No. 88-544 INTHE SUPREME COURT OF THE STATE OF MONTANA 1990

EVELYN SMITH, f/k/a EVELYN LOONEY, Plaintiff and Appellant,-vsROBERT SCHWEIGERT, Defendantand Respondent.

APPEAL FROM: DistrictCourtof theEleventhJudicialDistrict, Inand forthe Countyof Flathead, TheHonorableMichael Keedy, Judgepresiding. COUNSEL OF RECORD: ForAppellant: RichardDeJana, Kalispell, Montana ForRespondent: James C. Rartlett; Hash, OIBri.en& Bartlett, Kalispell, Montana

Submittedon Briefs: Nov. 21, 1989trzrz Decided: January 10, 1990 =I @J .:>

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### Justice R. C. McDonough delivered the Opinion of the Court. Evelyn Smith (Evelyn) appeals from an order of the Eleventh Judicial District granting summary judgment to respondent, Robert Schweigert (Schweigert). We reverse and remand. Schweigert raises numerous issues for review, including timeliness of the appeal, mootness and the validity of the contract for deed. These arguments are without merit; accordinglywe decline to address them. Therefore the sole issue on appeal is: Whether Schweigert is barred, through the doctrine of collateral estoppel, from reopening a previous judgment of 

### the District Court which determined that a lending agreement evidenced by a warranty deed and contract for deed was an equitablemortgage. Dan and Evelyn Looney,husband andwife,were the owners

as joint tenants, of a certain piece of land. On May 1, 1981, Schweigert and Dan Looney entered into aMemorandum of Intent. The purpose of this memo was to evidence an intent

on the part of Dan Looney and Schweigert to enter into 

### a Contract for Deed covering the land. Apparently Schweigert had constructed abuilding on suchproperty ownedby Looneys, and as a result Looneys owed him money. The pertinent portions of thememorandum of intentare as follows:

### WHEREAS, Buyer [Dan Looney] is presently the owner of certain real property located at 271 

### Riverside Drive, Kalispell, which is the location of Buyer's business known as "AnvilWelding", and Seller [Schweigert] has done certain construction upon said property for the benefit of Buyer; and WHEREAS, Seller has invested certainmoney in said property for the benefit of Buyer, and the parties are interested in securing that interest for thebenefit of Seller;and WHEREAS, both parties are working diligently with the staff and officers of the First Northwestern National Bank of Kalispell, hereinafter referred to as "bank", in order to secure financing involving the property in question,

3. 

### That this agreement is entered into by both parties freely and voluntarily, with the understanding that it is intended to facilitate the completion of the financing arrangement with the bank,and further, it isunderstood and agreed that this agreement may be specifically enforced by eitherparty in the eventof controversy. In order to secure the debt, the Looneys conveyed the property by warranty deed to Schweigert. The Contract for 

### Deed was entered into with Schweigert as seller and the Looneys as buyers. Upon payment of the money owed as per contract for deed Schweigert would convey the property back to the Looneys. In case of failure on the part of the Looneys to comply with the contract, a quitclaim deed was placed in escrow to be delivered to Schweigert upon such default and proper notice. The Contract for Deed was executed and signed by both husband a.nd 

### wife on May 6, 1981..In 1982, the Looneyswere divorced. The property settlement agreement divided the property into two parcels. ~ccording to the agreement, Evelyn retained the portion of property upon which the family home was situated and Dan Looney received the portion upon which his business was located. The agreement also provided that Dan would pay the contract for deed debt. Dan Looney defaulted on his payments. Schweigert gave notice of default to the Looneys and exercised his rights under the contract, and obtained and recorded the quitclaim deed covering the property held in escrow with the County Clerk and Recorder on June 28, 1985. Dan Looney alone filed

a lawsuit against Schweigert on July 8, 1985. In the lawsuit, he maintained that because the warranty deed and Contract for Deed were executed to secure a debt, an equitable mortgage resulted. Consequently, he asserted that Schweigert would have to foreclose on the property as a mortgage and as a resulthe, Looney,would be entitled to a one-year right of redemption. For reference, seeS 71-1-107, MCA,which provides as follows:

Transfers of interest. 

### (1) Every transfer of an interest in property, other than in trust,made only as a security for the performance of another act is to be deemed amortgage, exceptwhen in the case of personal property it is accompanied by actual change cf possession, in which case it 1s deemed apledge.(2) The fact that a transferwas made subject to defeasance on a condition may, for the purpose of showing such transfer to be a mortgage, be proved (exceptas againsta subsequentpurchaser or encumbrancer for value and without notice), though the fact does not appear by the terms of the instrument. In order to expedite the matter, Schweigert moved for s.ummary judgment consenting to Looney's equitable mortgage assertion and asked the court to have the sheriff sell the property and to grant Looney a one-year right of redemption from the sheriff's sale. The judgment was entered and the sale took place. Schweigert bid in full the amount of the debt or contractpurchase price then due, and Looney did not redeemwithin the one-year time period. OnMarch 31, 1988,a Sheriff'sDeed was issued in favorof Schweigert. In themeantime onMay 13, 1986,Evelyn filed a document entitled "Notice of Failure to Foreclose" which stated that the Decree of Foreclosurehad no effect on her rights to the real property, because she was not named as a party in the foreclosureaction. According to her theory,the foreclosure action only affected her ex-husband's interest. Since her righthad notbeen validly foreclosed,shewas stillentitled to her interest in theproperty. Based upon this theory, she filed a complaint against Schweigert, seeking partition of her interest in the land. Schweigert answered the complaint and maintained that her interest 

### had been extinguished when he exercised hisrights under the Contract forDeed. He asserted thatwhen he foreclosed on Looney's interest,he treated it as amortgage only to prevent delay and litigation. Therefore, that action had no effect upon Evelyn's interest, which had previously been extinguished. He counterclaimed and sought to have Evelyn removed from theproperty. These facts and arguments were presented inmotions for summary j-udgmentto the trial court. The trial court found in favor of Schweigert and ordered Evelyn to vacate the property. This appeal followed. Evelyn argues that Schweigert is barred from foreclosing

on her interest in the property. She maintains that when Schweigert elected to foreclose as amortgage and bid in the sheriff's sale the full amount due him, he concl~usively adjudicated all his interests involved. Thereforehe cannot extinguish her interest through the provisions of the contract for deed. She bases her argumentupon the doctrine of collateralestoppel. Collateral estoppel is a form of res judicata. Quite simply, the doctrine "precl.udes relitigation of issues actually litigated and determined in a prior suit." Lawlor

v. ~ationalScreen service (1955), 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed 1122. Itdiffers fromres judicata, in that res judicata bars the same parties from relitigating the same cause of action, while collateral estoppel bars the sameparties, or their privies, from relitigating issues which have been decided with respect to a different cause of action. Brault v. Smith (1984),209 Mont. 21, 679 P.2d 236. Thedoctrine has three elements:



### 1. The issue has been decided in a prior adjudicationand is identical to the onepresented. 2. A final judgment on the merits was issued. 3. Theparty againstwhom theplea is assertedwas a party or privity to the party in the prior 

### adjudication. In Re the ~arriage of Stout (1985), 216 Mont. 342, 701 ~.2d

Evelyn asserts, and we agree, that each of these elements are established by the facts now before us. In regard to the first element, we note that the controversy here is identicalto that adjudicated in the laws-uitfiledby Dan Looney against Schweigert. Dan Looney brought suit against Schweigert claiming that the contractual arrangement,

as evidenced by the contract for deed, was actually an equitable mortgage. He, therefore, maintained that he was entitled to a one yearperiod of redemption. Schweigert, for whatever reason, agreed with this assertion. He moved for summary judgment and sought to forecloseupon the property as

a mortgage. The lower court granted this motion. In granting the motion the court formally adjudicated the controversy. Casad,Res ~udicata S 4-10 (1976).In the present case, Schweigert seeks to advance the same argument--that the arrangement is a valid contractual obligation and is not an equitablemortgage. This assertion, however, was previously adjudicated in the lawsuit with Dan Looney. Hence,the first element is satisfied. The second element requires that the judgment be based upon the merits of the controversy. A valid and final personal judgmenton the merits precludesa later suit on the same claim or cause of action. 

### his preclusive effect is applicable to the elementsasserted in the first suitaswell

as to all elements which could have been asserted. The policy behind this principle, often referred to as "bar," is to deter the splittingof a single cause of action intomore than one lawsuit. Casad,Res ~udicata 

### 5 4-1 (1976). Inorder to decidewhether a judgment is "on themerits" one must determine if it conclusively adjudicates the substantive validity of the claim. The claim now before us

was determined through summary judgment in theprevious suit. Summary judgment is only granted when there is no genuine issue of material fact and the moving party is entitled to judgmentas amatter of law. Rule 56(c),M.R.civ.P. Such a judgment is on the merits because it conclusively determines

a legal issue which is presented by the facts of the case. Therefore, the granting of the motion will serve to bar a later suiton the same cause of action.The final issue requires that theparty againstwhom the plea is asserted was a party or privity to the party in the prior adjudication. In this case, as in the prior adjudication, Schweigert is the defendant. Thus the third element is satisfied and the determination in the prior lawsuit estops him from further argument on the issue of the existence ofan equitablemortgage. Each of the elements of collateral estoppel is satisfied. The lower court, however, refused to apply the doctrine to the facts of the case. It instead held that Evelyn was equitably estopped from contesting the validity of the foreclosure action. We disagree with the lower court's ruling. Evelynwas not a party nor is there any evidence to support any theory of estoppel against her. The fact that Evelyn was not a direct party precludes the action from having any binding effect upon her, and the judgment originally rendered is final. Moore v. capital Gas Corp.

(1945),117Mont. 148,158 P.2d 302. The principles upon which the Anglo-legal system is based require a finality to all judicialdecisions. Parties should not be allowed to litigate the same matter over and

over again. One fair day in court is enough. Mr. Schv~eigert was accorded his day in court and the matter was decided. Therefore, he cannot at this late date, contest that valid judgment. See generally Casad,Res ~udicata

### (1976).In light of these principles, ~chweigertcannot now attempt to forecloseEvelyn's interest throughtheprovisions of the contract for deed. 

### He foreclosed upon the mortgage, his debt was merged into the judgment, and thro-ugh the sheriff's sale the judgmentand debt against the Looneyswere satisfied. He and Evelyn are now cotenants in the subject property. The instant case arose through her complaint seekingpartition. Wemust therefore remand this case to the ~istrictCourt for further proceedings consistentwi.th this opinion.



### We Concur: 

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### 7/ Ch'ief Justice 

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