DA 11 - 0691 IN THE SUPREME COURT OF THE STATE OF MONTANA

2012 MT 194 MOUNTAIN WEST BANK, N.A., Plaintiff and Appellee, v. HELENA CHRISTIAN SCHOOL, INC., CHRISTOPHER M. BATSON, ROBERT M. DELLWO, KEN ERDAHL, RAY FULLER, JACK C. HAMLIN, B.G. STUMBERG, and ROBERT HITZEROTH, Defendant s and Appellant s . APPEAL FROM: District Court of the First Judicial District,

In and For the County of Lewis and Clark, Cause No. ADV - 20 10 - 1119 Honorable Dorothy McCarter, Presiding Judge COUNSEL OF RECORD:

For Appellant s : R . J. “Jim”Sewell, Jr. , Bruce M. Spencer, Scott H. Clement, Smith Law Firm, P.C., Helena, Montana For Appellee: Amy Randall , Senior Vice President/General Counsel, Mountain West Bank, N.A., Helena, Montana Submitted on Briefs: July 18, 2012 Decided: September 5, 2012 Filed:

__________________________________________ Clerk September 5 20122

Justice Patricia O. Cotter delivered the Opinion of the Court. ¶1 Mountain West Bank (Mountain Westor the Bank ) obtained a summary judgment ag ainst Helena Christian School and the individual a bove - nameddefendants (HCS or the School ) following HCS’s default o nl oans from Mountain West. H CS appeals the decision of the Montana First Judicial District Court. Wev acate the judgment and remand the matter to the District Court for further proceedings. **ISSUE S**  ¶2 A restatement of the issues on appeal is: ¶3 Did the District Court err by granting Mountain West’s motion for su mmary judgment without complying withthe req uirements of § 71 - 1 - 222, MCA ? ¶4 Did the District Court err by entering a judgment that did not comply with § 25 - 9 - 203, MCA ?

**FACTUAL AND PROCEDURAL BACKGROUND** ¶5 In August 2005, Helena Christian School borrowed $90,000 from Mountain West Bank at an annual interest rate of 7 .25%. The loan documents allowed an interest rate increase of

3% in the ev

ent of default. Defendants Erdahl, Fuller and Hitzeroth signed the loan documents as personal guarantors. This loan was originally due in August 2006 but the maturity

date was extended on several occasions with a final due date of February 9, 2010. While according to the loan documents, the interest rate changed during these loan extensions, the interest rate as of the last extension was ag ain at 7.25%. The $90,000 l oan was an unsecured loan.3

¶6 In December

2 008, the School took out a second loan and borrowed approximately $1,500,000 from theB ank atan annual interest rate of 7.25%. The original maturity date was December 29, 2010. Th e 2008 p romissory note did not imp ose an interest rate increase in the event of default. I n May 2009, the loan terms were renegotiated. A

n ew maturity date of April 2010 was established, the interest rate was reduced to 6%,and a 3% point margin increase was imposed upon default. Subsequently, the maturity date was extended to August 2010. The seven defendants signed the loan documents as personal guarantors. Notably, this loan was secured by a mortgage on real property in Lewis and Clark County located near the Helena -based school. ¶7 On November 19, 2010, the Bank filed a complaint against HCS alleging breach of contract and default of b oth loans and seeking judicial foreclosure. At the time the Complaint was filed the Bank claimed the School owed $55,976.91 in principal on the $90,00 0 loan and $1,807.75 of accrued interest through November 19, 2010. Citing a 10.25% interestrate , the Bank claimedinterestaccumulating at the daily rate of $15.7195. Mountain West also asserted that HCS owed it $1,470,751.74 principal on the $1 . 5 m ill ionloan , plus $52,526.56 in accrued interest through November 19, 2010, $9,192.66 in late fees and costs, and $120 in court costs. The Bank claimed that th isloan continued to accrue interest at 9% per annum, or $362.6511 per day. ¶8 The School moved to dismiss the Complaintin December 20 10 a nd in March 2011 the District C ourt denied the motion. On April 19, 2011, the Bank moved for summary judgment and on November 16, 2011, the District Court granted the Bank’s4

motion. The court recited in its order thatthe Bank had sued to foreclose on the two promissory notes, that the S chool had defaulted on both loans, and that none of the guarantors had honored their obligations on the notes. B ecause the S chool had not contradicte d the B ank’s claims, the court determined that the B ank was entitled to judgment as a matter of law. It is from this ruling the School appeals. **STANDARD OF REVIEW** ¶9 We review the grant of summary judgment de novo, using the same M. R. Civ. P. 56 criteria used by the district court. Summary judgment is appropriate when the moving party demonstrates both the absence of any genuine issues of material fact and entitlement to judgment as a matter of law. Styren Farms, Inc. v. Roos , 2011 MT 299, ¶ 10 , 363 Mont. 41 , 265 P.3d 1230 . **DISCUSSION** ¶10 Did the District Court err by granting Mountain West’s motion for summary judgment wi thout complying with the requirements of § 71
- 1
- 222, MCA ? ¶11 In the District Court, the School argued that the Bank fa iled to comply with Montana’s “one action” rule. On appeal, they argue that the District Court erred in fa iling to acknowledge and require compliance with this rule, and that the court’s summary judgment order from which appeal is taken must therefore be vacated. ¶12 Section 71 - 1 - 222, MCA, known as the “one action” rule, addresses proceedings in a foreclosure suit. In relevant part, it states: (1) There is only one action for the recovery of debt or the enforcement of any right secured by a mortgage upon real estate, and that action must be in accordance with the provisions of this part. In the action, the court may, by its judgment, direct:5 (a) a sale of the encumbered property or as much of the property as ma y be necessary; (b) the application of the proceeds of the sale, including the payment of property taxes due at the time of foreclosure; and (c) the payment of the costs of the court, the expenses of the sale, and the amount due the plaintiff. (2) If it appears from the sheriff ’ s return that the proceeds are insufficient and a balance still remains due, judgment can then be docketed for the balance against the defendant or defendants personally liable for the debt, and it becomes a lien upon the real estate of the judgment debtor, as in other cases on which execution may be issued. ¶13 Th e purpose of this statute is two - fold: f irst, it protects the mortgagor

—in this case, the School

—from having to defend two action sag ainstit . U

nder common law, a mortgagor could be sued by a secured creditor t o collect the unpaid debt under the promissory note and be sued in equ ity seeking forfeiture of the property used as security or collateral. The one - action rule prevents such dual actions against the debtor. Second, the statutec ompels the creditor who holds themortgage on the land to resolve the indebtedness through saleo f the secured property first, before attempting to reach the mortgagor’s unmortgaged property. FDIC v. Shoop , 2 F.3d 948, 950 (9thCir. 1993). In Shoop , t he Ninth CircuitCourt of Appeals , applying § 71 - 1 - 222, MCA, observed that under the statute, “fir st the property is sold, and then, if the sale proceeds l eave a balance due on the note, judgment is entered for the difference.” Shoop , 2 F.3d at 951 . ¶14 In the case before us, this statute applies to the $1.5 million loan secured by real property , and not to the $90,000 loan which, a s noted above, was an unsecured loan . In Federal Land Bank v. Heidema , 224 Mont. 64, 727 P.2d 1336 ( 1986), we noted that in foreclosure pro ceedings under § 71 - 1 - 222, MCA, “ [t]he court, by its judgment in a6

mortgage foreclosure action, directs the sheriff to make the sale.” Heide ma , 224 Mont. at 67, 727 P.2d at 1338 . In this case, the District Courtg rantedsummary judgment on the notes and docketed judgment for an unspecified amount butdid not direct the sale of the property or otherwise ev en acknowledge § 71 - 1 - 222, MCA . Under the statute, Shoop , and Heidema , t

hiswas error . We thereforereverse and remand for compliance with § 71 - 1 - 222, MCA. ¶15 Did theD istrict Court err by entering a judgment that did not comply wi th § 25
- 9
- 203, MCA ? ¶16 The School further argues that the District Court ’so rder granting su mmary judgment does not comply with § 25 - 9 - 203, MCA , and should be v acated . Chapter 9 of Title 25 addresses all types of civil judgments. Section 25 - 9 -203, MCA, identi fies what judgments must contain and specifically states: **How amount**  **expressed** . In judgments, the amount thereof must be computed and stated as near as may be in dollars and cents, rejecting fractions of a cent. ¶17 The court’s order briefly recount sthe origins o f theSchool’ sloans and state sthat “Helena Christian defaulted on both loans, and none of the individual guarantors have honored their obligation on the loans.” The court continued : Defendants have not provided any evidence that contradicts the evidence presented by Mountain West or that raised a disputed issue of material fact, other than disputing the rate of interest on the 2008 loan and subsequent modifications. Those documents speak for themselves. The loan - related documents attached to the complaint contain the material facts that ent itle Mountain West to judgment. However, the order does not distinguish between the secured and unsecured loans and it neither statesnor compute sthe amount of the judgment entered against the Defendants .7

¶18 The Bank counters thatt he order complies with § 25 - 9 - 203, MCA, because its summary judgment motion “computed the amounts owed under the loans in question with specificity, and requested that the District Court issue a Judgment in conformity with the amounts due.” ¶19 This arg

ument is unpersuasive. The Bank’s brief in support of its summary judgment motion provided the loan information recited above in paragraph7 . However, neither the brief in support of su mmary judgment nor the order granting su mmary judgment reflec ted the amount sdue as of the day the court entered summary judgment . The amount due , among other things, would have included interest accrued since November 19, 2010. M oreover, the Bank’s brief expressly stated : “ The balance due under [these loans ] . . . h as been stated by Plaintiff. Therefore, the exact amount of Judgment can be entered by mathematical calculation once [the District Court] enters Summary Judgment on liability in favor of Plaintiff.” As the court’s summary judgment order did not compute or include the precise amount of judgment, it doe snot comply with § 25 - 9 - 203, MCA. ¶20 Lastly , the S chool raises questions concerning what interest rate should apply to the defaulted $1.5 million loan. In light of the several revisions to the loan documents, it is difficult to ascertain what thecontrolling rate should be. This issue of fa ct should be resolved upon remand. ¶21 In summary, upon remand, the District Court must compute and state the exact judgment amount , including interest, pertaining to theunsecured $90,000 loan. A s for the secured $1.5 million loan, the court mustc omply with the provisions of § 71 - 1 -222,8

MCA. Upon receipt of notice of the proceeds received in the sheriff’s sale, in the ev ent of a deficiency, the court must determine theappropriate rate of interest vis - à - vis the deficiency, and enter an order of judgment computing and stating the amount owed by Defendants. At that time the judgment on the secured loan may be docketed. **CONCLUSION** ¶22 For theforegoing

reasons, we vacate the District Court’s judgment and remand for further proceedings in accordance with this Opinion . /S/ PATRICIA COTTER We concur: /S/ BRIAN MORRIS /S/ MICHAEL E WHEAT /S/ JAMES C. NELSON /S/ BETH BAKER