Wash.-Ida.-Mont. Retirement v. Gall

No. 89-29
IN THE SUPREME COURT OF THE STATE OF MONTANA

THE TRUSTEES OF THE WASHINGTON-IDAHO-
MONTANA CARPENTERS-EMPLOYERS RETIREMENT
TRUST FUND and the TRUSTEES OF THE LABORERS-
A.G.C. PENSION TRUST OF MONTANA, --
Plaintiffs/Respondents and Appellants, r
-vs-
GALLERIA PARTNERSHIP, et al., MARBLE MOVING,
STORAGE & TRANSFER, et al.,
Defendants/Appellants and Respondents.
. .
GALLERIA PARTNERSHIP, et al.,
Third-Party plaintiffs and Appellants,
-VS-
THE TRUSTEES OF THE WASHINGTON-IDAHO-MONTANA
1
CARPENTERS-EMPLOYERS RETIREMENT TRUST FUND, et al.,
~hird-party Defendants and Respondents.-

APPEAL FROM: ~istrictCourt of the Eighth ~udicial~istrict,
In and for the County of Cascade,
The Honorable Leonard Langen, Judge presiding.
COUNSEL OF RECORD:
For ~laintiffs/~ppellants: (Trustees)
William K. Van Canagan and Christopher B. Swartley;
Datsopoulos, MacDonald & ~ i n d , Missoula, Montana
For Defendants/Appellants:
Jardine, Stephenson, Blewett & Weaver; K. Dale
Schwanke, Great Falls, Montana (~alleria)
Cure, Borer & ~ a v i s ;Gregory J. Hatley, Great Falls,
Montana (Estate of ice)
For Respondents:
Gough, Shanahan, Johnson & Waterman; Jock 0 Anderson,
.
Helena, Montana (Compass Group, etc)
Linnell, Newhall & Martin, Great Falls, Montana (Dees)
Howard Strause, Great Falls, Montana (Marbles)
Graybill, Ostrem, Warner & Crotty, Great Falls, Montana
(Patterson)
Elizabeth Best, Great Falls, Montana (Estate of Lund)
Mary Van usk kirk, Bosch, Kuhr, et al, Havre, Montana

Submitted on Briefs: June 1, 1989
Decided: September 20, 1989
Filed:
Mr. Justice John C. Sheehy delivered the opinion of the
Court.

Galleria partnership and the individual members of the
partnership appeal from a final judgment entered against them
in the District Court, Eighth Judicial District, Cascade
County, and in favor of the Trustees of the
washington-1daho-Montana Carpenters-Employers ~etirement
Trust Fund and the Trustees of the Laborers AGC Pension Trust
of Montana (hereafter Trustees). The judgment is for
$1,505,368.35 of which the sum of $1,308,193.35 is for
deficiency judgment after mortgage foreclosure, with the rest
being recoverable costs and attorneys fees.
The Trustees appeal from a final summary judgment
entered against them in the same court and in favor of the
Estate of Gordon P. Tice.
It appears that other issues remain for decision by the
District Court arising out of the original action, but this
Court has jurisdiction by reason of direct appeal and a
proper rule 54 (b) certification from the ~istrict Court.
I.
In this portion of the opinion we uphold the judgment of
the ~istrict Court that the Trustees are entitled to
deficiency judgment against ~alleriapartnership, and costs
and attorneys fees, but remand the amount of the deficiency
judgment to the District Court for reexamination on the issue
of the fair market value of the property given as security
for the indebtedness at the time of the foreclosure sale.
A. Propriety of a ~eficiencyJudgment
On March 17, 1982, in Great Falls, Montana, 16
individuals made, executed and delivered a promissory note
for $1,200,000.00 payable to the Trustees on terms set out in
the written note. The note was signed by the individuals not
as partners of the Galleria Partnership, but in their
individual capacity, except that three of the individuals
also signed as partners in Great Falls Investors. Under the
terms of the promissory note, the individuals undertook
jointly and severally to pay the principal sum of the note
and the interest accruing thereon.
At or about the same time, but effective March 17, 1982,
Galleria Partnership, composed of 10 of the individuals who
signed the promissory note, and three additional persons
comprising the Great Falls Investors made, executed and
delivered to Safeco Title Insurance Company as trustee, a
trust indenture and security agreement, wherein the trustees
were named as beneficiaries, to secure the principal sum of
$1,200,000.00 with interest thereon according to the terms of
the promissory note above referred to.
The real property which was the subject of the trust
indenture was the location of a warehouse which had been
remodeled for the purpose of leasing to various business
tenants. The building had been purchased and remodeled
beginning in 1982 by a prior partnership, Galleria
Associates, managed by one Dan Cook.
Cook had obtained a $1,950,000.00 appraisal of the
building in its remodeled state so he could get a long-term
loan to pay off ~alleria Associate's interim construction
loan. For this purpose Cook approached third party
defendant, Compass, which specializes in handling loans of
union pension trust funds and then servicing those loans.
Compass is a wholly owned organization of third party
defendant, Old National Bancorporation. Cook was advised by
Compass that Galleria Associates could not borrow from the
Trustees because Cook was disqualified under the provisions
of the Federal Employee Retirement Income Security Act
 (ERISA) statutes. 29 U.S.C., sections 1,001 et seq.
Thereupon, Cook set about the formation of Galleria
Partnership, to which Galleria Associates would eventually
sell the building, and the Galleria Partnership would qualify
as a borrower under ERISA. Cook developed a prospectus on
the project, and lined up the 13 individuals and Great Falls
Investors that eventually signed the trust agreement. The
individuals who became partners in the Galleria Partnership
held varying fractions of interest in the partnership.
Compass knew that Cook was procuring such interest; the
agents of Compass had no idea what representations Cook was
making to the prospect of investors in Galleria Partnership,
and did not ask.
9
It seems clear that Cook, himself, or through others
that were acting on his information, represented to each of
the persons who ultimately signed the loan documents that the
loan was to be nonrecourse. At least three lawyers were
among the investors, each of whom was of the view that a
deficiency judgment could not be recovered on the foreclosure
of a trust indenture.
Cook hand-carried the loan documents, including a
commitment from Compass as to the terms of the loan, which
stated that security for repayment was to be a first lien on
the building and thus he secured the signatures of the
borrowers. Each of the borrowers was told that the loan was
nonrecourse. Only one attorney read the note or trust
indenture, and he found nothing in them that was contrary to
his view that the loan was nonrecourse.
In capsule, then, after the loan was closed, it turned
out that the bulk of the tenants in the Galleria building
were businesses Cook had an interest in, which had been known
to Compass when the loan commitment was made. Cook ' s
economic situation deteriorated, which ultimately resulted in
the failure of various tenants to pay their rents in a timely
basis. The Galleria Partners were using those rents to cover
operating expenses and to make the monthly loan payments
which were $14,916.00 each. As the tenants' rents fell into
arrears, the monthly payments on the loan were made
progressively later. Compass was aware of the reason for the
late payments from the partnership and continued to accept
the payments together with late charges.
The November, 1984 loan payment had not been paid by
early December of that year. There is a dispute in the
evidence as to whether Compass advised appellant Bloomgren, a
CPA, who was keeping the Partnership books and paying its
bills, that Compass required both the November and December
payments to be made together. Bloomgren denies any contact
from Compass at the time. Nevertheless, on December 11,
1984, Compass sent a default notice to Bloomgren,
accelerating the entire loan balance of $1,225,668.81 and
demanding its payment in nine days. The default notice
crossed in the mail the November, 1984 payment which
Bloomgren had forwarded to Compass. When the November
payment was received, Compass returned it with a letter
reiterating the demand for the entire balance.
Thereafter there were proposals for settlement which
never reached fruition. In that period of time, Compass had
the building appraised in the summer of 1985 and the
appraisal came in at $1,100,000.00. The Trustees were
unwilling to accept that sum as an appraisal and no
settlement for deficiency was arrived at by the parties.
On April 12, 1985, the Trustees filed an action in the
District Court for the purpose of foreclosing on the trust
indenture. After lengthy discovery and complex proceedings,
the District Court on October 29, 1987, determined in a
summary judgment that the trust indenture constituted a first
lien upon the real property of Galleria Partnership, and
issued its order of for decree of foreclosure. The order
directed the Sheriff of Cascade County, Montana, to sell the
real estate in one parcel at public auction under the laws
governing the sale of real estate under execution upon proper
notice being given; and to deliver a deed to the purchaser.
The order of foreclosure reserves specifically the question
of any deficiency judgment.
No return of the sale by the Sheriff under the
foreclosure sale can be found in the District Court file
which has been forwarded to us. Under the mortgage
foreclosure statutes, "if it appears from the sheriff's
return that the proceeds are insufficient and a balance still
remains due, judgment can then be docketed for such balance
against" the defendants liable for the debt. No party before
us raises any contention as to the lack of sheriff's return
in the ~istrict Court file, and in view of our decision
relating to the deficiency judgment it is unimportant here.
It is reflected in the order of the District Court, dated
October 7, 1988, when the deficiency judgment was rendered
against the Galleria partnership, that the sheriff's sale
took place on December 8, 1987, and that the bid price
obtained there at was $565,000.00. The briefs of all parties
assume that the sole bid at the Sheriff's sale was that of
the Trustees.
So much for the background leading up to the deficiency
judgment. The Galleria Partnership raised several issues
contesting the validity of the deficiency judgment which we
will now take up.
1. The Chunkapura decision.
The Partners contend that under ~ i r s t State Bank of
Forsyth v. Chunkapura (Mont. 1987), 734 P.2d 1203, because
the case before us involves a trust indenture, a deficiency
judgment is improper.
In Chunkapura, this Court faced for the first time the
question whether a deficiency judgment could be obtained on a
trust indenture where the lender chose to foreclose the
indebtedness under the mortgage foreclosure statutes rather
than by trustee's sale under the Small Tract Financing Act.
In Chunkapura, we pointed out that prior to 1963, there
was but one statutory provision for the foreclosure of
mortgages, and that those statutes permitted the debtor a
right of possession during the period of redemption while the
debtor personally occupied the land as a home for himself and
his family ( § 71-1-229, MCA), and further permitted all
execution debtors a right of redemption in the same manner as
permitted to debtors under execution sales ( § 71-1-228, MCA).
The Small Tract Financing Act of 1963 ( S 71-1-301, -321,
inclusive, MCA) permits the use of deeds of trust or trust
indentures to secure the performance of obligations; provides
that upon default and foreclosure, the obligee's right of
occupation of the real property does not extend beyond ten
days from the date of the sale ( S 71-1-319, MCA) ; makes no
provision for any right of redemption; and further provides
that deficiency judgments are not allowed when a trust
indenture is foreclosed by advertisement and sale ( §
71-1-317, MCA). In Chunkapura, we noted that the Small Tract
~inancingAct was enacted at the instance of the banking and
lending industry. They contended that the "one action rule"
of mortgage foreclosure, and the attendant right of
redemption and right of possession rules, hampered the
financing of improvements on small tracts in Montana because
banks and investors were unwilling to invest in mortgages
when on default their funds would be tied up during the
period of redemption. This Court noted a quid pro quo
relating to the new legislation, that the lenders would give
up their deficiency judgment rights on default, if the
borrowers would give up their rights of possession and
redemption. Chunkapura, 734 P.2d at 1205.
The problem in Chunkapura arose because S 71-304(3),
MCA, provides that a trust indenture executed in conformity
with the Small Tract Financing Act may be foreclosed "by
advertisement and sale ... or, at the option of the
beneficiary [lender], by judicial procedure as provided by
law for the foreclosure of mortgages on real property." In
Chunkapura, the bank opted to foreclose under the mortgage
provisions of the law and insisted that it was entitled to a
deficiency judgment as there authorized.
Our decision in Chunkapura was to the effect that a
deficiency judgment would not be allowed when trust
indentures are executed in conformity with the Small Tract
~inancingAct because to allow a deficiency judgment would be
inconsistent with the provisions of that Act. On rehearing,
we modified that holding so that Chunkapura "is to be
considered as precedent only for trust deeds related to
occupied, single family residential property." 734 P.2d at
1211.
Although we noted in Chunkapura that the ambiguity
existing between the Small Tract ~inancing Act and the
standard provisions for mortgage foreclosure created legal
problems, and we recommended the attention of the legislature
to the same, the legislature has met twice in regular session
since Chunkapura and has undertaken no action regarding the
subject.
The contention of the Partners here before us on appeal
is that the Chunkapura modification is too limited, has no
statutory source and should be expanded by us to prevent a
deficiency judgment in this case, since the Galleria
development was a "business expansion," one of the reasons
for the enactment of the Small Tract Financing Act. (Section
71-1-302, MCA).
We can understand the difficulty the Galleria
Partnership has in accepting the Chunkapura decision as
modified on rehearing. The trust indenture which they
executed is in conformance with the Small Tract Financing Act
and that Act provides that on foreclosure there should be no
deficiency judgment. Foreclosure proceedings under mortgage
laws are permitted deficiency judgments. When a lender
holding a trust indenture as security chooses to foreclose
under the mortgage laws, Chunkapura as modified holds that
except for occupied single family residential property,
lenders can obtain a deficiency judgment even on trust
indentures. This result became necessary because of the
penchant of the lending industry, after the passage of the
Small Tract Financing Act, to use deeds of trust almost
exclusively. In fact, the original Act which once was
limited to tracts of three acres, was amended to 15 acres,
and in 1989 to 30 acres.
In Chunkapura, we could easily have held in resolving
the ambiguity between the two modes of foreclosure that a
foreclosure of a trust indenture under the mortgage laws was
nevertheless a foreclosure "by advertisement and sale" and
therefore deficiency judgments were barred under S 71-1-317,
MCA. This result however would have created havoc in the
loan industry. The majority in Chunkapura decided instead to
limit the prohibition against deficiency judgments to trust
deeds used as security for the financing of single dwelling,
occupied homes (the type of financing for which the Small
Tract Financing Act was argued to the legislature). The
whole problem of course deserves legislative attention, but
until the legislature does act, we will limit the preclusion
of deficiency judgments on deeds of trust used as security
instruments in accordance with Chunkapura. That, of course,
excludes the Galleria Partners, who without question,
executed instruments relating to a commercial loan.
In First Federal Savings and Loan Association of
Missoula v. Anderson, no. 89-002, decided July 25, 1989, 46
St.Rep. 1280, we upheld Chunkapura so far as it relates to
single family, occupied residential property. Galleria
Partnership does not qualify for the preclusion of a
deficiency judgment under Chunkapura since ~alleria
Partnership involves a purely commercial loan.
2. The Remedy - - ~eficiency Judqment - - Languaqe of
of a and the
the Operative Documents.
Under this contention, Galleria Partnership argue that
under the trust indenture, there is no mention of a possible
deficiency judgment, and when a trust indenture is
foreclosed, the lender is entitled only to recover its costs
and expenses incident to the foreclosure and a reasonable
attorneys fee .
Section 7.2 of the Trust Indenture in this case provides
in part:
.. . upon the occurrence of any default hereunder,
Beneficiary shall have the option to declare all
sums secured hereby immediately due and payable and
foreclose this Trust Indenture in the manner
provided by law for the foreclosure of mortgages on
real property, and Beneficiary shall be entitled to
recover in such proceedings all costs and expenses
incident thereto, including a reasonable attorney's
fees in such amount as shall be fixed by the
court. . .
We do not find that the foregoing language is a
limitation upon the damages that may be recovered in a
mortgage foreclosure conducted under S 71-1-222, MCA, which
specifically provides for deficiency judgments if the
sheriff's return shows that the proceeds are insufficient to
pay the balance then due. We find no merit in the
partnership's contention in this point.
It is true that no reference is made in the body of the
Trust Indenture in this case of the possibility of a
deficiency judgment on foreclosure, as would be the case if a
regular mortgage form had been used. The lack of a mention
of deficiency judgment in the instruments is immaterial. As
long ago as 1895, this Court in First National Bank of Butte
v. Pardee, held that a deficiency judgment may properly be
entered against the grantor in a deed of trust given to
secure the payment of a promissory note, though there was
nothing in the terms of the deed itself to warn of the
possibility of a judgment for a deficiency. ~ i r s t~ational
Bank of Butte v. Pardee (1895), 16 Mont. 390, 393, 41 P. 77,
78.
3. - - Trustees waive heir ~ i g h t- Accelerate the
Did the to
Due or Were They Estopped From ~ o i n g
Balance - - - So?
-
Galleria Partnership contends that from the time of the
execution of the note in 1982 until the notice of default in
December 11, 1984, when the Trustees sent notice of default
and accelerated the balance due, Galleria partnership
customarily was late in making the monthly payments.
Galleria partnership contends that the customary acceptance
by the lender of late payments, and payments by Galleria of
late charges in connection with its late payments, had the
effect of lulling the Partnership into a sense of false
security and because thereof the Trustees either waived their
right to accelerate the remaining balance due without notice
or they were estopped from doing so.
This Court has held that waiver is the "voluntary and
intentional relinquishment of a known right, or claim or
privilege," hi el v. Johnson (1985), 219 Mont. 271, 274, 711
P.2d 829, 831. We also held in Thiel that "waiver may be
proved by expressed declarations or by a course of action and
conduct so as to induce the belief that the intention and
purpose was to waive." Thiel, 711 P.2d at 832.
Again we turn to the trust indenture and find in
paragraph S 6.5 thereof that any delay or omission by the
beneficiary in the exercise of any right, power, or remedy
arising out of the trust indenture shall not impair any such
right power or remedy, or the right of the beneficiary to
resort thereto at a later date. Further such delay shall not
be construed to be a waiver of any default or event of
default under the indenture.
Galleria Partnership relies especially on Soltis v.
Liles (Or. 1976), 551 P.2d 1297, 1300, which held that such
nonwaiver provisions as are found in the trust indenture here
do not prevent the promissor from waiving the conditions of
the contract by his conduct. Galleria Partnership claims
that the sudden notice sent by the Trustees in this case,
after the long acceptance of late payments, was itself a
breach of the contract, and that the Trustees, as a breaching
party, cannot now call upon the other party to perform,
relying on Western Media Inc. v. Merrick (Mont. 1989), 757
P.2d 1308, 1311.
The partnership contends that this point is one of first
impression in Montana. While we can conceive of cases in
which the nonwaiver provisions of a contract should not be
applied, the facts here do not warrant such a result. Not
only must the evidence show a course of conduct by which one
party waived the contractual obligations of the other party,
but additionally, it seems to us, the evidence should show
that the same party also waived any right to rely on the
nonwaiver provisions of his contract. In other words, in
this instance, since waiver is a known and voluntary
relinquishment of a known right, those elements of waiver at
least have to appear from the evidence before it can be held
that the contractual right of nonwaiver has been waived.
4. - Deficiency Judgment Barred Because this is a Purchase
Is
Money Mortqage?
Under the mortgage foreclosure laws of this State, a
deficiency judgment is not allowed on the foreclosure of a
purchase price mortgage. Section 71-1-232, MCA. Galleria
Partnership contends in this case that because the Trustees
lent the money, knowing that the proceeds of the loan would
be used by the Partnership to pay off Galleria Associates,
the prior partnership, for the purchase of the real property,
that the arrangement in effect was that of a purchase price
mortgage and so a deficiency judgment was barred under the
statute.
The language of the statute itself defeats the
contention. It provides:
Upon the foreclosure of any mortgage, executed to
any vendor or real property or to his heirs,
executors, administrators, or assigns for the
balance of the purchase price of such real
property, the mortgagee shall not be entitled to a
deficiency judgment on account of such mortgage or
note or obligation secured by the same.
Plainly, the Trustees are not the vendor in this case,
nor are they the assignee of any vendor. The language simply
does not fit the Trustees so as to prevent their obtaining a
deficiency judgment.
Where the lender is not the vendor, nor standing in the
vendor's shoes, the statute does not prevent a deficiency
judgment. Aetna Life Insurance Co. v. Slack (Mont. 1988),
756 P.2d 1140, 1144.
5. - - - -&
Was the Loan I l ?
le
 The Partnership contends that under the federal ERISA
laws it is illegal to utilize labor pension funds for the
benefit directly or indirectly of a "party in interest." 29
U.S.C., Section 1106.
The reason the prior partnership, Galleria ~ssociates,
was disqualified from borrowing pension trust funds was that
both Dan Cook and Robert Patterson, another partner in
Galleria ~ssociates,were "parties in interest" because they
were employers covered by "a plan subject to the ~etirement
Income Security Act." 29 U.S.C., Section 1002(14) (c).
~alleria contends that the loan here indirectly
benefited both Patterson and Cook, because as partners of the
prior partnership they probably received proceeds from the
loan, since the proceeds were used to purchase the interest
of Galleria Associates in the building. The ~istrictCourt
in disposing of this issue in summary judgment, did not set
forth findings of fact, and Galleria Partnership contends the
court erred by failing to provide any rationale for its
ruling on this issue.
The Partnership contends therefore, that the loan from
the pension trust funds through Compass was illegal in the
first instance, and a court of equity will not enforce
between the parties an illegal contract.
The simple answer to this issue is that made by the
Trustees in response. This was not a "disqualified
transaction" because the borrower in this case was the
Partnership and not Galleria Associates. We find no merit in
this contention.
6. - - Terms - - -
Did the of the Loan Commitment - - Lender Bar
from the
- Deficiency Judgment?
a
When the loan in this case was in the making, Compass
provided a letter dated December 17, 1981, addressed to the
Galleria Partners, which contained terms relating to the
making of the loan. This letter of commitment was used by
Cook in obtaining signatures from the Partners. Among the
special conditions for the loan was the requirement that the
loan was to be secured by a deed of trust. The Partners
contends that the use of the commitment letter, along with
the alleged representations by Cook, that there would be no
personal liability for the Partnership, created a reasonable
belief in the minds of the potential partners that they would
not be liable personally for deficiency judgment. The
District Court disposed of the issue on the theory of
misrepresentation, saying that if a misrepresentation was
made, the other party nevertheless has a duty to use
diligence with respect to any such representation made, and
here, the borrowers, for the most part, did not read the loan
documents; and if they had read the note they would have seen
that the payments required by them were phrased in terms of
personal liability.
The partnership appears to concede the duty of diligence
on the part of the borrowers, but contends that the District
Court missed the issue of lack of consideration. The
Partnership contends that no deficiency judgment was
bargained for, and because in the minds of the borrowers a
deed of trust secured a nonrecourse loan, there is no
consideration to which the court could point for a deficiency
judgment. Again the Partnership contends that the trust
indenture itself specifically limited recovery in the event
of default to the Trustees' attorneys fees, costs, and
expenses incident to the foreclosure.
Of course, all representations made by Cook were
superseded by the written instruments, the promissory note,
and the deed of trust. Section 28-2-904, MCA. The validity
of neither the promissory note nor the trust indenture is in
dispute, and there is no claim here of a mistake in those
instruments or an imperfection in their writings, so
extrinsic evidence may not be considered to vary the terms of
those written instruments. section 28-2-905, MCA.
We do not find in this case the specifications in the
loan commitment to be different in essence from the
promissory note and the trust indenture which eventually were
executed. This Court held in Warner v. Johns (1949), 122
Mont. 283, 288, 201 P.2d 986, 988, that where the
consideration expressed in the written instrument is
contractual in its nature, oral evidence is inadmissible to
show a different consideration because then it changes the
legal effect of the instrument. That rule applies here,
although the question is not one of evidence but rather a
contractual interpretation. The fact that a deficiency
judgment was not expressly mentioned does not change the
legal effect of the instruments when executed.
7. - - Representation
id the ~ Cook that the Loan Would -
---- be
Nonrecourse - - a ~eficiencyJudqment?
Bar
On this issue, the Partnership seeks to impute to the
Trustees on agency grounds responsibility for the alleged
misrepresentations made by Cook in securing the signatures of
the borrowers to the promissory note and the trust indenture.
The partnership cites numerous cases involving
principals and agents to the effect that the principals are
bound by the acts or representations of the agents. None of
those cases is applicable here. The ~istrictCourt rejected
this contention saying there was no evidence of any kind that
would make Cook either an actual or a ostensible agent of
Compass or the Trustees in procuring the signatures. since
any evidence that Cook was representing either Compass or the
Trustees in procuring the signatures is totally lacking, no
imputations can be made by any court that either Compass or
the Trustees were responsible for the alleged
misrepresentations made by Cook. A deficiency judgment
cannot be barred on this contention.
8. Disposition
As the foregoing discussion shows, there is no question
that the Partnership members are jointly and severally liable
on the promissory note which they signed individually, and
that, after foreclosure of the real property given to the
security obligation, the individual Partners are also liable
for deficiency judgment. The size of the deficiency judgment
in relation to the original note is however a matter of
concern.
It is uncontroverted in the evidence here that in 1981,
when Dan Cook was first arranging for a loan, he obtained an
appraisal of the property as remodeled at $1,950,000.00. In
1982, that appraisal had sufficient validity to justify the
Trustees in extending a loan of $1,200,000.00 to the ~alleria
partnership.
In 1985, after the default notice had been served by the
Trustees, they obtained an appraisal of the property which
they did not accept, but which apparently valued the
remodeled property at $1,100,000.00.
At the sheriff's sale, in 1987, the Trustees, as
beneficiary under the trust indenture, submitted a bid on the
real property as remodeled for $565,000.00. The ~istrict
Court found that the principal amount of the obligation due
on November 1, 1984, was $1,185,655.49. Accrued interest,
attorneys fees and recoverable costs brought the eventual
deficiency judgment to $1,500,368.35. The fact that the real
property was bid in at the sheriff's sale for a sum at
approximately 30% of its original appraised value is the
basis for what must be a catastrophic deficiency judgment for
the Partners.
 Montana's statutes have no direct provisions under the
mortgage foreclosure procedures to determine the fair market
value at the time of the forced sale of the property subject
to foreclosure. We pointed out in Chunkapura that several of
the states surrounding us have statutory provisions which
serve to protect judgment debtors when foreclosure of their
property is made to satisfy the judgments. Our examination
of the statutes of surrounding states, and of the
interpretations of their respective courts concerning those
statutes show that predominantely, a deficiency judgment is
limited to the difference between the fair market value of
the secured property at the time of the foreclosure sale,
regardless of a lesser amount realized at the sale, and the
outstanding debt for which the property was secured. We set
forth in Chunkapura expressly that California, Washington,
Arizona, Utah, Idaho, and Oregon, are states with such
protective provisions, with Alaska being the sole exception.
Chunkapura, 734 P.2d at 1207-1208.
In connection with this case, we have looked at the
provisions of additional states. In South Dakota, the amount
realized at sheriff's sale must be the "fair market value" of
the property. S.D. Codified Laws Ann. S 21-47-16 (1989).
In North Dakota, there is a fair market value provision which
if contested must be submitted to a jury. N.D. Cent. Code 5
32-19-06 (1987). Colorado has no statutory restrictions on
deficiency judgments, as far as we can determine, but its
laws provide that trust indentures are to be foreclosed by a
public trustee (not private) and that all others must be
foreclosed as a mortgage. In Wyoming, a mortgage is
construed as a covenant for the payment of the sum secured,
and unless there is specific covenant in the mortgage, on
foreclosure the remedies are limited to the lands mentioned
in the mortgage. Wyo. Stat. § 34-1-136 (1989).
 In U.S. v. Mac~enzie (9th Cir. 1975), 510 F.2d 39, 41,
it was noted that the purpose of the Nevada and Arizona
statutes relating to deficiency judgments is to prevent the
injustice that occurs when a debtor's property is sold on
foreclosure sale for a price significantly less than its fair
market value.
Some states surrounding us also have other provisions
relating to the protection of the judgment debtor. Thus in
Wyoming, the mortgagee or party to whom the debt is owed may
bid in at the sheriff's sale, but his bid must be made
"fairly and in good faith." Wyo. Stat. S 34-4-108 (1989).
As we said, the Montana statutes are silent, both as to
the right of the mortgagor to bid in to the sheriff's sale,
and as to the duty of a court to determine if the sheriff's
sale reflects the fair market value of the property. A
mortgage foreclosure proceedings, however, is in the equity
jurisdiction of the courts. This Court is enjoined by
statute, in equity cases and in matters or proceedings of an
equitable nature, to review all questions of fact arising on
the evidence presented in the record, and to determine the
same. section 3-2-204(5), MCA. Courts sitting in equity are
empowered to determine all the questions involved in the case
and to do complete justice; this includes the power to
fashion an equitable result. Maddox v. Norman (1983), 206
Mont. 1, 14, 669 P.2d 230, 237. An equity court whose
jurisdiction has been invoked for an equitable purpose, will
proceed to determine any other equities existing between the
parties connected with the main subject of the suit, and
grant all relief necessary to the entire adjustment of the
subject. iffa any v. Uhde (1950), 123 Mont. 507, 512-513, 216
P.2d 375, 378.
Had the sole bid at the sheriff's sale for the property
here been for $100 or $1,000, undoubtedly we would be moved
by equity to inquire as to its fairness. The actual bid of
$565,000.00 is only a matter of degree. In the exercise of
our equity jurisdiction therefore, we deem it proper to
remand to the District Court to determine the fair market
value of the property at the time of the sheriff's sale. The
"fair market" is the intrinsic value of the real property
with its improvements at the time of sale under judicial
foreclosure, without consideration of the impact of the
foreclosure proceedings on the fair market value.
Chunkapura, 734 P.2d at 1207.
The method of determining fair market value we will
leave to the District Court, though it seems appropriate that
each opposing party should be allowed to present the opinion
of appraisers selected by them respectively.
When the fair market value of the property is determined
by the District Court, that figure would be the basis for the
determination of a deficiency judgment if any.
11.
The Trustees appeal from a summary judgment entered by
the District Court in this cause holding that the estate of
Gordon P. ice is not liable to the Trustees for a deficiency
judgment arising out of the instruments above described.
Gordon Tice executed the promissory note and the trust
indenture which is the subject of this litigation effective
March 17, 1982. He died on July 16, 1984. H ~ S spouse, Mary
C. ice, was appointed personal representative of the estate
on January 9, 1985. ~ o t i c eto creditors is published first
on January 17, 1985, with final publication occurring on
January 31, 1985.
The Trustees' complaint naming Gordon P. ice as a party
defendant was filed ~ p r i l12, 1985. The ~istrictCourt found
that service of the summons and complaint was made on May 31,
1985, which is more than four months after the publication of
the first notice of creditors on January 17, 1985. Under the
facts, the District Court granted the personal representative
a summary judgment precluding the Trustees from any
deficiency claim against the estate of Gordon P. ice.
The Trustees complaint however was filed on ~ p r i l 12,
1985, within the four month period. Section 72-3-804(1),
MCA, provides that a claim against an estate is deemed
presented on the first to occur of a receipt of the written
statement of claim by the personal representative or by the
filing of a claim of the court. Section 72-3-804, MCA, also
provides that a claimant may commence a proceeding against a
personal representative to obtain payment of claim against
the estate, but the commencement of the proceeding must occur
within the time limit for presenting the claim. The Trustees
contend that the term "commencement of the proceeding'' is met
by the filing of the complaint, and not by the service of the
summons of complaint upon the party defendant.
It also appears from the record that on April 10, 1985,
a copy of the Trustees' complaint was forwarded to counsel
for Mary c ice, the personal representative, but said counsel
also represented all of the other partnership defendants. On
April 19, 1985, that attorney wrote the attorney for the
Trustees, suggesting that an acknowledgment of service of
blank form be sent to cover all the Partnership defendants.
This was done by counsel for the Trustees on April 24, 1985.
It was not, however, until May 31, 1985, two weeks after the
nonclaim statutory period had expired that Mary Tice, as
personal representative, of the estate of Gordon P. Tice,
signed the acknowledgment of service.
It appears from an examination of the statutes relating
to creditors' claims against an estate that the claim of the
Trustees was not properly presented. section 72-3-803(1) (a),
MCA, provides that claims, including those founded on
contract or other legal basis, if not barred by other
statutes of limitations, are barred against the estate unless
presented within four months after the date of the first
publication of notice to creditors if that notice is properly
given. The manner of the presentation of claims is covered
in S 72-3-804, MCA, as follows:
(1) The claimant shall mail to the personal
representative return receipt requested a written
statement of the claim indicating its basis, the
name and address of the claimant, and the amount
claimed or may file a written statement of the
claim, in the form prescribed by rule, with a clerk
of the court. The claim is deemed presented on the
first to occur of receipt of the written statement
of claimed by the personal representative or the
filing of the claim of the court ...
Thus it appears, that a claim founded on contract, as in
this case, must be presented either to the personal
representative, or by filing the same with the court. The
filing of a suit outside the probate proceedings, even though
within the four month period, does not suffice to properly
submit a claim against an estate. Hence, the claim of the
Trustees against the Gordon P. ice estate is time-barred.
Even so, the Trustees argue that there are due process
implications which have not been met in the matter of notice
that was followed in the Tice estate. The Trustees rely on
Tulsa Professional Collection Services, Inc. v. Pope
~xecutrix of the Estate of H. Everett Pope, Jr. (19881, 108
S.Ct. 1340, U.S. , 99 L.Ed.2d 565. This case
involved a provision of Oklahoma's probate laws requiring
claims arising upon a contract to be presented to the
executor of the estate within two months of the publication
of notice to creditors or else be barred. The creditor, a
hospital, had rendered medical services to the decedent Pope
for about five months. Upon his death, the hospital, through
its assignee, Tulsa Professional Collection Services, Inc.,
had not presented a claim to the executor of the estate
within the two months period. Tulsa, relied instead on an
Oklahoma statute which provided that the executrix must pay
the expenses of the last illness. The Oklahoma trial court
ruled that the failure to present the claim within the two
month period required a denial of the claim. This result was
affirmed in the Oklahoma Court of Appeals and by the Supreme
Court of Oklahoma. The latter Court reasoned that the
purpose of notice in probate proceedings is not to make a
creditor a party to the proceedings, but rather to notify him
that he may become one if he wishes.
The united States Supreme Court in Tulsa reversed on due
process grounds. The Supreme Court determined that the
unpaid medical bill was a property interest protected by the
Fourteenth Amendment and that under the Fourteenth Amendment
the due process clause applied if state action were involved.
The Supreme Court further found that the probate proceedings
did involve state action, especially since the probate court
appointed the executor, and ordered notice to be given to
creditors, required that proof of publication be filed with
the court, and that claims also be filed with the court
within the time period.
In such a case, the united States Supreme Court held
that a duty of providing actual notice of the probate
proceedings and of the necessity to present claims to known
creditors, or reasonably ascertainable creditors, was
required to satisfy due process.
The decision of the United States Supreme in Tulsa is a
step-out from earlier cases, Mullane v. Central Hanover Bank
and Trust Co. (1950), 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed.2d
865 and Mennonite Board of Missions v. Adams (1983), 462 U.S.
791, 103 S.Ct. 2706, 77 L.Ed.2d 180. In Baker ~ationalBank
v. Henderson (1968), 151 Mont. 526, 529, 445 P.2d 574, 576,
this Court held that the Mullane doctrine was not applicable
to probate proceedings.
The provisions of our probate statutes relating to
notice by publication to creditors against an estate may
under Tulsa have due process implications as far as known
creditors or reasonably ascertainable creditors are
concerned, but that issue cannot be determined in this case.
When the cause was before the District Court here, the issue
was decided purely on the statutory provisions which were
applicable under the probate code. The issue of due process
was not preserved for appeal and is therefore not before us
at this time.
The contention of the estate of Gordon P. ice that the
Trustees' appeal in this case was untimely taken is without
foundation. Galleria Partnership having filed a timely
notice of appeal in this case on November 8, 1988, the filing
of the Trustees' notice of appeal on November 18, 1988, was
timely filed. Rule 5 (a)( 3 1 , M.R.App.P.

Conclusion
1. The judgment of the District Court granting deficiency
judgment to the Trustees is by the Court affirmed. The cause
is remanded for a determination by the District Court of the
proper amount of deficiency judgment, depending upon the fair
market value of the foreclosed property at the time of the
sheriff's sale. Neither Galleria Partnership nor the
Trustees shall recover attorneys fees or other costs with
respect to this appeal. If on remand, the fair market value
is determined to be a sum more than $565,000.00 the ~istrict
Court, in calculating a deficiency judgment if any, shall not
allow interest from the date of the sheriff's sale to the
date the new judgment is entered. The Trustees are entitled
to attorneys fees and costs in the proceedings relating to
the establishment of fair market value, except that each
party shall pay the cost of its own appraisers.
2. With respect to the appeal of the Trustees from the
judgment favoring the estate of Gordon P. ice, that judgment
is affirmed. The estate is entitled to recoverable costs on
appeal and to attorneys fees under the reciprocal statute.
3. his cause is remanded to the ~istrictCourt for further
proceedings of the court in accordance with this opinion.

We Concur:

Justices

Mr. Justice Fred J. Weber did not participate.
Justice R. C. McDonough dissents.

I dissent to the remand to the District Court to
determine the fair market value of the property at the time
of the sheriff's sale, and the use of that value for the
determination of a deficiency judgment. I concur with the
balance of the majority opinion.
Section 71-1-222, MCA (1987), governs as to such
proceedings in foreclosure suits. The section is as follows:

(1) There is but one action for the recovery
of debt or the enforcement of any right secured by
mortgage upon real estate, which action must be in
accordance with the provisions of this part. In
such action the court may, by its judgment, direct:
(a) a sale of the encumbered property (or so
much thereof as may be necessary);
(b) the application of the proceeds of the
sale; and
(c) the payment of the costs of the court,
the expenses of the sale, and the amount due the
plaintiff.
(2) If it appears from the sheriff's return
that the proceeds are insufficient and a balance
still remains due, judgment can then be docketed
for such balance against the defendant or
defendants personally liable for the debt, and it
becomes a lien upon the real estate of such
judgment debtor, as in other cases on which
execution may be issued.
(3) No person holding a conveyance from or
under the mortgagor of the property mortgaged or
having a lien thereon, which conveyance or lien
does not appear of record in the proper office at
the time of the commencement of the action, need be
made a party to such action. The judgment therein
rendered and the proceedings therein had are as
conclusive against the party holding such
unrecorded conveyance or lien as if he had been
made a party to the action.
It is noted in subsection (1) that the court directs the
sale of the encumbered property, applies the proceeds, and
directs payment of the costs. This section does not
prescribe the details of the sale itself, notice thereof,
etc.; these details are to be set forth in the decree or
judgment of foreclosure and are governed by rules of equity.
Montana has no statutory requirement of an appraisement of
the property to be sold, either before or after the sale.
However, in subsection (2) of said section, it does
provide for a deficiency judgment in specific terms. If the
proceeds of the sale are insufficient to pay the debt due,
and a balance still remains, judgment can then be docketed
for such balance against the defendants personally. The
statute does not provide for the calculation of a deficiency
judgment by applying a fair market value, as determined by
the court, to the amount due. Rather, it directs that a
deficiency judgment should be calculated by applying the
proceeds of the sale to the amount due. This statute clearly
sets forth how a deficiency is to be calculated. The statute
prevails over any common law, see $ 1-1-108, MCA, and $
1-2-103, MCA (1987).
Even if the statute did not cover the calculation of the
deficiency, it would be inequitable to require such a
determination on the state of this record. The defendants
have never raised the issue in the lower court or in this
Court, although they could have done so. They were
represented by competent counsel at all stages of the suit,
three of the defendants are attorneys at law, and all appear
to be knowledgeable investors. If the defendants were
dissatisfied with the proceeds of the sheriff's sale they
could have petitioned the District Court to set aside the
sale on grounds of unfairness and inadequacy, and asked to
have it appraised for guidance of the court in determining
whether or not to set aside the sale and order a new
sheriff's sale. Other equitable options might have been
available. The defendants chose not to avail themselves of
any of these options. I would affirm in toto.

Justice

Justice L. C.
dissent.