No. 84-505
I N THE SUPREME COURT OF THE STATE OF MONTANA
I N RE MARRIAGE O F
DELBERT HENRY WITBART ,
Petitioner,
-vs-
LaVERNA IWE WITBART ,
Respondent/Appellant.
......................................
ALLEN B. HOUSTON,
P l a i n t i f f and R e s p o n d e n t ,
-vs-
DELBERT HENRY WITBART, a k a
DELBERT (DEL) H. WITBART &
LaVERNA MAE WITBART,
D e f e n d a n t s and a p p e l l a n t s .
.......................................
DEL H. WITBART, dba ACADEMY ENGINEERING
CONSTRUCTION ,
Plaintiff,
-vs-
HARLAND E . BAUER and MARGARET
E . BAUER,
D e f e n d a n t s and R e s p o n d e n t s .
CLARK BROTHERS CONTRACTORS, a M o n t c o r p , . .
P l a i n t i f f and R e s p o n d e n t ,
-vs-
H A Z A N D E . BAUER, MARGARET E . BAUER
and DEL E. WITBART dba ACADEMY
ENGINEERING COTJSTRUCTION,
Defendants.
.......................................
WESTER14 EQUIPMENT COMPANY I
P l a i n t i f f and R e s p o n d e n t ,
-vs-
DELBEXT HENRY WITBART and LAVERNA
MAE WITBART,
D e f e n d a n t s and A p p e l l a n t s .
APPEAL FROM: D i s t r i c t C o u r t of t h e F o u r t h 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 C o u n t y of R a v a l l i ,
T h e H o n o r a b l e D o u g l a s H a r k i n , Judge p r e s i d i n g .
COUNSEL O F RECORD:
For A p p e l l a n t s :
Cannon & Sheehy, H e l e n a , M o n t a n a
F o r Respondents:
G a i l Goheen, Hamilton, Montana
John G r e e f , Hamilton, Montana
R i c h a r d Weber, H a m i l t o n , M o n t a n a
L a r r y R. M e y e r , S t e v e n s v i l l e , Montana
R o b e r t B. B r o w n , H a m i l t o n , M o n t a n a
S u b m i t t e d on B r i e f s : Feb. 28, 1985
Decided: May 2 2 , 1 9 8 5
6 .
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Clerk
Mr. Justice William E. Hunt, Sr. , delivered the Opinion of
the Court.
This case is before this Court a second time. In the
first case, Witbart v. Witbart (Mont. 1983), 666 ~ . 2 d1217,
40 St.Rep. 994, this Court remanded because of an erroneous
determination by the District Court that the Witbarts, in
settling property matters during dissolution of marriage, had
made a fraudulent conveyance. This Court determined that no
fraudulent conveyance could have been made under the
circumstances and remanded with instruction that a new trial
be had consistent with the principles of law contained within
the opinion. One principle of law specifical-1.y contained
within the opinion was the ability of a court to reopen a
ludgment and revoke or modify settled property matters
contained in a dissolution decree if fraud was present. On
remand the District Court did find that the Witbarts had
committed fraud. This appeal followed.
We affirm.
The circumstances which gave rise to this case are as
follows:
Delbert Witbart contracted with the Bauers in 1979.
Pursuant to the contract Delbert Witbart was to construct a
road for the Bauers. A dispute arose and the Bauers refused
to pay. Delbert Witbart filed a mechanic's lien against, and
ultimately obtained judgment from, the Bauers. For the
purposes of this opinion the Delbert Witbart-Eauers' judgment
will be referred to as the judgment fund.
In the spring of 1980, prior to any judgment on the
contract and lien, but while litigation on the contract and
lien was pending, Delbert Witbart and his wife, LaVerna
Witbart, entered into a dissolution of marriage. In the
separation agreement Del-bert Witbart agreed to pay LaVerna
Witbart $25,000. The agreement also required that any amount
of this sum remaining due at the time that the judgment fund
was satisfied would be payed from that judgment fund.
The remaining various parties to this action, Houston,
Clark Rrothers, and Western Equipment, are assignees of
Delbert Witbart to the judgment fund. Houston became an
assignee of $7,473.18 of the judgment fund on July 28, 1980.
This assignment was made in relation to a debt that Delbert
Witbart incurred when Houston loaned Delbert Witbart $10,000
on August 24, 1978. Clark Brothers became an assignee of
$9,275.82 of the judgment fund on September 22, 1980. This
assignment was made in relation to a debt that Delbert
Witbart incurred when Clark Brothers completed a sub-contract
in the Delbert Witbart-Bauer construction contract in 1979.
Clark Rrothers assigned its interest to Bauers. Western
Equipment became a.n assignee of $5,616.35 of the judgment
fund on April 27, 1981. This assignment was made in relation
to a debt that Delbert Witbart incurred when Western
Equipment repaired a piece of Delbert Witbart's equipment on
June 13, 1980.
After judgment the judgment fund was valued at
$26,677.47. LaVerna Witbart, Houston, Bauers as assignees of
Clark Brothers, and Western Equipment, all claimed portions
of the judgment fund. Trial, on remand, at District Court
resulted in LaVerna Witbart being precluded again from access
to the judgment fund. This time the District Court denied
her claim because her claim was based on a dissolution of
marriage settlement agreement obtained through fraud. The
remaining parties were awarded priority to the judgment fund
as follows: Houston, Bauers as assignees of Clark Brothers,
and Western Equipment. LaVerna Witbart appeals.
The first issue is whether the District Court erred in
setting aside the Witbart's property settlement agreement as
a fraud. This Court has already decided that a finding of
fra.ud would justify reopening the Witbarts' dissolution
decree and setting aside the property settlement agreement
contained therein. Witbart v. Witbart (Mont. 19831, 666 P.2d
1217, 1220, 40 St.Rep. 994, 997. Absent fraud, LaVerna
Witbart would be entitled to first priority to the judgment
fund. Witbart, 666 P.2d at 1220.
At the time that Delbert Witbart and LaVerna Withart
entered into their separation agreement and at the time that
the District Court issued the decree of dissolution the only
significant asset in the Witbarts' marital estate was the
potential recovery by Delbert Witbart in the judgment fund.
However, in the Witbarts' separation agreement the parties
agreed that Delbert Witbart would pay LaVerna Witbart $25,000
and that such payment would be made from the potential
judgment fund to the extent that such payment had not been
made before the judgment fund came into existence. The
parties also agreed that LaVerna VJitbart would transfer her
interest in certain real property, jointly owned by the
Witbarts, to Del-bert Witbart. This transfer was of no
immediate monetary significance as neither of the Witbarts
had any equity in the real property, that is, it was secured
to its maximum value by a trust indenture.
The appellant argues that there can be no fraud here
because, at the time that the separation agreement was
executed, March 27, 1980, Delbert Witbart anticipated that
the judgment fund would be valued at $85,000. However, the
record shows that the total contract price in the Delbert
Witbart-Bauers' contract was only $79,200 and there had been
an immediate payment of $17,000 and a $25,000 progress
payment. Delbert Witbart included $12,935.65 for additional
work and down time when he filed a lien against Bauers and at
the time Delhert Witbart filed a complaint against Bauers, he
asked for an additional $18,500 for down time. The total
possible recovery, not including interest or costs, was then
$68,715.65. However, the Bauers had filed a counterclaim
prior to the F!itbartsl separation agreement. This
counterclaim, if successful on all counts, would have
required Delbert Witbart to pay $74,952.56 plus interest and
costs. Furthermore, at the time of the Witbarts' execution
of their separation agreement Delbert Witbart owed money to
Houston on a promissory note dated August 24, 1979. The
original sum payable on the note was $10,000 plus interest.
In addition, at the time the separation agreement was
executed, Delbert Witbart owed Clark Brothers $15,087.82 as
subcontractors in the Delbert Witbart-Bauers' contract.
The Witbarts' failure to disclose these debts misled the
District Court as to the actual financial status of the
FJitbarts and materially affected the actual value of their
marital estate. This failure to disclose was fraud.
The marital estate is sl-1 property and assets belonging
to either or both, however and whenever acquired. Section
40-4-202, MCA. Proper distribution of the marital estate
cannot be made unless the parties to a dissolution proceeding
have informed the court of al.1 the marital assets and
liabilities. In re the Marriage of Madden (Mont. 1984), 683
P.2d 493, 495, 41 St.Rep. 1332, 1334.
The second issue presented. for review is whether the
District Court erred in concluding that Houston, Bauers as
a.ssignees of Clark Brothers, and Western Equipment had
standing to challenge the decree of dissolution and the
incorporated property settlement agreement. The District
Court did not err.
We have already determined that the judgment obtained by
the Witbarts in their decree of dissolution was obtained by
fraud for failure to disclose to the District Court the
existence of certain liabilities. This fraud imposed on the
District Court and misled it into a false judgment--one that,
in this instance, wrongfully insulated property from
creditors. The fra-ud here resulted in a judgment that
adversely affected persons not before the court. The fraud
was collateral to the matters tried by the court. Such fraud.
is extrinsic fraud. Hall v. Hall (1924), 70 Mont. 460, 467,
226 P. 469, 471. Extrinsic fraud justifies invoking the
inherent equitable power of a court to reopen and set aside a
judgment. Selway v. Burns (1967), 150 Mont. 1, 8, 429 P.2d
640, 644. Relief from a judgment obtained by extrinsic fraud
may be granted on motion in the original action or in a
separate suit in equity, that is, by independent action.
Selway, 429 P.2d at 644.
Houston and Bauers, as assignees of Clark Brothers, were
both creditors of Delhert Witbart at the time the Witbarts
executed their separation agreement. Houston's and Bauersq
interest could have been adequately protected if the District
Court had been properly informed. Houston, Bauers as
assignees of Clark Brothers, and Western Equipment were all
assignees to the judgment fund. A certain amount of that
judgment fund had been "secured" by a judgment obtained by
fraud. Houston, Bauers as assignees of Clark Brothers, and
Western Equipment were adversely affected by the fraudulently
obtained judgment. They were sufficiently affected by the
judgment so as to warrant their "standing to sue" in equity.
We affirm.
Justice
We Concur: