No. 87-80

INTHE SUPREME COURT OF THE STATEOF MONTANA
1987

JOANMcWILLIAMS, Plaintiffand Respondent,-vsJEAN CLEM,CLEM'S WORD PROCESSING CENTER,CLEM'S PLACEMENT SERVICE, DEEANN LANGEL and STANTENMEY, Defendants andAppellants,-vsGEORGEMcWILLIAMS, Third PartyDefendant.

APPEAL FROM: District Court of the Eighteenth JudicialDistrict, Inand for the County of Gallatin, TheHonorable ThomasA. Olson, Judgepresiding.

COUNSELOF RECORD:

ForAppellant: Wellcome, Frost & Bartlett; Albert Frost, Bozeman, Montana Corette, Smith,Pohlman & Allen; Lisa Swan,Butte, Montana Eula Compton,Bozeman, Montana

For Respondent: Heberling Law Firm;Allan McGarvey, Kalispell, Montana Karl Knuchel, Livingston,Montana

Submitted on Briefs: June 

### 4, 1987 Decided: September 10, 1987

Filed:

## SEPI01987

ClerkMr. Justice John C. Sheehy delivered the Opinion of the Court.

We have here a casewhere a notarypublic, at thebehest of a husband, took the acknowledgmentof a deed transferring real property without the notary knowing or having satisfactory evidence that the wife, whose name appeared on the deed as a signator-grantor,was the individualdescribed in and who executed the deed. The wife was not present before the notary public at the time of the acknowledgment,

nor was contact made with the wife by the notary public. Nevertheless, the notary public signed the certificate of acknowledgment contained in the deed instrument as if the wife had personally appeared before the notary public and made the acknowledgment. We determine principally that the notary public was negligent in the performance of official duty, and is liable for such damages as are proximately causedby suchnegligence. This appeal comes to us from the District Court, Eighteenth Judicial District, Gallatin County, Montana. Judgmentwas enteredby the court,sitting without a jury,in favorof thewife,JoanMcWilliams,holding that the deedwas void as to Joan; that Joan should recover $19,950 from the notary public for loss of use, and $17,000 in attorney fees; and thatDeeAnn Langel, the grantee in the deed,was jointly and severally liable with the notary public for Joan's loss of use in the sum of $19,950. Jean Clem, Clem's Word Processing Center, Clem's Placement Service,Dee Ann Langel and Stan Tenney, all appeal from the judgment, some from different facets of the judgment, which will be explained as we go along.In the issues presented on appeal,no attack ismade by the appellantson the findingsof factof theDistrictCourt. We utilize those findings therefore as background for this

case.George and Joan McWilliamswere married in 1955. Eight children were born to their marriage. They constructed a residence in 1975 large enough to accommodatetheir family on the real property here involved. The residencewas subject to a trust indenture in the principal amount of $70,000, for

a loan in 1976 by Home Federal Savings and LoanAssociation. During the course of their marriage, George McWilliams handled all of the business transactions of the family, and Joan relied on him for all business decisions. Joan is not knowledgeable in the ways of business or law. She denied ever knowingly signing blank documents and claimed that she tried to understand what she was signing. She admitted sometimes that her husband pressured her to sign documents without explanation. She never knew the extent of her husband's business orpersonaldealings. In 1980,the McWilliams' subdivided their realproperty into building lots called Tracts A and B with the residence located on TractA. Joan McWilliams left the residence in June, 1980. At the time, thepropertywas ingood conditionand had a rental value of $700 to $800 per month and a fair market value of $165,000. Tract B was valued at $30,000. Joan McWilliams knew the property had been listed for sale, and from her husband's statements, she believed that the property was rented. In 1981,JoanMcWilliamsmoved to Ft. Collins,Colorado. The parties separated in June, 1981, and thereafter, the contacts were very limited because there had been a violent encounter a.t the time of the separation. At times,Georgewould return without hiswife's consent to her apartment and stay overnight. Their feelings after the date of separation were not amicable, and there were no business dealings after the separationdate. From June, 1980, to June, 1981, the residence was vacated and had fallen into disrepair. Thomas and Dee Ann Langel moved to the property on June 14, 1981, as a rental and later purported to purchase the residence. After they moved in, they did considerable work on the residence in the form of repair and replacement. By warranty deed dated August 26, 1981, George McWilliams and Joan McWilliams purported to sell their interest in both Tracts A and B to Dee Ann Langel. The court found,however, that the evidence established that Joan C. McWilliams did not sign the deed, although her signatureon the deed is legitimate. The court stated, "George McWilliams somehow obtained her signature prior to that time, and, thereafter, filled in the information to convey Tracts A and B to DeeAnn Langel. The deed was then presented to Jean Clem for completion of the acknowledgment,and notarizationof the deed." The court found that Jean Clem, as a notary public, did not make the necessary verification that Joan C. McWilliams had signed the deed, nor did she require that Joan C. McWilliams appear before her and make the acknowledgment. When Home Federal Savings and Loan Association found out about the deed, it declared the unpaid balance on the trust indentureof $66,012.31 accelerated and demandedpayment. On January 28, 1982, an agreement was made with Home Federal Savings and Loan Association whereby Thomas and Dee Ann Langel agreed to assume the loan at an increased interest. The modification agreement contained a forgery of Joan C. McWilliamslsignature.At the time of the acknowledgment, Joan McWilliams was living in Colorado. In September, 1982, she heard from an acquaintenance that the house had been sold. She expressed surprise and shock at this information and investigated the matter in December, 1982, in Bozeman,Montana. She obtained

a copy of the Langel deed at the courthouse and confronted Jean Clem about the improper acknowledgment. Jean Clem admitted that she assumed Joan McWilliams' signature was legitimate and stated she had similarly completed acknowledgementsof existing signatures forGeorge McWilliams at other times. Joan McWilliams also confronted Thomas Langelandwas then shown documentsof sale. The District Court outlined other questionable transactions that had occurred at and following the time of the purported transfer of the real property from the McWilliams' to Dee Ann Langel. George McWilliams obtained a $30,000 loan fromWestern Federal on August 26, 1981,forging hiswife's signatureon the loan documents. Of thisborrowed amount, $25,000was said to be credited to Thomas Langel as a downpayment on the residence,with McWilliams also receiving

a lot in a subdivision known as Hyalite Foothills. Langel

was abusiness associateat times with McWilliams. The court found that Thomas Langel was "also prone to questionable business transactions." As an example, on August 27, 1981,

one day after the purported purchase of the residence, he caused a contract for deed to be prepared for Tract B. A friend,Stan Tenney, a Bozeman police officer, was said tobe the purchaser, and the purchase pricewas listed at $37,500, although no considerationwas ever paid. Langel caused the contract tobe sold toGallatinDairy pensionplan and agreed privately with Tenney to make the Tenney payments to the pensionplan. This fictitious transactionapparentlywas for thepurpose ofraisingmoney forLangel.No title insurancewas obtained concerning thepurported transfer from the McWilliams to Dee Ann Langel in August, 1981. In September, 1982, Joan McWilliams found unsigned deeds dated November, 1981,with the McWilliams as grantors and Thomas and Dee Ann Langel as grantees of Tract A and B respectively. In the meantime, Joan McWilliams had been pursuing dissolution of marriage proceedings in Colorado, and had hired a Colorado attorney. The divorce actionwas commenced in January, 1983, in Colorado and a decree was obtained in April, 1985. The Colorado attorney attempted to locate property hidden by George McWilliams but was unable to satisfactorily accomplish this task. In June, 1984, the Colorado attorney arranged for Joan McWilliams to be represented by her present Montana attorneys who filed a complaint on August 27, 1984, seeking to nullify the purportedMcWilliams/LangeltransferofTracts A and B. The court found that Joan McWilliams, having received $3,500 in support from George McWilliams ended up onwelfare and she and her family sold all of her possessions including their clothes to survive. DeeAnn Langel,thepurported transferee under the deed, lost the house at a foreclosure sale in February, 1986. Joan McWilliams lacked funds to redeem theproperty in the amount of $7,000,and did not have the ability topay the balance of the loan. Later, Dee Ann Langel made arrangements with the bank to repurchase thehouse. Neither Thomas nor Dee Ann Langel ever dealt with Joan McWilliams concerning the property and she received no consideration from the transfer. Jean Clems, a notary public, operates a typing and copying serviceand performs secretarial services for persons inneed thereof. Shedid not charge fees forher services inthis transaction. George McWilliamswas a customer and used her telephone answering service and other clerical services. The Colorado petition for dissolution ended in a decree

on April 23, 1985. The proceedings included a separation agreement dated October 15, 1984. Distributedby the terms of the agreement were the household items in the possession of each party, motor vehicles and certain debts incurred by Joan McWilliams in Ft. Collins, Colorado. The agreement provided for maintenance, child support and delinquent support. The parties then released all rights, including property rightsand claims which each might have against each other. The four page agreement was said to include all of the agreements made between the parties. The complaint in the present action, filed by the Montana attorneys was filed on August 27, 1984. The agreement made no mention of this action. Although George McWilliams has served as a third-party defendant in this action and was at one time represented by

an attorney who later withdrew, he made no appearance personally orby counsel at the trial. Based on those findings of fact, the District Court concluded and accordingly entered judgment, declaring that Joan McWilliams was entitled to an undivided one-half interest in and to Tracts A and B; that Jean Clem had negligently completed the certificate of acknowledgment on the deed and had violated her duties as a notary public by certifying that she had personally taken the acknowledgment of Joan McFJilliams signature; that thereby Joan McWilliams suffered a cloud upon her title and lost the use of the property resulting in the saleofTract A at a trustees sale; that she was forced to bring this action to set aside the conveyance and to clearher title and incurred attorney fees and costs of $17,000; that her equity in property as ofAugust 26, 1981, was $49,494; that Stan Tenney had no equitable or legal interest in Tract B of the property; that Dee Ann Langel had unjustlybenefited from occupancy and use of the residence in question and should be jointly and severally liable with JeanClem for the sum of $19,950; that George McWilliams was liable to the plaintiff for the full rental loss as damages; that the Colorado decree of dissolution was not a bar to this action; that Joan McMiiliams was not barred by the statute of limitations,nor

was she guilty of laches; that she was not barred in prosecuting her claim because she had dismissed as a defendant in this cause the bond insurer which on behalf of Jean Clem paid the sum of $1,000 to plaintiff; that Dee Ann Langel and Stan Tenney were not bona fide purchasers for value without notice because the August 26, 1981 deed was void as to Joan McWilliams; and that the statute, 5 70-20-315, MCA, did not cure the defective acknowledgment in this case. Dee Ann Langel and Stan Tenney have appealed the District Court

### 's judgment as have Jean Clem, Clem's Word. Processing Center and Clem's Placement Service. The position of appellants, Dee Ann Langel and Stan Tenney on appeal is that the proximate cause of Joan's damages was the concurrent and joint conduct of the joint tortfeasors, the notary, Jean Clem, and the husband, George McWilliams. Except for such concurrent conduct, these appellants contend they would not have accepted a deed otherwise ordinary on its face. They contend that the deed should be valid as to Dee Ann Langel and to the extent that the deed is not validated, they should be indemnifiedby the guilty parties, Jean Clem and George McWilliams on the same basis as Langel and Tenney are liable to Joan McWilliams.The position of Jean Clem on appeal (the other appellants named Clem are business entitiesutilized by Jean Clem) is that the judgment against Clem is improper because Joan McWilliamsl signature on the deed was genuine; Clem recognized her signature and notarized it as she had done in the past "at plaintiff's request and approval;" that the mutual release and waiver clause in the settlement agreement in the dissolution proceedings in Coloradobarred any further action on the matter; and that defendants DeeAnn Langel and Stan Tenney did not see theAugust 26, 1981deed and did not rely on Clem's acknowledgment of plaintiff's signature in acquiring the property. Tangentially, Clem argues that Joan

was negligent in signing the deed for her husband and that Joan's negligence is the sole proximate cause of her own damages and that the negligence of the notary public is not the proximate causeofJoan'sdamages. The first problem forus to determine is the liability, if any, of the notary public in this case for the improper acknowledgment contained in the deed. In Montana, a notary public is one of several officials authorized by law to take proof of the acknowledgmentof an instrument. Section 1-5-101, MCA. By statute, the acknowledgment of an instrument must not be taken unless the officer taking itknows orhas satisfactory evidence that the person making such acknowledgment is the individualdescribed in and who executed the instrument. Section 1-5-201, MCA. The officer taking the acknowledgment must endorse on the instrument or attach thereto a certificate of acknowledgment substantially in the form prescribed by law. Sections 1-5-202, -203,MCA. The acknowledgment of a married person to an instrumentpurported tobe executed by suchperson must be taken in the same manner as that of any other person, § 1-5-206, MCA, and the form of the certificate by a marriedperson must be substantiallyin the formprescribed for other individuals in 5 1-5-203,MCA. Section 1-5-207,MCA. A notary publicmust give an officialbond in the sumof $5,000 ($1,000at the time of this incident,5 1-5-405,MCA) and, for the official misconduct or neglect of a notary public, the notary and the sureties under the official bond are liable to the parties injured thereby for all damages sustained. Section 1-5-406,MCA. Although an unrecorded instrument is valid as between the parties and those who have notice thereof, S 70-21-102, MCA,before adeed transferring realproperty canbe recorded with the county clerk and recorder in a Montana county, its execution must be acknowledged by the person executing, and the acknowledgment must be certified by an official authorized todo so. Section 70-21-203,MCA. Therefore, the statutoryduty of the notary in taking an acknowledgment of an instrument is clear: he or she must know or have satisfactory evidence that the person making such acknowledgment is the individualwho isdescribed in and executed the instrument. A married person's acknowledgment to an instrument is tobe taken the same as any otherperson. We agree with the Idaho Supreme Court as to the purpose of these statutes: We believe that the manifest intent of the legislature in requiring anotarypublic to execute a certificate of acknowledgment is to provide protection against the recording of false instruments. The sine qua non of this statutory requirement is the involvement of the notary, a public officer in a position of public trust. If the notary faithfully carries out his statutory duties, it makes little difference whether he remembers whether to fill in the blanks in the certificate. Similarly, if the notary conspires with the forger, or fails to require the personal appearance of the acknowledger, or is negligent in ascertaining the identity of the acknowledger, thestatutory scheme is frustratedwhether the form is completely filled in ornot. Farm Bureau FinanceCompany, Inc. v. Carney (Idaho1980), 605 P.2d 509, 514. The District Court in this case did not find the notary public was fraudulent in making the certificate of acknowledgment. Rather, it found that the notary was negligent. It makes little difference here. The statement of the notary in the certificate that Joan McWilliams had personally appeared before the notary to acknowledge the instrument was false. Based on the false certificate of acknowledgment by the notary, the deed was entitled to be accepted for recording. The ensuing transactions relating to the real property, including the change in the trust indenture by the mortgagee, the transfer to Tenney, and the subsequent transfer of a portion of the real estate interest to the pension fund allwere the direct and proximate result of the false certificate of acknowledgment which led to the recording. The false certificate of acknowledgment was a proximate cause of those subsequent transactions. To hold otherwise would be to frustrate the very purpose of the statutes requiring such certificates. True,JoanMcWilliamsmay have been negligent in signing

a blank deed for her husband. At most her negligence would be remote. Itwas the false certificateof acknowledgment of the notary which led to the recording of the deed and which gave the deedpurported life for the subsequenttransactions. Two prior cases by this Court must be explained. In Mahoney v. Dixon (1904), 31 Mont. 107, 77 P. 519, Mahoney sued Dixon, a notary public, on the grounds that Dixon had falsely certified to the execution of amortgage by a person who had not appeared before the notary and that Mahoney had lent $1,800 on the strength of the security under themortgage. The District Court instructed the jury that if the notary violated an express provision of the statute in the performance of an official act doneby him asanotary public that he and his suretieswere liable for the damage suffered by the plaintiff. The Montana Court reversed because the instructiondid not tie the liabilityof the notary public to damagesproximately caused by his officialmisconduct. In Ellis v. Hale (1920), 58 Mont. 181, 194 P. 155, a similar situationoccurred. Ellis,a real estate loanagent, had made a loan upon amortgage. The acknowledgmentof said instrument had been forged by a notary public. There the court held that an action against the sureties on the official bond of the notary could not succeed in the absence of evidence showing that the real estate agent loaned the money relyingon the forged acknowledgment. In this case,Clem relies on theEllis andMahoney cases

as authority that recovery cannotbe made against the notary public unless one relied on the false statements in the certificate. However, the factual bases for Ellis and Mahoney are completely different from this case. Joan McWilliams did not lose her property because she relied on a false certificate; rather, she was divested of her property by virtue of a false certificate. Ellis and Mahoney are not applicablehere. An issue raised by Clem, Langel and Tenney is whether the Colorado decree of dissolution is res judicata to this action. An action is barred by res judicata when the following criteria aremet: 1) Theparties or theirprivies are the same; 2) The subject matter of the action is the same; 3) The issues are the same, and relate to the same subjectmatter;and4) The capacities of the persons are the same in reference to the subject matter and to the issues between them. Foxv. 7LBar Ranch Co. (1982), 198Mont. 201, 206, 645 P.2d 929,931. Clearly, none of these factors are met in the instant action. The Colorado action had as parties Joan versus George McWilliams; this action has Joan versus Clem, Langel and Tenney. The subject matter of the Colorado actionwas a dissolution of marriage; this action is to collect damages for negligence and to set aside a void deed. The issues in the Colorado action were a determination of child support, maintenance and division of marital property (inwhich the house was not listed); the issues in this case are the duty and breach ofduty of a notarypublic, and title toproperty in Bozeman, Montana. Since the parties, subjectmatter and issues are different in each action, the capacities of the parties in relation to those areas cannot be similar. The Colorado decree of dissolution isnot a bar to the action in Montana for negligence, quiet title and loss of use of real property. Joan's suit is not barred by the statuteof limitations

or laches. The negligent action occurred August 26, 1981, when the warranty deed was improperly notarized and transferred to Langel. The statute of limitations in an action for negligence is three years. Section 27-2-204(1)

## , MCA. The statute of limitations begins to run when the cause of action accrues or when the negligence is discovered. Masse v. Dept. of Highways (1983), 204 Mont. 146, 151, 664 P.2d 890, 892. In this case Joan's complaint was filed August 27, 1984, three years and one day after the deed was improperly notarized. However, August 26, 1984, was a Sunday, so the final day for the action to be filed wasMonday, August 27. Sections 1-1-216(1 a 

## , 1-1-306 and 1-1-307,MCA. Further, Joan did not discover the existence of the void deed until August, or September, 1982, when a friend informed her the house had been sold. We hold that Joan filed her complaint within the time allowed for filing

an action innegligence. Laches is an equitable defense applicable when the complainant has delayed in the assertion of a right for such time as would now make assertion of the right inequitable. Hereford v. Hereford (1979), 183 Mont. 104, 108, 598 P.2d 600, 602. The recorddoes not indicateJoantookunnecessary delay in asserting her right to her property. She was not

aware the property was transferred until 1982, atwhich time she began searching for the documents necessary to her case. When she found the warranty deed, she immediately confronted both Clem and Langels with the forgery. As we noted above, her complaint in this actionwas filedwithin the applicable time for statute of limitations. We hold the doctrine of lachesdoesnot apply. Appellants have also argued that S 70-20-315, MCA, Montana's curative statute for validation of unacknowledged deeds, validates the forged warranty deed. However, that statute applies to deeds executed by grantors and signed in due form,deedswhich are otherwisevalid except forthe lack of an acknowledgment or other witness thereto. The statute is not intended to validate a void deed. As 

### we have stated in the context of tax deeds, "a curative statute cannot breathe life and validity into

# . . .void

# ...deeds." Lowery v. Garfield County (1949), 122 Mont. 571, 583, 208 P.2d 478,485. Section 70-20-315,MCA,doesnotvalidate the August 26, 1981, warranty deed as to Joan since she, as one of the necessary grantors,nevermade the grant.Clem's fifth issue iswhether thepayment of the $1,000 bond fully satisfies Joan for her damages against Clem. On

or about October 25, 1984, Joan entered into an agreement with Reliance InsuranceCompany in which she released allher claims against the company upon its payment to her of a $1,000 penal bond. On November 14, 1984, Joan stipulated that all her claims against Reliance Insurance Company had been fully compromised and settled, and the District Court dismissed the company from the action with prejudice. Nothing in the agreement, stipulationor order evidences the intention to release or compromise Joan's claims against Clem. Reliance simply performed its bond contract and it does not appear that the release document "'is intended to release the other tortfeasors, or the payment is full compensation, or the release expressly so provides.'" Kussler v. Burlington Northern, Inc. (1980), 186 Mont. 82, 88, 606 P.2d 520, 524 (quotingAdams v. Dion (Ariz. 1973), 509 P.2d 201, 203). However, the $1,000 payment should be deducted from the total amount of damages owed by Clem to Joan. State ex rel. Deere & Co. 

### v. District Court (Mont. 1986), 730 P.2d 396, 405, 43 St.Rep. 2270, 2279. We remand this issue to the District Court for an amendment to the findings of fact, conclusions of law,and judgment deducting $1,000 from the amount of damages for loss of use owed to Joan.The next issue raisedby defendantsLangeland Tenney is whether theDistrict Court erred in denying them relief under 

### S 70-20-404, MCA. That statute states that the rights to real property of a purchaser in good faith and forvalue are not tobe impairedwhen a conveyanceofproperty ismadewith intent to defraud prior or subsequent purchasers or encumbrances. This isnot the situation in this case. Here, the fraudwasperpetrated by one grantor upon the other. Thedeed was conveyed to Langel without the execution and acknowledgementof one of themarried grantors,and therefore the deed isvoid as toher. Section 70-20-101 and -106,MCA. The District Court was correct in finding that 

### 5 70-20-404, MCA, was inapplicableto the factsof the case. Another issue raisedby Langel and Tenney iswhether the District Court erred in failing to rule on their cross-claim for indemnification from Clem. The DistrictCourt concluded Dee Ann Langel had unjustly benefited from the occupancy and

use of the Gallatin Gateway home, and that Langelwas liable in the amount of $19,950, such liability being joint and several with Clem. Langel argues that since Clem was found negligent and she, Langel, was not found negligent, she shouldbe fully indemnifiedby Clem. In Consolidated Freightways Corp. v. Osier (19791, 185 Mont. 439, 447, 605 P.2d 1076, 1081,we defined "indemnity"

as the principle which shifted "the entire loss from one party compelled to bear it to the shoulders of another who should bear it instead." In this instance, Joanwas awarded $19,950 in damages for her loss of use of the house and property. Langelhad the sole use of the house for over four years without paying Joan any consideration forher interest in it. Joan had a present interest in the house, since the purported transfer of her interest to the Langels was not valid. Langel and Tenney did possess the house and real estate and thus owe Joan for Joan's loss of use. We hold Langel and Tenney are not entitled to indemnification from Clem.Finally, Langel and Tenney argue that itwas error for the District Court to fail to grant them a default judgment against and indemnification from George McWilliams. George

was not present at trial and his counselhad been given leave to withdraw fromthe case. However,he had been given noticeof the trial and had informed one of the attorneys of record that he did not plan to attend. At the opening of the trial and at a later hearing, the attorney for Langel and Tenney requested that a default judgment be entered against George in their favor. The motion was never ruled on by the DistrictCourt. When an attorney is removed or ceases to act as such, the party to the action for whom the attorney was acting must, before any further proceedings are had against that party,be requiredby the adverseparty,upon written notice, to appoint another attorney or appear in person. Section 37-61-405, MCA. The record does not show that George McWilliams was served with such a notice, and therefore the case against McWilliams is stayed by virtue of S 37-61-405, MCA. Judgment against him cannot be granted until theproper notice is served. Remanded to the District court for amendment of the judgment as hereinprovided. As so amended,the judgment is affirmed.

We Concur:

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