NO. 94-506

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

MARK AHRENS and BRENDA AHRENS,

Plaintiffs and Appellants,

v.

WILLIAM KIRK COTTLE,

Defendant and Respondent.

APPEAL FROM: District Court of the Eighteenth Judicial District,

In and for the County of Gallatin,

The Honorable Larry W. Moran, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Rienne H. McElyea, Berg, Lilly, Andriolo

& Tollefsen, Bozeman, Montana

For Respondent:

J. David Penwell, Attorney at Law,

Bozeman, Montana

Submitted on Briefs: March 9, 1995

Decided: June 15, 1995
Justice William E. Hunt, Sr., delivered the opinion of the Court.

Appellants Mark and Brenda Ahrens appeal from an order of the

Eighteenth Judicial District Court, Gallatin County, granting

summary judgment in favor of respondent William Kirk Cottle.

We affirm.

The issues on appeal are:

1 . Did the District Court err in concluding that appellants

failed to comply with the notice of default provisions contained in

the parties' contract for the sale of real property?

2 . Did the District Court err in concluding that appellants

waived their right to terminate their contract with respondent and

regain possession of real property?

3 . Did the District Court err in not awarding attorney fees

to appellants?

On April 15, 1988, appellants sold a home by contract for deed

to respondent for $37,000. Respondent made a $150 down payment and

agreed to pay $3,600, at eight percent interest, in monthly

installments of $100 commencing May 1, 1988. Respondent

satisfactorily performed this portion of the contract. In

addition, respondent agreed to assume the balance of appellants'

monthly payments to the mortgage lienholder, Carteret Federal

Savings Bank.

Respondent failed to make the April and May 1993 payments to

Carteret. As a result, on May 21, 1993, appellants attempted to

serve respondent with a notice of default by taping a copy of the

2
notice to the back door of respondent's home. On June 9, 1993,

appellants personally served respondent with a notice of

acceleration of the contract. On June 14, 1993, respondent cured

the April and May 1993 defaults. Respondent failed to make the

payments for September, October, and November 1993. Appellants

made these payments to Carteret without serving respondent with

notice of default. In December 1993, respondent cured the

September, October, and November 1993 defaults by making payment to

Carteret.

Appellants filed suit on November 12, 1993, seeking to cancel

the contract for deed and to reclaim possession of the property.

Respondent and appellants filed motions for summary judgment.

After a hearing on the motions the District Court issued its

findings of fact, conclusions of law, and order granting

respondent's motion for summary judgment. As of the hearing for

summary judgment, all payments were current. On August 25, 1994,

the District Court entered its judgment awarding attorney fees to

respondent. It is from the District Court's order granting summary

judgment to respondent that appellants appeals.

ISSUE 1

Did the District Court err in concluding that appellants

failed to comply with the notice provisions contained in the

parties' contract for the sale of real property?

We review conclusions of law to determine whether the district

court's interpretation of the law was correct. In re Marriage of

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Barnard (1994), 264 Mont. 103, 107, 870 P.2d 91, 93; In re Marriage

of Burris (1993), 258 Mont. 265, 269, 852 P.2d 616, 619.

Paragraph 13 of the parties' contract for deed provides that

all notices shall be deemed to be properly given if delivered in

writing personally or sent by registered or certified mail. The

District Court concluded that appellants did not comply with the

notice provisions of the contract for deed by posting the notice of

default to respondent's back door.

Appellants rely on Christensen v. Hunt (1966), 147 Mont. 484,

414 P.2d 648, Hares v. Nelson (1981), 195 Mont. 463, 637 P.2d 19,

and LeClair v. Reitner (1988), 233 Mont. 332, 760 P.2d 740, to

support their argument that Montana case law has consistently held

that the failure to adhere to the technical requirements of notice

pursuant to a contract is immaterial if an individual has knowledge

of the notice. A review of Christensen, Hares, and LeClair shows

that they are distinguishable from the present case.

In Christensen, the default provision in a contract for deed

required that the seller send the notice of default to the address

provided for in the contract. The notice of default was delivered

to the buyer at an address other than the one listed in the

contract. We concluded that sending the notice to the alternative

address was a technical error that did not prejudice the rights of

the buyer who received the notice at the address to which it was

delivered.

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In Hares, we affirmed the district court's termination of a

contract for deed and granted the seller possession of the

property. The buyer argued that he did not receive notice of

default pursuant to the terms of the contract which was to be sent

by registered mail. The buyer failed to retrieve the registered

letter at the post office even though he knew the letter was

waiting for him.

In an action for termination of a contract for deed, the buyer

in LeClair argued that the notice of default was defective because

the copy of the notice he received was not dated. We concluded

that the terms of the contract for deed did not require that the

notice be dated in a certain way, except to specify that service by

mail was complete upon deposit in a post office. The buyer

acknowledged receiving the notice by certified mail and was not

prejudiced by the failure to date the notice.

By contrast, appellants in the present case attempted to serve

respondent by posting the notice to his back door despite the

contract's requirement of personal service or service by mail.

While respondent testified that he eventually found and read the

notice, he could not identify exactly how long after the notice had

been posted to his back door that he discovered it.

Appellants argue that posting the notice on respondent's back

door afforded him the same notice he would have received had

appellants personally delivered or mailed the notice of default.

We disagree.

5
Posting the notice of default to respondent's back door

constituted a material, rather than a technical, flaw in service.

Under the terms of the contract for deed, if the buyer fails to

cure a default within 15 days after receiving notice of default,

the seller has the right to give the buyer written notice of

acceleration. Consequently, under the terms of the contract, a

notice of acceleration is only valid if it is preceded by proper

service of the notice of default which then triggers the 15 day

default period. The contract is clear as to the two proper methods

of service.

Appellants posted the notice of default on respondent's back

door on May 21, 1993. Had respondent been properly served on

May 21, he would have had until June 5 to cure any defaults. Had

the defaults remained uncured thereafter, appellants were entitled

to accelerate the obligation under the contract. Believing that

respondent had been properly served with notice of default, and

knowing that respondent had not cured the April and May defaults

within the 15 day period, appellants served respondent with notice

of acceleration on June 9, 1993. However, respondent cured the

April and May defaults on June 14, 1993, after discovering the

notice of default posted on his back door sometime in May.

We hold that the District Court did not err in concluding that

appellants failed to comply with the notice provisions contained in

the parties' contract for the sale of real property.

6
ISSUE 2

Did the District Court err in concluding that appellants

waived their right to terminate their contract with respondent and

regain possession of the property?

We apply the same standard of review to Issue 2 that we

applied to Issue 1.

Respondent failed to make the September, October, and November

1993 payments to Carteret. After being so informed by Carteret,

appellants made those payments to Carteret without first serving

respondent with notice of default and without informing respondent

that they made the late payments. In addition, appellants did not

instruct Carteret to refrain from accepting further payments from

respondent. In December 1993, respondent brought the contract

current by making the September, October, and November payments to

Carteret. As a result, Carteret received double payments for

September, October, and November 1993.

The District Court concluded that:

The acceptance of a payment on a contract after the

seller has declared or attempted to declare a default

constitutes a waiver of the default and such waiver

denies to the seller the right of the seller to sue for

acceleration of the contract. Bailey v. Lilly (1983),

205 Mont. 35, 667 P.2d 933. See also Shultz v. Campbell

(1966), 147 Mont. 439, 413 P.2d 879.

Therefore, the [appellants'] action to foreclose the

contract must be dismissed because of a waiver by the

[appellants] in accepting payments under the contract.

The [appellants] claim that Carteret, not they, accepted

the payments made by the [respondent] to Carteret and

made no effort to advise Carteret that the [appellants]

were attempting to terminate the contract and that

Carteret was not to accept such payments.

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Appellants argue that they did not waive their right to

terminate the contract because they did not have the ability to

direct whether Carteret accepted or retained the late payments from

respondent. There is nothing in the record to show that appellants

were powerless to notify Carteret not to accept further payments

from respondent. However, appellants were not required under the

contract to notify the bank to refrain from accepting further

payments from respondent. Under the terms of the contract,

appellants were required to first serve respondent with a notice of

default as a precondition to serving a notice of acceleration.

Appellants failed to properly serve respondent with a notice of

default after the April and May defaults, and appellants failed to

serve respondent with any notice of default after the September,

October, and November defaults.

Similarly, we are not persuaded by appellants' argument that

waiver did not occur because Carteret, not appellants, accepted and

retained respondent's delinquent payments. The contract for deed

shows that respondent agreed to make appellants' mortgage payments

directly to the mortgage lien holder, Carteret. Consequently, a

mortgage payment from respondent to Carteret in satisfaction of

appellants' obligation to Carteret, is the equivalent of a payment

from respondent to appellants. As a result, it is irrelevant that

respondent's delinquent payments were accepted and retained by

Carteret, rather than by appellants. What is relevant is the fact

that because respondent had not been served with notice of default,
he made payments to Carteret in satisfaction of the underlying

obligation, and those payments were accepted and retained. Any

defaults that may have occurred were cured when respondent brought

all payments to date.

We hold that the District Court did not err in concluding that

appellants waived their right to terminate their contract with

respondent and regain possession of the property.

ISSUE 3

Did the District Court err in not awarding attorney fees to

appellants?

Appellants asked for attorney fees based on the alleged

defaults by respondent. However, as we have held that appellants

failed to give any proper notices of default, there is no

obligation to pay attorney fees under the circumstances.

We affirm.

Justice

We concur:

9
Justice Terry N. Trieweiler dissenting.

I dissent from the majority opinion. As a result of this

decision, technical form is elevated over substance, while

substantial justice is avoided, and the sellers' credit rating

continues to be jeopardized because of the buyer's failure to

comply with the terms of his contract.

NOTICE COMPLIANCE

The contract for sale of real estate, which was executed by

the parties, provides in paragraph 12 that when the buyer fails to

make payments due under the contract within 15 days of the due

date, the sellers have the right to give the buyer notice that the

payment must be made within 15 days from the date of notice. If

notice is given and payments are not made within 15 days, the

sellers have the right to accelerate all payments called for under

the terms of the contract, and the balance of the principal, along

with interest then due, must be paid within 15 days from the notice

of acceleration. If the balance is not paid within the provided

time, the sellers have the right to terminate the contract.

Paragraph 13, as noted by the majority, requires that notice

be delivered in writing personally or sent by registered or

certified mail to the buyer.

In this case, notice was delivered to the buyer at his place

of residence by posting it on the door to his home. The notice was

dated May 21, 1993, and was delivered on May 25. In the notice,

Cottle was notified that he was in default by failing to make the

payments that were due on April 1 and May 1, 1993. He was also

10
notified that unless he corrected the default within 15 days, that

the sellers had the right to accelerate the amounts due under the

contract and declare the entire balance due. Cattle understood the

substance of the notice, and eventually presented it to his

attorney. However, his default was not cured within 15 days from

the date on which the notice was delivered. He did not make the

April and May payments until June 14, 1993.

The majority makes much of the fact that Cottle may not have

had actual notice 15 days before he actually cured his default.

However, a reasonable inference from the facts which were proven is

that Cattle did have notice more than 15 days before actual payment

was made. The affidavit of the Ahrens' process server established

that the notice was posted on the door to Cattle's home on May 25,

a full 19 days before payment was made. Cottle offered no evidence

to suggest that he did not observe the notice on the same day, or

reasonably soon after it was posted. In fact, he admitted that he

actually received the notice in May, which means that he had a

minimum of 14 days' notice before he made payment. The fact that

Cottle suffered no actual prejudice from the manner in which notice

was delivered is best illustrated by his own testimony, which was

as follows:

Q. Okay. Can you tell me the circumstances of when

you found a document at your house?

A. There was an envelope taped to my door.

. . . .

Q. And would this have been in the springtime?

11
A.

Q.

A.

Q.

A.

Q.

A.

Q.

A.

Q.

A.

Q .

A.

Q .

A.

.

Was it May? Yeah.

Did you open the envelope?

Yes.

Okay. And do you remember what you found inside?

I believe there was a copy of a Notice of Default.

Did you read the document?

Yes, I did.

What did you do with the document?

Put it on my desk.

Do you still have that document?

No, I do not.

What happened to it?

I believe my attorney has it.

So you gave him the document that you had?

Yes.

. . . .

Q. So when you received the Notice of Default in May

of 1993, you understood that you were in default

under the terms of the contract?

A. Yes.

Q . When you received this document that was posted to

your door, the Deposition Exhibit 13, were you late

in your payments?

A. I don't remember.

Q. Given what we've just all gone through in this

sheet, which explains your payment history,

Deposition Exhibit 4, doesn't that characterize

that you were late in your payments?

12
A. Yes.

I would conclude that since Cattle had actual knowledge of his

default, and had actual receipt of the notice of default

sufficiently in advance of the date on which he was required to

cure the default, that the notice and default terms of the parties'

contract were substantially complied with, and that to the extent

there was any technical deviation from the specific language in the

contract, that deviation was in no way material nor prejudicial to

Cottle. This conclusion is consistent with our prior decisions in

Christensenv.Hunt (1966), 147 Mont. 484, 414 P.2d 648, and LeCIairv.Reiter

(1988), 233 Mont. 332, 760 P.2d 740. While it is true, as pointed

out in the majority opinion, that neither of these cases have

precisely the same facts as this case, the principle involved is

identical. In both cases, we held that a technical deviation from

the default notice requirements in a contract cannot be asserted by

the buyer as a defense to termination of the contract where his or

her rights have not been prejudiced. That is exactly the situation

here. While Cottle did not receive written notice by registered

mail, he received written notice at the same location where the

registered mail would have been delivered, and he received it well

in advance of the date by which he was notified that his default

must be cured. Therefore, he suffered absolutely no prejudice

based on the manner in which the notice was delivered.

For these reasons, I would reverse the District Court's

conclusion that as a matter of law the Ahrens are unable to

13
terminate their contract with Cottle because of their failure to

comply with the notice provisions in their contract.

WAIVER

The principles of waiver, when correctly applied, are based on

principles of fairness. However, the doctrine of waiver was never

intended to reduce commercial transactions to some form of the game

of "gotcha." Yet, that is exactly the effect of the majority

decision.

"'Waiver is a voluntary and intentional relinquishment of a

known right, or claim or privilege.'" Carpenters-Employers Trust Fund v.

Gall&a Partnership (19891, 239 Mont. 250, 259, 780 P.2d 608, 613

(quoting Thielv. Johnson (1985), 219 Mont. 271, 274, 711 P.2d 829,

831). Nothing that the Ahrens did even remotely resembled the

intentional relinquishment of a known right.

Cattle's late payments were not sent to, nor kept by, the

Ahrens. They were sent to the Carteret Federal Savings Bank to

satisfy the Ahrens' monthly payment obligations. The Ahrens had no

control over the fact that the payments were sent; they had no

control over Carteret's acceptance of the payments; they didn't

even know that the payments were made. They had no affirmative

obligation under the principles of waiver to affirmatively notify

Carteret that the payments would not be accepted. Furthermore, no

such obligation should be imposed. The Ahrens were the obligors in

the contract with Carteret. Their credit rating had already been

severely damaged by Cattle's frequent failure to make timely

14
payments, and they should not have had to make payments for

property they did not possess while they were attempting to recover

it.

While the majority may assume, as it has in the past, that

equity favors the avoidance of a forfeiture, the equities in this

case are quite to the contrary. The hardship that this contractual

relationship, and this Court's decision, create for the Ahrens is

best illustrated by the following portions of the affidavit of

Brenda Ahrens submitted on August 1, 1994:

6 . Mr. Cottle did not assume the Carteret Federal

Savings Bank note. Since 1990, Mr. Cottle has been late

in payments on 14 separate occasions. He has driven this

note into foreclosure on three separate occasions.

7. I have no control over Carteret Federal Savings

Bank. Carteret accepts payments without my approval or

authorization. If the contract is not paid, they will

automatically take the note into foreclosure proceedings.

8 . Because my name is on the note, my credit has

been completely destroyed by Mr. Cattle's failure to

timely make his payments.

. . .

11. In October, 1993, I was advised that Mr.

Cattle's September, 1993, check bounced andwas returned.

The September, October, November, and December, 1993,

payments were not made by Mr. Cottle and I was forced to

pay ONE THOUSAND SEVEN HUNDRED NINETY-ONE AND 56/100

DOLLARS ($1,791.56) in order to keep the property from

foreclosure . .

12. My credit has been destroyed by Mr. Cattle's

failure to make timely payments and his repeated system

of driving this matter into foreclosure.

For these reasons, I conclude that there was no waiver of

Cattle's default based on any reasonable definition of that term.

I would reverse the order of the District Court which granted

15
Cattle's motion for summary judgment, and the District Court order

which denied the Ahrens' motion for summary judgment, and I would

remand to the District Court for a determination of the attorney

fees to which the Ahrens are entitled in this matter.

J 6tt'ice

16
June 15, 1995

Cl?RTlFTC!ATF? OF SERVICE

I hereby certify that the following certified order was sent by United States mail, prepaid, to the

following named:

Rienne H. McElyea

Berg, Lilly, Andriolo & Tollefsen, P.C.

910 Technology Blvd., Suite A

Bozeman MT 59715

J. David Penwell

Attorney At Law

Box 1677

Bozeman MT 59715-1677

ED SMITH

CLERK OF THE SUPREME OF THE SUPREME COURT

STATE OFT MONTANA

COURT