No. 83-58 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

DAVID ERICKSON, d/b/a STARHAVEN 

RANCH, LTD., a Montana corp., 

Plaintiff and Appellant, 

FIRST NATIONAL BANK OF MINNEAPOLIS 

and BURTON 0. CROFT AND SHIRLEY T. 

CROFT, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Fifth Judicial District, 

In and for the County of Beaverhead, 

The Honorable Arnold Olsen, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

W. G. Gilbert, Jr.; W. G. Gilbert, I11 & Thomas R. 

Scott, Dillon, Montana 

Boone, Karlberg, & Haddon; Sam E. Haddon argued 

for Starhaven Ranch, Missoula, Montana 

For Respondent: 

Moulton, Bellingham, Longo & Mather; Gerald Murphy 

argued for First National Bank, Billings, Montana 

Corette, Smith, Pohlman & Allen, Butte, Montana 

.lc-lr< q. Filed: 

ON REHEARING 

Submitted: January 30, 1985 

Decided: April 4, 1985 

Clerk 
The Hon. Diane G. Barz, district judge, delivered. the Opinion 

of the Court. 

Plaintiff, David Erickson, d/b/a Starhaven Ranch, Ltd., 

a Montana Corporation, the purchaser of ranch property on a 

contract for deed from Burton and Shirley Croft, appealed a 

judgment of the Beaverhead County District Court declaring a 

forfeiture of the contract between Starhaven and the Crofts, 

and quieting title in the defendant, the First National Bank 

of Minneapolis. 

On May 9, 1984, this Court handed down an opinion in the 

above-entitled cause reported at 41 St.Rep. 856 (1984). A 

petition for rehearing was filed by the First National Bank 

of Minneapol-is on May 17, 1984, and this Court granted 

rehearing. 

After further oral argument, and reconsideration, the 

Court withdraws the opinion heretofore rendered and reported 

as above cited and substitutes the following as its opinion 

in and for this cause: 

This case arises out of a series of contracts for deed 

for the purchase of a ranch. On July 24, 1981, the First 

National Rank of Minneapolis (Bank) served a notice of 

default on the Croft-Starhaven contract for deed to Starhaven 

Ranch, Ltd. (Starhaven). Starhaven did not cure within 60 

days and had not cured as of the date of trial. The ultimate 

question before this Court is whether the Bank had the power 

to enforce the Croft-Starhaven contract for deed. To answer 

this question two separate relationships must be examined in 

detail: the legal relationship between the Crofts and the 

Bank and the legal relationship between the Bank and 

Starhaven. 
CROFT-BANK RELATIONSHIP 

Burton and Shirley Croft purchased the property that is 

the subject of thj.s dispute from Herman and Patricia Cl-a.rno 

in 1976. The purchase was financed by a contract for deed 

dated June 30, 1976 (Cl-arno-Croft contract) . 

The Crofts subsequently borrowed money from the Bank. 

These loans are not part of this dispute. However, in 1980, 

the Bank required further collateral from the Crofts on one 

of these loans. On August 5, 1980, the Crofts assigned all 

of their interest in the Clarno-Croft contract to the Bank as 

collateral for an existing loan. This assignment was 

recorded on August 7, 1980. 

By June 1981, the Crofts had defaulted on the loan that 

was secured by their assignment. As a result of this default 

the Bank recorded the Croft's quitclaim deed on July 1, 1981, 

in Beaverhead County where the property is located. The 

subject of this quitclaim deed., dated August 5, ,-980, was the 

property here in dispute. 

On June 4, 1982, the Crofts made another assignment to 

the Bank. The subject of this assignment was an itemized 

property list that the Crofts claimed was a promissory note 

from David Erickson for the amount of $30,120.77. That same 

day the Crofts signed a second quitclaim deed in favor of the 

Bank. The first deed apparently did not properly describe 

the property in its entirety. The Bank recorded this second 

quitclaim deed on June 14, 1982, several weeks before the 

trial. 

BANK-STARHAVEN RELATIONSHIP 

Starhaven agreed to purchase the property in dispute 

from the Crofts on January 15, 1981., under a contract for 

deed (Croft-Starhaven contract). Although the assignment of 
the Clarno-Croft contract to the Bank was of record in 

Reaverhead County at the time Starhaven agreed to purchase 

the property, Starhaven's president, David Eri.ckson, had no 

actual knowledge of this assignment. Erickson had legal 

representation at the time he signed the Croft-Starhaven 

contract. 

The Croft-Starhaven contract provided, in part, that 

Starhaven was to pay $130,000.00 as a downpayment on the date 

of closing and a further payment of $72,000.00 payable on 

April 15, 1981. Further, Starhaven was to make a $72,601.72 

payment on January 3.5, 1982. Starhaven agreed to pay these 

amounts into an escrow at the State Bank and Trust Company of 

Dillon. 

The Crofts, under the Starhaven contra-ct, agreed to pay 

the 1980 taxes on the property, to make payments on the 

Clarno-Croft contract in a timely manner, and to cooperate 

with Starhaven in obtaining a proper transfer of the grazing 

I-eases and permits that were connected with the property. 

On the date of closing the Croft-Starhaven contract, 

Starhaven signed a quitclaim deed which was placed in the 

escrow account. Starhaven also paid the initial downpayment 

of $1-23,013.36. 

Between January 20 and January 31, 1981, the Crofts sent 

the proceeds of this downpayment to the Bank. This was the 

first notice the Bank received of the Croft-Starhaven 

contract. At this time the Rank raised no objections to this 

contract. 

Starhaven made only one further payment to Croft before 

the Rank recorded Croft's quitclaim to the Bank on July I, 

1.981. On June 30, 1981 Starhaven paid $10,000.00 
representing interest due on the $72,000.00 due April 15, 

1981 into the Dillon State Bank & Trust escrow account. 

On July 24, 1981, the Rank sent Starhaven notice that it 

was in default on the Croft-Starhaven contract. Pursuant to 

that contract, the Bank gave Starhaven 60 days in which to 

cure the default. 

At the end of August 1981, Starhaven learned. that the 

Crofts had not made their 1981 payment on the Clarno-Croft 

contract. So on August 31, 1-981, Starhaven made a payment of 

$31,738.31 to the Dillon State Rank & Trust. The record 

shows that this payment went first into the Croft-Starhaven 

escrow, and then, pursuant to Crofts' instructions to the 

Bank, was applied to the Clarno-Croft contract. 

This payment was insufficient to cure Starhaven's 

default on the Croft-Starhaven contract. Starhaven made no 

further payments under this contract. 

Between August and November 1981, the Bank paid the 1980 

property taxes that the Crofts had agreed to pay. The record 

also reveals that the Bank mad.e the following payments in 

connection with the property in dispute: $2,578.71 for the 

1981 property taxes, $31,342.95 for the 1982 payment under 

the Clarno-Croft agreement and $1,704.76 for 1982 grazing 

leases. It appears that these payments were made during the 

spring of 1982. 

The status of the grazing leases and permits was not 

litigated in d-etail. However, it appears that, in addition 

to the Rank's payments on the 1982 leases, Starhaven did 

receive a temporary Forest Service permit for the summer of 

1981. 

When Starhaven did not cure its default within the 

60-day period under the Bank's July 1981 notice, the Rank 
requested that the Dillon State Rank h Trust close the 

Croft-Starhaven escrow and send to the Bank Starhaven's 

quitclaim deed to Croft. It is unclear when the Bank 

received this quitclaim deed, but the Bank did record it in 

Beaverhead County on February 16, 1982. Three days later on 

February 19, 1982, the Rank sent Starhaven a notice to quit 

and notice of termination. Starhaven did not surrender 

possession within 3 days. 

Starhaven brought a quiet title a.ction against the Bank 

in the spring of 1982, and the Bank brought an unlawfuldetainer action against Starhaven. The suits were 

consolidated at the time of trial in July 1982. Starhaven 

was still in possession of the ranch at that time. 

The trial court found that Starhaven was in default on 

its payments under the Croft-Starhaven contract and quieted 

title to the property in the Rank. Further, it found 

Starhaven guilty of forcible detainer under 5 70-27-103, MCA. 

Finally, it found that the itemized property list assigned to 

the Bank was a promissory note. It found Erickson liable to 

the Bank in the amount of $30,120.77 under that note, and 

applied the $20,000.00 Starhaven deposited with the court to 

that liabil i.ty. 

The primary issues on rehearing are whether the Bank 

properly asserted Starhaven's default on the Croft-Starhaven 

contract for deed pursuant to the terms of that contract, and 

whether the Bank's sole remedy against Starhaven was a 

mortgage foreclosure under S 71-1-222, MCA. 

This issue arises in a complex factual setting. The 

first step in unraveling this problem is the determination of 

the legal relationship between the parties. 
The trial court found that the Crofts assigned a13 their 

right, title and interest in the Clarno-Croft contract to the 

Bank as collateral for a loan. Under S 71-1-107, MCA, any 

transfer of an interest in property made as security for the 

performance of another act is a mortgage. 

It is well-settled in Montana that the assignment of a 

contract for deed under the circumstances in this case 

creates a mortgage. Hanson v. Ronner (Mont. 1983), 661 P.2d 

421, 423, 40 St.Rep. 245, 248. The Crofts and the Bank, 

then, obviously had the relationship of mortgagor-mortgagee. 

The first real question presented hy the facts of this 

case is: By what methods may a mortgagee terminate a 

mortgagor-mortgagee relationship under Montana law? Section 

71-1-202, MCA, creates a right to foreclosure and sale in the 

mortgagor. This section, however, does not prohibit a waiver 

of this right by the mortgagor. In 1887, this Court recognized, the right to foreclosure notwithstanding, that if a 

mortgagor consents to the mortgagee taking possession of the 

property after the mortgage becomes due, the mortgagor cannot 

withdraw that consent until the debt is paid. Fee v. Swingly 

(1887), 6 Mont. 596, 599, 13 P. 375, 376. A mortgagor may 

thus waive the right to foreclosure after he d-efaults on the 

mortgage. 

In this case, the record reveals that the Crofts consented to waive their right to foreclosure after they defaulted in June 1981. Subsequent to the July 1981 recording 

of the first quitcl.aim deed they executed with the assignment, the Crofts executed another quitclaim deed to the Bank. 

Although the exact circumstances under which this consent was 

given are not revealed in the record, the voluntariness of 

the consent has not been questioned. 
Further, the waiver of the right to foreclosure includes 

consent to the possession of the mortgagee and must include 

the waiver of the equity of redemption. Fee v. Swingly, 

supra. Were this not true, any consent to forego the 

foreclosure process would be meaningless. 

The Bank in this case properly terminated its legal 

relationship with the Crofts--that of mortgagor-mortgagee. 

The next question is the crux of this problem.: What was 

the legal relationship between the parties to this action, 

the Bank and Starhaven? 

The mortgage between the Bank and the Crofts was 

terminated upon the recording of Croft's quitclaim deed to 

the Bank on July 1, 1981. This deed created in the Bank an 

interest in the property. To determine what this interest 

was, we must look to the terms of the quitclaim. deed. 

"Quitclaim Deed 

"Crofts . . . 'convey, remise, release and forever, 

quitclaim unto [~ang] . . . right, 

interest in and to the followin 

real estate . . . tosethFwith all thge 

hereditaments and ap&rtenances there to 

title and 

described 

tenements, 

belonging, 

and the reversion and reversions, remainder and 

remainders, rents, issues and profits thereof; - and 

--- also all the estate, right, title, interest . . . property, possession, claim and demand whatsoever 

as well in law as in equity, of the said [Crofts] 

---- in or to the said premises and every part and 

parcel. thereof . . . unto the said [Bank] . . ." 

(Emphasis added.) 

Essentially, this deed created in the Bank whatever interest 

in the property the Crofts had on July 1, 1981. 

One interest the Crofts had in the property on July 1, 

1981., was an interest as sellers in the Croft-Starhaven 

contract. This Court has recognized, for the purposes of 

crea.ting a mortgage, that a contract for deed is a.n interest 

in property. Hanson (Mont. 1983), 661 P.2d 421, 40 St.Rep. 

248. It makes sense to recognize it as an interest in 
property under these circumstances as well. If this were not 

the case, the quitclaim would have broken the chain of title 

to Starhaven. As of July 1, 1981, the Crofts no longer had 

any interest in this property and could never have perfected 

title in Starhaven even if Starhaven had made every payment 

under the Croft-Starhaven contract. The quitclaim deed 

executed by the Crofts, therefore, transferred the Crofts' 

interest as sellers in the Croft-Starhaven contract to the 

Bank on July 1, 1981. 

Once it is determined that the Bank stood in the Crofts' 

shoes in relation to Starhaven, the problem of this case 

easily unravels. 

The trial court found that Starhaven had defaulted on 

its payments under the contract. Starhaven failed to make 

the payment of $72,000.00 on April 15, 1981. Pursuant to the 

terms of the contract, the Bank sent Starhaven a notice of 

default on July 24, 1981. The notice stated that the reason 

for default was the failure to make the $72,000.00 payment on 

April 15, 1981. The notice gave Starhaven a 60-day period to 

cure the default before the Bank exercised its right to 

retake possession pursuant to the contract. Starhaven failed 

to cure. 

It appears that Starhaven made a partial payment of 

$31,738.31 on August 31, 1983. The receipts introduced by 

Starhaven at trial reveal that Starhaven made this payment to 

the Croft-Starhaven escrow. The Dillon State Bank & Trust, 

following instructions by the Crofts, applied this payment to 

the Clarno-Croft escrow. This payment did not "save" the 

underlying Clar~o-Croft contract. No default notice had been 

given for failure to make the payment on July 1, 1981, as 

required under the Clarno-Croft contract to terminate that 
agreement. The payment was credited to the Clarno-Croft 

account on the sixtieth day after it was due, not on the 

sixtieth day after notice was given. The record simply does 

not support the assertion that Starhaven "saved" the 

Clarno-Croft contract. 

When Starhaven failed to cure its default, the Bank 

terminated the Croft-Starhaven escrow, recorded the quitclaim 

deed executed by Starhaven, and then attempted to retake 

possession of the property. All this was done pursuant to 

the terms of the contract. This type of default provision is 

valid in a contract for deed in Montana. Hares v. Nelson 

!1981), 195 Mont. 463, 637 P.2d 19. 

The trial court found that Starhaven defaul-ted, that the 

Rank acted on the default pursuant to the terms of the 

contract and quieted title in the Bank. 

The record does not contain evidence to support the 

contention that the Crofts, or the Eank, caused Starhaven to 

default. The trial court committed no error on this issue. 

The District Court did nothing more than enforce an 

obligation voluntarily assumed by Starhaven. 

In the original opinion, this Court found that the trial 

court committed reversible error in its finding Starhaven 

guilty of forcible detainer under § 70-27-103, MCA. This was 

not made an issue on rehearing. There are no facts in the 

record to support a finding of forcible detainer. 

Further, this Court found that the trial court committed 

reversible error in concluding that the itemized property 

list assigned to the Bank was a promissory note. On 

rehearing the Bank contended that, even if not a promissory 

note, the list is an enforceable contract. At trial, the 

Rank did no more than introduce the list and its assignment 
into evidence. On its face, the List is not an enforceable 

contract. The Bank simply failed t.o produce sufficient 

evidence to support its contention. Even had this list been 

an enforceable contract, it was signed by Erickson who 

personally was not a party to this action. 

DISPOSITION 

The trial court applied the $20,000.00 deposited by 

Starhaven with the court to pay partial judgment on the 

itemized property list "promissory note." Because this 

d-ocument created no obligation by Starhaven to pay anything 

to the Bank, the $20,000.00 is ordered returned to Starhaven. 

The payments Starhaven made under the contract, however, 

were properly forfeited to the Bank as rental for the period 

Starhaven was in possession. 

The default provision of the contract stated that any 

payments made by Starhaven would be forfeited as rental upon 

default and failure to cure that default. Liquidated damages 

provisions are valid if reasonable. If, in fact, liquidated 

damages approximate those actually suffered, the amount is 

reasonable. 

The trial court found that the reasonable rental value 

of this property for the period of time that Starhaven was in 

possession--January 1981 to July 1982--was $114,750.00. This 

finding was based on the testimony of Larry Dwyer, a rancher 

and assistant vice president of First Bank, Butte. Starhaven 

introduced no evidence to refute this. 

Starhaven paid $154,751.67 under the contract--the 

initial downpayment at the time of closing and $31,738.31 in 

August 1981. 

Starhaven argued at trial that as a matter of equity, it 

should not be forced to forfeit the entire amount paid under 
the contract. It should be noted, however, that Starhaven 

paid only $154,751.67 on an $800,000.00 contract and was in 

possession of the property for over a year and a half. 

Surely Starhaven did. not intend that it should remain in 

possession for so long and pay nothing for the use of the 

property. 

The trial court found that the amount forfeited by 

Starhaven for its default was reasonable, and there was 

sufficient evidence to support this finding. We affirm. 

We affirm our original. holding that Starhaven was not 

guilty of forcible detainer. 

Final.ly, there was no error in quieting title between 

these parties in the Bank. The Bank did have an interest in 

the Croft-Starhaven contract, Starhaven did default on its 

payments, and the Rank properly asserted that default 

pursuant to the terms of the contract. 

Hon. Diane G. Barz, 

District Judge, sitti& \ 

'--- - For Hon. Frank B. 

Morrison, Jr. 

We Concur: 

P .).+~Kk,'i? M:% 

Hon.'/Joel G. Roth, 

~ik4.!rict Judge, Sitting 

for Mr. Chief Justice 

J. A. Turnage