No. 89-002
IN THE SUPREME COURT OF THE STATE OF MONTANA
1989
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF MISSOULA, a Corporation,
Plaintiff and Appellant,
-vs-
STEVE R. ANDERSON and JEAN M. ANDERSON,
Defendants and Respondents.
APPEAL FROM: District Court of the Fourth Judicial ~istrict,
In and for the County of iss sou la,
The Honorable James B. Wheelis, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
David J. ~ietrich,Boone, Karlberg & Haddon; is sou la, MT
For Respondent:
Samuel M. Warren, Worden, Thane & ~ a i n e s ; is sou la, MT
w
Submitted on ~riefs: April 6, 1989
Decided: ~ u l y2 5 , 1989
.
I
~iled:
/ ._
I Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
First Federal Savings and Loan Association of Missoula
appeals from an order of the ~istrictCourt, Fourth Judicial
~istrict, is sou la County, dismissing ~ i r s t Federal's
complaint to foreclose on a Deed of Trust on real property
against Steven R. and Jean M. Anderson.
The principal issue in this case is whether the decision
of this Court in ~ i r s tState Bank of Forsyth v. Chunkapura
,
(1987) - Mont. - 734 P.2d 1203, is applicable to the
facts of this case. We hold that Chunkapura applies, and
that ~ i r s tFederal Savings and Loan may not procure from the
~istrict Court a deficiency judgment on foreclosure of the
Deed of Trust in this case.
There is a procedural problem that needs our first
attention. First Federal filed its verified complaint in the
District Court on November 23, 1987. The complaint alleged
that Steve R. Anderson and Jean M. Anderson had delivered
over to First Federal Savings and Loan a promissory note for
$38,250.00. As security for the note, the Andersons
delivered to the American Land Title Company of Missoula, as
trustee, a Deed of Trust to real property in the city of
iss sou la, conditioned on the full performance of the
obligations of the promissory note and the Deed of Trust by
the Andersons. The Andersons had defaulted in their payments
on the note, and on the date of the filing of the complaint,
owed to First Federal $34,365.45 with interest at 10% per
annum from June 1, 1987. The verified complaint asked for
judgment against the Andersons in the amount of the
indebtedness not paid, accrued interest, late charges, costs
of the suit, and attorney fees.
The verified complaint further prayed that the Deed of
Trust be foreclosed as a mortgage on the real property, and
that the real property be sold by the county sheriff; that
the purchasers at the sale have the right of immediate
possession thereto, subject only to the redemption rights of
the Andersons; and that if the proceeds of the sale be
insufficient to satisfy the judgment as prayed for, that any
deficiency remaining be entered as a deficiency judgment
against the Andersons.
The Andersons responded to the verified complaint,
through their counsel, by filing a motion to dismiss under
Rule 12(b)(6), M.R.Civ.P. upon the grounds that the complaint
failed to state a claim against the defendants upon which
relief could be granted.
Further responding to the motion to dismiss, the
Andersons filed an affidavit in which they recited that they
had purchased the property in 1978 through a loan procured
from First Federal; that for seven years, commencing 1978 and
ending January, 1986, the Andersons had used and occupied the
dwelling as a principal residence; that for approximately 18
months, while the property was for sale, they had rented the
real estate to various individuals to continue to make
payments to ~ i r s t Federal; and that in June, 1987, the
Andersons decided they could no longer keep the property and
requested ~ i r s t Federal to accept a deed in lieu of
foreclosure. In the meantime, the Andersons had purchased a
second home.
First Federal filed a memorandum objecting to the motion
to dismiss and in it relied on facts in the Anderson
affidavit, including (1) that commencing in January, 1986,
the Andersons no longer used or occupied their dwelling as a
principal residence; (2) that for approximately 18
additional months they had rented the property to various
individuals; and (3) that First Federal's role was not as a
"vendor" but as a lender for the purchase of the property by
the Andersons.
First Federal further requested a hearing on the motion
to dismiss which the District Court granted and set for
November 4, 1988. In the meantime, however, the court issued
its opinion and order dismissing the complaint on November 1,
1988.
In rendering its opinion of dismissal, the District
Court obviously relied on references to the Andersons'
affidavit, including that the Andersons had offered to give a
deed in lieu of foreclosure; that the Andersons resided in
the property for over seven years; and that First Federal was
not entitled to a deficiency judgment although the real
property was no longer occupied by the original obligors, who
were using the real estate as rental property.
The order of dismissal entered b7 the ~istrict Court
l
does not specifically refer to Rule 56, M.R.civ.P. It is,
however, obvious that the ~istrictCourt had converted a Rule
12(b) (6) motion to dismiss into a Rule 56 motion for summary
judgment. This Court has held that when a district court
intends to convert a Rule 12 motion to dismiss into a Rule 56
motion for summary judgment, that it should give notice to
the parties of its intention to consider materials outside
the pleadings. Gebhardt v. D.A. avids son and Company (1983),
203 Mont. 384, 661 P.2d 855.
It is true that in ordinary circumstances this Court
requires that when a district court intends to treat a motion
to dismiss as a motion for summary judgment under our Rules
of Civil Procedure, that it must first give notice to the
parties of its intention to do so. Gebhardt, supra. The
reason for our requirement is that opportunity is then given
to the party opposing summary judgment or the motion to
dismiss to produce additional facts by affidavit or otherwise
which would establish a genuine issue of material fact and so
preclude summary judgment under Rule 56. In this case,
however, First Federal, in responding to the motion to
dismiss and the affidavit supplied in connection therewith,
adopted - - relied - certain facts from the affidavit
from and on
on which to base their argument to the District Court that
Chunkapura does not apply to this case and that ~ i r s tFederal
was entitled to a summary judgment.
Trust indentures (or as they are sometimes known, deeds
of trust or trust deeds), used as security instruments in
Montana, are creatures of the "Small Tract ~inancingAct of
Montana", §§ 71-1-301, -321, incl., MCA. From the verified
complaint, the facts alleged in the Anderson affidavit as
relied on and adopted by ~ i r s tFederal and the applicable
statutes gave the court sufficient basis on which to rule as
to whether Chunkapura applied in this case. In like manner,
these facts are sufficient for this Court to make a ruling on
appeal. Although the District Court erred in not giving the
notice required that it intended to treat the motion to
dismiss as a motion for summary judgment, the matter will not
be reversed or remanded to the District Court when the
eventual result in the District Court would be the same. In
Re ~arriageof Cannon (1985), - Mont . , 697 P.2d 901;
Kirby Company of Bozeman, Inc. v. Employment security
Division of Montana (1980), 189 Mont. 1, 614 P.2d 1040.
We proceed now to the principal issue in this case,
whether our decision in Chunkapura precludes a deficiency
judgment against the Andersons.
The deed of trust in this case was issued pursuant to
the authority of the Small Tract ~inancingAct of Montana,
enacted in 1963. In Chunkapura, this Court had occasion to
interpret that. Act as to whether a deficiency of judgment
could be obtained against the borrowers, after a sale of the
mortgaged property (for want of a better term, we will refer
to the real estate in this case as the "mortgaged property";
under 5 71-1-305, MCA, a trust indenture is deemed to be a
mortgage on real property and subject to all laws relating to
mortgages on real property except to the extent that such
laws are inconsistent with the Small Tract Financing Act of
Montana). Before the adoption of the Act, there was only one
form of mortgage foreclosure in Montana ( 5 71-1-222, MCA) and
that procedure allowed a deficiency judgment against the
mortgagor unless a power of sale was utilized under 5
71-1-223, MCA. Chunkapura noted:
The banking and lending industry came to the
legislature in 1963, contending that the "one
action rule1' 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 during the period of redemption. A
quid pro quo was proposed to the legislature: the
legislators would give up their deficiency rights
on default, if the borrowers would give up their
rights of possession and redemption. The result
was the adoption by the legislature of the Small
Tract Financing Act of Montana, originally limited
to tracts of three acres, but now may involve
tracts as large as fifteen acres.
This Court held in Chunkapura, that under the Small
Tract Financing Act, even though the beneficiary of a trust
indenture could foreclose on the trust indenture by judicial
procedure as provided by ( S 71-1-304(3), MCA). Nevertheless,
the provisions of 5 71-1-317, MCA, providing that a
deficiency judgment was not allowed, applied to all uses of
the trust indenture. On rehearing, we modified that holding
saying:
In Chunkapura, we have before us only a trust deed
related to an occupied, single family residential
property. It is suggested by amicus First
Interstate Bank of Missoula that our opinion should
be limited in effect to the kind of security before
us in Chunkapura, and similar cases involving
residential property. We agree.
734 P.2d at 1210-1211.
First Federal argues that because the Andersons no
longer occupy the property themselves, and in fact, rent the
premises, that they are not entitled to the benefit of the
Chunkapura holding that deficiency judgments are not allowed.
On that point, we disagree with First Federal, and uphold the
decision of the District Court that Chunkapura does apply.
When First Federal accepted a trust indenture for the
mortgaged property, the trust deed related to an occupied,
single-family residential property. At the time of its
proposed foreclosure by First Federal, the property remained
a single-family residential property, albeit sometimes
occupied by renters. The property fits the Chunkapura
exception and we hold that First Federal may not obtain a
deficiency judgment against the Andersons after the sale of
the mortgaged property. Hand in hand with that holding, as
in Chunkapura, the Andersons are not entitled either to a
right of possession after 10 days from the sale, or to a
right of redemption for a period of one year.
First Federal also argues that dismissal of its
foreclosure action was improper because First Federal may
have wished to foreclose on personal as well as real
property, and that the foreclosure action was the vehicle for
such action. However, nothing of this appears of record, or
in the pleadings, and we give no weight to that argument.
The Andersons also argue that because First Federal
supplied the finances which enabled the Andersons to enter
into the purchase of the subject property that Andersons are
entitled to the protection of § 71-1-232, MCA, which
precludes a deficiency judgment on foreclosure of a purchase
money mortgage. Our interpretation of that statute is that a
mortgagee who is not the vendor of the property, but who
assumes the status of a mortgagee to secure a loan used for
the purchase is not prohibited from a deficiency judgment
under 5 71-1-232, MCA. Aetna Life Insurance Company v. Slack
,
(19881, - Mont. - 756 P.2d 1140.
There is a side issue to this case relating to attorney
fees. The Andersons contend that the appeal by ~ i r s tFederal
in this case was premature, and that First Federal should
have waited to appeal until the court determined the
Andersons' rights to attorney fees after the dismissal.
~ i r s tFederal, on the other hand, contends that the issue of
attorney fees was not necessary to the final judgment and
that the appeal is not premature.
~eitherparty is entirely correct on this issue. Under
S 71-1-320, MCA, in the event of a foreclosure of a trust
deed by advertisement and sale, the total of the reasonable
attorney fees and trustee fees shall not exceed 5% of the
amount due on the obligation, both principal and interest, at
the time of the trustee's sale. In this case, ~ i r s t Federal
had requested attorney fees and alleged the sum of $2,500 as
a reasonable fee, in addition to further fees if the case was
contested. That request would exceed the 5% limitation in §
71-1-320, MCA. On the basis of reciprocity, § 28-3-704, MCA,
the Andersons are entitled to reasonable attorney fees in the
District Court and on appeal, to be fixed by the District
Court, in addition to the usual costs. On foreclosure, First
Federal is entitled to its attorney and trustee fees granted
by S 71-1-320, MCA.
The order of dismissal by the District Court is
affirmed.
\
We Concur:
/
.i Justice t
Mr. Justice Fred J. Weber specially concurs and dissents as
follows:
I have reviewed Chunkapura. While I dissented, I agree
with the majority conclusion that a deficiency judgment is
not allowed in the present case under the precedent of
Chunkapura.
The majority opinion quotes from that portion of
Chunkapura which noted that the banking and lending industry
came to the legislature in 1963 and proposed a quid pro quo
under which the banking industry would give up deficiency
rights in return for the giving up by borrowers of the right
of possession and redemption. I conclude that the record in
the present case and the record in Chunkapura do not demon-
strate the presence of any such exchange. I have reviewed
the Small Tract Financing Act and find nothing to indicate
any such quid pro -quo. I dissent from the conclusion based
on a claimed exchange of benefits which is not substantiated
by the record.
I also dissent from the conclusion that First Federal is
only entitled to attorney fees and trustee fees in the aggre-
gate not exceeding 5% of the amount due on the obligation.
Section 71-1-320, MCA, in relevant part states:
Reasonable trustees' fees and attorneys' fees to be
charged to the grantor - - event of foreclosure
in the
bv advertisement - - shall not exceed. in the
f.
and sale
aggregate, 5% of the amount due on the obligation,
both principal and interest, at the time of the
trustee's sale. (Emphasis supplied.)
The statutes demonstrate that the 5% limitation applies only
where the lender seeks to foreclose by advertisement and sale
through a trustee under a deed of trust. That was not the
procedure followed in the present case. Here the complaint
was filed in the District Court for judicial foreclosure.
The statutes allow First Federal to proceed through judicial
foreclosure as described in S 71-1-311, MCA. First Federal
here was entitled to proceed with judicial foreclosure even
though Chunkapura may establish a limitation on deficiency
judgment. The summary judgment denied that procedure to
First Federal. The effect of the decision is to dismiss the
judicial foreclosure which does not have a 5% limitation and
then to apply the limitation. I do not agree with that
reasoning.
Justice L. C. Gulbrandson joins in the/foregoing dissent.
,/ Justice