No. 90-583
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
BLAINE BANK OF MONTANA,
a Montana Corporation,
Plaintiff and Appellant,
RUSSELL HAUGEN, DONN R. HAUGEN,
and DELL HAUGEN, d/b/a QUALITY
ENTERPRISES, a Montana partnership
and DORIS HAUGEN,
Defendants and Respondents.
APPEAL FROM: District Court ofthe Seventeenth Judicial District,
In and for the County of Blaine,
The Honorable Leonard H. Langen, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Ward E. Taleff, Alexander, Baucus & Linnell; Great
Falls, Montana
For Respondent:
Chris R. Young, Morrison, Young, Melcher & Brown;
Havre, Montana
Submitted on Briefs: May 16, 1991
Decided: August 20, 1991
Filed:
E.
Justice ~illiam Hunt, Sr., delivered the opinion of the Court.
The Seventeenth Judicial District Court, Blaine County,
granted an order relieving defendants and respondents, Russell,
Donn R., and Doris Haugen, from a deficiency judgment obtained by
plaintiff and appellant, Blaine Bank of Montana. The Bank appeals.
We reverse.
The sole issue on appeal is whether the District Court erred
in granting the Haugensl motion for relief from final judgment.
On May 1, 1981, the Haugens entered into a contract for deed
with the S-M corporation, the predecessor in interest to Henry 0.
and Betty L. Erickson, for the purchase of the Shanty Motel in
Havre. That same day, the Haugens executed a quitclaim deed
(Haugen-to-S-M Corporation deed) to be used in the event the
Haugens defaulted on the contract for deed. Both the contract and
the deed were placed in escrow.
Later, in May 1984, the Haugens borrowed money from the Blaine
Bank of Montana, by way of a promissory note, to finance a separate
transaction. To secure the loan, the Haugens granted the Bank a
security interest in certain items of personal property. They also
assigned to the Bank as security their vendees1 interest in the
motel, and at the same time, executed a quitclaim deed to the motel
property in favor of the Bank (Haugen-to-Bank deed). The
assignment agreement provided that if the Haugens defaulted on the
note the Bank had the option of either foreclosing on the motel as
a mortgage or filing the quitclaim deed. The assignment was
recorded with the Hill County Clerk and Recorder, and it, along
with the quitclaim deed, was transmitted to the escrow agent
holding the contract for deed and other related documents
pertaining to the original motel purchase.
The Haugens failed to pay taxes on the motel for the years
1985 through 1988. Pursuant to the terms of the contract for deed,
on September 14, 1989, the Ericksons notified the Haugens that they
were in default. The Haugens did not cure the default within 30
days as allowed by the contract. They relinquished possession of
the property to the Ericksons, although the record is unclear as
to the date on which the relinquishment occurred. The escrow agent
delivered the documents held in escrow, which included the Haugen-
to-S-M Corporation deed and the Haugen-to-Bank deed, to the
Ericksonsl attorney on January 4, 1990.
In the meantime, the Bank commenced a foreclosure action
against the Haugens for their default on the promissory note. On
November 16, 1989, a jury returned a verdict in favor of the Bank.
Judgment was entered on January 17, 1990. The judgment purported
to foreclose the Haugens' interest in the contract for deed, as
well as their interest in the personal property in which the Bank
held a security interest. The judgment directed the Haugens to pay
any deficiency remaining after application of the proceeds from the
sale of the secured property. The Haugens did not appeal from the
judgment .
On April 18, 1990, the Bank conducted a sheriff's sale of the
Haugensl interest in the motel property. The Bank was the
successful bidder for an amount less than the judgment debt and a
deficiency occurred.
By a separate agreement, entered into prior to the sheriff's
sale, the Bank and the Ericksons agreed upon possession and
management responsibilities of the motel, as well as payment of the
contract for deed. In conjunction with the agreement, the
Ericksons executed a quitclaim deed in favor of the Bank for the
motel property (Erickson-to-Bank deed). In June 1990, all of the
documents obtained from the escrow agent by the Ericksons' attorney
were delivered to the Bank. The Bank recorded the documents,
including the Haugen-to-S-M Corporation and the Haugen-to-Bank
deeds, with the Hill County Clerk and Recorder. The Bank also
recorded the Erickson-to-Bank deed.
In October 1990, upon learning that the Bank had recorded the
quitclaim deeds, the Haugens filed a motion for relief from
judgment. At the hearing on the motion, the Haugens maintained
that the assignment provided that the Bank could either foreclose
on the property or file the quitclaim deed it had received from the
Haugens. The Haugens argued that once the Bank chose to file the
deed, it was precluded from collecting any deficiency. The court
agreed and entered an order granting the Haugens relief from
judgment and prohibiting the Bank from recovering any deficiency
after application of the proceeds from the sale of the motel. From
this order, the Bank appeals.
The Bank contends that the recording of the Haugen-to-Bank
quitclaim deed could not preclude a deficiency judgment. The
Haugens contend that the law of mortgages provides that recording
a deed from the mortgagor eliminates the mortgagee's right to a
deficiency judgment and the mortgagor's equity of redemption.
Upon examining the record, we agree with the conclusion
reached by the Bank. In this case, the filing of the Haugen-to-
Bank quitclaim deed did not legally preclude a deficiency judgment.
Both parties concentrate on the Bank's foreclosure of the
Haugens' interest in the contract for deed, the ensuing sheriff's
sale of the motel property, and the subsequent recording of the
Haugen-to-Bank quitclaim deed. They ignore the fact that prior to
the occurrence of these events, the Haugen-to-S-M Corporation deed
had already been delivered by the escrow agent to the attorney for
the Ericksons. The Haugens had previously defaulted on the
contract for deed to the motel, failed to cure the default after
notice, and relinquished possession of the property to the
Ericksons. Therefore, by the time the District Court entered
judgment foreclosing the Haugensl interest in the contract for
deed, the Haugens did not possess any interest to foreclose. By
their failure to cure the default after notice, the Haugens
forfeited all their rights in the property subject to the contract
for deed.
With the cancellation of the contract for deed, the Haugens
gave up their rights to the motel property and no longer held any
right of redemption. Because the Haugens no longer had an interest
in the property, the Haugen-to-Bank quitclaim deed conveyed nothing
to the Bank. Therefore, the subsequent delivery of the quitclaim
deed to the Bank and recording of that deed had no legal effect.
The ~istrictCourt erred in holding that the recording of the
quitclaim deed prohibited the Bank from collecting any deficiency.
For the reasons stated above, the filing of the deed did not
eliminate the Bank's right to a deficiency judgment.
Reversed and remanded for further proceedings consistent with
this opinion.
-
Justice
We concur:
7L-p
4 , -
c4 hlef Justice