No. 86-491 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

LEE McDONALD, 

Plaintiff and Respondent, 

-vsWALLACE C. GRASSLE, ELOISE B. GRASSLE 

AND FERN HART, 

Defendants and Respondents, 

and 

DARRELL TVARUZEK, 

Intervenor and Appellant. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable Douglas G. Harkin, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Snavely & Phillips; Robert J. Phillips, Missoula, 

Montana (Tvaruzek) 

For Respondents: 

Geiszler, Taylor, Newcomer & McClain; Timothy D. 

Geiszler, Missoula, Montana (Grassles) 

Ellingson & Moe; Nancy K. Moe, Missoula, Montana 

(McDonald) 

Michael Sehestedt, Deputy County Attorney, Missoula, 

Montana (Hart) 

Filed: - 7987 

Submitted on Briefs: May 28, 1987 

Decided: August 5, 1987 

Clerk 
Mr. Justice L. C. Gulbrandson delivered the Opinion of the 

Court. 

The intervenor, Darrell Tvaruzek appeals a Missoula 

County District Court order rejecting his claim to recover 

the purchase price of a tract of land sold to him by 

McDonald. McDonald obtained the property through a tax sale, 

but the court found that the original owners, the Grassles, 

timely redeemed the title to the property. The District 

Court ordered McDonald to pay attorney fees incurred by 

Tvaruzek in defending his unsuccessful claim of title against 

the Grassles. 

Tvaruzek appeals the following issue: 

Whether the District Court erred in refusing to award 

Tvaruzek the purchase price paid to McDonald because Tvaruzek 

had been reimbursed pursuant to a title insurance policy? 

McDonald cross-appeals the following two issues: 

1) Whether Montana statutes on tax sales and tax deeds 

have the plain meaning of the statutory language; 

2) Whether the attorney fee award to intervenor 

Tvaruzek was proper despite evidence that Tvaruzek's attorney 

was also retained by the title insurance company. 

We affirm. 

In 1976, the Grassles purchased real property in 

Missoula County near Seeley Lake, Montana for $7,000. The 

property is adjacent to property owned by intervenor 

Tvaruzek. As a result of new job opportunities, the Grassles 

moved to Oregon in 1979 and to Minnesota in 1980. In July 

1980, the property was sold to Missoula County because of an 

unpaid 1979 tax assessment. In January 1983, the county 

executed an assignment of certificate of tax sale to 

McDonald. McDonald filed a complaint seeking the issuance of 

a deed of conveyance and personal service was made on the 
county treasurer, Fern Hart. Personal service on the 

Grassles at their address in the county was unsuccessful. In 

addition, copies of the summons and complaint sent to the 

Grassles' last known address were returned as undeliverable. 

Service upon the Grassles was subsequently accomplished 

through legal publication. On August 24, 1983, the court 

entered a default judgment against the Grassles, and ordered 

the issuance of a deed of conveyance to McDonald. McDonald 

paid a total of $592.14 in costs to acquire property for 

which the Grassles had paid $7,000 in 1976. The Grassles 

visited Missoula and learned for the first time on August 26, 

1983, that title to their property had been conveyed to 

McDonald as a result of an unpaid 1979 tax assessment. The 

Grassles allege that they sent a personal check to their son 

in Missoula in June 1981 with instructions to pay all taxes 

on the property. The son paid the 1980 taxes but not the 

1979 taxes for reasons unknown. On September 8, 1983, 

McDonald conveyed title by warranty deed to Tvaruzek for 

$6,500. On October 25, 1983, the Grassles moved to set aside 

the default order under Rule 60 (b) , M. R.Civ. P. Tvaruzek 

alleges that at the time title was conveyed to him he was 

unaware of the Grassles' prior ownership interest. The court 

set aside the default order on November 16, 1983. Tvaruzek 

tendered the defense of title to the property to McDonald in 

December 1983, but McDonald refused to defend on that basis. 

Tvaruzek subsequently retained counsel and incurred attorney 

fees of $2,332.71 in defending his claim of title to the 

property. The court then ordered the dismissal of Fern Hart, 

the Missoula County treasurer, from the action. Tvaruzek 

filed his complaint in intervention in February 1984 and 

alleged he had no notice of the Grassles' right of redemption 

claim until November 16, 1983, when the court decided to set 

aside the judgment of default against the Grassles. Both 
Tvaruzek and the defendants moved for summary judgment and in 

November 1984, the court ruled for defendants Hart and the 

Grassles, holding that the Grassles' title to the property 

was superior to the claims of all other parties. 

In June 1985, Tvaruzek received $6,500 from Fidelity 

National Title Insurance Company pursuant to a title 

insurance policy paid by the seller, McDonald. In 1986, 

trial was held on Tvaruzek's breach of warranty claim against 

McDonald. Tvaruzek argued he was entitled to damages 

resulting from McDonald's failure to convey a clear chain of 

title to him and a failure to defend Tvaruzek's possession of 

the property. After trial, the court granted McDonald's 

motion to amend his complaint to include the affirmative 

defense of payment by the insurance company to Tvaruzek. 

Tvaruzek admitted in his trial testimony to having received 

$6,500 from the title insurance company. The court also 

allowed Tvaruzek time to prepare an affidavit of attorney 

fees he incurred in defending title to the property. The 

court's rationale for granting McDonald's post-trial motion 

to amend was as follows: "In the interest of justice, the 

Court will allow the amendment since there is no genuine 

surprise to Tvaruzek nor will Tvaruzek be prejudiced by the 

amendment." In essence, the court ruled that Tvaruzek's 

title claim was subrogated to the insurance company and 

therefore Tvaruzek no longer had a cause of action against 

McDonald for the sum of $6,500. However, the court said that 

Tvaruzek "may still seek recovery of any other detriment 

caused by the breach of warranty." (Emphasis added.) The 

court concluded that McDonald breached his duty to defend and 

as a result Tvaruzek was entitled to attorney fees and costs 

($3,416.71) incurred in defending his title against the 

Grassles up to the time title was restored to the Grassles in 

December 1984. 
The issue raised by Tvaruzek is whether the District 

Court erred in refusing to award Tvaruzek the purchase price 

paid to McDonald because Tvaruzek had been reimbursed 

pursuant to a title insurance policy. The question involves 

subrogation, discussed in detail in Skauge v. Mountain States 

Tel. & Tel. Co. (1977), 172 Mont. 521, 524-25, 565 ~.2d 628, 

Subrogation is a device of equity which 

is designed to compel the ultimate 

payment of a debt by the one who in 

justice, equity and good conscience 

should pay it. Bower v. Tebbs, 132 Mont. 

146, 314 P.2d 731. A property insurer 

who has indemnified the insured is 

usually subrogated to any rights the 

insured may have against the third party 

who is responsible for the loss. The 

theory behind this principle is that 

absent repayment of the insurer - the 

insured would be unjustly enriched & 

virtue of recovery --- from both the insurer 

-- and thewrongdoer, or in absence of such 

double recovery by the insured, the third 

party would go free despite his legal 

obligation in connection with loss. 

(Emphasis added.) 

Subrogation in a legal sense arises upon the fact of payment 

by the insurer, rather than by contract between the parties. 

Skauge, 565 P.2d at 630. It is the substitution of another 

person in place of the creditor, so that the person 

substituted will succeed to the rights of the creditor in 

relation to the debt or claim. Skauge, 565 P.2d at 630. 

We concur with the lower court's ruling on this matter 

despite our reservations on granting a post-trial motion to 

amend. Equity deems it necessary that the insurance company 

be subrogated to Tvaruzek's interests against McDonald, as 

the court held: 

5. Upon receipt of $6,500 from the 

Fidelity National Title Insurance 
Company, the claim of Tvaruzek was 

subrogated to Fidelity National Title 

Insurance Company, and Tvaruzek no longer 

had a right of action against McDonald 

for the sum of $6,500. If Fidelity 

National Title Insurance Company desires 

to recover $6,500 from McDonald, they 

must bring an action in their own name. 

Tvaruzek may still seek recovery of any 

other detriment caused by the breach of 

warranty. State ex rel. Nawd's TV and 

Appliance, Inc. v. District Court, 168 

Mont. 456 (1975). 

We conclude that since Tvaruzek has already been compensated, 

it would not be just to permit him to pursue McDonald for the 

purchase price of $6,500. Legal subrogation arose by the 

fact of the insurance company's $6,500 payment to Tvaruzek in 

1985. At that point the insurance company succeeded to 

Tvaruzek's rights on the title claim as against McDonald. We 

note that the court did not foreclose Tvaruzek from seeking 

other means of recovery on the breach of warranty claim. We 

believe that the ends of justice have been well-served by the 

disposition of the issue raised by Tvaruzek. 

McDonald raises two issues on cross-appeal. The first 

is whether Montana statutes on tax sales and tax deeds have 

the plain meaning of the statutory language. We point out 

that a tax deed is not derivative but creates a new title in 

the nature of an independent grant from the sovereignty, 

extinguishing all former titles and liens not expressly 

exempted from its operation. Rist v. Toole County (1945), 

117 Mont. 426, 442, 159 P.2d 340, 347. Since this case 

involves the setting aside of a default judgment in a tax 

deed setting, we refer to Rule 60(b), M.R.Civ.P., which reads 

in part: 

When from any cause the summons in an 

action has not been personally served on 

the defendant, the court may allow, on 
such terms as may be just, such defendant 

or his legal representative, at any time 

within 180 days after the rendition of 

any judgment in such action, to answer to 

the merits of the original action. 

(Emphasis added. ) 

The statutory expression "any cause" indicates the 

legislature did not intend to preclude a party in a tax deed 

action from using the rule if the court's discretion would so 

allow. 

At this point, we wish to summarize two important 

aspects of this case. First, the Grassles received no 

personal service of this action. Service was accomplished 

through legal publication. The Grassles did not learn of the 

suit until they personally checked the records in Missoula in 

August 1983. Since the Grassles were not personally served 

they were entitled to use Rule 60(b) to set aside the order 

of default. 

Second, the facts show that the Grassles moved promptly 

to set aside the August 24, 1983 default judgment, having 

filed a motion on October 25, 1983 to set aside the judgment. 

The Grassles' response was taken within 180 days of the 

judgment as required by Rule 60 (b) and we conclude that the 

Grassles' action was timely. 

McDonald's second issue on cross-appeal is whether the 

attorney fee award to intervenor Tvaruzek was proper despite 

evidence that Tvaruzek's attorney was also retained by the 

title insurance company. The facts reveal that Tvaruzek 

contacted his attorney for legal representation. 

Subsequently, the title insurance company agreed to undertake 

the title defense of the case and began paying attorney fees 

to Tvaruzek's counsel. The fees related to Tvaruzek's 

efforts to defend title subsequent to McDonald's refusal to 

do so, and the court found that the fees were recoverable 
against McDonald. We conclude that the attorney fee award to 

Tvaruzek was proper. 

Affirmed. ,/ 

, 

We concur 

4 

Justices