NO. 85-241
I N THE SUPREME COURT O THE STATE O MONTANA
F F
1986
DOROTHY L. SHARBONO,
P l a i n t i f f and A p p e l l a n t ,
T O A F. DARDEN and NORMA J.
H M S
DARDEN ,
D e f e n d a n t s and Respondents.
APPEAL F O :
R M D i s t r i c t Court of t h e Fourth J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f M i s s o u l a ,
The Honorable J a c k L . Green, Judge p r e s i d i n g .
COUNSEL O RECORD:
F
For Appellant:
G a r n a a s , H a l l , R i l e y & P i n s o n e a u l t ; J. R o b e r t R i l e y ,
C h r i s t o p h e r Daly a r g u e d , M i s s o u l a , Montana
For Respondent:
D a t s o p o u l o s , MacDonald & Lind; C h r i s t o p h e r B.
S w a r t l e y a r g u e d , M i s s o u l a , Montana
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Submitted: O c t o b e r 3 0 , 1985
Decided: March 4 , 1986
Filed: MAK 2 '
Mr. Justice John Conway Harrison delivered the Opinion of the
Court.
This is an appeal from a judgment issued by the
District Court, Fourth Judicial District, Missoula County,
Montana. After a bench trial, the Honorable Jack Green
awarded pl-aintif a judgment of $4,488.46 including certain
f
interest amounts.
Plaintiff filed consolidated post-trial motions moving
the court for an amended judgment in conformity with her
proposed findings of fact and conclusions of law, or in the
alternative, for a new trial under Rule 59(a) to set aside or
modify the court's findings of fact and conclusions of law
and judgment. An amend-ed post-trial motion was filed setting
forth with more particularity the grounds in support of the
motions. The motions were denied. We affirm.
Plaintiff-appellant, Dorothy Sharbono, with her now
deceased husband, L. G. Sharbono, purchased a five acre tract
of land in Missoula County from J. Dean Roach, sometime after
October, 1969. The land was conveyed by warranty deed.
Roach had purchased a ten acre tract from Alex N. Ogilvie in
October, 1969, on a contract for deed. These ten acres were
part of a 160 acre tract which Ogilvie had acquired prior to
1964. The Federal Land Rank of Spokane, Washington, held a
mortgage on the 160 acres, which was recorded in Missoula
County, Montana, in 1964. A re-amortization agreement
modifying the terms of payment was recorded in May, 1967. In
September, 1974, Sharbonos sold their five acres, on which
was located a modular home, to Orian and Ngoc Alexander on a
contract for deed. Two years later Alexanders assigned their
buyers' interest in the contract to Thomas F. and Norma Jean
Dard-en, husband and wife, defendants-respondents in this
action.
Dardens assumed all of Alexandersl obligations under
the contract. The monthly payments of $229.78 were made to
First State Bank of Missoula, escrow agent, which was to
forward $30.50 a month to Farmers State Bank in Victor,
Montana, to be applied on the Ogilvie-Roach contract held in
escrow there. An addendum to the contract provided that the
escrow agent was to forward $144.41 per month to Western
Montana National Bank of Missoula for payment on the modular
home. The balance of the payment, $54.87, was forwarded to
Sharbonos in Newton, Kansas.
The entire balance was due and payable on or before
five years from the date of the contract. The contract
provided the buyers were to "keep the improvements on the
property insured for fire and extended coverage in at least
the amount of the unpaid interest due ... , payable as
interests appear." Dardens purchased fire insurance naming
themselves and Western Montana. Bank as insureds, but did not
name the Sharbonos.
Dardens did not make the tax payment for 1978 when the
first half was due November 30, 1979. Nor did. they make any
thereafter. They did make timely monthly payments on the
contract until the balloon payment was due. They did not
tender the balance due September 23, 1979, under the balloon
payment, and a notice of default was delivered October 8,
1979.
Meanwhile, Roach paid off the contract with Ogilvie in
April, 1979, but a mortgage release from the Federal Land
Bank was not recorded until February, 1980.
L. G. Sharbono died December 29, 1979. As a result,
the balance due the Western Montana National Bank on the
modular home was paid by a credit life insurance policy on
his life. In March, 1980, the Dardens entered into a lease
and option to purchase with David I,. and Paulette M.
Pittsley . The Pittsleys took actual possession of the
property. In June, 1981, a fire totally destroyed the
modular home. The Dardens received $33,500 proceeds from the
insurance policy they carried on the property.
After the Dardens received this money, a second default
notice was delivered in September, 1981. On October 1, 1982,
Mrs. Sharbono filed suit alleging breach of contract for
deed, demanding specific performance from defendant and a
judgment for $36,253.02, or in the alternative, rescission of
the contract for deed and ownership of the property plus
judgment for $12,453.02.
There is an abundance of chaff in this case. Once it
is removed, the only substantive issue is whether the
judgment of the District Court is proper, or whether it
results from an abuse of discretion.
Mrs. Sharbono argues six findings of fact omitted by
the District Court resulted in erroneous conclusions of law
detrimental to her. Specifically, she claims she is entitled
to a larger judgment. She acknowledges any one of the abuses
would not be sufficient to mandate a new trial or amended
judgment, but together they constitute sufficient abuse to
warrant action. This Court will not disturb findings of fact
in a non-jury civil action unless they are clearly erroneous.
Rule 52 M.R.Civ.P., Price Building Service, Inc. v.
Christensen (Mont. 1985), 697 P.2d 1344, 1348, 42 St. Rep.
440, 444. The Court will not disturb the District Court's
findings as being clearly erroneous in this case.
Dardens did not tender the balloon payment when due.
The question is whether failure of Mrs. Sharbono to convey
good title excuses Dardens' default, thereby entitling
Dardens to keep the insurance money they received when the
modular home burned. The District Court's findings did not
include the fact that Dardens' failure to make the balloon
payment constituted a default under the terms of the
contract:
DEFAULT :
... if the Buyers fail to make the
payments herein provided for or fail to
perform any of the other covenants and
agreements on their part to be kept and
performed when the same are due or to be
performed, or within thirty days after
written notice is given to them by the
Sellers, then and in that event the
Sellers may, at their option, terminate
this agreement and declare it to be null
and void, in which event all of the
buyer's rights hereunder shall be
terminated, and all monies theretofore
paid by the Buyers shall he retained by
the Sellers as reasonable rent and as
damages, and Sellers shall have the right
to immediately reenter and recover full
and exclusive possession of the premises.
Sharbono could not convey clear title to Dardens in
September, 1979, because Roach had not conveyed clear title
to her. When Roach. paid off Ogilvie in April, 1979, he did
not obtain a mortgage release on the land he had purchased
from Ogilvie and sold to Sharbono. The inability to convey
clear title puts Sharbono in breach of the terms of the
contract:
Seller Warrants [the existing mortgage]
is current and agrees to continue paying
and satisfy [the mortgage] prior to the
buyers' completing this contract.
By the terms of the contract, satisfaction of the
mortgage by Sharbono i s a condition precedent t o Dardens'
completion of the contract. A condition precedent is
". . . one which is to be performed before some right
dependent t h e r e o n a c c r u e s o r some a c t dependent t h e r e o n i s
performed." S e c t i o n 28-1-403, MCA. The c o n t r a c t a l s o i s
c l e a r t h a t Sharbono must b e a b l e t o convey t i t l e c o n c u r r e n t
w i t h Dardens' payment o f t h e b a l l o o n . "Conditions concurrent
are those which are mutually dependent and are to be
performed a t t h e same t i m e . " S e c t i o n 28-1-404, MCA. The
c o u r t found "Dardens f a i l u r e t o pay t h e b a l l o o n payment when
due o r i n r e s p o n s e t o t h e n o t i c e o f d e f a u l t was excused by
Sharbono's p r i o r breach of c o n t r a c t . " W agree.
e
The issue can be resolved by determining the legal
and/or equitable i n t e r e s t s of t h e p a r t i e s a s they r e l a t e t o
liability. When r e a l e s t a t e i s s o l d on a c o n t r a c t f o r d e e d ,
a s it was i n t h i s c a s e , t h e d o c t r i n e o f e q u i t a b l e c o n v e r s i o n
traditionally h a s been a p p l i e d by the c o u r t s when d e a l i n g
with legal q u e s t i o n s which nay a r i s e between the t i m e the
rea.l estate contract is executed and the time it is
performed .
Under the doctrine of equitable
c o n v e r s i o n , a c o n t r a c t o f purcha.se and
s a l e of r e a l e s t a t e v e s t s t h e e n t i r e
b e n e f i c i a l i n t e r e s t i n t h e land i n t h e
vendee. During t h e l i f e o f t h e c o n t r a c t ,
t h e vendor r e t a i n s l e g a l t i t l e o n l y a s
s e c u r i t y f o r t h e purchase p r i c e . The
vendee's i n t e r e s t i s a r e a l i n t e r e s t ,
whereas t h a t o f t h e vendor i s h e l d t o be
a personal property i n t e r e s t i n the
purchase p r i c e .
F i r s t S t a t e Bank v . United S t a t e s (9th C i r . 1 9 3 7 ) , 92 F.2d
132, 134. (Applying Montana law.) See also Kern v.
Robertson (1932), 92 Mont. 283, 288, 1 2 ~ . 2 d565, 567.
Questions which arise under this doctrine can be
divid.ed into one of two categories: characterization issues,
whether the property interest is real or personal, or
risk/loss issues. It is risk/loss with which we are
concerned here. Ir, a risk/loss situation equitable
conversion imposes the loss on the vendee. The majority of
American courts either have adopted or recognize the doctrine
of equitable conversion which places the risk/loss on the
vendee from the moment of signing. See for example,
Zitzelberger v. Salvatore (Pa. 1983), 458 A.2d 1021; R-idenour
v. France (Ill. 1982), 442 N.E.2d 716; Utah State Med. Assoc.
v. Utah St. Employee Credit Union (Utah 1982) , 655 P. 2d 643;
Re Foreclosure of Deed of Trust Given by Taylor (N.C. 1982),
298 S.E.2d 163. Under the majority view, however, the risk
of loss remains on the vendor until he can deliver clear
title.
rI]t is well settled that the doctrine of
equitable conversion, which in the
absence of a specific contract provision
passes the risk of loss to the purchaser,
only applies when the seller is able to
convey title as required in the contract.
"If the vendor is so situated that he
cannot make title according to the
contract, the purchaser will not be
regarded as the owner; and if the
property is damaged before the vendor is
in condition to convey, the loss must
fall on him, and not on the purchaser."
[Citations omitted.]
Phillips v. Bacon (1980), 267 S.E.2d 249, 250. See also
Parr-Richmond Industrial Corp. v. Boyd (1954), 272 P.2d 16;
Amundsen v. Severson (1919), 170 N.W. 633; Pindar,
American F-eal Estate Law, 701., 518-24 (1976). In the case at
bar, the doctrine does not apply because Sharbono did not
have clear title to convey to Dardens at the time the balloon
payment was due.
We do not find the facts, conclusions and judgment of
the District Court to be an abuse of discretion. The
District Court's conclusion that Dardens had breached the
contract by their failure to obtain fire insurance with t.he
proper loss payable clause does not affect the judgment. We
find Dardens failure to name Sharbono as an insured party did
not put them in default. Their failure to make the balloon
payment when due is excused by Sharbono's inability to convey
title. No attorney fees are to be awarded either side. The
judgment of the District Court is affirmed.
A
We Concur: -)
I