No. 86-491
IN THE SUPREME COURT OF THE STATE OF MONTANA
LEE McDONALD,
Plaintiff and Respondent,
-vs-
WALLACE 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)
Submitted on Briefs: May 28, 1987
Decided: August 5, 1987
Filed:
- 7987
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 ~ . 2 d628,
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