No. 84-50 

IN THE SUPREME COURT OF THE STATE OF MOlJTANA 

1984 

MELVYN G. STEVENSON, 

Plaintiff and Respondent, 

CLARENCE R. OWEN and 

MAR1 A. OWEN, 

Defendants and Appellants, 

and 

MARK0 MICI-IUNOVICH, 

Defendant and Respondent. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Carbon, 

The Honorable Diane G. Barz, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

A.L. Craddock, Red Lodge, Montana 

For Respondents: 

Towe, Ball, Enright and Mackey; Donald D. Sommerfeld, 

Billings, Montana 

Submitted on Briefs: May 24p 1984 

Decided : 

Filed: SEF' 1 d f984 

- - Clerk 
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of 

the Court. 

In an action to quiet title, the District Court of the 

Thirteenth Judicial District in the County of Carbon entered 

a judgment ordering defendants Owens to vacate the premises. 

Owens appeal. 

Respondent Stevenson brought this action to quiet title 

in Tract 1, Certificate of Survey No. 1055, Carbon County, 

Montana as to any claim, right, estate, title, lien or 

interest of appellants Owens and respondent Michunovich. 

The Owens, in a counterclaim against Stevenson and a 

cross-claim against Michunovich, sought relief of specific 

performance of contract for deed, money damages, foreclosure 

of purchaser's and mechanic's liens or, in the alternative, 

for reformation of contract. 

June 15, 1983 the matter was tried before the court 

sitting without a jury. The October 17 judgment favoring 

respondent Stevenson ordered appellants Owens to vacate the 

premises within thirty days of the entry of judgment. Owen's 

cross-claim against Michunovich was denied. 

Michunovich purchased Tract 1, Certificate of Survey No. 

1055, consisting of 25.369 acres located in Carbon County, 

from the Brangers. The transaction was consummated in a 

contract for deed dated August 15, 1978, referred to as the 

"Branger contract". 

On May 5, 1980 Michunovich entered into a contract for 

deed with Owens, the "Owen contract", whereby Owens agreed to 

purchase a 1.7 acre parcel carved out of the 25.369 acres 

being purchased by Michunovich under the "Branger contract". 

Terms of the "Owen contract" provided for a $45,000 purchase 

price payable $12,000 down, including $100 earnest money, the 

balance of $33,000 to be amortized in monthly installments of 

$302.76 through June 1, 1985 when the outstanding balance 

became due and payable. At closing, Owen's $12,000 down 

payment, less real estate commission and minimal costs, was 

2 
paid to and received by Michunovich. Pursuant to the 

contract, Owens took possession of the property on May 5, 

Escrow provisions in the "Owen contract' provided that 

the parties place all documents in escrow with the Montana. 

Rank of Red Lodge. Payments were to be made to the escrow 

agent. An escrow account was never opened. Owens made no 

monthly payments under the contract, although Owens maintain 

they were, at all times, ready and willing to bring the 

contract payments current. 

Paragraph XVIII of the "Owen contract" provided: 

"The parties agree that a certificate of survey 

prepared by a registered land surveyor eligible for 

recording with the Carbon County Clerk and Recorder 

is essential to the effective conveyance of the 

real property sold hereunder and that Seller shall 

pay all costs and expenses incurred in connection 

with the survey and the recording thereof. At such 

time as the sanitary restrictions of the Department 

of Health and Environmental Sciences of the State 

of Montana have been removed, and the certificate 

of survey has been recorded, the recordable 1ega.l 

descriptions will be attached to the deeds and 

Abstract of Agreement." 

Michunovich had a certificate of survey prepared by a 

qualified surveyor. He failed to file the certificate of 

survey on the 1.7 acre parcel because he did not satisfy the 

sanitary restrictions as required by state law for 

recordation. 

Michunovich was also responsible for obtaining a deed 

release from his sellers, the Branqers, for the 1.7 acres 

being purchased by the Owens. The contract provision 

entitled Paragraph XIX: "Existing Encumbrances" provided in 

pertinent part: 

". . . Seller agrees that within thirty days after 

the execution of this Contract, he will make every 

reasonable effort to secure from David H. Branger 

and Marjorie A. Branger an agreement which will 

guaranty Buyer herein delivery of a warranty deed, 

free and clear of all liens and encumbrances, upon 

payment in full of all sums due under this 

Contract. In the event that Seller is unable to 

secure such agreement, the down payment provided 

for in Schedule B shall be refunded to Buyer. And 

this agreement shall then be void." 
The final phrase, "and this agreement shall then be void", 

was hand written on the face of the typewritten contract 

following the word "Buyer1', a.nd initialled by all parties. 

Brangers refused to deliver a warranty deed. 

Mich.unovich defaulted on the "Branger contract". On 

November 28, 1980 the Brangers filed suit in District Court 

against Michunovich alleging breach of contract for his 

default on payments. 

Seven months after the execution of the "Owen contract" 

dated May 5, 1980, Michunovich served Owens with a "Notice of 

Termination" dated December 5, 1980. The Notice informed the 

Owens that: (1) Michunovich was unable to secure a deed 

release agreement from the Brangers; (2) the Owen Contract 

for Deed was terminated and the down payment under that 

contract would be refunded to the Owens within thirty days 

after receipt of this Notice; and, (3) the Owens shall 

surrender possession of the property and any improvements 

made thereon. The down payment was never refunded and the 

Owens refused to surrender possession. 

The "Notice" provision of the "Owen contract" required 

all notices given by either party to be in writing and 

delivered personally to the parties to be notified or sent by 

certified or registered mail to addresses specifically 

listed. 

Provisions for termination of the contract are 

established in paragraph VII, DEFAULT, as follows: 

"Should any default of the Buyer remain uncured for 

more than thirty days after written notice thereof 

to Buyer, then the whole of the payments due 

hereunder shall become due and payable within sixty 

days after said initial thirty day period, and upon 

nonpayment thereof, Seller may terminate this 

Contract without further notice. Said agreement 

shall be deemed terminated upon receipt by escrow 

agent of Seller1 s written, sworn, statement 

describing said default and the recording of a 

duplicate original thereof in the office of the 

Carbon County Clerk and Recorder. In the event of 

such termination, Buyer agrees, on demand, to 

surrender possession of said property and any 

improvements thereon, immediately and peaceably; 

and Seller shall be entitled to retain all payments 
made hereunder as reasonable rental for the use of 

said property and as liquidated damages. The 

remedy herein given to Seller shall not be 

exclusive of any other remedy, and the Seller may 

use any appropriate remedy to enforce compliance 

with the provisions of this Contract and to enforce 

collection from Buyer of any amounts due Seller, 

without accelerating the maturity of the unpaid 

balance or terminating the Contract all without 

prejudice to the privilege of Seller to 

subsequently accelerate the maturity of the balance 

or to terminate the Contract." 

February 5, 1981, Michunovich assigned all of his right, 

title and interest in and to the "Branger contractf' to Melvyn 

G. Stevenson, with the Branger's consent. Since Stevenson 

was able to bring the Branger-Michunovich contract current, 

the Brangers stipulated to a dismissal with prejudice of 

their lawsuit initiated against Michunovich. 

The Owens recorded a "Notice of Interest and Claim of 

Lien" on February 9, 1981 in Carbon County. They filed a 

"Purchaser's Lien" relative to the $12,000 down payment and a 

"Mechanic's Lien" for the labor and materials they invested 

in improvements to the property during their occupancy. No 

clause in the "Owen contract" prohibited the construction 

any improvements on the property. At no time did Michunovich 

require that the Owens cease making such improvements. 

A notice dated March 12, 1981 was served by Stevenson 

and Michunovich upon the Owens alleging Owen's default. No 

written, sworn statement by either Michunovich or Stevenson 

describing the default, as required by the "Owen contract", 

was ever recorded in the office of the Carbon County Clerk 

and Recorder. 

Stevenson commenced the present action on August 5, 1981 

to clarify title to the 25-acre tract of land, to seek 

judicial termination of the Michunovich-Owen contract and to 

seek judicial determination of the damages which Stevenson 

suffered as a result of the Owen's refusal to peaceably 

vacate the premises. 

At the date of this appeal, the Owens have refused to 

peacefully surrender possession and have failed to pay a 
reasonable rent for the use of the premises during their 

occupancy. 

The district court entered judgment which provided: 

"(1) That the $12,000.00 down payment paid by 

Defendants Owens shall be used as an offset against 

the reasonable monthly rental of $302.76 per month 

due from Defendants Owens to Plaintiff Stevenson 

from and after June 1, 1980. 

" (2) That Defendants Owens are not entitled to the 

value of any improvements which they claim were 

made to the property. 

" (3) That the liens filed by Defendants Owens are 

without basis and, by this Judgment, are 

extinguished; and 

"(4) That Defendants Owens are not entitled to 

possession of the property and must vacate the 

premises within 30 days of the entry of this 

Judgment." 

The judgment does not specifically ad.dress the contract 

between Owens and Michunovich, subsequently assigned to 

Stevenson. However, the trial court's memorandum which 

accompanies the judgment shows the trial court intended to 

find the contract was terminated when Michunovich served 

Owens with a "Notice of Termination" dated December 5, 1980. 

Although there is no conclusion of law or judgment which 

legally formalizes Michunivoch's action, such is necessarily 

the implication of the court's judgment directing Owens to 

relinquish possession within thirty days of the entry of 

judgment. 

Numerous issues have been raised by the parties. We 

find three issues dispositive of this appeal and the 

resolution of those issues requires a new trial. 

The court erred in making the following determinations: 

1. In finding that the "Owen contract" was terminated 

by the notice served December 5, 1980. 

2. In directing an offset against the down payment of a 

reasonable monthly rental in the amount of $302.76 per month 

in the absence of evidence regarding reasonable monthly 

rental value. 
3. In holding that Owens were not entitled to the value 

of improvements made upon the property. 

Michunovich sought to terminate the "Owen contract" 

pursuant to the provisions of paragraph XIX which provided 

that: "In the event that Seller is unable to secure such 

agreement, the down payment provided for in Schedule B shall 

be refunded to Buyer. And this agreement shall then be 

void. " (emphasis supplied) 

Return of the down payment was specifically provided as 

a condition which had to be met before the agreement would be 

void. The down payment was not returned. The trial court 

erred in finding Michunovich's notice terminated the 

contract. 

Upon remand the issue of whether Stevenson's default 

notice effectively terminated the "Owen contract" is an issue 

that will have to be resolved. If it is determined that the 

"Owen contract" was terminated by virtue of Owens' default in 

failing to make monthly payments, then attention nust be 

directed to the issues of reasonable rental value and value 

of improvements. If it is determined that the default notice 

was ineffective and that Owens are entitled to possession, 

those issues need not be reached. 

For guidance, we will briefly discuss our reasons for 

determining that the trial court erred respecting offset of 

reasonable rental value against the down payment, and in 

denying the Owens value of improvements made. 

If it be determined that Owens were in default and 

effectively terminated by the notice given by Stevenson dated 

March 12, 1981, then the Owens would be liable for the 

reasonable rental value of the property during the period of 

their holding. That figure may or may not be the amount 

provided for as a monthly installment payment in the 

contract. Independent evidence must be produced showing the 
reasonable rental value of the premises. Mecham v. Nelson 

(1969), 92 Idaho 783, 451 P.2d 529, 533. 

The issue of whether Owens are entitled to the 

reasonable value of improvements made, should it be 

determined that he must vacate the premises, is controlled by 

section 70-28-110, MCA, which provides: 

"When damages are claimed for withholding the 

property recovered upon which permanent 

improvements have been made by a defendant or those 

under whom he claims, holding under color of title 

adversely to the claim of plaintiff, in good faith, 

the value of such improvements must be allowed as 

setoff against such damage." 

Interpreting a similar statute, the Oregon Court of 

Appeals stated: 

"The allowance of a recovery from the owner for the 

value of improvements mistakenly put on the owner's 

premises is an application of the equitable rule 

which prevents unjust enrichment." Roesch v. 

FTachter (1980), 48 0r.App. 893, 618 P.2d 448, 451. 

This Court has defined "improvement" as: 

"An improvment must be permanent and it must 

enhance the value of the premises for general 

purposes. 41 Arn.Jur.2d Improvements §I." Overcast 

v. Akra (Mont. 1982), 642 P.2d 1058, 1062. 

Pursuant to section 70-28-110, MCA, one having 

possession must establish two elements before recovery for 

improvements can be made: (1) that possession was retained 

under color of title; and, (2) that the improvements were 

placed on the property in good faith. 

"Color of title" is defined as: 

"Color of title has reference to something which 

has the appearance or gives the semblance of title 

but is not such in fact . . ." Munkres v. Chatmon 

(Kan.App. 1979), 599 P.2d 314, 316. 

Upon retrial a factual determination must be made as to 

whether Owens placed the improvements on the property in good 

faith. Owens certainly held under color of title. Here the 

trial court may have been influenced by its erroneous holding 

that Owens' interest in the property terminated pursuant to 

Michunovich's notice of May 5, 1980. Since Owens were 

rightfully in possession subsequent to that date, the issue 
of "good faith" on Owens1 part in making improvements will 

have to be reevaluated. 

We have found it unnecessary to treat the validity of 

Owens' counterclaim. If it is determined that Owens were not 

in default, or that the Stevenson default notice was 

ineffective, then it follows that Owens' counterclaim will 

have to be addressed. 

The judgment of the trial court is vacated. The case is 

remanded for a new trial in accordance with the views herein 

expressed. 

We concur: 

Chief Justice - 't