Peterson v. Montana Bank of Bozeman, N.A.

• Decision Date: 16 August 1984
• Docket Number: No. 83-523,83-523
• Citation: 687 P.2d 673,212 Mont. 37,41 St.Rep. 1575
• Court: Montana Supreme Court
• Parties: Hilda M. PETERSON, Plaintiff and Appellant, v. MONTANA BANK OF BOZEMAN, N.A., as personal representative of the Estate of George J. Stublar, deceased, and Warren A. McMillan, Defendants and Respondents.

Page 673

687 P.2d 673

212 Mont. 37

Hilda M. PETERSON, Plaintiff and Appellant, v. MONTANA BANK OF BOZEMAN, N.A., as personal representative of the Estate of George J. Stublar, deceased, and Warren A. McMillan, Defendants and Respondents.

No. 83-523.

Supreme Court of Montana.

Submitted June 4, 1984.

Decided Aug. 16, 1984.

Rehearings Denied Sept. 20 and 27, 1984.

Bolinger & Conover, Richard C. Conover and Hal Bolinger argued, Bozeman, for plaintiff and appellant.

Nash & Nash, Donald A. Nash argued, Bozeman, for Stublar.

Nash & Nash, Michael Nash argued, Bozeman, for Montana Bank and Stublar.

Wellcome & Frost, Albert Frost argued, Bozeman, for McMillan.

SHEEHY, Justice.

Hilda M. Peterson brought an action under Rule 60(b), M.R.Civ.P., in the District Court, Eighteenth Judicial District, Gallatin County, for declaratory relief from a default judgment and subsequent sheriff's sale of Peterson's property. The District Court entered summary judgment against Peterson on the grounds that the default judgment was res judicata, and that Peterson's independent action was a collateral attack upon the default judgment.

We hold on appeal that the principles of res judicata and collateral attack do not apply to the default judgment obtained against Peterson because that judgment has never become final; that an independent action under Rule 60(b), M.R.Civ.P., lies to afford declaratory relief to Peterson in the circumstances described here; and, we remand this cause to the District Court for further proceedings with instructions to grant declaratory relief to Peterson.

On October 14, 1976, Hilda M. Peterson as seller entered into a contract for sale of real property with Warren A. McMillan as buyer. On November 1, 1981, the principal balance due on the contract to Peterson was approximately $99,000. The contract was duly recorded. Also on November 1, 1981, McMillan was required to pay to Peterson an annual payment of $9,912.

The real property which Peterson had agreed to sell to McMillan under the contract for sale was subject to a mortgage to George J. Stublar, now deceased, who had loaned Peterson $26,000. Peterson signed a promissory note payable to Stublar which recited that the loan was secured by a mortgage on the real estate which was the subject of the contract of sale between Peterson and McMillan. The mortgage was duly recorded. Its existence was recognized in McMillan's contract to purchase the real estate.

On June 18, 1981, Stublar filed a complaint in District Court against Peterson, cause no. 27580, alleging nonpayment of the promissory note. Stublar did not in that action seek foreclosure of the mortgage, although the note set forth in his complaint contains a reference to the fact that it is secured by a mortgage on real property.

On July 24, 1981, default judgment on the note was entered by the District Court against Peterson in the sum of $26,000 plus related attorneys fees of $3,500 and costs.

On August 5, 1981, a writ of execution was issued on the July 24, 1981 judgment. No return of that writ of execution has been made to the District Court.

On September 1, 1981, an alias summons in cause no. 27580 was issued by the clerk of the court and on November 23, 1981, another judgment by default was entered by the District Court in cause no. 27580 in favor of George J. Stublar and against Peterson, this time for $28,919.48, which included accrued interest, plus related attorneys fees of $3,500 and costs.

When the alias summons of September 1, 1981 had been served on Peterson, she consulted with a Bozeman attorney, and he entered an appearance on her behalf in cause no. 27580 by filing a motion to dismiss. The motion to dismiss was overruled, and Peterson was given 20 additional days to plead beginning October 5, 1981. On October 26, 1981, Stublar filed an affidavit of ill health, requesting that the cause be expedited. On November 2, 1981, Peterson's attorney not appearing, the court granted the motion for expedition and ordered that Peterson's answer be filed within three days. The court set trial for November 20, 1981.

On November 20, 1981, Peterson's counsel appeared before the District Court. He indicated that Peterson had no defense to the action, since the amount was due and unpaid. At that time, the District Court asked why Stublar was not proceeding to foreclose on the mortgage, and Peterson's counsel stated "That's what I am wondering." The District Court entered a second default judgment against Peterson on November 23, 1981.

In the meantime, on November 1, 1981, an annual payment on the contract for sale of real estate of $9,912 was due from McMillan to Peterson. McMillan did not make the payment, but instead telephoned Peterson and asked permission to hold off on the payment for a period of time.

On November 23, 1981, a second writ of execution was issued out of the District Court. The second writ refers to the judgment of July 24, 1981, and not to the judgment of November 23, 1981. The second writ directed the sheriff to levy and execute upon property of the defendant on a judgment of $28,919.48, plus interest and costs to the total amount of $38,993.86. The second writ of execution was not returned to the District Court by the sheriff until after this action for declaratory relief had been filed.

Apparently under the second writ of execution, a sheriff's sale was held on or about December 1, 1981. At the sheriff's sale, Warren McMillan, the purchaser under the contract with Peterson, purchased Peterson's seller's interest in the contract for deed for the sum of $39,000. McMillan thus became the owner of the contract for sale to himself and for the sum of $39,000 bought the seller's rights to a contract on which he at the time owed approximately $99,000.

On December 29, 1981, Montana Bank of Bozeman was appointed the personal representative of the estate of George J. Stublar. We do not find in this record the date of Stublar's death.

On February 19, 1982, Peterson filed this action against Montana Bank of Bozeman, as a personal representative of the estate of George J. Stublar, and Warren A. McMillan, for declaratory relief under Rule 60(b), M.R.Civ.P. Peterson, in this separate independent action, demanded judgment against the defendants (1) declaring the sheriff's sale of December 1, 1981 to be void; (2) declaring the McMillan's payment to the sheriff was voluntary; (3) declaring the writ of execution to be satisfied; (4) for compensatory damages of $10,000 and punitive damages of $50,000; (5) declaring the McMillan contract for sale terminated; and, (6) for costs and disbursements including attorneys fees.

It is from the judgment of District Court denying declaratory relief that this appeal ensued.

As we indicated earlier, the District Court in granting summary judgment determined that the default judgment in District Court cause no. 27580 was res judicata, and that Peterson's independent action for relief under Rule 60(b), M.R.Civ.P., constituted a collateral attack against the judgment in cause no. 27580. These grounds are incorrect, because on the record here, the default judgment against Peterson has never become final.

The default judgment in cause no. 27580 was entered against Peterson after she had appeared in the action by counsel. Entry of default judgments is controlled in Montana by Rule 55(b), M.R.Civ.P. If a defendant has not appeared in an action, the clerk of the court is empowered, upon request of the plaintiff, and upon affidavit of the amount due, to enter judgment for that amount and costs against the defendant after his default for failure to appear. Rule 55(b)(1). If, however, the party has appeared in the action, then the judgment of default must be entered by the court under Rule 55(b)(2). When the defendant has appeared either in person or by counsel, additional duties then devolve upon the party entitled to the judgment:

"An appearance does not prevent a party from becoming in default. But under the rules a party who enters a proper appearance, although he may become in default because of failure to plead or otherwise defend within the time required by the rules, is entitled to the same notice of the proceedings taken and the acts done as a party who is not in default. The rules make no distinction between a general and special appearance. Thus a party, who makes an appearance but defaults, is entitled to notice of all proceedings taken and acts done in the action. But a party who is in default for failure to appear is not entitled to notice of any proceeding taken or act done. The provisions of Rule 5(a), requiring the service of pleadings and other papers upon every party not in default for failure to appear, are reinforced and supplemented by the provisions of two other rules covering situations in which notice is important. Thus Rule 55(b)(1) permits the clerk, upon the request of the plaintiff and without notice to the defendant, to enter a judgment by default against a defendant (not an infant or incompetent person) who has been defaulted for failure to appear, when the plaintiff's claim is for a sum certain or for a sum which can by computation be made certain. Rule 55(b)(2) covers all other cases in which a judgment by default is entered. It requires service of a written notice of the application for judgment by default upon the party against whom the judgment is sought if he has appeared in the action; and that the default judgment be entered by the court. And Rule 77(d) requires the clerk to mail a notice of the entry of an order or judgment to every party who is not in default for failure to appear. A party who makes an appearance thus receives notice of the progress of the action...." 2 Moore's Federal Practice 1337-8 (1964) p 5.05, (footnotes omitted.) (Emphasis in original.)

The rules in Montana follow the federal counterparts in these respects. Rule 5(a), M.R.Civ.P., provides that no service need be made on parties in...