No. 84-505 INTHE SUPREME COURT OF THE STATE OF MONTANA

IN RE MARRIAGE OF DELBERT HENRY WITBART

## , Petitioner,-vsLaVERNA IWE WITBART

## , Respondent/Appellant.



## ...................................... ALLEN B. HOUSTON,Plaintiff and Respondent,-vsDELBERT HENRY WITBART, aka DELBERT (DEL) H. WITBART & LaVERNA MAE WITBART, Defendantsand appellants.



## ....................................... DEL H. WITBART, dba ACADEMY ENGINEERING CONSTRUCTION

## , Plaintiff,

### -vsHARLAND E. BAUER and MARGARET E. BAUER, Defendants and Respondents. CLARK BROTHERS CONTRACTORS, a Mont

# .corp

# ., Plaintiffand Respondent,-vsHAZANDE. BAUER, MARGARET E. BAUER and DEL E. WITBART dba ACADEMY ENGINEERING COTJSTRUCTION, Defendants.



## ....................................... WESTER14 EQUIPMENT COMPANYI Plaintiffand Respondent,

### -vsDELBEXT HENRY WITBART and LAVERNA MAE WITBART, Defendants and Appellants. APPEAL FROM: DistrictCourtof theFourthJudicial District, Inand for theCountyof Ravalli, The HonorableDouglasHarkin, Judge presiding. COUNSEL OF RECORD: For Appellants: Cannon & Sheehy, Helena, Montana ForRespondents: GailGoheen, Hamilton, Montana John Greef, Hamilton, Montana RichardWeber, Hamilton, Montana LarryR. Meyer, Stevensville, Montana RobertB. Brown, Hamilton, Montana

Submittedon Briefs: Feb. 28, 1985 Decided: May 22, 1985

6. 

# zi$LL fq,G+LL&+-&%/ ClerkMr. Justice William E. Hunt, Sr.

### , delivered the Opinion of the Court.

This case is before this Court a second time. In the first case,Witbart 

### v. Witbart (Mont. 1983), 666 ~.2d 1217, 40 St.Rep. 994, this Court remanded because of an erroneous determination by the District Court that the Witbarts, in settlingpropertymatters during dissolution of marriage,had made a fraudulent conveyance. This Court determined that no fraudulent conveyance could have been made under the circumstances and remanded with instruction that a new trial be had consistent with the principles of law containedwithin the opinion. One principle of law specifical-1.ycontained within the opinion was the ability of 

### a court to reopen a ludgment and revoke or modify settled property matters contained in a dissolution decree if fraud was present. On remand the District Court did find that the Witbarts had committed fraud. This appeal followed. We affirm. The circumstances which gave rise to this case are as follows: Delbert Witbart contracted with the Bauers in 1979. Pursuant to the contract Delbert Witbart 

### was to construct a road for the Bauers. A dispute arose and the Bauers refused topay. Delbert Witbart filed amechanic's lienagainst,and ultimately obtained judgment from, the Bauers. For the purposes of this opinion theDelbertWitbart-Eauers' judgment will be referred to as the judgment fund. In the spring of 1980, prior to any judgment on the contract and lien, but while litigation on the contract and lien was pending, Delbert Witbart and his wife, LaVernaWitbart, entered into a dissolution of marriage. In the separation agreement Del-bertWitbart agreed to pay LaVerna Witbart $25,000. The agreement also required that any amount of this sum remainingdue at the time that the judgment fund

was satisfiedwould be payed from that judgment fund. The remaining various parties to this action, Houston, Clark Rrothers, and Western Equipment, are assignees of Delbert Witbart to the judgment fund. Houston became an assignee of $7,473.18 of the judgment fund on July 28, 1980. This assignmentwas made in relation to 

### a debt that Delbert Witbart incurred when Houston loaned DelbertWitbart $10,000

on August 24, 1978. Clark Brothers became an assignee of $9,275.82 of the judgment fund on September 22, 1980. This assignment was made in relation to a debt that Delbert Witbart incurredwhen Clark Brothers completeda sub-contract in the Delbert Witbart-Bauer construction contract in 1979. Clark Rrothers assigned its interest to Bauers. Western Equipment became a.n assignee of $5,616.35 of the judgment fund on April 27, 1981. This assignmentwasmade in relation to a debt that Delbert Witbart incurred when Western Equipment repaired 

### a piece of DelbertWitbart's equipment on June 

### 13,1980. After judgment the judgment fund was valued at $26,677.47. LaVernaWitbart, Houston,Bauers as assignees of Clark Brothers, and Western Equipment, all claimed portions of the judgment fund. Trial, on remand, at District Court resulted in LaVerna Witbartbeing precluded again from access to the judgment fund. This time the District Court denied her claim because her claim was based on a dissolution of marriage settlement agreement obtained through fraud. The remaining parties were awarded priority to the judgment fundas follows: Houston,Bauers as assignees of Clark Brothers, andWestern Equipment. LaVernaWitbart appeals. The first issue is whether the District Court erred in setting aside the Witbart's property settlement agreement as

a fraud. This Court has already decided that a finding of fra.ud would justify reopening the Witbarts' dissolution decree and setting aside the property settlement agreement contained therein. Witbartv. Witbart (Mont. 19831, 666P.2d 1217, 1220, 40 St.Rep. 994, 997. Absent fraud, LaVerna Witbart would be entitled to first priority to the judgment fund. Witbart, 666P.2d at 1220. At the time that Delbert Witbart and LaVerna Withart entered into their separation agreement and at the time that the District Court issued the decree of dissolution the only significant asset in the Witbarts' marital estate was the potential recovery by Delbert Witbart in the judgment fund. However, in the Witbarts' separation agreement the parties agreed that DelbertWitbart would pay LaVerna Witbart $25,000 and that such payment would be made from the potential judgment fund to the extent that such payment had 

### not been made before the judgment fund came into existence. The parties also agreed that LaVerna VJitbart would transfer her interest in certain real property, jointly owned by the Witbarts, to Del-bertWitbart. This transfer was of no immediate monetary significance as neither of the Witbarts had any equity in the real property, that is, itwas secured to itsmaximum valueby a trust indenture. The appellant argues that there can be no fraud here because, at the time that the separation agreement was executed, March 27, 1980, Delbert Witbart anticipated that the judgment fund would be valued at $85,000. However, therecord shows that the total contract price in the Delbert Witbart-Bauers' contractwas only $79,200 and there had been

an immediate payment of $17,000 and a $25,000 progress payment. Delbert Witbart included $12,935.65 for additional work and down timewhen he fileda lien against Bauers and at the time Delhert Witbart filed a complaint againstBauers,he asked for an additional $18,500 for down time. The total possible recovery, not including interest or costs,was then $68,715.65. However, the Bauers had filed a counterclaim prior to the F!itbartsl separation agreement. This counterclaim, if successful on all counts, would have required DelbertWitbart to pay $74,952.56 plus interest and costs. Furthermore, at the time of the Witbarts' execution of their separation agreement Delbert Witbart owed money to Houston on a promissory note dated August 24, 1979. The original sum payable on the note was $10,000 plus interest. In addition, at the time the separation agreement was executed, Delbert Witbart owed Clark Brothers $15,087.82 as subcontractorsin theDelbertWitbart-Bauers' contract. TheWitbarts' failure to disclose these debtsmisled the District Court as to the actual financial status of the FJitbarts and materially affected the actual value of their marital estate. This failuretodisclosewas fraud. The marital estate is sl-1property and assets belonging to either or both, however and whenever acquired. Section 40-4-202, MCA. Proper distribution of the marital estate cannotbemade unless the parties to a dissolution proceeding have informed the court of al.1 the marital assets and liabilities. In re the Marriage ofMadden (Mont. 1984)

### , 683 P.2d 493, 495,41 St.Rep. 1332, 1334.The second issue presented. for review is whether the District Court erred in concluding that Houston, Bauers as a.ssignees of Clark Brothers, and Western Equipment had standing to challenge the decree of dissolution and the incorporated property settlement agreement. The District Courtdid not err. We have already determined that the judgment obtainedby the Witbarts in their decree of dissolutionwas obtained by fraud for failure to disclose to the District Court the existence of certain liabilities. This fraud imposed on the District Courtandmisled it into a false judgment--one that, in this instance, wrongfully insulated property from creditors. The fra-udhere resulted in a judgment that adversely affected persons not before the court. The fraud

was collateral to the matters triedby the court. Such fraud. is extrinsic fraud. Hall

### v. Hall (1924),70Mont. 460, 467, 226 P. 469, 471. Extrinsic fraud justifies invoking the inherent equitablepower of a court to reopen and setaside a judgment. Selway v. Burns (1967), 150 Mont. 

### 1, 8, 429 P.2d 640,644. Relief froma judgmentobtained by extrinsic fraud may be granted on motion in the original action or in a separate suit in equity, that is, by independent action. Selway, 429 P.2d at 644. Houston and Bauers, as assigneesof Clark Brothers,were both creditors of Delhert Witbart at the time the Witbarts executed their separation agreement. Houston's and Bauersq interest could have been adequately protected if the District Court had been properly informed. Houston, Bauers as assignees of Clark Brothers, and Western Equipment were all assignees to the judgment fund. A certain amount of that judgment fund had been "secured"by a judgment obtained byfraud. Houston, Bauers as assignees of Clark Brothers, and Western Equipment were adversely affected by the fraudulently obtained judgment. They were sufficiently affected by the judgment so as towarrant their "standing to sue" in equity. We affirm.

We Concur: Justice