No. 90-351
IN THE SUPREME COURT OF THE STATE OF MONTANA
THE FEDERAL LAND BANK OF SPOKANE,
a corporation,
Plaintiff and Respondent,
ROGER SNIDER and PENNY SNIDER,
husband and wife; ELMER SNIDER
and FLORENCE SNIDER, husband
and wife; UNITED STATES OF
AMERICA, acting through the
Farmers Home Administration;
WESTERN BANK OF CHINOOK, N.A.;
and INTERSTATE FEDERAL LAND
BANK ASSOCIATION, a corporation,
Defendants and Appellants,
and
FEDERAL INTERMEDIATE CREDIT
BANK OF SPOKANE, a Federal
corporation and FARM CREDIT SYSTEM MAR 2 1 11991
CAPITAL CORPORATION, a Federal
corporation,
CLERK OF S U P R E M E COURar
Additional Parties Defendant STATE OF MONTANA
on counterclaim.
APPEAL FROM: District Court ofthe Seventeenth Judicial District,
In and For the County of Blaine
The Honorable John Warner, presiding.
COUNSEL OF RECORD:
For Appellants:
Leo Graybill, Jr., Graybill, Ostrem, Warner &
Crotty, Great Falls, Montana
For Respondents:
Kevin C. Meek, Alexander, Baucus & Linnell,
Great Falls, Montana
~usticeTerry N. ~rieweilerdelivered the opinion of the Court.
plaintiff, the Federal Land Bank of Spokane, ("the Bank")
commenced this suit in ~istrictCourt to foreclose a mortgage on
property owned by the defendants Roger and Penny snider (~niders).
The Bank also sought a deficiency judgment for the difference
between the amount due under a note executed by the ~nidersand
that amount recovered by the Bank at the foreclosure sale.
Following trial before the Blaine County District Court in the
Seventeenth ~udicialDistrict of Montana, without a jury, judgment
was entered for the plaintiff awarding it the sum of $856,560.71,
plus interest, attorney fees and costs. In addition, the judgment
foreclosed defendants1 mortgage and ordered that defendants'
property, described in that mortgage be sold at foreclosure sale.
Sniders were awarded possession of the mortgaged lands during the
one-year statutory redemption period. However, they were ordered
to pay rents or profits received or earned during the period of
redemption to the person who purchased the property at the
foreclosure sale. From that judgment, defendants appeal. We
affirm in part and reverse in part.
Sniders raise the following issues on appeal:
1. Did the District Court err in refusing the defendants a
trial by jury on their legal defenses?
2. Did the District Court err in concluding the plaintiff had
no duty to reamortize defendants' loan under the facts proven at
trial?
3. Did the District Court err in finding that defendants are
I1tenantsl1
during the redemption period, and, therefore, liable for
rents and profits to the purchaser at foreclosure?
FACTUAL BACKGROUND
In 1974, Sniders purchased a 1,500-acre ranch north of Harlem
from Mr. Snider's parents. They entered into a contract for deed
pursuant to which annual payments were made to his parents.
Periodically, Sniders picked up additional pieces of agricul-
tural land to combine with their original ranching operation.
In 1980, defendants learned that the Wilson Ranch, which
consisted of 4,000 acres, was available for purchase. They decided
that because of its proximity to their land it would fit in well
with their existing operation and increase their income dispropor-
tionately to the increase in their expenses.
Defendants intended to purchase the Wilson property on
contract but needed financing for the down payment. They sought
that financing from the plaintiff through Federal Land Bank in
Havre. They offered to secure the loan from the Bank by providing
a mortgage on their home and original 1,500-acre ranch. In order
to give the Bank's mortgage priority, Mr. Snider's parents agreed
to subordinate their interest as sellers on the contract for deed
and the loan was increased sufficiently to pay off a previous loan
to the Farm Home Administration which was secured by the same
property.
On December 22, 1980, Sniders borrowed $487,000 from the Bank
and signed a promissory note agreeing to repay the loan by making
thirty-five annual payments in the amount of $52,736.14. An
interest payment was due on January 1, 1981; however, the first
full annual payment was not due until January 1, 1982. As security
for repayment of the loan, Sniders mortgaged their original ranch
to the Bank.
Defendants made the payments which were due in 1981, 1982, and
1983.
In 1984, the defendants' farm income was adversely affected
by drought, grasshoppers and poor prices for their cattle. They
were unable to make their 1984 loan payment when due. However,
they qualified for a disaster loan from the Farm Home Administra-
tion in the amount of $85,200. From that amount, they used
$63,306.76 to make their 1984 payment to the Bank on July 2, 1985.
Conditions did not improve in 1985. In addition, defendants'
wheat crop was poor, and the income that was realized from the
wheat crop had to be paid to the Western Bank in Chinook to repay
a portion of the operating loan that that bank had extended.
Defendants were unable to make their 1985 payment. They requested
that the Bank reamortize the payments due pursuant to their loan
agreement. However, after analyzing the defendantsv ability to
repay a reamortized loan, the Bank declined to do so and notified
Sniders that they would begin foreclosure proceedings on May 1,
1986, if the 1985 payment was not forthcoming prior to that date.
Defendants did not make the 1985 payment. Neither have they made
payments for 1986, 1987, 1988, 1989, or 1990. As a result, this
action was commenced on November 22, 1986, and judgment was entered
for the plaintiff as set forth above on June 6, 1990.
In their contentions as set forth in the final pretrial order,
Sniders denied that they were in default and raised the affirmative
defense that their loan agreement with the Bank included unwritten
terms which had been breached by the Bank.
At trial, Sniders testified that prior to entering into the
loan agreement with the Bank, they became concerned about their
ability to make payments during a "disaster year." They communi-
cated that concern to Jerome Daly, the manager of the Bank in
Havre, and testified that he reassured them that in the event of
a "disaster yearv1they could reamortize their payments. Their
understanding of reamortization was that they could either pay the
delinquent payment at the end of the pay-back period or blend it
into their other payments. Defendants testified that when they
were unable to make payments in 1985 and 1986, they requested an
opportunity to reamortize their loan but, contrary to the Bank's
earlier verbal assurances, they were denied the opportunity to do
so. They testified that because of the Bank's refusal to do so,
they were unable to use the amount borrowed from the Farm Home
Administration in 1985 to expand their cattle herd and for that
reason have been unable to make further payments on their loan
since that date.
Jerome Daly acknowledged that reamortization was discussed
prior to finalization of the Sniders' loan, but stated that he did
not commit the Bank to reamortization at that time because he did
not have the authority to do so. He furthermore testified that
before reamortization could be agreed to, the Bank would have to
re-evaluate a customer's financial situation to determine whether
there was any reasonable prospect for making payments under a
reamortized schedule. He stated that reamortization would have a
net effect of increasing the annual payment due from the borrower.
Prior to trial the defendants took the position that their
affirmative defense constituted a breach of contract claim and that
they were entitled to a jury trial. The District Court concluded
that this was an action to foreclose a mortgage which was equitable
in nature, and that based on the defendants' contentions in the
pretrial order there were no counterclaims. Defendants' jury
demand was denied.
I
In asserting their right to have had their case tried before
a jury, Sniders rely on this Court's decision in Gray v. City of
Billings (1984), 213 Mont. 6, 689 P.2d 268. In Gray, we held that
when a plaintiff combines a legal claim for breach of contract with
an equitable action he is entitled to a jury trial of his legal
claims. We also referred to authority from the United States
Supreme Court which has held that the Seventh Amendment protects
a defendant's right to jury trial on a legal counterclaim. Beacon
Theatres, Inc. v. Westover (1959), 359 U.S. 500, 79 S.Ct. 948, 3
L.Ed.2d 988.
Plaintiff argues that this case does not involve a legal claim
nor a legal counterclaim and that Gray does not apply to an
affirmative defense.
We need not decide whether the Gray rationale applies in this
case.
Before Sniders were entitled to a jury trial, there had to be
issues of fact for a jury to decide. Under Montana law, juries
decide only issues of fact. Section 25-7-103, MCA. The court
decides issues of law. Section 25-7-102, MCA.
Whether or not there is sufficient evidence to raise an issue
of fact is a question of law for the court and is not an issue of
fact. Mang v. ~liasson(1969), 153 Mont. 431, 458 P.2d 777, and
Flansberg v. Montana Power Co. (1969), 154 Mont. 53, 460 P.2d 263.
That standard is the same for an appellate court as it is for the
trial court. Rhoades v. DeRosier (Wash. App. 1976), 546 P.2d 930,
... The right of jury trial on any issue of
fact presented by the pleadings is provi-
sional, and if the evidence fails to form such
issue of fact, the right of jury trial disap-
pears.
Loucks v. Albuquerque National Bank (N.M. 1966), 418 P.2d 191, 194.
As we stated in Smith v. Polish (1967), 150 Mont. 340, 349,
. . . Whether there is any substantial evi-
dence in the case made by party upon whom the
burden rests is always a question of law.
While the fact situation differs here from the
case of West v. Wilson, 90 Mont. 522, 4 P.2d
469, the principle here controlling is set
down in citing Chief Justice Brantlytsopinion
in Escallier v. Great Northern Ry. Co., 46
Mont. 238, 127 P. 458. The principle is the
same: l1The old rule that a case must go to
the jury if there is a scintilla of evidence
has been almost everywhere exploded. There is
no object in permitting a jury to find a
verdict which a court would set aside as often
as found. The better and improved rule is,
not to see whether there is any evidence, a
scintilla, a crumb, dust on the scales, but
whether there is any upon which a jury can, in
any justifiable view, find for the party
producing it, upon whom the burden of proof is
imposed.tt [Connor v. Giles, 76 Me. 132.1
In this case we hold as a matter of law that Sniders presented
insufficient evidence to have submitted the issue raised by their
affirmative defense to a jury and that they were, therefore, not
prejudiced by the District Court's refusal to grant their request
for a jury trial.
In order to prevail in their claim that the Bank breached its
verbal agreement to reamortize, it was necessary that Sniders prove
that they would have been in a position to perform their part of
such an agreement and that they were damaged by the Bank's refusal
to do so. Brown v. First Federal Savings & Loan Association of
Great Falls (1969), 154 Mont. 79, 84-89, 460 P.2d 97, 100-102. In
this case, Sniders offered no substantial evidence that they would
have been capable of making further loan payments if allowed to
reamortize. All of the evidence was to the contrary. Therefore,
defendants sustained no damage by the Bank's refusal to do so.
Sniders' ability to repay the loan according to its original
terms was questionable at best. The projection for being able to
do so was based upon 1977 and 1979 calf and grain prices which had
declined since those years. Even at those higher prices, the loan
appraisal only provided Sniders with $729 of discretionary money
at the end of each year.
Subsequent to the time that loan was entered into, Sniders'
income from the ranching operation declined and they incurred
substantial additional debt which had to be serviced from less
income.
Thomas Wolfe testified that he became manager of the Federal
Land Bank Association in Havre in 1985 and met with Sniders in 1986
to discuss their delinquent loan payment. In an effort to try to
resolve their default, he did an analysis of their ability to
restructure their debt and reamortize their loan at the Bank. That
analysis was offered as an exhibit at the time of trial and was
uncontradicted. It established that subsequent to December of 1980
Sniders incurred several hundred thousand dollars of additional
debt and that the payments necessary to service that debt on an
annual basis resulted in a $101,000 operating deficit for the
Sniders in 1986. Based upon the need to carry over debt from 1986
to future years because of the Sniders' inability to pay those
debts in a timely manner, the operating deficit was projected to
substantially increase on an annual basis. Both plaintiff and
defendants agreed that reamortization would result in higher, not
lower, annual payments. The uncontroverted evidence was that in
1985 and 1986 Sniders had no ability to make their original
payments. There was no prospect for improvement in their financial
situation, and they had even less ability to make larger payments
in the future. They were not in a position to take advantage of
reamortization had it been offered. Therefore, they sustained no
damage by the Bank's refusal to reamortize their loan. Their
affirmative defense fails as a matter of law and they were not
entitled to a jury trial on that issue.
For the reasons set forth in the preceding paragraphs, we also
conclude that the District Court did not err in finding that the
Bank had no duty to reamortize defendantsu loan under the facts
proved at trial.
This case was tried before the ~istrictCourt on February 12,
1990. The court's original Findings of Fact and Conclusions of Law
were entered on April 16, 1990. On May 10, 1990, the court entered
additional Findings and Conclusions, including Conclusion of Law
No. 6 which was as follows:
The purchaser at the foreclosure sale ordered
herein is entitled to receive from the
mortgagors, the Sniders, the rents and profits
from the mortgaged land during the period of
redemption. Any amount received by plaintiff
shall be a credit upon the amount required to
redeem the property. Section 25-13-822 (1),
MCA; Citizens1 National Bank v. Western L. &
B. Co., 64 Mont. 40, 47 (1922). Such pur-
chaser may demand an accounting of said rents
and profits as provided by § 25-13-822(2),
MCA.
On appeal, Sniders argue that as the judgment debtor they are
entitled to possession of the property on which they reside
pursuant to 5 71-1-229, MCA, and that the issue of "rents and
profits" only arises when some third person or a true tenant is in
possession of the property which has been foreclosed upon. We
agree.
Title 71, Chapter 1, of the Montana Code Annotated sets forth
the rights and obligations of debtors and creditors involved in the
mortgaging of real estate in Montana. Section 71-1-229, MCA,
provides in relevant part as follows:
The purchaser of lands at mortgage foreclosure
is not entitled to the possession thereof as
against the execution debtor during the period
of redemption allowed by law while the execu-
tion debtor personally occupies the land as a
home for himself and his family. ... The
intention hereof is to insure to such owner
the possession of his land prior to foreclo-
sure and during the year of redemption.
Chapter 13 of Title 25 of the Montana Code Annotated provides
for the execution of judgments. Section 25-13-821, MCA, provides
a debtor who personally occupies the land as a home with rights of
possession identical to those provided for in 5 71-1-229, MCA.
Section 25-13-822, MCA, then provides that:
(1) The purchaser, from the time of the sale
until a redemption, and a redemptioner, from
the time of his redemption until another
redemption, are entitled to receive from the
tenant in possession the rents of the property
sold or the value of the use and occupation
thereof. ...
In arriving at its conclusion that a judgment debtor who
occupies the premises as a home for himself and his family is a
"tenant in possessionm pursuant to 5 25-13-822 (1), MCA, the
District Court relied on this Courtls decision in Citizensv
National Bank v. Western L. & B. Co. (1922), 64 Mont. 40, 208 P.
893. In Citizens1 National Bank, the defendant Western Loan
foreclosed on certain property located in Hardin. The sheriff's
sale occurred on June 4, 1917. After receiving its certificate of
sale from the sheriff, the loan company agreed to sell the property
to Mrs. A. Becker on a contract. She took possession of the
property on July 23, 1917, and thereafter received rents and
profits from the property.
Pursuant to foreclosure of a second mortgage, the plaintiff
Citizens' National Bank subsequently received a sheriff's certifi-
cate pursuant to which it redeemed the property from the first
sale. It then demanded from the defendant all rents and profits
received subsequent to the original foreclosure.
Under those circumstances, this Court found that Mrs. Becker
was a "tenant in possession.'' However, that case is distinguished
from this case for two reasons: First, Mrs. Becker was not the
execution debtor and did not personally occupy the premises as a
home for herself; and, second, the case was decided on the basis
of the law as it existed prior to 1921. Sections 25-13-821, MCA,
and 71-1-229, MCA, which guarantee the judgment debtor the right
to possess land he and his family personally occupy as a home were
not enacted until 1921 and were not applicable to the facts in
Citizens' National Bank.
In this case the evidence showed that Sniders did occupy the
land which was foreclosed on as their home. To require that they
pay rent or profits from the land detracts from their unqualified
statutory right to possession in a way that was not provided for
by the legislature. The sections quoted above provide for an
unqualified right to possession. To charge rent for that posses-
sion diminishes that right without any statutory basis for doing
SO.
The plaintiff suggests that if this Court should find that
Sniders are entitled to possession of the property foreclosed upon
without the payment of rent then this Court should construe 5 71-
1-229, MCA, to pertain only to that portion of the property on
which the defendants reside. In other words, that portion that
defendants specifically occupy as a home should be separated from
the rest of the 1,500-acre ranch for purposes of possession.
Plaintiff's position for purposes of collecting rent is
different from the position it took when it filed its complaint.
Paragraph 11 of the complaint states that the premises foreclosed
upon have at all times been used as one lot or parcel; every part
of it is necessary for the best use of the property, and, it cannot
be sold in separate parcels without material injury.
Section 71-1-229, MCA, makes no provision for subdividing
lands that the execution debtor occupies and we decline to add such
a provision by judicial decision.
Based on the foregoing discussion, we affirm that portion of
the District Court's judgment foreclosing the Sniders' mortgage in
favor of the plaintiff and reverse that portion which required that
defendants pay rent or income to the plaintiff during the one-year
period of redemption.
This case is remanded to the District Court for entry of
judgment consistent with this Opinion.
FT
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- Idst ice
We Concur:
/
" Chief Justice /