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IN THE SUPREME COURT OF THE STATE OF IDAHO

Docket No. 43747

AGSTAR FINANCIAL SERVICES, ACA,

 Plaintiff-Respondent,

v.

GORDON PAVING COMPANY, INC.;

NORTHWEST SAND & GRAVEL, INC.;

BLACKROCK LAND HOLDINGS, LLC;

BRANDON HANSEN, an individual;

BRIAN HANSEN, an individual; 

CAROL HANSEN GPC NEVADA TRUST;

CRAIG HANSEN GPC NEVADA TRUST;

CANYON EQUIPMENT AND TRUCK

SERVICE, INC.; DOE ENTITIES OWNED

BY BRIAN, BRANDON AND CRAIG

HANSEN,

 Defendants-Appellants.

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Boise, December 2016 Term

2017 Opinion No. 18

Filed: February 27, 2017

Stephen Kenyon, Clerk

Appeal from the District Court of the Fifth Judicial District of the State of Idaho, 

Twin Falls County. Hon. Randy J. Stoker, District Judge.

The judgment of the district court is reversed.

Robinson & Tribe, Rupert, for appellants. Brent T. Robinson argued.

Givens Pursley LLP, Boise, for respondent. Kersti Kennedy argued.

 _______________________________________________

J. JONES, Justice Pro Tem.

Gordon Paving Company, Inc., Northwest Sand & Gravel, Inc., Blackrock Land 

Holdings, LLC (collectively, “Gordon Paving”), Brandon Hansen, an individual, Brian Hansen, 

an individual, Carol Hansen GPC Nevada Trust, Craig Hansen GPC Nevada Trust, Canyon 

Equipment and Truck Service, Inc., and Doe Entities owned by Brian, Brandon, and Craig 

Hansen (collectively “Guarantors”) appeal from the judgment entered following the district 
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court’s denial of their motion to set aside default in a breach of personal guarantee action brought 

by AgStar Financial Services, ACA (“AgStar”). We affirm.

I.

FACTUAL AND PROCEDURAL BACKGROUND

Between 2007 and 2008, Gordon Paving borrowed $10 million from AgStar. In addition 

to real and personal property collateral, the indebtedness was secured by separate guarantee

agreements executed by Guarantors. By 2012, Gordon Paving had defaulted and AgStar sued for 

foreclosure.

On June 19, 2013, the district court entered a Judgment and Decree of Foreclosure 

against Gordon Paving. AgStar purchased the real property collateral at a foreclosure sale with 

credit bids totaling $7,200,000. Following the sale, AgStar moved for entry of a deficiency 

judgment for the difference between the unpaid judgment as of the time of the sale and its credit 

bids for the real property. The district court denied AgStar’s motion for a deficiency judgment, 

finding that the reasonable value of the properties that AgStar purchased by credit bids was 

nearly two million dollars greater than Gordon Paving’s indebtedness. Gordon Paving appealed 

to this Court. In an Opinion issued on February 24, 2017, we held that Gordon Paving’s 

indebtedness to AgStar had been fully satisfied and discharged. AgStar Financial Services v. 

Northwest Sand and Gravel, Docket No. 42932 (AgStar I). 

On June 1, 2015, AgStar brought the present action against Guarantors, advancing a 

number of theories, including breach of personal guarantee. On July 8, 2015, AgStar filed its

Application for Entry of Default against Guarantors. On July 9, 2015, the district court entered 

default against all defendants.

On July 15, 2015, Guarantors filed a motion to set aside the default and moved to dismiss 

the action based on res judicata. On October 19, 2015, the district court heard the motions and 

denied the motion to set aside the default, holding that Guarantors had not shown the existence 

of a meritorious defense. The district court then entered a judgment against Guarantors on the 

cause of action based on breach of their personal guarantees. AgStar agreed to dismiss the other 

claims with prejudice because the judgment on the guarantees represented the total remaining

amount due on Gordon Paving’s indebtedness. On November 12, 2015, AgStar moved for an 

award of attorney fees and costs. On December 18, 2015, the district court awarded AgStar 

attorney fees and costs after Guarantors failed to file a timely objection. Guarantors timely 

appealed.
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II.

STANDARD OF REVIEW

A court may set aside an entry of default for good cause. I.R.C.P. 55(c). The power of a 

trial court to grant or deny relief under Rule 55(c) is discretionary. McGloon v. Gwynn, 140 

Idaho 727, 729, 100 P.3d 621, 623 (2004). “When a default judgment is predicated upon an 

erroneously entered default, the judgment is voidable.” Id. Because judgments by default are not 

favored, a trial court should grant relief in doubtful cases in order to decide the case on the 

merits. Jonsson v. Oxborrow, 141 Idaho 635, 638, 115 P.3d 726, 729 (2005). 

Two requirements must be met to set aside a default judgment. Under rule 

60(b)(1), a party may ask for relief from a default judgment on the grounds of 

mistake, inadvertence, surprise, or excusable neglect. In addition, the moving 

party must plead facts which, if established, would constitute a meritorious 

defense to the entry of default. 

Clear Springs Trout Co. v. Anthony, 123 Idaho 141, 845 P.2d 559, 561 (1992). The meritorious 

defense requirement is a pleading requirement, not a burden of proof. Cuevas v. Barraza, 146 

Idaho 511, 518, 198 P.3d 740, 747 (2008). “To establish a meritorious defense, a party moving to 

set aside a default judgment is not required to present evidence in order to have the default 

judgment set aside.” Id.

“A trial court’s refusal to set aside a default judgment is reviewed under an abuse of 

discretion standard.” Idaho State Police ex rel. Russell v. Real Prop. Situated in Cnty. of Cassia, 

144 Idaho 60, 62, 156 P.3d 561, 563 (2007). “The decision will be upheld if it appears that the 

trial court (1) correctly perceived the issue as discretionary, (2) acted within the boundaries of its 

discretion and consistent with the applicable legal standards, and (3) reached its determination 

through an exercise of reason.” Id.

III.

ANALYSIS

The district court determined that the Guarantors had shown excusable neglect sufficient 

to satisfy Rule 60(b)(1) but that the Guarantors had failed to present a meritorious defense. The 

question presented on appeal is whether the court erred in concluding the Guarantors had not 

advanced a meritorious defense. The district court explained its conclusion as follows:

The meritorious defense that is being raised in this case with regard to 

defendants Brian Hansen; Carol Hansen, GPC Nevada Trust; and Craig Hansen, 

GPC Nevada Trust, is that the personal guarantee claim should have been raised 

in the first lawsuit between AgStar and Gordon Paving and others. The court 

finds, over the objection of these three defendants, based upon the supreme
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court’s ruling in First Security Bank of Idaho versus Gaige, G-a-i-g-e, 115 Idaho 

172, 1988, that the operation of the antideficiency statute as applied to deeds of 

trust in that case is likewise applicable to the antideficiency statute relating to the 

mortgage in this case, albeit they are separate and distinct statutes; same principle, 

in my view, and the Court ruled that the antideficiency statute does not preclude a 

separate and distinct action by guarantors to enforce a debt. I realize there’s some 

exceptions, some differences in this First Security Bank case because the case 

never went to an actual deficiency hearing, but doesn’t matter. If the statute 

doesn’t apply, it doesn’t apply whether it was or wasn’t a deficiency. And 

therefore, as to those three defendants, there is no meritorious defense, as a matter 

of law, that can be raised, and that is the only meritorious defense that has been 

raised to set aside the default.

The district court misconceived the basic thrust of the Guarantors’ argument. The 

Guarantors did invoke Idaho Code section 6-108 and also asserted that AgStar’s right to recovery 

on the guaranteed debt was precluded by the doctrine of res judicata. However, the district court 

overlooked how the Guarantors wove those arguments together at the hearing on the motion to 

set aside the default. 

Considered as a whole, the Guarantors’ argument was that AgStar was not entitled to 

recover additional monies from them because the debt they had guaranteed had been fully paid 

by virtue of the foreclosure. In response to a question from the district court regarding why 

AgStar could not pursue a personal guarantee, counsel for Guarantors responded “you can’t 

collect twice.” He continued:

If you’re entitled to a hundred thousand dollars, and you get the hundred thousand 

dollars from the initial party, the party who’s agreed to pay the debt, you can’t 

turn around and sue the guarantors for something that gets you duplication. . . . If 

[AgStar had] sold that property for, instead of 7 million, sold it for 9.5 million, we 

wouldn’t be here today. Couldn’t be here today because of the fact is that they had 

sold it, and they bought the property at the sheriff’s sale for the 9.5 million. Then 

the result is they have no underlying debt. Debt’s paid. How do they then go after 

the guarantors for a debt that’s been paid. 

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So when the court finds that [the property is] worth more than [AgStar is] 

owed, the result should be the same. How do they now have a debt that they can 

use and collect from the guarantor? Guarantors? Because they’ve been paid. 

A fair reading of what the Guarantors were asserting is that the district court in AgStar I

had determined AgStar acquired real property in the foreclosure whose reasonable value 

exceeded the debt, that AgStar had thus been fully paid and that it was entitled to no further 

recovery against any of the defendants. The defense would be more properly characterized as a 
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claim of extinguishment of the guaranteed debt by payment, rather than anything else. This case 

is somewhat akin to Maynard, where this Court, after observing that the “district court merely 

mischaracterized the nature of the [defendants’] meritorious defense,” took a fresh look at the 

facts alleged and then put them in proper context. Maynard, 152 Idaho at 729, 274 P.3d at 594. 

The district court could not have known how we would decide AgStar I, but the 

Guarantors’ argument fairly well tracks with the decision made by this Court in that case. In 

AgStar I, we observed:

[Th]e district court determined that by virtue of the foreclosure on the real 

property, AgStar obtained title to real property worth, at the least, $1,896,765 

more than the amount Gordon Paving owed to AgStar. Stated another way, the 

reasonable value of the foreclosed properties exceeded AgStar’s credit bids by at 

least $4,510,105. AgStar did not appeal the district court’s valuations. 

Id. at 10. We continued:

The question before this Court is whether, in spite of the surplus value 

received by AgStar in the real property foreclosure, AgStar was entitled to obtain 

additional recovery by realizing upon its personal property collateral. We hold 

that Gordon Paving’s indebtedness to AgStar had been fully satisfied and it was

not entitled to seek additional monies from Gordon Paving. 

Id. at 11. We concluded:

The reasonable value determined by the district court should have been credited 

against Gordon Paving’s outstanding obligation, thereby resulting in full 

satisfaction of the debt. We hold that AgStar was more than made whole by virtue 

of the foreclosure and was entitled to no other recovery. Thus, we reverse the 

district court’s decision allowing AgStar to sell the personal property.

Id. at 20. 

In making its decision in this case, the district court relied on First Sec. Bank of Idaho, 

N.A. v. Gaige, 115 Idaho 172, 765 P.2d 683 (1988). That case is good law, but it does not have 

application here. There are two critical differences between this case and Gaige. First, in Gaige

the secured creditor did not seek a deficiency judgment. Id. at 173, 765 P.2d at 684. Thus, there 

was no contested proceeding to determine the reasonable value of the real property and no 

opportunity to determine whether the amount credited against the debtor’s obligation should 

have been a different amount than First Security’s credit bid. Second, there is evidence in the 

record that First Security, which “was the highest bidder” at the sale, paid very close to market 

value. Id. The bid was not a low-ball bid, as determined by the district court in AgStar I. 
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Based on this Court’s decision in AgStar I, it is rather apparent that the Guarantors 

asserted a meritorious defense to AgStar’s action against them on the guarantee. Therefore, the 

district court (unknowingly) abused its discretion and acted inconsistent with applicable legal 

standards in failing to set aside the default judgment. The indebtedness to AgStar, which the 

Guarantors had guaranteed, was fully satisfied and extinguished in AgStar I and there is no basis 

for any recovery here against the Guarantors. 

The Guarantors seek attorney fees on appeal pursuant to Idaho Code section 12-120(3). 

The Guarantors have prevailed on appeal and they are entitled to recover their attorney fees

under Section 12-120(3).

IV.

CONCLUSION

We reverse the judgment of the district court and award Guarantors their costs and 

attorney fees on appeal.

Chief Justice BURDICK and Justice W. JONES CONCUR.

Justice EISMANN, dissenting.

I cannot concur in the majority opinion because it is contrary to the law.

The issue is whether Guarantors, who guaranteed promissory notes secured by mortgages 

on real property, can be held liable on their guaranties when the proceeds of the foreclosure sales 

of the mortgaged properties is not sufficient to pay the balances owing on the notes secured by 

those mortgages.

Guarantors do not have the protection of Chapter 6, Title I, of the Idaho Code. Neither 

Idaho Code section 6-101, which requires the foreclosure of a mortgage in order to recover on a 

debt secured by that mortgage, nor Idaho Code section 6-108, which limits the amount of a 

deficiency judgment against the mortgagor, applies to an action to recover against a guarantor of 

a note that is secured by a mortgage. 

In Jeppesen v. Rexburg State Bank, 57 Idaho 94, 62 P.2d 1369 (1936), this Court held 

that a bank could collect against an indorser on a promissory note without first seeking to 

foreclose the mortgage secured by that note, where the promise to pay on default of the maker 

was not secured by the mortgage. Id. at 101, 62 P.2d at 1372. This Court reasoned as follows:
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When a debtor gives a mortgage to secure his debt, he gives his creditor a 

lien on his property and thereby authorizes him, at maturity of the debt, to proceed 

in rem against the property for the amount of the debt. This necessarily impairs 

the debtor’s credit to that extent; and it was the evident intention of the 

Legislature, by enacting section 9-101 [former Idaho Code section 6-101], to 

require the creditor to proceed for collection of the debt (if not paid in due course) 

against the property, and to exhaust the security before being allowed to acquire 

any personal judgment against the debtor. . . . .

Here the indorser has not mortgaged any of his property as security, either 

for the primary obligation, that is, the debt of the maker, or for his secondary 

obligation as indorser; and so far as his debt is concerned, whenever or however it 

accrued, it is unsecured by any mortgage on property of any kind.

Id. at 99, 62 P.2d at 1371.

In First Security Bank of Idaho, N.A. v. Gaige, 115 Idaho 172, 765 P.2d 683 (1988), this 

Court held that Idaho Code section 45-1512, which limits the amount of a deficiency judgment 

on an obligation secured by a deed of trust, did not apply to a guarantor of the obligation. Id. at 

174, 765 P.2d at 685. We declined to legislate from the bench and create a rule protecting the 

guarantor from the terms of his contractual obligation, stating: “While there may be arguments 

for extending anti-deficiency protection to guarantors, that action is for the legislature to do, not 

the court. . . . We deem it better policy to follow the wording of the statute and leave any 

expansion of coverage to the legislature.” Id. at 174–75, 765 P.2d at 685–86.

After our Jeppesen and First Security Bank opinions, the Idaho legislature has not acted 

to protect guarantors of obligations secured by mortgages or deeds of trust. In this case, the 

majority steps in to allow guarantors to escape the consequences of their guaranties. As 

explained in my dissent in AgStar Financial Services, ACA, v. Northwest Sand & Gravel, Inc., 

the majority does so by creating a fiction that the value of the real property sold constitutes the 

proceeds from the sale of that property. Using that fiction, the majority holds that the debts that 

Guarantors guaranteed have been paid in full. As I stated in my dissent in AgStar Financial 

Services, ACA, v. Northwest Sand & Gravel, Inc.: “I cannot agree with the majority because I 

believe that the Court should follow the applicable law. I would decide this case simply by 

following the statute.”

Justice HORTON CONCURS.