur:



### BiefJustice 

# c$&+,,"Q #gL+ Justices