No. 84-50
IN THE SUPREME COURT OF THE STATE OF MOlJTANA
1984
MELVYN G. STEVENSON,
Plaintiff and Respondent,
CLARENCE R. OWEN and
MAR1 A. OWEN,
Defendants and Appellants,
and
MARK0 MICI-IUNOVICH,
Defendant and Respondent.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Carbon,
The Honorable Diane G. Barz, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
A.L. Craddock, Red Lodge, Montana
For Respondents:
Towe, Ball, Enright and Mackey; Donald D. Sommerfeld,
Billings, Montana
Submitted on Briefs: May 2 4 p 1984
Decided :
Filed: SEF' 1 d f984
- -
Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of
the Court.
In an action to quiet title, the District Court of the
Thirteenth Judicial District in the County of Carbon entered
a judgment ordering defendants Owens to vacate the premises.
Owens appeal.
Respondent Stevenson brought this action to quiet title
in Tract 1, Certificate of Survey No. 1055, Carbon County,
Montana as to any claim, right, estate, title, lien or
interest of appellants Owens and respondent Michunovich.
The Owens, in a counterclaim against Stevenson and a
cross-claim against Michunovich, sought relief of specific
performance of contract for deed, money damages, foreclosure
of purchaser's and mechanic's liens or, in the alternative,
for reformation of contract.
June 15, 1983 the matter was tried before the court
sitting without a jury. The October 17 judgment favoring
respondent Stevenson ordered appellants Owens to vacate the
premises within thirty days of the entry of judgment. Owen's
cross-claim against Michunovich was denied.
Michunovich purchased Tract 1, Certificate of Survey No.
1055, consisting of 25.369 acres located in Carbon County,
from the Brangers. The transaction was consummated in a
contract for deed dated August 15, 1978, referred to as the
"Branger contract".
On May 5, 1980 Michunovich entered into a contract for
deed with Owens, the "Owen contract", whereby Owens agreed to
purchase a 1.7 acre parcel carved out of the 25.369 acres
being purchased by Michunovich under the "Branger contract".
Terms of the "Owen contract" provided for a $45,000 purchase
price payable $12,000 down, including $100 earnest money, the
balance of $33,000 to be amortized in monthly installments of
$302.76 through June 1, 1985 when the outstanding balance
became due and payable. At closing, Owen's $12,000 down
payment, less real estate commission and minimal costs, was
2
paid to and received by Michunovich. Pursuant to the
contract, Owens took possession of the property on May 5,
Escrow provisions in the "Owen contract' provided that
the parties place all documents in escrow with the Montana.
Rank of Red Lodge. Payments were to be made to the escrow
agent. An escrow account was never opened. Owens made no
monthly payments under the contract, although Owens maintain
they were, at all times, ready and willing to bring the
contract payments current.
Paragraph XVIII of the "Owen contract" provided:
"The parties agree that a certificate of survey
prepared by a registered land surveyor eligible for
recording with the Carbon County Clerk and Recorder
is essential to the effective conveyance of the
real property sold hereunder and that Seller shall
pay all costs and expenses incurred in connection
with the survey and the recording thereof. At such
time as the sanitary restrictions of the Department
of Health and Environmental Sciences of the State
of Montana have been removed, and the certificate
of survey has been recorded, the recordable 1ega.l
descriptions will be attached to the deeds and
Abstract of Agreement."
Michunovich had a certificate of survey prepared by a
qualified surveyor. He failed to file the certificate of
survey on the 1.7 acre parcel because he did not satisfy the
sanitary restrictions as required by state law for
recordation.
Michunovich was also responsible for obtaining a deed
release from his sellers, the Branqers, for the 1.7 acres
being purchased by the Owens. The contract provision
entitled Paragraph XIX: "Existing Encumbrances" provided in
pertinent part:
". . . Seller agrees that within thirty days after
the execution of this Contract, he will make every
reasonable effort to secure from David H. Branger
and Marjorie A. Branger an agreement which will
guaranty Buyer herein delivery of a warranty deed,
free and clear of all liens and encumbrances, upon
payment in full of all sums due under this
Contract. In the event that Seller is unable to
secure such agreement, the down payment provided
for in Schedule B shall be refunded to Buyer. And
this agreement shall then be void."
The final phrase, "and this agreement shall then be void",
was hand written on the face of the typewritten contract
following the word "Buyer1', a.nd initialled by all parties.
Brangers refused to deliver a warranty deed.
Mich.unovich defaulted on the "Branger contract". On
November 28, 1980 the Brangers filed suit in District Court
against Michunovich alleging breach of contract for his
default on payments.
Seven months after the execution of the "Owen contract"
dated May 5, 1980, Michunovich served Owens with a "Notice of
Termination" dated December 5, 1980. The Notice informed the
Owens that: (1) Michunovich was unable to secure a deed
release agreement from the Brangers; (2) the Owen Contract
for Deed was terminated and the down payment under that
contract would be refunded to the Owens within thirty days
after receipt of this Notice; and, (3) the Owens shall
surrender possession of the property and any improvements
made thereon. The down payment was never refunded and the
Owens refused to surrender possession.
The "Notice" provision of the "Owen contract" required
all notices given by either party to be in writing and
delivered personally to the parties to be notified or sent by
certified or registered mail to addresses specifically
listed.
Provisions for termination of the contract are
established in paragraph VII, DEFAULT, as follows:
"Should any default of the Buyer remain uncured for
more than thirty days after written notice thereof
to Buyer, then the whole of the payments due
hereunder shall become due and payable within sixty
days after said initial thirty day period, and upon
nonpayment thereof, Seller may terminate this
Contract without further notice. Said agreement
shall be deemed terminated upon receipt by escrow
agent of Seller1s written, sworn, statement
describing said default and the recording of a
duplicate original thereof in the office of the
Carbon County Clerk and Recorder. In the event of
such termination, Buyer agrees, on demand, to
surrender possession of said property and any
improvements thereon, immediately and peaceably;
and Seller shall be entitled to retain all payments
made hereunder as reasonable rental for the use of
said property and as liquidated damages. The
remedy herein given to Seller shall not be
exclusive of any other remedy, and the Seller may
use any appropriate remedy to enforce compliance
with the provisions of this Contract and to enforce
collection from Buyer of any amounts due Seller,
without accelerating the maturity of the unpaid
balance or terminating the Contract all without
prejudice to the privilege of Seller to
subsequently accelerate the maturity of the balance
or to terminate the Contract."
February 5, 1981, Michunovich assigned all of his right,
title and interest in and to the "Branger contractf'to Melvyn
G. Stevenson, with the Branger's consent. Since Stevenson
was able to bring the Branger-Michunovich contract current,
the Brangers stipulated to a dismissal with prejudice of
their lawsuit initiated against Michunovich.
The Owens recorded a "Notice of Interest and Claim of
Lien" on February 9, 1981 in Carbon County. They filed a
"Purchaser's Lien" relative to the $12,000 down payment and a
"Mechanic's Lien" for the labor and materials they invested
in improvements to the property during their occupancy. No
clause in the "Owen contract" prohibited the construction
any improvements on the property. At no time did Michunovich
require that the Owens cease making such improvements.
A notice dated March 12, 1981 was served by Stevenson
and Michunovich upon the Owens alleging Owen's default. No
written, sworn statement by either Michunovich or Stevenson
describing the default, as required by the "Owen contract",
was ever recorded in the office of the Carbon County Clerk
and Recorder.
Stevenson commenced the present action on August 5, 1981
to clarify title to the 25-acre tract of land, to seek
judicial termination of the Michunovich-Owen contract and to
seek judicial determination of the damages which Stevenson
suffered as a result of the Owen's refusal to peaceably
vacate the premises.
At the date of this appeal, the Owens have refused to
peacefully surrender possession and have failed to pay a
reasonable rent for the use of the premises during their
occupancy.
The district court entered judgment which provided:
"(1) That the $12,000.00 down payment paid by
Defendants Owens shall be used as an offset against
the reasonable monthly rental of $302.76 per month
due from Defendants Owens to Plaintiff Stevenson
from and after June 1, 1980.
" (2) That Defendants Owens are not entitled to the
value of any improvements which they claim were
made to the property.
" (3) That the liens filed by Defendants Owens are
without basis and, by this Judgment, are
extinguished; and
"(4) That Defendants Owens are not entitled to
possession of the property and must vacate the
premises within 30 days of the entry of this
Judgment."
The judgment does not specifically ad.dress the contract
between Owens and Michunovich, subsequently assigned to
Stevenson. However, the trial court's memorandum which
accompanies the judgment shows the trial court intended to
find the contract was terminated when Michunovich served
Owens with a "Notice of Termination" dated December 5, 1980.
Although there is no conclusion of law or judgment which
legally formalizes Michunivoch's action, such is necessarily
the implication of the court's judgment directing Owens to
relinquish possession within thirty days of the entry of
judgment.
Numerous issues have been raised by the parties. We
find three issues dispositive of this appeal and the
resolution of those issues requires a new trial.
The court erred in making the following determinations:
1. In finding that the "Owen contract" was terminated
by the notice served December 5, 1980.
2. In directing an offset against the down payment of a
reasonable monthly rental in the amount of $302.76 per month
in the absence of evidence regarding reasonable monthly
rental value.
3. In holding that Owens were not entitled to the value
of improvements made upon the property.
Michunovich sought to terminate the "Owen contract"
pursuant to the provisions of paragraph XIX which provided
that: "In the event that Seller is unable to secure such
agreement, the down payment provided for in Schedule B shall
be refunded to Buyer. And this agreement shall then be
void. " (emphasis supplied)
Return of the down payment was specifically provided as
a condition which had to be met before the agreement would be
void. The down payment was not returned. The trial court
erred in finding Michunovich's notice terminated the
contract.
Upon remand the issue of whether Stevenson's default
notice effectively terminated the "Owen contract" is an issue
that will have to be resolved. If it is determined that the
"Owen contract" was terminated by virtue of Owens' default in
failing to make monthly payments, then attention nust be
directed to the issues of reasonable rental value and value
of improvements. If it is determined that the default notice
was ineffective and that Owens are entitled to possession,
those issues need not be reached.
For guidance, we will briefly discuss our reasons for
determining that the trial court erred respecting offset of
reasonable rental value against the down payment, and in
denying the Owens value of improvements made.
If it be determined that Owens were in default and
effectively terminated by the notice given by Stevenson dated
March 12, 1981, then the Owens would be liable for the
reasonable rental value of the property during the period of
their holding. That figure may or may not be the amount
provided for as a monthly installment payment in the
contract. Independent evidence must be produced showing the
reasonable rental value of the premises. Mecham v. Nelson
(1969), 92 Idaho 783, 451 P.2d 529, 533.
The issue of whether Owens are entitled to the
reasonable value of improvements made, should it be
determined that he must vacate the premises, is controlled by
section 70-28-110, MCA, which provides:
"When damages are claimed for withholding the
property recovered upon which permanent
improvements have been made by a defendant or those
under whom he claims, holding under color of title
adversely to the claim of plaintiff, in good faith,
the value of such improvements must be allowed as
setoff against such damage."
Interpreting a similar statute, the Oregon Court of
Appeals stated:
"The allowance of a recovery from the owner for the
value of improvements mistakenly put on the owner's
premises is an application of the equitable rule
which prevents unjust enrichment." Roesch v.
FTachter (1980), 48 0r.App. 893, 618 P.2d 448, 451.
This Court has defined "improvement" as:
"An improvment must be permanent and it must
enhance the value of the premises for general
purposes. 41 Arn.Jur.2d Improvements § I . " Overcast
v. Akra (Mont. 1982), 642 P.2d 1058, 1062.
Pursuant to section 70-28-110, MCA, one having
possession must establish two elements before recovery for
improvements can be made: (1) that possession was retained
under color of title; and, (2) that the improvements were
placed on the property in good faith.
"Color of title" is defined as:
"Color of title has reference to something which
has the appearance or gives the semblance of title
but is not such in fact . . ."
Munkres v. Chatmon
(Kan.App. 1979), 599 P.2d 314, 316.
Upon retrial a factual determination must be made as to
whether Owens placed the improvements on the property in good
faith. Owens certainly held under color of title. Here the
trial court may have been influenced by its erroneous holding
that Owens' interest in the property terminated pursuant to
Michunovich's notice of May 5, 1980. Since Owens were
rightfully in possession subsequent to that date, the issue
of "good faith" on Owens1 part in making improvements will
have to be reevaluated.
We have found it unnecessary to treat the validity of
Owens' counterclaim. If it is determined that Owens were not
in default, or that the Stevenson default notice was
ineffective, then it follows that Owens' counterclaim will
have to be addressed.
The judgment of the trial court is vacated. The case is
remanded for a new trial in accordance with the views herein
expressed.
We concur:
Chief Justice - 't