No. 83-58 INTHE SUPREME COURTOF THE STATE OF MONTANA 1985

DAVID ERICKSON,d/b/a STARHAVEN RANCH, LTD., aMontana corp., PlaintiffandAppellant,

FIRSTNATIONALBANK OF MINNEAPOLIS and BURTON 0. CROFT AND SHIRLEYT. CROFT, Defendantsand Respondents.

APPEAL FROM: District Court of the Fifth Judicial District, In and for the County of Beaverhead, TheHonorableArnold Olsen,Judgepresiding.

COUNSELOF RECORD:

ForAppellant: 

### 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 FirstNational 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 DistrictCourt declaring a forfeiture of the contract between Starhaven and the Crofts, and quieting title in the defendant, the FirstNational Bank of Minneapolis. OnMay 9,

### 1984,thisCourt handed down an opinion in the above-entitled cause reported at 41 St.Rep. 856 (1984). A petition for rehearing was filed by the FirstNational 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 fordeed to Starhaven Ranch, Ltd. (Starhaven). Starhaven did not cure within 60 days and had not cured as of the date of trial. Theultimate question before this Court iswhether the Bank had the power to enforce the Croft-Starhaven contract for deed. To answer this question two separate relationshipsmust 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.sdispute 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 onAugust 7, 1980. By June 1981, the Crofts had defaulted on the loan that

was securedby their assignment. As a result of thisdefault the Bank recorded the Croft'squitclaim deed on July 1, 1981, in Beaverhead County where the property is located. The subject of this quitclaimdeed.,datedAugust 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 quitclaimdeed 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-STARHAVENRELATIONSHIP Starhaven agreed to purchase the property in dispute from the Crofts on January 15, 1981., under a contract for deed (Croft-Starhavencontract). Although the assignment ofthe 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 Starhavenwas topay $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, Starhavenwas tomake a $72,601.72 payment on January 3.5, 1982. Starhaven agreed to pay these amounts into an escrow at the StateBank and TrustCompany 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-easesand 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 alsopaid the initialdownpayment 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. Starhavenmade 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 $10,000.00representing interest due on the $72,000.00 due April 

### 15, 1981 into theDillon StateBank & Trust escrowaccount. On July 24, 1981,the Rank sent Starhavennotice 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 onAugust 31, 1-981,Starhavenmade apayment 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 furtherpayments under this contract. Between August andNovember 1981,the Bank paid the 1980 property taxes that the Crofts had agreed topay. 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. Itappears that these payments weremade 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 3days. Starhaven brought a quiet title a.ctionagainst 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 inpossession 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 Starhavenguilty of forcibledetainer 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 

### liabili.ty. The primary issues on rehearing are whether the Bank properly asserted Starhaven's default on the Croft-Starhaven contract fordeed pursuant to the terms of that contract,and whether the Bank's sole remedy against Starhaven was a mortgage foreclosureunder S 

### 71-1-222,MCA. This issue arises in a complex factual setting. The first step inunraveling thisproblem is thedetermination of the legalrelationshipbetween theparties.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 amortgage. 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), 661P.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 foreclosureand sale in the mortgagor. This section,however, does notprohibit awaiver 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 themortgage becomes due, themortgagor cannot withdraw that consentuntil the debt ispaid. Feev. Swingly

(1887), 6 Mont. 596, 599, 13 P. 375, 376. A mortgagor may thus waive the right to foreclosure after he d-efaultson 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.aimdeed they executed with the assignment, the Crofts executed another quitclaimdeed to the Bank. Although the exact circumstances under which this consentwas given are not revealed in the record, the voluntariness of the consent has notbeen questioned.

### Further,thewaiver 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 foreclosureprocesswould be meaningless. The Bank in this case properly terminated its legal relationship with the Crofts--that of mortgagor-mortgagee. Thenext question is the crux of thisproblem.: Whatwas 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, wemust look to the terms of the quitclaim.deed. "QuitclaimDeed "Crofts

# ... 'convey,remise,release and forever, quitclaim unto [~ang]

# . .. right, interest in and to the followin real estate

# . .. tosethFwith all thge hereditamentsand 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]

# ..."

(Emphasisadded.) Essentially, this deed created in the Bank whatever interest in theproperty theCroftshad 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.tinga mortgage, that a contract for deed is a.ninterest in property. Hanson (Mont. 1983), 661 P.2d 421, 40 

### St.Rep. 248. It makes sense to recognize it as an interest inproperty under these circumstancesaswell. If thiswere 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 thisproperty 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 isdetermined 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 fordefaultwas the failure tomake the $72,000.00 payment on April 15, 1981. Thenotice gave Starhaven a 60-dayperiod 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 Starhavenat trial reveal that Starhaven made thispayment to the Croft-Starhaven escrow. The Dillon State Bank & Trust, following instructionsby the Crofts,applied thispayment 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 noticewas 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 theCroft-Starhavenescrow,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, 637P.2d 19. The trial court found that Starhavendefaul-ted,that the Rank 

### acted on the default pursuant to the terms of the contractand 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 obligationvoluntarily assumed by Starhaven. In the originalopinion,this Court found that the trial court committed reversible error in its finding Starhaven guilty of forcibledetainer under § 

### 70-27-103,MCA. Thiswas not made an issue on rehearing. There are no facts in the record to support

### a finding of forcibledetainer. 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 assignmentinto 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 listbeen an enforceable contract, it was signed by Erickson who personallywas not aparty 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-ocumentcreated no obligation by Starhaven to pay anything to the Bank, the $20,000.00 is ordered returned to Starhaven. Thepayments Starhaven made under the contract, however,

were properly forfeited to the Bank as rental for the period Starhavenwas inpossession. The default provision of the contract stated that any payments made 

### by Starhavenwould be forfeited as rentalupon defaultand failure to cure thatdefault. 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 theperiod of time that Starhavenwas in possession--January 1981 to July 1982--was $114,750.00. This finding was based on the testimony of Larry Dwyer,a rancher and assistantvice president of First Bank,Butte. Starhaven introducedno 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

### amatter of equity, it should not be forced to forfeit the entire amountpaid 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 forcibledetainer. 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& 

# \ '--- - 

### ForHon. Frank B. 

### Morrison, Jr. We Concur:

P 

### .).+~Kk,'i?

## M:% Hon.'/Joel G. 

### Roth, ~ik4.!rict Judge,Sitting forMr. Chief Justice J. 

### A. Turnage