No. 88-304 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

ROBERT L. CRIRR and MARGARET V. CRIRR, 

husband & wife; M. BRUCE WRIGHT and 

SUSAN WRIGHT, husband & wife; and RON 

HELLAND and JOAN HELLAND, husband and 

wife, on behalf of all other stockholders 

of Glasgow Publishing Compan~, a Montana 

corporati.on, 

Plaintiffs and Respondents, 

-VSNATLOCK COMMUNICATIONS, INC., an Idaho 

corporation; GLASGOW PUBLISHING COMPANY, 

a Montana corp., COOSPAPERS, INC., an 

Oregon corp.; IDAHO BANK & TRIJST COMPANY, 

a banking corp.; and STEPHEN J. MATLOCK, 

individuallv and as President of Matlock 

Communications, Inc., and Glasqow Publishing 

Company, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Seventeenth Judicial District, 

In and for the County of Valley, 

The Honorable Nat Allen, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Jardine, Stephenson, Rlewett & Weaver; George N McCabe, 

Great Falls, Montana 

Gallagher, Archambeault & Knierim; Matthew W Knierim, 

Glasqow, Montana 

For Respondent: 

Habedank, Cumming, Rest, Maltese & Savage; Peter Icr Maltese, Sidney, Montana 

3 

LI-, '.'-'a 5 Q 

Submitted on Briefs: Nov. 17, Decided: January 30, 1989 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This appeal from the Seventeenth Judicial District, in 

and for the County of Valley, concerns the District Court's 

denial of a motion to set aside an entry of default under 

Rule 55(c), M.R.Civ.P. The only issue is whether the lower 

court abused its discretion in denying the motion. F7e 

reverse. 

The relevant facts are as follows: respondents Cribbs, 

and Wrights, (Cribbs) agreed to sell their stock in Glasgow 

Publishing Company, a corporation, to Matlock Communications, 

Inc., owned by Stephen J. Matlock. Cribbs exchanged the 

company' s stock for promissory notes and other consideration 

from Matlock. The parties placed the stock in escrow to 

secure the debt owed on the notes. 

Cribbs reqained control of the company when Matlock 

Communications failed to make the required payments. Crihhs 

then sued Matlack and Matlock Communications far money still 

due under the sales agreement. 

Cribbs joined appellant Idaho Bank and Trust Company 

(I.B. & T.) because Matlock had secured a loan from I.R. €i T. 

with assets owned by Glasgow Publishing Company. Crihhs' 

complaint contended that Matlock had no authority to encumher 

the assets, and sought a judgment voiding the security 

interest claimed by I.B. & T. 

On December 22, 1986, Cribbs served summons and 

complaint on I.B. & T. 's main downtown branch office in 

Boise, Idaho. I.B. & T. failed to answer or appear within 30 

days. On February 5, 1987, the clerk entered default against 

I.B. & T. On March 6, 1987, before Cribbs had takkn any 

final iudqment, I.R. & T. filed a motion to set aside the 
default, a crossclaim, a counterclaim, and a third party 

complaint. 

I.B. & T. also submitted affidavits explaining their 

failure to respond to Cribbs' complaint. An employee in I.B. 

& T. 's branch of £ice swore that he delivered the papers to 

another employee for transfer to the main I.B. & T. office 

through the Rank's courier system. The other employee 

remembered receiving the papers with instructions for their 

delivery, but could not verify if she had channelled the 

papers into the courier system. The summons and complaint 

never arrived at the main office. 

I.R. & T. discovered their failure to answer or appear 

approximately one week after the clerk entered the default. 

One month after the entry of default I.B. & T. filed its 

motion, answer, crossclaim, counterclaim and third party 

complaint. 

I.B. & T. contends that the District Court abused its 

discretion in refusing to set aside the entry of default 

because I.B. & T. made the showing of good cause required by 

Rule 55(c), M.R.Civ.P. Cribbs respond that Rule 55(c) 's good 

cause should be equated with "excusable neglect" in Rule 

60(b), M.R.Civ.P, and that I.B. & T. has failed to excuse its 

late response. The parties also disagree on whether I.B. & 

T.'s tardy response prejudiced Cribbs. 

First, Cribbs mistakenly contend good cause under Rule 

55(c), M.R.c~v.P., equates to excusable neglect under Rule 

60(b), M.R.Civ.P. Rule 55(c), M.R.Civ.P., provides that: 

For good cause shown the court may set side an 

entry of default and, if a judgment by default has 

been entered, may likewise set it aside in 

accordance with Rule 60(b). 
The majority view holds that: 

the "good cause" standard for setting aside a 

default entry is more flexible and lenient than the 

Rule 60(b) standard for setting aside a default 

judgment. 6 J. Moore, Moore's Federal Practice ¶ 

55.10[1] and [2] (2d ed. 1983) : . . . The default 

entry is simply an interlocu~orv order that in 

itself determines no rights or remedies, whereas 

the default judgment is a final judgment that 

terminates the litigation and decides the dispute. 

Hertz v. Berzanske (Alaska 1985), 704 P.2d 767, 770. We 

agree that the good cause standard under Rule 55 (c) , 

M.R.Civ.P., should be applied more flexibly and leniently 

than the excusable neglect standard under Rule 60(b), 

M.R.Civ.P. 

Second, we hold that I.R. & T. made a sufficient showing 

of good cause in the lower court. To determine the existence 

of good cause, courts should consider: 

(1) whether the default was willful, (2) whether 

the plaintiff would be prejudiced if the default 

should be set aside, and (3) whether the defendant 

has presented a meritorious defense to plaintiff's 

claim. The court must also balance the interests 

of the defendant in the adiudication of his defense 

on the merits, against the interests of the public 

and the court in the orderly and timely 

administration of justice. 

6 J. Moore, Moore's Federal Practice T 55.10[21, at 55-59 (?d 

ed. 1988) , and see Sony Corp. v. Elm State Electronics, Inc. 

(2nd Cir. 1986), 800 F.2d 317, 320 (in addition to three 

factors above, courts may consider whether there was a good 

faith mistake, whether a harsh or large judgment would 

result, the strong preference for adjudication on the merits, 

and resolution of douhts in favor of granting motion to set 

aside). 
I.R. & T. submitted affidavits that its failure to 

respond resulted from clerical error. Facing similar facts, 

one U.S. District Court agreed to set aside an entrv of 

default stating: 

The Court, of course, is not condoning the 

filing of a late answer, yet it is reluctant to 

enter a default judgment where, as here, there was 

not wilful abuse of its process nor apparent 

prejudice to the plaintiff. 

Wallace v. De Werd (D. V.I. 1969), 47 F.R.D. 4, 5. Here 

there is also a lack of willful abuse of the lower court's 

process and a lack of apparent prejudice. Cribbs argue that 

prejudice exists because reversal will further delay the 

case. F7e reject this contention. Prejudice from delay 

should be measured at the time the party moves to set aside 

an entry of default. 

Weighing the third factor in this case presents more 

difficulty. Cribbs contend I.B. & T. has failed to show a 

meritorious defense because Matlock could not have had 

authority to encumber the assets of Glasgow Publishing 

Company. 

I.B. & T. contends that the documents creating the 

security interest are regular on their face, and that Matlock 

provided documentation demonstrating that he was authorized 

to borrow for Glasgow Publishing Company as the Corporation's 

sole director. I.B. & T. also contends that the security 

agreement may be validated by the allegation that Glasgow 

Publishing Company received a monetary benefit from loans 

authorized by Matlock. 

Cribbs have responded to these contentions by arguing 

that Matlock never properly hecame sole director of the 

corporation, and that none of the proceeds of the loans 

benefited Glasgow Publishing Companv. 
Cribbs have presented evidence supporting their 

position. However, resolution of doubt in finding a 

meritorious case should be resolved in favor of I.B. & T. 

Meehan v. Snow (2nd Cir. 1981), 652 F.2d 274, 277. I.B. & T. 

has alleged facts which, if proven, provide a defense. 

Appellate courts reverse refusals to set aside entries 

of default on a showing of slight abuse of discretion by the 

lower court. 6 J. Moore, Moores Federal Practice 9 55.10[2], 

at 55-59. Given the lack of willfulness, prejudice, and the 

presence of factual allegations supporting a defense, we hold 

that the District Court abused its discretion in denying the 

motion. We reverse and remand for further proceedings. 

We Concur: 

Justices 
Mr. Justice L. C. Gulhrandson, dissenting. 

In my view, the appellant failed to present a 

meritorious defense. Even a cursory examination by the 

appellant of the documentation provided by Matlock, as the 

purported sole director of the Glasgow Publishing Company, 

would have revealed non-compliance with the requirements of 

the pertinent Montana statutes, including S 35-1-413 and 

5 35-1-808, MCA. 

I would affirm the District Court's ordeq/