No. 80-268 IN THE SUPREBE COURT OF THE STATE OF MONTANA 1980

WENDELL D. HADFORD, Plaintiff and Appellant,

VS

# . ELIZABETH M. HADFORD, Defendant and Respondent.

Appeal from: District Court of the Eighteenth Judicial District, In and for the County of Gallatin. HonorableW. W. Lessley, Judgepresiding. Counsel of Record: For Appellant: Landoe,Brown, Planalp,Kommers & Lineberger, Bozeman,

Montana For Respondent: Morrow, Sedivy, Olson and Scully, Bozeman, Montana

Submitted on briefs: December 30, 1980 Decided: August 17, 1981 

## AUG1.7198

ClerkMr. Justice Daniel J. Shea delivered the Opinion of the Court.

Wendell D. Hadford (husband)appeals a 1980 judgmentof the Gallatin County District Court setting aside a property settlement agreement and decree entered in 1974. The 1974 decreeprovided that the familyhome and laundromat in Bozeman be sold and the proceeds evenly divided. The 1980 decree ordered the husband to convey his one-half interest in the home and laundromat to his ex-wife, subject to the existing mortgages. The husband also appeals from that part of the order directing him to pay $1,754 for college tuition advanced for two of the children. Although there are references in the trial court's memorandum to fraud on the courtbecause the husband failed to disclose all his assetsbefore the 1974 decree was entered, it appears that the trial court set the property settlement and decree aside on the ground that itwas unconscionable. The husband argues that the 1974 property agreementand decree is res judicata on the question of unconscionability. He further argues that there is no evidence indicating fraud

on the court. We reverse the trial court and hold that the court had no right to set aside the 1974 decree on the grounds of unconscionability; the failure of thewife to appeal from the court's decree,by which she could contest the conscionabilityof the property settlement and decree, has rendered this issue res judicata. We further hold that there is no basis in the record to hold that the husband committed a fraud on the court by not disclosing all his assets before the 1974 decreewas signed. The record is barren of any failure to disclose assets.On the child support and college tuition issues, the husband admits the arrearages, but argues that certain paymentsmade to hiswife or children should be allowed to offset these obligations. We affirm the trial court on both issues. In 1974, the husband and wife negotiated a property settlement and child support agreement. Both had lawyers. After reaching this agreement, the wife and her attorney appeared in Gallatin County District Court to obtain the divorce and asked the court to approve the property settlement agreement. Theproperty settlementwas merged into the divorcedecree. The child support provision stated that the husband would pay child support of $200per month for each child until they reachedmajority. It furtherprovided that the husband would pay college tuition for all the children that were willing and able to go to college. It also stated that the husband could pay this tuition to the wife, so that she could use the money to pay the normal living expenses of the childrenwho lived at home while continuing their college education. The property distribution agreement stated that the property would be evenly divided. The dispute here centers

on the Bozeman home which had an approximate equity of $15,000 in 1974, and the Bozeman laundromat, which had an equity of approximately $34,000 in 1974. The agreement stated that the equity in the home would be divided evenly between the husband and wife, but that thewife would be given credit for payments made on the home after the effective date of theproperty settlementagreement. The agreement also stated that the equity on the sale of the Bozeman laundromatand the sale of certain lots in Great Falls,would be evenly divided when they were sold. Finally, the agreement stated that if the realproperty was not sold within twelvemonths, thematter would be submitted to the court having jurisdiction of the case. In 1976, the husband sold the Great Falls lots and delivered one-half of the net proceeds to thewife. But neither the home nor the laundrywas sold. Thewife continued to live in the home with one ormore of the children,andmade the monthly mortgage payments. She also ran the Bozeman laundromat. On December 10, 1979, the wife filed a petition to set aside the property settlementmerged into the 1974 divorce and property distribution decree. She asked for sole ownership of the home and laundromat. She also asked the court to order that the husband pay delinquent child support and reimburse her for college tuition expenses shepaid for the children. Thewife's grounds for setting aside the decree are vague, but unconscionability seems to be the central theme. With no supporting particulars, she alleged that in 1974 her mental statemade her unable to comprehend the economics of maintaining a home and running a laundromat. She further alleged,without any supporting particulars, that the husband failed to make full and accuratedisclosureof all assets and that his failure to do so amounted to fraud against the wife.Thewife produced no evidence that the husband failed to disclose all the assetsbefore the trial court entered the 1974 default decree against the husband. Nor did she present evidence that the 1974 agreement, as alleged in her petition,was unconscionable. Her evidencewas geared to showing that the expenses of maintaining the home and runningthe laundromat,were more than what she anticipated when she agreed to the 1974 property settlement. She did testify,

as did other witnesses in her behalf, that emotional problems caused by the breakup of themarriage affected her ability to think clearly when she signed the 1974property settlement. She was, however, represented by counsel in negotiating the property settlement, and counsel was present when the divorce decreewas signed and merged with the property settlement. The findingsof the trial court are vague and conclusory. It appears,however, that the trial court set the 1974 decree asidebecause it was unconscionable. The court made several conclusory findings for which there is no evidentiary support. The court found that the husband had not disclosed theproperty and income during the 1974 divorceproceeding. It was, however, thewife and her counselwho presented the proposed property settlement to the court. Further, the trial court did not statewhat property the husband had failed to disclose,and the record does not support a finding that the husband failed to disclose property. In finding that the wife did not have the "mental condition" to comprehend the 1974property settlement, the court found this only as a general conclusion. Based on these findings (actually, conclusions) the trial court jumped to a finding (actually, another conclusion) that theproperty settlement agreementwas "unconscionable," and therefore that the husband must give up his one-half interest in the house and laundromat to thewife. After the trial court's ruling, the husband moved the trial court to amend the findings and conclusions and to provide a memorandum of decision so that the husband would know the basis of the trial court's decision. Insofar as it applieshere, the trial courtmerely amended the findings and conclusions to again make a bald conclusion that theproperty settlement agreement and decreewas "unconscionable." The court did, however, file a memorandum opinion,but it also fails to set out a basis onwhich the trial court can be upheld. Thememorandum simply repeats the allegations of the wife in her petition to set aside the 1974 decree,but it does not analyzewhether thewife canprevail on any of these grounds. Except for the allegation of fraud (which

was an allegation of fraud against the wife), the memorandum omits any discussion of these grounds. Without explanation, the trial court simplyheld that the husband committed a fraud on the courtwhen the divorcewas obtained in 1974. There isno discussion of the basis for this conclusion, and there isno evidence in the record to justify this conclusion. Without expressly stating,counsel for the wife impliedly admits that unconscionability standing alone is insufficient to set aside a property settlement agreementmerged with a divorcedecree, but argues that the settlement here was properly set asidebecause of fraud against thewife and on the court. But nowhere in their brief do they explain how the husband perpetrated a fraud against thewife or on the court. The record fails to support a ruling that the husband is guilty of fraud. We proceed next to the trial court's unsupported conclusion that the 1974 property settlementmerged with the 1974 decree must be set asidebecause it is unconscionable. First, aswe have already stated, the record does not support such a conclusion. Second, the issue of conscionability versus unconscionabilitywas decided by operation of law when the 1974property settlementwas approved and merged with the decree. Under the Uniform Marriage and ~ivorce Act, section 40-4-201(2), MCA, it was the duty of the court to inquire into the conscionability of the property settlementbefore it was approved,or itwas the duty of the wife to ask the court to inquire into the conscionability of the decree before itwas finally approved. But when neither the court nor the wife did this, this issuebecame finalwhen the appeal time expired. Thewife had no right sixyears later to attempt to relitigate this issuewhich the law requires to be decided before the entry of the decree if either the court or one of the parties questions the conscionability of the decree. Res judicata clearly bars this claim. By section 48-341(3), R.C.M. 1947 (notcodified inMCA), the Uniform Marriage and DivorceAct (UMDA) applies to all proceedings started after its effective date (January1, 1976), for the modification of a judgment or order entered before the effective date of theAct. Under section 40-4-201(2), MCA, the courts are bound by a property settlement agreement signed by both parties unless the court then finds the agreement to be unconscionable. Under this statute, the court can determine the question of conscionabilityon its ownmotion, or either of the parties

can raise this issuebefore the agreement ismerged into a decree and becomes final. Here, thewife appeared before the DistrictCourt on May 1, 1974,with counsel,and presented the proposed divorce decree togetherwith the signed property settlement agreement, and asked the court to grant the divorce decree, to approve the property settlement agreement, and to merge the agreement with the decree of divorce. Neither the husband nor his counsel appeared at this proceeding. (Ofcourse, itwas understood that they would not, and that the wife would obtain the default decree and have the property settlement agreement approved by the court.) If the trial courtwas in doubt concerning the fairness of the property settlementagreement, ithad a right to conduct whatever proceedings

were necessary to determine the fairness of the agreement. If,after conducting the proceedings, it determined the agreement to be unconscionable, it had a right to set the agreement aside under section 40-4-201(2), or the wife herself had the right (undersection 40-4-201(2) )

## , to ask the court to take a second look at the agreement before it

was approved and became a part of the decree. Obviously the wife and her attorney thought the property settlement agreementwas fair, for neither of them asked the trial court to look into its fairness. Nor did the trial court, on its ownmotion, decide to look into its fairness before signing the decree and merging the agreement with the decree. Thewife and her attorney did nothing before the time tomodify the decision expired (Rule59(g),M.R.Civ.P.), and the wife and her attorney did nothing before the appeal time expired (Rule 5,M.R.App.Civ.P.) Rather, the wife waited six years after the entry of the decree before she went into court. By section 40-4-201(2),MCA, district courtsmust abide by the terms of a property settlement agreementunless its terms are unconscionable. This statutehas a dual purpose. First, it expresses a clear policy encouraging property settlementagreements. Obviously, a property settlement agreementwould be useless if the courtswere free to set them aside whenever themood struck. Under the statute, the property settlement decreemust be approved unless the District Court finds it to be unconscionable. The secondpurpose has the goal of finality. A property settlementagreement would also be useless if the courts

were free to set them aside at any time simply on the motionand allegation of one of the parties that the property settlement agreementmerged with the decree is unconscionable. That iswhy section 40-4-201(2) also provides thatwhen the property settlement agreement is presented to the District Court for approval, the District Court can, on its own motion, determine its conscionability, or, one of the parties

can raise the issue before the decree is entered and the agreementmerged with the decree. Applied here, it was the duty of the DistrictCourt or the wife to raise the issue of unconscionability. Itwas not raised, and it is too late to do so now. The issue has been clearly barred by the doctrine of res judicata. The doctrine applies not only to issues which were raised and decided,but to issues which should have been raised and decided. Sherlock v. Greaves (1938), 

### Kedcen 106 Mont. 206, 76 P.2d 87; and Swaimv. Pdeea (1936),101Mont.

Section 40-4-201(2) squarely places the issue of conscionability versus unconscionability before the court at the time the parties present the property settlement agreement to the court for its approval. Under the statute, the court

on its ownmotion can go behind the agreement to determine this issue,or one of theparties can ask the court to do

so. Since the District Court failed to inquire into this issue on its ownmotion, itwas the wife's duty to ask him to do so. Having failed to do so, she is not now in a position six years later to request that the court do so. We set out the four criteria for application of res judicata in Hopper v. Hopper (1979)

## , -Mont

# . , 601

, P.2d 29, 36 St-Rep.1695,and held that the husband was

barred by res judicata from seeking to set aside the property settlementmerged with the decree. The husband argues herethat Hopper is inapplicable because when the decreewas originally entered in Hopper, the trial court made a specific finding that the agreementwas not unconscionable. Therefore, he contends that the issue was actually decided in Hopper, but was not decided here. Res judicata applies to issues that have been raised and decided, and to thosewhich should have been raised and decided,and which are necessarily included in a final judgment. - Sherlock and Swain, supra. Thisprinciple isparticularly importantwhere a statute expressly imposes a duty on either the trial court or one of the parties to raise the issue of conscionability versus unconscionability before the decree is signed. Itwas not done here and thewife is barred. We next discuss the fraud issue, althoughwe have stated that there is no basis in the evidence for concluding that the husband perpetrated a fraud on his wife or on the court. We also held in Hopper, supra, 601P.2d 35-36, that before a final judgment canbe reopened theremust be a finding of extrinsic fraud. By thiswe meant such fraud as to "preventthe unsuccessfulparty from having a trial or frompresenting his case fully." 601P.2d at 36. Although itwas thewife and her counsel who urged the trial court to adopt the property settlementagreement and to sign the decree, in effect, it is the wife who now claims to be the unsuccessfulparty. This procedural context does not by itself forecloseher from later claiming extrinsic fraud, but theplain fact is that extrinsic fraud does not exist in this case. Nothing in the record shows that the husband prevented the wife from fullypresenting her case when she obtained the default decree against the husband, and nothing in the record shows that she lacked knowledge of all themarital assets. Further,nothing prevented thewife from then asking the court to go behind the face of the agreement to determine its conscionability. The trial court's bald conclusion that extrinsic fraud existed does not substitute for the evidencewhich must support this conclusion. That evidence is nonexistent. We proceed next to the issues involving child support and college tuition for the children. On child support, the decree stated that the husband would pay $200per month for each of the minor children until they reachedmajority. On college tuition, the decree provided that the husband would pay the children's tuition and that the tuition could be paid to the wife while the childrenwere attending college but living at home. In filing thepetition to set aside the property settlement agreement, thewife also alleged that the husband was $1,800behind in child support and that he owed $1,754which thewife had advanced to the children for their college tuition. The husband admitted that he had not directlypaid the child supportand that the wife had paid the $1,754 tuitionwhich was the husband's duty to pay. However, on each claim he alleged an offsetbecause of other payments made to the wife or to the children. He claims that the back child support obligation should be offsetby the failureof thewife to return $1,399 of the 1977 income tax refund. He signed the check, sent it to the wife to sign,but she signed it and kept all of the proceeds. He also claims in his brief, without specifying the amount, that he continued to make child support paymentswhile the children stayedwith him, and that this must be allowed as an offset. Finally, he claims to have given $1,000 to his daughter on her eighteenth birthday, and this should beallowed as an offset to past child support obligations. He claims offsets ($4,270) in the payment of college tuition, for the following payments: He overpaid maintenance to his wife (apparently during the year following the divorce, when he had agreed to pay her $300per month maintenance for the firstyear);he claimsmortgage payments made on certainproperty in Great Falls; and finally,he claims his

son retained the proceeds of the sale of snowmobileswith his approval, and this also should be allowed as an offset. Nowhere in his brief does he breakdown the claimed amounts under each claimed offset; nor does he cite us to the record where this information may be found. As legal authority for offsets againstboth child support and college tuition, the husband relies on Haaby v. Haaby (1974),165Mont. 475, 529 P.2d 1387,which held that the cashmonthly child support payments required by a divorce decree could be satisfied by house paymentsmade by the obligated parent. There,we stated, "it is simply a matter of stripping away the form to get at the substance." In Haaby, however, the evidence was that the husband and wife agreed that the mortgage payments on the house could be made instead of child support. No such evidence exists in this

case.Further, inWilliams v. Budke (1980), -Mont. I 606 P.2d 515, 37 St.Rep. 228, this Court held that the test iswhether there is substantial compliancewith the child support order. There was neither substantial compliance with the child support order nor with the college tuition agreementmerged with the decree. In fact, there isnot the slightest evidence that the claimed offsets were intended to offset either the payments for child support or the payments for college tuition. -12-Other factors also cause us to deny the offsets for child support. The $1,000birthday present to the daughter

on her eighteenth birthday was surely intended as a gift, and therefore cannot also be used to offset past support obligations. Presumably, the wife supported the daughter with her own earnings during the time that the husband was behind. The $1,000 given to the daughter cannot be said to offset the husband's obligation to pay thewife for the children's support. Nor should thewife's retention of the husband's onehalf of the income tax refund be permitted to offset the child support obligation. The question of who was entitled to the proceeds of the income tax return ispurely a dispute between the husband and wife as to their property settlement, and it should not affect the separate child support obligation imposed on the husband. The same analysis applies to the claimed offsets against college tuition payments for the children. If the husband overpaid maintenance to thewife, that is a problem between themwhich does not offset the husband's duty to pay college tuition. The same is true of the husband's mortgage payments

on the lots in Great Falls. He admits that his son,with his permission, kept the proceeds from the sale of snowmobiles

(whichmade up part of the marital estate). He did not then tell his wife or his son that these sale proceeds were to be used for college tuition, and the permission thus given does not offset the duty to pay college tuition. In the property settlement, the husband agreed to pay college tuition, but he is delinquent in that obligation. Therefore,he must pay. The order of the District Court is reversed in part and affirmed in part. We remand this cause to the ~istrict Court for proceedings consistentwith this opinion.We concur:

Chief ~udice 

### \

JusticesMr. Justice John C. Sheehy dissenting in part:

Idissent to the portion of the majority opinion that

reverses the District Court in its finding that the property settlement agreementwas unconscionable as to thewife. Nowhere in the majority opinion is section 40-4-208(3) (b), MCA mentioned, although it is the statute under which the wife isproceeding in order to have the property settlement agreementmodified to speak the best interests of thewife. That sectionprovides: "(3) The provisions as to property dispositionmay not be revoked ormodified by a court, except:

"(b) if the court finds the existence of conditions that justify the reopening of a judgmentunder the laws of this state." (Emphasisadded.) The power of the District Court tomodify a property settlement agreement which has been incorporated in a judgment (decree of dissolution) is not limited to what the court could have found at the time of the original adoption of theproperty settlementagreement under section 40-4-202,MCA. The court may relieve a party under section 40-4-208(3)(b), MCA from a final judgmentor order formistake, inadvertence, surprise, excusable neglect, newly discovered evidence, intrinsic and extrinsic fraud,misrepresentation, misconduct, and "any other reason justifying relief from the operationof the judgment." Rule 60(b), M.R.Civ.P. The court is not limited

as to time, if the effect of the petition is to "set aside a judgment for fraud upon a court." Rule 60(b), M.R.Civ.P. The District Court herewas completely within its power to determinewhether the judgmentwas attackable. The effect of themajority opinion here is that if a spousedoes not raise the issue of unconscionability or fraud at thetime of the original decree of divorce, he or she is thereafter foreclosed from raising such an issue. Such a construction too narrowly constricts the statutes applicable and the power of the DistrictCourt. Iparticularly oppose the proposition that res judicata applies once the District Courthas adopted a property settlement agreement, because applicationof res judicata has the effect of negating section 40-4-208(3), MCA. The District Court found a fraud upon the court in the first instance, and also the inability of the wife to comprehend the provisions of theproperty settlement agreement at the time that she entered into the contract. I find no reasons in the record to set such findings or conclusions aside. I would therefore uphold the DistrictCourt's finding that the property settlementagreementwas unconscionable.

Justice