No. 89-002 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION 

OF MISSOULA, a Corporation, 

Plaintiff and Appellant, 

-vsSTEVE R. ANDERSON and JEAN M. ANDERSON, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Fourth Judicial ~istrict, 

In and for the County of iss sou la, 

The Honorable James B. Wheelis, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

David J. ~ietrich, Boone, Karlberg & Haddon; is sou la, MT 

For Respondent: 

Samuel M. Warren, Worden, Thane & ~aines; w is sou la, MT 

Submitted on ~riefs: April 6, 1989 

Decided: ~uly .25, 1989 

I 

~iled: 

/ ._ 

I Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

First Federal Savings and Loan Association of Missoula 

appeals from an order of the ~istrict Court, Fourth Judicial 

~istrict, is sou la County, dismissing ~irst Federal's 

complaint to foreclose on a Deed of Trust on real property 

against Steven R. and Jean M. Anderson. 

The principal issue in this case is whether the decision 

of this Court in ~irst State Bank of Forsyth v. Chunkapura 

(1987) - Mont. - , 734 P.2d 1203, is applicable to the 

facts of this case. We hold that Chunkapura applies, and 

that ~irst Federal Savings and Loan may not procure from the 

~istrict Court a deficiency judgment on foreclosure of the 

Deed of Trust in this case. 

There is a procedural problem that needs our first 

attention. First Federal filed its verified complaint in the 

District Court on November 23, 1987. The complaint alleged 

that Steve R. Anderson and Jean M. Anderson had delivered 

over to First Federal Savings and Loan a promissory note for 

$38,250.00. As security for the note, the Andersons 

delivered to the American Land Title Company of Missoula, as 

trustee, a Deed of Trust to real property in the city of 

 iss sou la, conditioned on the full performance of the 

obligations of the promissory note and the Deed of Trust by 

the Andersons. The Andersons had defaulted in their payments 

on the note, and on the date of the filing of the complaint, 

owed to First Federal $34,365.45 with interest at 10% per 

annum from June 1, 1987. The verified complaint asked for 

judgment against the Andersons in the amount of the 

indebtedness not paid, accrued interest, late charges, costs 

of the suit, and attorney fees. 
The verified complaint further prayed that the Deed of 

Trust be foreclosed as a mortgage on the real property, and 

that the real property be sold by the county sheriff; that 

the purchasers at the sale have the right of immediate 

possession thereto, subject only to the redemption rights of 

the Andersons; and that if the proceeds of the sale be 

insufficient to satisfy the judgment as prayed for, that any 

deficiency remaining be entered as a deficiency judgment 

against the Andersons. 

The Andersons responded to the verified complaint, 

through their counsel, by filing a motion to dismiss under 

Rule 12(b)(6), M.R.Civ.P. upon the grounds that the complaint 

failed to state a claim against the defendants upon which 

relief could be granted. 

Further responding to the motion to dismiss, the 

Andersons filed an affidavit in which they recited that they 

had purchased the property in 1978 through a loan procured 

from First Federal; that for seven years, commencing 1978 and 

ending January, 1986, the Andersons had used and occupied the 

dwelling as a principal residence; that for approximately 18 

months, while the property was for sale, they had rented the 

real estate to various individuals to continue to make 

payments to ~irst Federal; and that in June, 1987, the 

Andersons decided they could no longer keep the property and 

requested ~irst Federal to accept a deed in lieu of 

foreclosure. In the meantime, the Andersons had purchased a 

second home. 

First Federal filed a memorandum objecting to the motion 

to dismiss and in it relied on facts in the Anderson 

affidavit, including (1) that commencing in January, 1986, 

the Andersons no longer used or occupied their dwelling as a 

principal residence; (2) that for approximately 18 

additional months they had rented the property to various 
individuals; and (3) that First Federal's role was not as a 

"vendor" but as a lender for the purchase of the property by 

the Andersons. 

First Federal further requested a hearing on the motion 

to dismiss which the District Court granted and set for 

November 4, 1988. In the meantime, however, the court issued 

its opinion and order dismissing the complaint on November 1, 

1988. 

In rendering its opinion of dismissal, the District 

Court obviously relied on references to the Andersons' 

affidavit, including that the Andersons had offered to give a 

deed in lieu of foreclosure; that the Andersons resided in 

the property for over seven years; and that First Federal was 

not entitled to a deficiency judgment although the real 

property was no longer occupied by the original obligors, who 

were using the real estate as rental property. 

The order of dismissal entered bl7 the ~istrict Court 

does not specifically refer to Rule 56, M.R.civ.P. It is, 

however, obvious that the ~istrict Court had converted a Rule 

12(b) (6) motion to dismiss into a Rule 56 motion for summary 

judgment. This Court has held that when a district court 

intends to convert a Rule 12 motion to dismiss into a Rule 56 

motion for summary judgment, that it should give notice to 

the parties of its intention to consider materials outside 

the pleadings. Gebhardt v. D.A. avids son and Company (1983), 

203 Mont. 384, 661 P.2d 855. 

It is true that in ordinary circumstances this Court 

requires that when a district court intends to treat a motion 

to dismiss as a motion for summary judgment under our Rules 

of Civil Procedure, that it must first give notice to the 

parties of its intention to do so. Gebhardt, supra. The 

reason for our requirement is that opportunity is then given 

to the party opposing summary judgment or the motion to 
dismiss to produce additional facts by affidavit or otherwise 

which would establish a genuine issue of material fact and so 

preclude summary judgment under Rule 56. In this case, 

however, First Federal, in responding to the motion to 

dismiss and the affidavit supplied in connection therewith, 

adopted -- from and relied - on certain facts from the affidavit 

on which to base their argument to the District Court that 

Chunkapura does not apply to this case and that ~irst Federal 

was entitled to a summary judgment. 

Trust indentures (or as they are sometimes known, deeds 

of trust or trust deeds), used as security instruments in 

Montana, are creatures of the "Small Tract ~inancing Act of 

Montana", §§ 71-1-301, -321, incl., MCA. From the verified 

complaint, the facts alleged in the Anderson affidavit as 

relied on and adopted by ~irst Federal and the applicable 

statutes gave the court sufficient basis on which to rule as 

to whether Chunkapura applied in this case. In like manner, 

these facts are sufficient for this Court to make a ruling on 

appeal. Although the District Court erred in not giving the 

notice required that it intended to treat the motion to 

dismiss as a motion for summary judgment, the matter will not 

be reversed or remanded to the District Court when the 

eventual result in the District Court would be the same. In 

Re ~arriage of Cannon (1985) , - Mont . , 697 P.2d 901; 

Kirby Company of Bozeman, Inc. v. Employment security 

Division of Montana (1980), 189 Mont. 1, 614 P.2d 1040. 

We proceed now to the principal issue in this case, 

whether our decision in Chunkapura precludes a deficiency 

judgment against the Andersons. 

The deed of trust in this case was issued pursuant to 

the authority of the Small Tract ~inancing Act of Montana, 

enacted in 1963. In Chunkapura, this Court had occasion to 

interpret that. Act as to whether a deficiency of judgment 
could be obtained against the borrowers, after a sale of the 

mortgaged property (for want of a better term, we will refer 

to the real estate in this case as the "mortgaged property"; 

under 5 71-1-305, MCA, a trust indenture is deemed to be a 

mortgage on real property and subject to all laws relating to 

mortgages on real property except to the extent that such 

laws are inconsistent with the Small Tract Financing Act of 

Montana). Before the adoption of the Act, there was only one 

form of mortgage foreclosure in Montana (5 71-1-222, MCA) and 

that procedure allowed a deficiency judgment against the 

mortgagor unless a power of sale was utilized under 5 

71-1-223, MCA. Chunkapura noted: 

The banking and lending industry came to the 

legislature in 1963, contending that the "one 

action rule1' and the attendant right of redemption 

and right of possession rules hampered the 

financing of improvements on small tracts in 

Montana because banks and investors were unwilling 

to invest in mortgages when on default their funds 

would be tied during the period of redemption. A 

quid pro quo was proposed to the legislature: the 

legislators would give up their deficiency rights 

on default, if the borrowers would give up their 

rights of possession and redemption. The result 

was the adoption by the legislature of the Small 

Tract Financing Act of Montana, originally limited 

to tracts of three acres, but now may involve 

tracts as large as fifteen acres. 

This Court held in Chunkapura, that under the Small 

Tract Financing Act, even though the beneficiary of a trust 

indenture could foreclose on the trust indenture by judicial 

procedure as provided by (S 71-1-304(3), MCA). Nevertheless, 

the provisions of 5 71-1-317, MCA, providing that a 

deficiency judgment was not allowed, applied to all uses of 

the trust indenture. On rehearing, we modified that holding 

saying: 
In Chunkapura, we have before us only a trust deed 

related to an occupied, single family residential 

property. It is suggested by amicus First 

Interstate Bank of Missoula that our opinion should 

be limited in effect to the kind of security before 

us in Chunkapura, and similar cases involving 

residential property. We agree. 

734 P.2d at 1210-1211. 

First Federal argues that because the Andersons no 

longer occupy the property themselves, and in fact, rent the 

premises, that they are not entitled to the benefit of the 

Chunkapura holding that deficiency judgments are not allowed. 

On that point, we disagree with First Federal, and uphold the 

decision of the District Court that Chunkapura does apply. 

When First Federal accepted a trust indenture for the 

mortgaged property, the trust deed related to an occupied, 

single-family residential property. At the time of its 

proposed foreclosure by First Federal, the property remained 

a single-family residential property, albeit sometimes 

occupied by renters. The property fits the Chunkapura 

exception and we hold that First Federal may not obtain a 

deficiency judgment against the Andersons after the sale of 

the mortgaged property. Hand in hand with that holding, as 

in Chunkapura, the Andersons are not entitled either to a 

right of possession after 10 days from the sale, or to a 

right of redemption for a period of one year. 

First Federal also argues that dismissal of its 

foreclosure action was improper because First Federal may 

have wished to foreclose on personal as well as real 

property, and that the foreclosure action was the vehicle for 

such action. However, nothing of this appears of record, or 

in the pleadings, and we give no weight to that argument. 

The Andersons also argue that because First Federal 

supplied the finances which enabled the Andersons to enter 
into the purchase of the subject property that Andersons are 

entitled to the protection of § 71-1-232, MCA, which 

precludes a deficiency judgment on foreclosure of a purchase 

money mortgage. Our interpretation of that statute is that a 

mortgagee who is not the vendor of the property, but who 

assumes the status of a mortgagee to secure a loan used for 

the purchase is not prohibited from a deficiency judgment 

under 5 71-1-232, MCA. Aetna Life Insurance Company v. Slack 

(19881, - Mont. - , 756 P.2d 1140. 

There is a side issue to this case relating to attorney 

fees. The Andersons contend that the appeal by ~irst Federal 

in this case was premature, and that First Federal should 

have waited to appeal until the court determined the 

Andersons' rights to attorney fees after the dismissal. 

~irst Federal, on the other hand, contends that the issue of 

attorney fees was not necessary to the final judgment and 

that the appeal is not premature. 

~either party is entirely correct on this issue. Under 

S 71-1-320, MCA, in the event of a foreclosure of a trust 

deed by advertisement and sale, the total of the reasonable 

attorney fees and trustee fees shall not exceed 5% of the 

amount due on the obligation, both principal and interest, at 

the time of the trustee's sale. In this case, ~irst Federal 

had requested attorney fees and alleged the sum of $2,500 as 

a reasonable fee, in addition to further fees if the case was 

contested. That request would exceed the 5% limitation in § 

71-1-320, MCA. On the basis of reciprocity, § 28-3-704, MCA, 

the Andersons are entitled to reasonable attorney fees in the 

District Court and on appeal, to be fixed by the District 

Court, in addition to the usual costs. On foreclosure, First 

Federal is entitled to its attorney and trustee fees granted 

by S 71-1-320, MCA. 
The order of dismissal by the District Court is 

affirmed. 

We Concur: 

\ 

/ .i Justice t 
Mr. Justice Fred J. Weber specially concurs and dissents as 

follows: 

I have reviewed Chunkapura. While I dissented, I agree 

with the majority conclusion that a deficiency judgment is 

not allowed in the present case under the precedent of 

Chunkapura. 

The majority opinion quotes from that portion of 

Chunkapura which noted that the banking and lending industry 

came to the legislature in 1963 and proposed a quid pro quo 

under which the banking industry would give up deficiency 

rights in return for the giving up by borrowers of the right 

of possession and redemption. I conclude that the record in 

the present case and the record in Chunkapura do not demonstrate the presence of any such exchange. I have reviewed 

the Small Tract Financing Act and find nothing to indicate 

any such quid pro - quo. I dissent from the conclusion based 

on a claimed exchange of benefits which is not substantiated 

by the record. 

I also dissent from the conclusion that First Federal is 

only entitled to attorney fees and trustee fees in the aggregate not exceeding 5% of the amount due on the obligation. 

Section 71-1-320, MCA, in relevant part states: 

Reasonable trustees' fees and attorneys' fees to be 

charged to the grantor -- in the event of foreclosure 

f. 

bv advertisement -- and sale shall not exceed. in the 

aggregate, 5% of the amount due on the obligation, 

both principal and interest, at the time of the 

trustee's sale. (Emphasis supplied.) 

The statutes demonstrate that the 5% limitation applies only 

where the lender seeks to foreclose by advertisement and sale 

through a trustee under a deed of trust. That was not the 

procedure followed in the present case. Here the complaint 

was filed in the District Court for judicial foreclosure. 
The statutes allow First Federal to proceed through judicial 

foreclosure as described in S 71-1-311, MCA. First Federal 

here was entitled to proceed with judicial foreclosure even 

though Chunkapura may establish a limitation on deficiency 

judgment. The summary judgment denied that procedure to 

First Federal. The effect of the decision is to dismiss the 

judicial foreclosure which does not have a 5% limitation and 

then to apply the limitation. I do not agree with that 

reasoning. 

Justice L. C. Gulbrandson joins in the/foregoing dissent. 

,/ Justice