Wise v. Sebena

• Decision Date: 28 March 1991
• Docket Number: No. 90-534,90-534
• Citation: 248 Mont. 32,48 St.Rep. 309,808 P.2d 494
• Parties: William M. WISE and Donna M. Wise, Plaintiffs and Respondents, v. William J. SEBENA, Defendant and Appellant.
• Court: Montana Supreme Court

Page 494

808 P.2d 494

248 Mont. 32

William M. WISE and Donna M. Wise, Plaintiffs and Respondents, v. William J. SEBENA, Defendant and Appellant.

No. 90-534.

Supreme Court of Montana.

Submitted on Briefs Feb. 28, 1991.

Decided March 28, 1991.

Kevin E. Vainio, Butte, for defendant and appellant.

John C. Brown, Cok & Wheat, Bozeman, for plaintiffs and respondents.

HARRISON, Justice.

William J. Sebena appeals from a judgment entered January 23, 1990, by the District Court of the Eighteenth Judicial District, Gallatin County. The District Court denied summary judgment to Sebena on his counterclaims and awarded summary judgment on the issue of attorney's fees to plaintiffs William M. Wise and Donna M. Wise in their action to foreclose on a real estate contract. We affirm.

Sebena presents the following issues:

1. Did the District Court err by ruling in plaintiffs' favor on Sebena's summary judgment motion to recover under a bad faith claim?

2. Did the District Court err by failing to apply Rule 11, M.R.Civ.P., sanctions to plaintiffs?

3. Did the District Court err by granting summary judgment to plaintiffs on the issue of attorney's fees?

Summary of Facts

On November 12, 1974, William J. Sebena, defendant, agreed to buy residential property in Bozeman, Montana, from William M. Wise and Donna M. Wise, plaintiffs. According to the Contract of Sale, Sebena was obligated to pay the purchase price of $27,000 with a down payment of $7,779.40 and monthly installments of $150.00 at six per cent interest on the $19,220.60 balance. The escrow agent for the contract was First National Bank of Bozeman.

The Contract of Sale also provided:

1. Plaintiffs were to give Sebena notice that payments were being made by a third party under an underlying mortgage.

2. Plaintiffs were required to purchase a title insurance policy, to be deposited in the escrow account, showing that they had good and merchantable title to the property subject to the underlying mortgage.

3. In the event of non-payment of installments, after thirty days plaintiffs had to provide Sebena with written notice of non-payment. Sebena had another thirty days to make up any delinquent payments, after which plaintiffs could accelerate all payments if the arrearages were not received. Sebena had sixty days after notice of acceleration to pay the remaining balance.

4. Once Sebena had paid one-half of the balance of the contract, the contract could only be terminated by a mortgage foreclosure action.

5. In the event of litigation concerning the contract, the successful party was entitled to reasonable attorney's fees.

On December 4, 1981, Sebena wrote plaintiffs a letter stating that because the balance owed on the contract had been reduced to one-half the purchase price, the contract could only be foreclosed as a mortgage. Sebena also notified plaintiffs that a title insurance policy had not been deposited into escrow. Before notification, plaintiffs believed that a title insurance policy had been deposited into escrow at closing. Sebena also inquired about the status of the underlying mortgage payments.

In October, 1982, plaintiffs purchased a title insurance policy guaranteeing clear and marketable title to the property, but did not deposit the policy into the escrow account as required by the Contract of Sale. Plaintiffs notified Sebena that they had purchased title insurance.

Throughout the period subsequent to the signing of the Contract of Sale, Sebena was repeatedly late with installment payments, resulting in some fifteen letters being sent to Sebena requesting that he bring payments current. Sebena failed to make January, February, March, and April, 1988, payments. On May 2, 1988, plaintiffs sent Sebena a Notice of Default, giving Sebena thirty days to pay the arrearages.

After Sebena failed to cure default within the thirty-day period, on June 9, 1988, plaintiffs sent Sebena a Notice of Acceleration, allotting Sebena sixty days to pay the remaining $5,917.11 balance due under the contract before plaintiffs would begin a foreclosure action.

Within the sixty-day period, on August 9, 1988, Sebena notified plaintiffs that he had tendered the entire remaining balance to the escrow agent and would not release final payment unless he could review the title insurance policy required by the contract.

On August 31, 1988, plaintiffs sent the escrow agent the 1982 title insurance policy in the amount of $27,000 showing clear and marketable title in plaintiffs' names. At the same time, plaintiffs sent the escrow agent a "Commitment of Title Insurance," showing that plaintiffs still had clear and marketable title to the property as of August 13, 1988.

Sebena was not satisfied with the 1982 insurance policy and 1988 title commitment and instructed the escrow agent not to release final payment until a title insurance policy in his name, rather than plaintiffs' names, was delivered to escrow.

On September 6, 1988, the escrow agent informed plaintiffs of Sebena's request. Plaintiffs offered to purchase a title insurance policy in Sebena's name based upon the 1988 Commitment of Title Insurance. A representative of the title insurance company met with Sebena to explain that title to the property was clear and that plaintiffs could not release the policy insuring the property in Sebena's name until the final payment was released and the warranty deed to Sebena recorded.

Sebena expressed concern about the underlying obligation to the property. A copy of the prior obligation and its release, the Satisfaction of Mortgage, recorded on May 9, 1977, was provided to Sebena. Sebena still refused to release final payment and insisted that plaintiffs purchase a title insurance policy insuring title in plaintiffs' names and reflecting Sebena as the contract owner.

On October 7, 1988, plaintiffs gave Sebena until October 16, 1988, to release final payment. Sebena apprised the escrow agent that he would release final payment if plaintiffs provided him with a copy of the Satisfaction of Mortgage for the underlying contract, which Sebena had already received from the title insurance company agent. On October 19, 1988, plaintiffs gave Sebena another copy of the Satisfaction of Mortgage. Plaintiffs gave Sebena until 5:00 p.m. on October 20, 1988, to release final payment, a deadline which Sebena did not meet.

On October 28, 1988, plaintiffs filed a foreclosure action. Plaintiffs delivered a title policy insuring title in their names and reflecting Sebena as the contract owner to the escrow account on October 31, 1988. On November 1, 1988, Sebena released final payment and recorded the Warranty Deed, rendering plaintiffs' foreclosure action moot. Before plaintiffs could dismiss the foreclosure action, Sebena counterclaimed for breach of the implied covenant of good faith and fair dealing and requested Rule 11 sanctions.

On September 15, 1989, plaintiffs moved to amend their complaint to reflect that Sebena had released the disputed payment and moved for summary judgment on the issue of attorney's fees. Sebena filed a cross-motion for summary judgment on his counterclaims. The District Court granted summary judgment to plaintiffs and denied Sebena's motion for summary judgment. After a hearing held May 15, 1990, the District Court awarded $5,237.87 in attorney's fees to plaintiffs. From the grant of summary judgment to plaintiffs, Sebena appeals.

I

Did the District Court err by ruling in plaintiffs' favor on Sebena's summary judgment motion to recover under a bad faith counterclaim?

When no genuine issue exists as to any material fact, summary judgment may be granted as a matter of law. Rule 56(c), M.R.Civ.P.; Blaskovich v. Noreast Development Corp. (1990), 242 Mont. 326, 328, 790 P.2d 977, 978. The parties concede that the facts are undisputed and that the issues are matters of law.

Sebena alleges that plaintiffs breached the Contract of Sale by failing to provide the escrow agent with a title insurance policy and proof of release of the underlying mortgage which were conditions precedent to Sebena's payment on the Contract of Sale. Sebena further asserts that plaintiffs breached the implied covenant of good faith and fair dealing by initiating foreclosure proceedings when plaintiffs were in breach of the contract.

According to Sebena, if a contract for deed imposes an obligation upon the seller to provide title insurance, other proof of merchantable title, or imposes other conditions, the buyer is relieved of all obligations under the contract if the seller does not meet the conditions. A distinction can be drawn between the cases upon which Sebena relies and this case. The cases Sebena cites concern sellers who were unable to convey merchantable title, excusing the buyer's breach. See, e.g., Stark v. Borner (1988), 234 Mont. 254, 762 P.2d 857 (seller of real estate cannot enforce forfeiture provision in a contract for deed if unable to convey good title).

In Sjoberg v. Kravik (1988), 233 Mont. 33, 759 P.2d 966, for example, the underlying mortgages were not released by the date specified in the contract. In Sharbono v. Darden (1986), 220 Mont. 320, 715 P.2d 433, the vendor had not obtained satisfaction of the underlying mortgage by the time the balloon payment was due. Here release of the underlying contract was obtained in 1977, several years before Sebena refused to release final payment.

In Chadwick v. Giberson (1980), 190 Mont. 88, 618 P.2d 1213, the seller was unable to convey an easement to the buyer as agreed upon. Defects in the title prevented the vendor from providing title insurance in Yost Farm Co. v. Cremer (1968), 152 Mont. 200, 447 P.2d 688. Similarly, in Brown v. Griffin (1968), 150 Mont. 498, 436 P.2d 695, the seller never furnished an abstract of title or title insurance.

In contrast, no doubt exists that plaintiffs were able to convey unencumbered, merchantable title. Plaintiffs notified Sebena in 1982 that they had provided title...