96-461

 No. 96-461

 IN THE SUPREME COURT OF THE STATE OF MONTANA

 

1997

KEVIN L. WALDHER,

 Plaintiff and Respondent,

 v.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver

for BANK OF COLUMBIA FALLS, JETTE RANCH, INC.,

SOGELEASE CORPORATION, 5 P's COLLECTIONS, INC. 

d/b/a INTERMOUNTAIN COLLECTIONS, MICHAEL LEAHY, 

and their assigns or successors in interest, and 

all persons unknown who claim any right, title,

estate or interest in or lien or encumbrance upon 

the real property described in the Complaint, or 

any part thereof, adverse to Plaintiff's ownership

or any claim upon Plaintiff's title thereto, whether 

such claim or possible claim be present or contingent, 

including any claim or possible claim of elective 

share, inchoate or accrued, 

 Defendants and Appellants.

APPEAL FROM: District Court of the Twentieth Judicial District,

 In and for the County of Lake,

 The Honorable C. B. McNeil, Judge presiding.

COUNSEL OF RECORD:

 For Appellants:

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 Ward E. Taleff; Alexander, Baucus, 

 Taleff & Paul; Great Falls, Montana

 For Respondent:

 Matthew H. O'Neil; French, Mercer, 

 Grainey & O'Neil; Polson, Montana

 Submitted on Briefs: January 2, 1997

 Decided: March 18, 1997

Filed:

 __________________________________________

 Clerk

Justice Terry N. Trieweiler delivered the Opinion of the Court.

 Kevin L. Waldher's predecessor in interest filed a quiet title

action in the District Court for the Twentieth Judicial District in

Lake County, and served defendant Federal Deposit Insurance

Corporation (FDIC) with a summons and complaint. The District

Court entered FDIC's default based on FDIC's failure to file an

answer to the complaint. FDIC moved the District Court to set

aside the entry of default. The District Court denied FDIC's

motion. FDIC appeals the District Court's order which denied its

motion to set aside the default. We reverse the order of the

District Court and remand to that court for proceedings consistent

with this opinion.

 On appeal, we address the issue of whether the District Court

abused its discretion when it denied FDIC's motion to set aside the 

default judgment.

 FACTUAL BACKGROUND

 On October 12, 1993, Lonna Leahy filed a quiet title action in

the Twentieth Judicial District Court. Defendant FDIC was served 

with a summons and complaint on December 14, 1993. In early

February, Leahy orally granted FDIC a thirty-day extension of time

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in which to file an answer to the complaint. After the informal

extension had expired, Leahy notified FDIC's attorney that FDIC was

in "technical default." At that time, however, Leahy did not move

the District Court for entry of a default, and the parties

continued to negotiate Leahy's quiet title claim. On October 6,

1994, FDIC's attorney appealed to Leahy for a response to the

negotiations "so that we can either dismiss the action or file an

answer."

 On May 17, 1995, Leahy moved the District Court for an entry

of default against FDIC for its failure to file a timely answer. 

The District Court granted Leahy's motion on May 24, 1995, and

entered default against FDIC. FDIC immediately retained local

counsel to continue negotiations with Leahy. On June 13, 1995,

after conferring with Leahy, FDIC's local counsel wrote to Leahy:

 To confirm our discussion, I informed you of my

representation of FDIC. Rather than requiring me to move

to set aside the default of FDIC (if you feel you can't

stipulate to that result), we agreed to try to cooperate

in the next few weeks to see if there is a way to defeat

the Sogelease Corporation judgment lien . . . . If that

isn't acceptable, or if you would prefer that I take

steps now to set aside the default, please let me know

immediately.

 On August 23, 1995, Kevin L. Waldher was substituted for Lonna

Leahy as party plaintiff in the quiet title action. When FDIC

sought to confirm its understanding about the negotiations with

Waldher's counsel, it was informed that Waldher would not agree to

set aside FDIC's default. Therefore, on February 28, 1996, FDIC

filed a motion with the District Court to set aside the default. 

On July 12, 1996, the court summarily denied FDIC's motion.

 DISCUSSION

 The issue in this case is whether the District Court abused

its discretion when it denied FDIC's motion to set aside the

default judgment.

 Rule 55(c), M.R.Civ.P., provides that "[f]or good cause shown

the court may set aside an entry of default." The policy of law

is to favor a trial on the merits. Therefore, no great abuse of

discretion need be shown to warrant a reversal of a district court

order denying a motion to set aside a default. In re Marriage of

Broere (1994), 263 Mont. 207, 209, 867 P.2d 1092, 1093; Hoyt v.

Eklund (1991), 249 Mont. 307, 311, 815 P.2d 1140, 1142. Our

standard of review of a district court's refusal to set aside a

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default is whether there was a slight abuse of discretion by the

court. Twenty-Seventh Street, Inc. v. Johnson (1986), 220 Mont.

469, 471, 716 P.2d 210, 211.

 In Blume v. Metropolitan Life Insurance Co. (1990), 242 Mont.

465, 467, 791 P.2d 784, 786, this Court set forth the factors

necessary to establish good cause to set aside a default. We

stated that a defendant must show: (1) that he proceeded with

diligence; (2) that his neglect was excusable; (3) that the

judgment, if permitted to stand, will affect him injuriously; and

(4) that he has a defense to plaintiff's cause of action on the

merits. Blume, 242 Mont. at 467, 791 P.2d at 786. See also

Marriage of Broere, 263 Mont. at 209, 867 P.2d at 1094.

 In this case, the evidence presented by FDIC demonstrates that

it proceeded with diligence to set aside the default entered

against it, even though its motion to do so was not filed

immediately. In support of its motion to the District Court, FDIC

submitted affidavits from two of its attorneys in which they stated

there had been an understanding between the parties that FDIC would

postpone an effort to set aside the court's entry of default

pending ongoing settlement negotiations. In addition, FDIC

submitted correspondence between the parties which illustrated its

good faith belief that it would not be prejudiced by a delay in

filing a motion to set aside the default. Both the correspondence

and the affidavits clearly establish that the parties were

attempting to reach a settlement and that FDIC believed that a

motion to set aside the default would not be required until its

attorneys were advised by the plaintiff's attorney that such action

was necessary. Furthermore, the record is clear that FDIC

proceeded with diligence and attempted to set aside the default as

soon as it became aware that plaintiff's new counsel did not share

FDIC's view of the parties' agreement and intended to enforce the

entry of default. 

 The evidence presented by FDIC further demonstrates that its

failure to file an answer was not due to inexcusable neglect or

disrespect for the court or judicial process. See Blume, 242 Mont.

at 469, 791 P.2d at 787. An affidavit filed by Leahy's attorney

confirms that Leahy orally consented to a thirty-day extension of

time in which FDIC could file an answer to her complaint. In

addition, FDIC's attorney affidavits and correspondence with Leahy

demonstrate that the parties continued to negotiate Leahy's quiet

title claim after the expiration of that thirty-day period with the

understanding that FDIC could postpone filing its answer. In fact,

in a letter dated October 6, 1994, FDIC's attorney appealed to

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Leahy for a response to the negotiations "so that we can either

dismiss the action or file an answer." (Emphasis added.) When

FDIC's attorney received Leahy's motion seeking entry of default in

May 1995, he was out of his office attending a seminar. The

hearing had already occurred by the time FDIC's attorney was made

aware of that motion. The affidavits and exhibits presented by

FDIC, which at the very least establish a misunderstanding between

the parties regarding the necessity of a timely answer by FDIC,

support FDIC's assertion that its failure to file an answer to

Leahy's complaint was due to excusable neglect. 

 In addition, at the time FDIC filed its motion to set aside

the default, it also filed a proposed answer to the plaintiff's

complaint. In the proposed answer, FDIC asserted two affirmative

defenses which, if true, would constitute meritorious defenses to

the complaint. It is well established that "[t]he proposed answer

does not have to demonstrate the truth of the allegation of the

answer, and it is not appropriate to discuss the merits of the

answer beyond finding a prima facie defense." Blume, 242 Mont. at

470, 791 P.2d at 787. We hold that FDIC's proposed answer

constitutes adequate documentation of its defenses to the quiet

title action. 

 Finally, it is clear that if the entry of default is allowed

to stand, FDIC will lose any ability to assert its interest in the

real property at issue. Such a loss will clearly affect FDIC

injuriously. 

 We hold that FDIC has established that it proceeded with

diligence under the circumstances, that its neglect was excusable,

that it has a defense to the quiet title action, and that the entry

of judgment, if permitted to stand, will affect it injuriously. 

Therefore, in light of FDIC's showing of good cause to set aside

the entry of default, and in light of the clear policy which favors

adjudication on the merits, we hold that the District Court abused

its discretion when it denied FDIC's motion to set aside the entry

of default. We reverse the order of the District Court which

denied FDIC's motion and remand to that court for proceedings

consistent with this opinion.

 /S/ TERRY N. TRIEWEILER

We Concur:

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/S/ WILLIAM E. HUNT, SR.

/S/ JAMES C. NELSON

/S/ W. WILLIAM LEAPHART

/S/ KARLA M. GRAY

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