No. 13494
IN THE SUPREME COURT OF THE STATE OF MONTANA
1977
RAMON ARCHER,
Plaintiff and Respondent,
LarJIARCH CREEK RANCH OF MONTANA.,
d/b/a Sundance Lodge,
Defendant and Appellant,
DAVID CHRISTENSEN,
Intervenor and Appellant.
Appeal from: District Court of the Eleventh Judicial
District,
Honorable Robert Keller, Judge presiding.
Counsel of Record:
For Appellant:
Greg J. Skakles argued, Anaconda, Montana
For Respondent :
Hash, Jellison and O'Brien, Kalispell, Montana
Kenneth E. O'Brien argued, Kalispell, Montana
Submitted: September 21, 1977
Mr. J u s t i c e Frank I . Haswell d e l i v e r e d t h e Opinion o f t h e C o u r t .
David C h r i s t e n s e n a p p e a l s from t h e d e n i a l o f h i s motion
t o i n t e r v e n e and t h e e n t r y o f d e f a u l t judgment a g a i n s t d e f e n d a n t
LaMarch Creek Ranch. W e a f f i r m t h e judgment.
P l a i n t i f f , Ramon A r c h e r , commenced t h i s a c t i o n f o r f o r e -
c l o s u r e of a p r o m i s s o r y n o t e on March 1 4 , 1973. The c o m p l a i n t
a l l e g e d t h a t d e f e n d a n t e x e c u t e d and d e l i v e r e d a p r o m i s s o r y n o t e
t o p l a i n t i f f i n t h e amount o f $13,876.98. The c o m p l a i n t f u r t h e r
a l l e g e d t h a t t h e n o t e w a s p a s t due and no payment had been r e c e i v e d .
P e r s o n a l s e r v i c e w a s had on Robert Cope, p r e s i d e n t o f LaMarch
Creek Ranch, a Montana c o r p o r a t i o n .
On J u l y 25, 1973, a motion t o d i s m i s s was s u b m i t t e d on
behalf of defendant. The motion was d e n i e d and d e f e n d a n t was g i v e n
twenty d a y s i n which t o f u r t h e r p l e a d . An answer i n t h e form o f
a g e n e r a l d e n i a l was s u b m i t t e d on March 7 , 1974. Four a f f i r m a t i v e
defenses w e r e contained t h e r e i n .
T r i a l was s e t f o r J u n e 23, 1975. A t t h e beginning of t h e
t r i a l w i t h o u t j u r y , c o u n s e l f o r d e f e n d a n t made a motion t o i n t e r -
vene on b e h a l f o f C h r i s t e n s e n . A t t h a t time counsel s t a t e d t h a t
h e w a s no l o n g e r r e p r e s e n t i n g d e f e n d a n t and t h a t t h e i n t e r v e n e r ' s
c a s e would b a s i c a l l y c o n s i s t o f t h e f o u r a f f i r m a t i v e d e f e n s e s
found i n t h e answer p r e v i o u s l y f i l e d on b e h a l f o f d e f e n d a n t .
Counsel f u r t h e r s t a t e d h e was w i t h o u t a u t h o r i t y t o a p p e a l i n be-
h a l f of defendant. The motion t o i n t e r v e n e was t a k e n under a d v i s e -
ment and t r i a l w a s had. C h r i s t e n s e n was a l l o w e d t o i n t r o d u c e b o t h
o r a l and documentary e v i d e n c e c o n c e r n i n g t h e f o u r a f f i r m a t i v e
defenses.
On May 7 , 1976, t h e D i s t r i c t C o u r t e n t e r e d f i n d i n g s o f
f a c t , c o n c l u s i o n s o f law and judgment which d e n i e d C h r i s t e n s e n ' s
motion t o i n t e r v e n e and e n t e r e d d e f a u l t a g a i n s t d e f e n d a n t i n t h e
amount o f $13,876.98 p l u s c o s t s and a t t o r n e y f e e s .
The cogent facts leading up to the filing of this action
are as follows: On June 30, 1971, a stock purchase agreement
was executed wherein plaintiff acquired 100 shares of stock in
defendant corporation. The total purchase price was $10,000.
Robert Cope, the president of defendant corporation, was listed
as the seller. Christensen was also listed as a purchaser of
stock and was a signatory to the stock purchase agreement. The
purchase agreement provided that if Christensen or plaintiff
wished to sell any or all of their stock, the defendant must
purchase it. The stock certificates were endorsed to that end.
In November, 1972, plaintiff met with Cope in order to
discuss the repurchase of his stock by the corporation. There-
after, on November 22, Cope, as president of defendant corpor-
ation, executed a promissory note to plaintiff in the amount of
$13,876.98. This sum was full compensation for the repurchase
of plaintiff's stock, back salary and earned interest. The note
was payable on or before January 1, 1973; no payments have been
made on the note.
Christensen apparently learned of the promissory note in
January, 1973. At that time he was a stockholder, director and
secretary of defendant corporation. Christensen took no action
to rescind the note or intervene on behalf of defendant until
the day of the district court hearing.
Four issues are before this Court on appeal;
1. Whether the District Court erred in denying Chris-
tensen's motion to intervene.
2. Whether the District Court erred in entering default
judgment against defendant.
3. Whether the affirmative defenses raised by Christensen
were effective.
4. Whether the District Court erred in refusing to admit
defendant's exhibits A and D and in refusing to allow Chris-
tensen to testify concerning the solvency of defendant.
Christensen alleges error in the District Court's refusal
to allow him to intervene in this matter. We disagree. Chris-
tensen's motion to intervene was made for the first time at the
beginning of trial. The District Court judge took the motion
under advisement and did not rule until all evidence had been
presented. Christensen was allowed to fully present his defense.
He was given the opportunity to present evidence on each of the
four defenses upon which he relied. After hearing all the evi-
dence, the judge correctly denied Christensen's motion to inter-
vene on the basis of untimeliness. This party cannot claim he
was denied the opportunity to be heard.
There is no doubt that Christensen was dilatory in his
attempt to intervene. He first learned of the note involved
herein in January, 1973. The record is barren of any attempt by
Christensen to assert his claimed rights until June, 1975. In
effect, Christensen sat on his claimed right for some two and
one-half years. Under these circumstances it is clear that
Christensen, by his failure to act, waived his right to contest
the validity of the note and is now estopped from doing so.
The notion that one may waive a right by inaction is far
from novel in this jurisdiction. In Northwestern Fire and Marine
Insurance Co. v. Pollard, 74 Mont. 142, 149, 238 P. 594, it is
stated :
" * * * waiver is a voluntary relinquishment or
renunciation of some right, a foregoing or giving
UP of some benefit or advantage, which, but for
such waiver, a party would have enjoyed. It may
be proved by express declarations * * * or by a
course of acts and conduct, or by so neqlectinq
and failinq to act, as to induce the belief that
it was his intention and purpose to waive."
(Emphasis added.)
See also Farmers Elevator Company of Reserve v. Anderson,
Mont. , 552 P.2d 63, 33 St.Rep. 614.
Christensen's second alleged error requires little
discussion. Rule 55(a), M.R.Civ.P., governs default judgments
and provides in pertinent part:
"When a party against whom a judgment for affirm-
ative relief is sought has failed to plead or
otherwise defend as provided by these rules and
that fact is made to appear by affidavit or other-
wise, the clerk shall enter his default." (Emphasis
supplied.)
The record clearly reflects that defendant failed to
appear at trial. Counsel for Christensen, who had previously
represented defendant, specifically stated that he was not
authorized to appear on behalf of defendant. No one having
appeared on behalf of defendant at the trial, the District Court
had no alternative but to grant plaintiff's motion for default
judgment .
The answer originally filed on behalf of defendant con-
tained four affirmative defenses. The affirmative defenses al-
leged that: (1) the promissory note was given without sufficient
consideration; (2) the repurchase of the stock by means of a
promissory note was a violation of the statutory requirement
that such purchases be made with "surplus" funds; (3) the repur-
chase of stock rendered the corporation insolvent; and (4) the
president lacked the authority to execute the promissory note on
behalf of the corporation. These defenses substantially comprised
Christensen's case and he alleged that these defenses were effec-
tive and the court erred in entering judgment against defendant.
An analysis of each of the above affirmative defenses
convinces us that the District Court ruled correctly. As to the
first defense of lack of consideration, we find an abundance of
substantial evidence supporting the District Court decision. The
rule in this jurisdiction is that a written instrument is pre-
sumptive evidence of a good and sufficient consideration and the
burden of attacking the sufficiency of such consideration is on
the party seeking to invalidate the instrument. Section 13-
510, R.C.M. 1947; Bielenberg v. Higgins, 85 Mont. 69, 227 P.
636. The record herein does not reflect even a scintilla of
evidence tending to prove a lack of good and sufficient consid-
eration for the note.
Christensen, in his second affirmative defense, alleges
that the purchase of the stock by use of the promissory note
was void as a violation of section 15-2205, R.C.M. 1947. In
essence this statute prohibits the use of funds other than "surplus"
funds for the repurchase of stock. Christensen concludes that no
"surplus" funds were available at the time of the purchase and
the transaction is therefore void.
The burden of proving an affirmative defense rests on
the defendant. Baker National Bank v. Lestar, 153 Mont. 45, 453
P.2d 774. We find absolutely no proof that surplus funds were
not available at the time the note was executed. In the absence
of such proof in the record, we have no alternative but to deny
the defense.
For a third affirmative defense, Christensen alleges that
the repurchase of the stock occurred at a time when the corpor-
ation was insolvent, a violation of section 15-2260, R.C.M. 1947.
Insolvency is defined as the " * * * inability of a corporation
to pay its debts as they become due in the usual course of its
business." Section 15-2202(n), R.C.M. 1947. The district court
found that the defendant corporation was not insolvent on the
date of the execution of the note. We agree. Again Christensen
has not met his burden of proving the affirmative defense and
we have no alternative but to deny the defense.
Christensen's final affirmative defense concerns his claim
that the president lacked the authority to execute the note on
behalf of the corporation. Absolutely no evidence is found
in the record to support this contention. The note was ad-
mitted without objection as to foundation by Christensen's
attorney. Hence the final affirmative defense must fail for
lack of proof.
The final issue concerns the admissibility of certain
items of evidence sought to be introduced by Christensen. The
first item, Exhibit A, was a copy of the stock purchase agree-
ment involved herein. Objection was made on the basis of relevancy
and foundation. We have stated that generally " * * * whatever
naturally and logically tends to establish a fact in issue is
relevant, and that which fails to qualify in this respect is not
relevant." 1 Jones on Evidence, 5th Ed., section 151, page 270;
Brion v. Brown, 135 Mont. 356, 340 P.2d 539.
The record reflects that the repurchase of plaintiff's
stock was not made pursuant to the stock purchase agreement. The
District Court concluded, and we agree, that the stock purchase
agreement was not relevant to establish any fact in issue.
The second item of evidence in question was Exhibit D which
was an income statement for the period 12/1/72 to 1/31/73. Objec-
tion was made on the basis of relevancy by plaintiff. This state-
ment showed the defendant corporation operated at a loss during
this period. This exhibit was offered by christensen in an attempt
to prove that the corporation was insolvent. The District Court
correctly ruled that this statement was irrelevant. An income
statement, standing alone, does not prove insolvency of a corpor-
ation.
The final item of evidence was the refusal of the court
to allow Christensen to answer the question, "And could you please
describe briefly what the financial situation of the corporation
was at that time?" A best evidence objection was made and
sustained. The c o r p o r a t e r e c o r d s would be t h e b e s t e v i d e n c e
of t h e f i n a n c i a l condition of t h e corporation. N attempt
o
w a s made t o e x p l a i n t h e a b s e n c e of t h e s e r e c o r d s . The r u l i n g
of t h e D i s t r i c t Court i s t h e r e f o r e c o r r e c t .
W e a f f i r m t h e D i s t r i c t C o u r t judgment i n i t s e n t i r e t y .
Justice
Chief ~ u s t i c e /"\