DA 09-0455

IN THE SUPREME COURT OF THE STATE OF MONTANA

2010 MT 65

MILL CREEK LIMITED PARTNERSHIP,

Plaintiff and Appellant,

v.

JAXON LODGE and DAN YOUNG,

Defendants and Appellees.

APPEAL FROM: District Court of the Twentieth Judicial District,

In and For the County of Lake, Cause No. DV 07-361

Honorable C.B. McNeil, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

David M. McLean and Christy S. McCann; Browning, Kaleczyc, Berry &

Hoven, P.C.; Missoula, Montana

Quentin M. Rhoades and Rob Erickson; Sullivan, Tabaracci & Rhoades;

Missoula, Montana

For Appellee Lodge:

Reid J. Perkins and Sean Morris; Worden Thane P.C.; Missoula, Montana

For Appellee Young:

Brian Kohn, Attorney at Law, Billings, Montana

Submitted on Briefs: February 10, 2010

Decided: March 30, 2010

Filed:

__________________________________________

Clerk

March 30 2010
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Justice Michael E Wheat delivered the Opinion of the Court.

¶1 Mill Creek filed a motion for summary judgment, claiming it was undisputed that

Jaxon Lodge and Dan Young (the Appellees) had breached the Buy-Sell Agreement by not

making a good faith effort to obtain financing. Lodge filed a cross-motion for summary

judgment, which Young later joined, arguing that Mill Creek had breached theAgreement by

refusing to return the earnest money. The Twentieth Judicial District Court, Lake County,

denied Mill Creek’ssummary judgment motion and granted the Appellees’ cross-motion for

summary judgment, dismissing all of Mill Creek’s claims. Mill Creek appeals. We restate

the issues as follows:

¶2 Issue 1: Did the District Court err in dismissing Mill Creek’s fraud claims when it

granted the Appellees’ motion for summary judgment?

¶3 Issue 2: Did the District Court err when it terminated the Buy-Sell Agreement

because the Appellees could not obtain financing?

¶4 Prior to its summary judgment ruling, the District Court set aside a default motion

against Young, finding good cause existed to do so. Mill Creek appeals, raising the

following issue:

¶5 Issue 3: Did the District Court err in granting Young’s motion to set aside the default

judgment?

BACKGROUND

¶6 In September 2006, Mill Creek and the Appellees entered into a Buy-Sell Agreement

for the purchase of a condominium in Lake County for $999,000. The Agreement provided

that the Appellees would put $53,000 down in earnest money and obtain “conventional”
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financing for the remaining $946,000. The Agreement included a financing contingencythat

provided if the Appellees were unable to obtain financing, the Agreement would be

terminated and the earnest money would be refunded to the Appellees. Based on a credit

check from a prior transaction, American Mortgage had pre-qualified the Appellees for a

“jumbo” loan for $1,000,000 with 5% down. That the Appellees were pre-qualified for

financing was noted in the Agreement. The Appellees put $53,000 earnest money in escrow

and closing was scheduled for August 2007, after Mill Creek completed construction of the

condominium.

¶7 Almost a year later in June 2007 after the Appellees completed their final loan

applications, American Mortgage denied the loan for which they had pre-qualified the

Appellees. Due to the economic downturn, American Mortgage had ceased issuing“jumbo”

loans and had increased their income and credit score requirements for loan approval.

American Mortgage offered that the Appellees could apply for a loan requiring 10% down,

which they declined because they did not have an additional $50,000. On June 12, the

Appellees notified Mill Creek they could not obtain the specified financing, terminated the

Agreement, and requested the return of their $53,000 in earnest money. Mill Creek refused

to refund the earnest money.

¶8 Mill Creek filed suit in December 2007, contending the Appellees:(1) breached the

Agreement by failing to attempt in good faith to obtain financing; (2) committed fraud in the

inducement and actual fraud by falsely representing their approved borrowing status; (3)

committed constructive fraud; (4) breached the covenant of good faith and fair dealing; and
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(5) actual malice.

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Lodge filed an answer and counterclaim in February 2008, asserting 

breach of contract and the covenant of good faith and fair dealing and requested the return of 

the earnest money in escrow. However, Lodge failed to serve the counterclaim and the 

District Court dismissed the counterclaim without prejudice in March 2008.

¶9 In July 2008, the District Court entered a default judgment against Young for failure

to respond to Mill Creek’s second set of written discovery requests. However, the District

Court set aside the default judgment in May 2009, because Young had, in fact, filed a notice

of his discovery responses three weeks before the court entered the default judgment.

¶10 Mill Creek moved for summary judgment, asserting that the undisputed factsshowed

that the Appellees did not make reasonable efforts to obtain financing because they had

declined to apply for the 10% down loan with American Mortgage. Thus, they had breached

the contract. In a footnote to their motion and brief in support, Mill Creek clarified that its

motion only pertained to its breach of contract claim.

¶11 The Appellees responded and filed a cross-motion for summary judgment, seeking

dismissal of Mill Creek’s case and a judgment in the amount of $53,000 for breach of

contract. The Appellees asserted that obtaining conventional financing for 95% of the

purchase price was a condition precedent to closing and, because they were unable to obtain

the financing specified in the Agreement, the condition had not been met and no breach had

occurred. They further argued summary judgment in their favor was appropriate because

Mill Creek breached the contract by refusing to return the earnest money.

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 Claims (2) through (5) are referred to as the “fraud claims.”
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¶12 After a hearing, the District Court denied Mill Creek’s motion forsummary judgment,

granted the Appellees’ cross-motion forsummary judgment, and terminated the Agreement.

The court concluded that the conventional financing specified in the Agreement was not

reasonably available to the Appellees before the closing date because they did not have the

additional $50,000 for the down payment on the 10% down loan, a fact not disputed by Mill

Creek. It found that the Appellees had asserted a reasonable effort to secure conventional

financing as was available to them at the time the parties executed the Agreement. The

District Court entered summary judgment in favor of the Appellees on all claims in Mill

Creek’s complaint, including the fraud claims, because the court concluded that all of Mill

Creek’s claims were grounded upon the Agreement.

¶13 On appeal, Mill Creek contends that the District Court erred in dismissing its fraud

claims because it did not have notice that the court was considering those claims on

summary judgment. In the alternative, Mill Creek argues that a genuine issue of material

fact existed regarding its fraud claims. Mill Creek also arguesthat the District Court erred in

granting the Appellees’ cross-motion forsummary judgment because whether the Appellees

made a good faith effort in obtaining financing is a factual question that was disputed.

Finally, Mill Creek asserts the District Court erred in setting aside the default judgment

against Young because he did not make his motion to set aside the default judgment under

M. R. Civ. P. 60(b).

STANDARD OF REVIEW

¶14 We review a district court’s denial of motions for summary judgment de novo.

Tacke v. Energy West, Inc., 2010 MT 39, ¶ 16, 355 Mont. 243, ___ P.3d ___. Summary
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judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as

to any material fact and that the moving party is entitled to a judgment as a matter of law.”

M. R. Civ. P. 56(c).

¶15 We review a district court’s conclusions oflaw to determine whether they are correct

and its findings of fact to determine whether they are clearly erroneous. JTL Group, Inc. v.

New Outlook, LLP, 2010 MT 1, ¶ 29, 355 Mont. 1, 223 P.3d 912.

DISCUSSION

¶16 Issue 1: Did the District Court err in dismissing Mill Creek’s fraud claims when it 

granted the Appellees’ motion for summary judgment?

¶17 Mill Creek’s argument regarding dismissal of its fraud claims is two-fold. It first

claims that because neither it nor the Appellees requested the District Court to dismiss the

fraud claims, the court dismissed them sua sponte and erred in denying Mill Creek the

opportunity to be heard. Second, Mill Creek argues that material issues of fact exist

regarding whether the Appellees committed fraud.

¶18 For any summary judgment motion, “opposing parties must be provided with an

opportunity to present facts relevant to the summary judgment motion; this is implicit in

Rule 56, M. R. Civ. P., because the district court must make a determination as to whether

there are issues of material fact to be resolved.” In re Estate of Marson, 2005 MT 222, ¶ 11,

328 Mont. 348, 120 P.3d 382. A court may grant summary judgment in the non-movant’s

favor in the absence of a formal cross-motion on a specific issue. However, the court must

be very careful that the original movant had a full and fair opportunity to meet the
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proposition, no genuine issue of material fact exists, and the other party is entitled to

judgment as a matter of law. Hereford v. Hereford, 183 Mont. 104, 107-08, 598 P.2d 600,

602 (1979).

¶19 Mill Creek interpretsthese rulesto mean that because the Appellees did not move for

summary judgment on the fraud claims, the court erred when it dismissed Mill Creek’s

claims “sua sponte” without granting it an opportunity to be heard. Mill Creek’s

interpretation isincorrect. First, the Appellees did file a cross-motion forsummaryjudgment

in which they requested the dismissal of Mill Creek’s “case.” Second, Mill Creek presented

undisputed facts that belie its fraud claims.

¶20 In its complaint, Mill Creek alleged that the Appellees had fraudulently

misrepresented that they had “made legitimate loan applications” and had suppressed “[t]he

truth, that they were not qualified and that they had made no legitimate loan applications. . .

.” Mill Creek also alleged that Lodge had “obtained false or deceptive documentation

indicating they [sic] had made applications to certain loan companies and were denied

financing when he had knowledge that such action was fraudulent and untrue.”

¶21 Mill Creek’s “Undisputed Facts Material to the Motion” section in its summary

judgment brief states: “On September 4, 2006, both Lodge and Young completed loan

applications . . . .” (Emphasis added.) Mill Creek’s brief also provided, “Lodge and Young

applied for conventional financing known as a super jumbo loan” and “American Mortgage .

. . issued the approval letter on September 15, 2006 stating that Lodge and Young were

‘approved for financing through their office for the purchase of TBD [to be determined] for

$1,000,000’ which would be funded and closed with acceptance and approval of various
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criteria.” (Emphasis added.) To its brief, Mill Creek attached copies ofthe Appellees’ loan

applications, the deposition of Steven Tucker, the broker from American Mortgage who

testified he had pre-approved the Appellees for financing, and Tucker’s pre-qualification

letter.

¶22 According to Mill Creek, it was undisputed that the Appellees had applied for loans

and had been pre-qualified by American Mortgage. Mill Creek had and took the opportunity

to present factsregarding its fraud claims, albeit facts that directly contradict its claims. Mill

Creek cannot now argue that the District Court denied it the opportunity to show a genuine

issue of fact existed regarding the alleged fraud.

¶23 After considering the pleadings, depositions, and other documents showing it was

undisputed that the Appellees applied for loans and were pre-qualified for financing, the

District Court determined summary judgment was appropriate for the fraud claims. The

District Court did not err because Mill Creek had an opportunity to be heard on the issue, no

genuine issue of material fact existed as to whether the Appellees committed fraud, and the

Appellees were entitled to summary judgment as a matter of law.

¶24 Issue 2: Did the District Court err when it terminated the Buy-Sell Agreement

because the Appellees could not obtain financing?

¶25 Mill Creek does not dispute that at the time the parties executed the Agreement, the

Appellees were pre-qualified for financing for the remaining $946,000 ofthe purchaseprice.

Neither does it dispute that the Agreement was contingent on the Appellees obtaining

financing. However, Mill Creek arguesthat the District Court did not recognize the implied

duty of a buyer to make reasonable efforts to obtain financing and urges this Court to
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“formally recognize” such a duty. Mill Creek also contends that genuine issues of material

fact exist as to whether the Appellees employed reasonable efforts to obtain financing

because the Appellees did not apply for a loan with American Mortgage that required 10%

down, rather than 5% down.

¶26 The Appellees respond that the Agreement was contingent on them obtaining

financing for the remaining $946,000 of the purchase price. They argue that they were not

required to apply for any financing terms other than those expressly stated in the Agreement.

Thus, based on the terms of the Agreement, they were not required to make effortsto obtain

financing for an amount other than the $946,000 specified in the Agreement.

¶27 Mill Creek is correct that thisCourt has never formally recognized an implied dutyto

make reasonable efforts to obtain financing under a financing contingency in a Buy-Sell

Agreement, and we decline Mill Creek’s invitation to recognize such a duty under the facts

of this case. Although the District Court found that requiring the Appellees to apply for the

10% down loan was unreasonable because they did not have an extra $50,000, the court did

not have to go beyond the terms of the Agreement to conclude that it was terminated.

¶28 Aftersetting forth that $946,000 wasthe balance ofthe purchase price to be financed,

the Agreement stated:

This Agreement is contingent upon Buyer obtaining the financing specified

herein. If financing cannot be obtained within the time set forth in the TIME

FOR COMPLETION section, this Agreement is terminated and the earnest

money will be refunded to the Buyer.

(Emphasis added.)
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¶29 We conclude that the Appellees were not required to apply for the 10% down loan

because the terms of financing were expressly stated in the Agreement and did not require

the Appellees to obtain financing for 90% of the purchase price. The Agreement clearly

states it is contingent upon the Appellees obtaining the financing “specified herein,” which

was the remaining $946,000. At the time of closing, the Appellees were unable to obtain

financing for the remaining $946,000 because the jumbo loan from American Mortgage no

longer existed and, further, Mill Creek offered no evidence that the financing required bythe

Agreement was available from other sources. Because the Appellees could not obtain

financing specified in the Agreement, the Agreement by its expressterms isterminated, and

Mill Creek must return the Appellees’ earnest money.

¶30 Issue 3: Did the District Court errin granting Young’s motion to set aside the default

judgment?

¶31 Mill Creek argues that the District Court erred in setting aside the default judgment

because Young had failed to respond to its discovery requests and it is clearly entitled to a

default judgment. Alternatively, Mill Creek contends that because the default was entered

under M. R. Civ. P. 37(d), rather than M. R. Civ. P. 55(a), the District Court erred by setting

aside the default because Young’s motion was not made pursuant to M. R. Civ. P. 60(b) and

none of the circumstances under Rule 60(b) apply.

¶32 The procedural history is as follows: Mill Creek moved for a default judgment,

claiming that Young’s response to its first set of discovery requests wasinadequate because

he only provided a laptop that contained the information requested. Mill Creek said that

Young had completely failed to respond to itssecond set of discovery requests, as well. Two
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days after Mill Creek filed its default judgment motion, Young filed a notice ofservice ofhis

answers to Mill Creek’s second set of discovery requests. Without citing to any civil

procedure rules, the District Court entered a default judgment against Young because hehad

failed to file an answer brief to Mill Creek’s default judgment motion within ten days and

had failed to comply with the court’s discovery order.

¶33 In his motion to set aside the default judgment, Young claimed Mill Creek had not

served him with its second set of discovery requests. He contended that as soon as he

received the motion for default, he immediately responded with answers to Mill Creek’s

second set of requests. The District Court set aside the default, stating:

The default was not granted in accordance with Rule 37(b) because the 

Defendant [Young] apparently did file a Notice of Service of Defendant 

Young’s Answers to Plaintiff’s Second Set of Written Discovery Requests . . . 

three weeks before the Court granted the Plaintiff’s Second Motion forDefault

. . . . The default is set aside for good cause shown and in the interest of

having every case decided on its merits.

¶34 We disagree with Mill Creek’s arguments. For whatever reason, the District Court

was not aware that Young had responded to Mill Creek’s discovery requests when it entered

the default judgment. To correct its oversight, the court concluded that the default judgment

could not have been entered under Rule 37(d) because no discovery violation had occurred.

Under these circumstances, setting aside the default judgment was appropriate.

CONCLUSION

¶35 The District Court did not err in granting summary judgment in favor of the

Appellees and dismissing all of Mill Creek’s claims, including its fraud claims. In addition,

the District Court did not err when it set aside the default judgment.
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¶36 Affirmed.

/S/ MICHAEL E WHEAT

We Concur:

/S/ MIKE McGRATH

/S/ JAMES C. NELSON

/S/ PATRICIA O. COTTER

/S/ JIM RICE