author: MR. JUSTICE HUNT

text:
    GUARANTY NATIONAL INSURANCE COMPANY, a Colorado Corporation, Plaintiff and Respondent, v. STATE FARM INSURANCE COMPANY, Defendant and Appellant.
    No. 88-248.
    Submitted April 25, 1989.
    Decided Aug. 3, 1989.
    777 P.2d 353.

      Michael J. McKeon, Anaconda, for defendant and appellant.
    Gary L. Walton, Poore, Roth & Robinson, Butte, for plaintiff and respondent.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

State Farm Insurance Company (State Farm), defendant and appellant, appeals from a partial summary judgment entered in favor of Guaranty National Insurance Company (Guaranty National), plaintiff and respondent, by the District Court of the Fifth Judicial District, Jefferson County. We affirm and remand for a resolution of issues pending before the District Court .

The following issues are raised on appeal:

1. Was Butte-Silver Bow, Guaranty National’s insured, an additional omnibus insured under the State Farm Insurance policy issued personally to Mario Micone, a Butte-Silver Bow employee?

2. Did the District Court properly prioritize insurance policies by finding State Farm the primary insurance carrier and Guaranty National the excess insurance carrier?

3. Was Guaranty National a volunteer when it negotiated a settlement?

Guaranty National was the insurer of Butte-Silver Bow on January 9, 1979, when an automobile accident occurred involving Mario Micone, the Chief Executive of Butte-Silver Bow, and Wilford and Anna Hibbs. Wilford died and Anna sustained injuries as a result of the accident. At the time of the accident, Micone was acting in the course and scope of his employment as a Butte-Silver Bow employee and was driving his personal vehicle insured by State Farm.

In February of 1980, Anna Hibbs, individually, and Arlene Pratt, as personal representative of the Wilford Hibbs estate, brought an action against Butte-Silver Bow and Micone for the resulting damages. In July of 1981 a jury was empaneled and evidence submitted, however, a settlement was reached before a verdict was returned.

At the commencement of the trial, State Farm defended Micone and Guaranty National defended Butte-Silver Bow. At the conclusion of evidence, the District Court granted Micone’s motion to dismiss under § 2-9-305, MCA (1979), because he was indemnified by Butte-Silver Bow as an employee when acting in the course and scope of his employment. Immediately following dismissal of Micone, Guaranty National moved to join State Farm to aid in the defense of Butte-Silver Bow. The motion was granted.

Guaranty National settled the case on the eve of the last day of trial. State Farm had been advised of the settlement negotiations but did not participate. Subsequently, Guaranty National brought this declaratory judgment action in order to adjudicate the obligations and rights of the insurance companies under their respective insurance policies. Guaranty National moved the District Court for partial summary judgment. The motion was granted and the court ruled that (1) Butte-Silver Bow was an additional omnibus insured under Micone’s State Farm policy; (2) State Farm was the primary insurer and Guaranty National the excess insurer; and (3) Guaranty National was not a volunteer when it negotiated the settlement. The order was certified as final under Rule 54(b), M.R.Civ.P.

The first issue raised on appeal is whether Butte-Silver Bow, Guaranty National’s insured, was an additional omnibus insured under the State Farm policy issued personally to Mario Micone, a Butte-Silver Bow employee.

State Farm’s insurance policy issued to Mario Micone contained an omnibus clause that provided in part:

“Insured — the unqualified word ‘insured’ includes
“(1) the named insured, and . . .
“(5) . . . any other person or organization, but only with respect to his or its liability for the use of such owned motor vehicle by an insured as defined . . .” (Emphasis ours.)

Omnibus coverage is required under § 61-6-103(2)(b), MCA.

In its argument, State Farm ignores the omnibus clause and relies on the indemnification provisions set forth in the State Tort Claim Act (the Act) under § 2-9-305, MCA (1979). The 1979 Act provided for the indemnification of public employees sued for their actions occurring during the course and scope of employment. In Oregon, the appeals court stated that the basis for a Tort Claim Act is to eliminate a public employee’s liability concern for a good faith failure to use reasonable care in executing employment responsibilities. United Pacific/Reliance Ins. Co. v. Horace Mann Ins. Co. (1983), 65 Or.App. 21, 670 P.2d 172.

Because Micone was acting in his capacity as a Butte-Silver Bow employee at the time of the accident, he was indemnified by his employer. State Farm argues that it should stand in the shoes of its insured, Micone and, therefore, be free from liability. We disagree.

Authority from other jurisdictions hold that the employer is an additional omnibus insured — under a similar policy provision — notwithstanding the employees’ indemnification. See Gov’t. Employees Ins. Co. v. Gibraltar Casualty Co. (1986), 229 Cal.Rptr. 57, 184 Cal.App.3d 163; Harleysville Ins. Co. v. United States (E.D.Pa. 1973), 363 F.Supp. 176; Taggert v. United States (M.D.Pa. 1967), 262 F.Supp. 572; United States v. Myers (5th Cir. 1966), 363 F.2d 615; United States v. State Farm Mutual Automobile Ins. Co. (D.Or. 1965), 245 F.Supp. 58; Gov’t. Employees Ins. Co. v. United States (10th Cir. 1965), 349 F.2d 83, cert.den., (1962) 382 U.S. 1026, 86 S.Ct. 646, 15 L.Ed.2d 539, Barker v. United States (N.D.Ga. 1964), 233 F.Supp. 455; and Gahagan v. State Farm Mutual Automobile Ins. Co. (W.D.La. 1964), 233 F.Supp. 171.

In Harleysville, a United States postal employee was making mail deliveries in his personal vehicle when he was involved in an accident. The scenario in Harleysville is comparable to the case at issue. Both controversies involved a public employee who, while driving his personally insured vehicle in the course and scope of employment, caused an accident; in both, the employee’s insurance policy contained an omnibus clause; in both, the employee’s insurance company entered the defense of the government after the employee was dismissed from the suit; in both, the cases were settled before trial proceedings concluded. Also, in Harleysville, suit was brought under the Federal Tort Claims Act, which, like the State Tort Claims Act in the present case, indemnified the government employee from liability. In both instances the employee’s personal insurance carrier argued that a Tort Claims Act shielded it from liability.

The court in Harleysville held that the United States, as an organization, was an additional insured under a government employee’s private insurance policy when the employee was acting in the course and scope of employment, since the omnibus clause was an express provision in the employee’s personal insurance policy. We follow the rationale set forth in Harleysville and hold that Butte-Silver Bow is an additional insured under the omnibus clause contained in Micone’s State Farm insurance policy and, therefore, State Farm is not afforded the insulation provided to Micone under the Act.

The second issue raised on appeal is whether the District Court properly prioritized the insurance policies in question by finding State Farm the primary insurance carrier and Guaranty National the excess insurance carrier. The crux of the issue is determined by the clauses utilized in the insurance carriers’ respective policies. See Liberty Mutual Ins. Co. v. United States Fidelity & Guaranty Co. (D.C.Mt. 1964), 232 F.Supp. 76.

Guaranty National’s insurance included an “excess insurance” clause. It read as follows:

“With respect to a hired automobile, or a non-owned automobile, this insurance shall be excess insurance over any other valid and collectible insurance available to the insured.” (Emphasis ours.)

An excess insurance clause provides that the primary insurance must be exhausted before the excess coverage can be reached.

In Mountain States Mutual Casualty Co. v. American Casualty Co. (1959), 135 Mont. 475, 342 P.2d 748, we established the applicable rule regarding excess and primary coverage where one insurance company was an additional omnibus insured under a personal insurance policy of an employee. In Mountain States, the McBee Company loaned a truck it owned to the Hilands Golf Club. The McBee Company had an insurance policy issued by Mountain States which contained an omnibus clause similar to the State Farm clause in question. The policy contained pro rata coverage in its other insurance clause as did the State Farm policy. The American Casualty policy also contained an excess insurance clause for non-owned automobiles similar to the clause included by Guaranty National in the present case. An employee of Hilands Golf Club injured a third party while driving the truck in the course and scope of his employment. Hilands Golf Club was sued by the injured party. A declaratory judgment action was brought to determine priority of coverage between the two insurance companies. We held that American Casualty, as the employer’s insurance company, was the excess insurer while Mountain States, as the truck owner’s insurance company, was the primary insurer.

In Mountain States, 135 Mont, at 482, 342 P.2d at 751, we held :

“. . . where the owner of a . . . [car] has a policy with an omnibus clause and the additional insured also has a nonownership policy which provides that it shall constitute excess coverage over and above, any other valid, collectible insurance, the owners insurer has the primary liability.” (Parenthetical inserts omitted; emphasis ours.)

See also American Surety Co. of N.Y. v. Canal Ins. Co. (4th Cir. 1958), 258 F.2d 934, and Aetna Casualty & Surety Co. v. Buckeye Union Casualty Co. (1952), 157 Ohio St. 385, 105 N.E.2d 568.

State Farm, however, argues that under its “other insurance” clause its policy provided for excess insurance coverage only. The clause read as follows:

“. . . if the insured has other insurance against liability or loss covered by this policy, the company shall not be liable for a greater proportion of such liability or loss than the applicable limit of liability bears to the total applicable limit of liability of all collectible insurance against such liability or loss.” (Emphasis ours.)

Further, in Mountain States, 342 P.2d at 752, we stated that where there is a nonownership clause with an excess provision — such as in the Guaranty National policy — it does not constitute “other insurance” as State Farm contends. This was so in Mountain States even though the primary insurer had a pro rata clause. Moreover, the insurance provided for in Guaranty National’s excess clause would not become available until the primary policy coverage was exhausted.

We hold that the District Court did not err when it found State Farm the primary insurance carrier and Guaranty National the excess insurance carrier under the rationale we set forth in Mountain States.

The last issue raised on appeal is whether Guaranty National acted as a volunteer when it negotiated the settlement with the plaintiffs in the original action.

On the eve of the last day of trial, Guaranty National settled the case. At that time, State Farm had been joined in Butte-Silver Bow’s defense. State Farm argues that because it did not participate in the settlement, Guaranty National acted as a volunteer and thus, had no subrogation or indemnification rights from State Farm.

State Farm and Guaranty National were, at the time of the settlement, contractually obligated to defend the interests of Butte-Silver Bow — not merely the interests of the individual insurance companies. In Montana, the duty to settle is a “fiduciary duty running from the insurer to the insured” under the insurance policy. Klaudt v. Flink (1983), 202 Mont. 247, 250, 658 P.2d 1065, 1066. “In determining whether to settle, the insurer must give the insured’s interest as much consideration as it gives its own interest.” Gibson v. Western Fire Ins. Co. (1984), 210 Mont. 267, 275, 682 P.2d 725, 730.

State Farm conceded that Guaranty National settled the case due to the insistence of Butte-Silver Bow, the insured. Further, State Farm, in response to Guaranty National’s request for admissions, admitted that it had knowledge of the settlement conference in question. As counsel, Guaranty National was bound by a fiduciary duty to settle the case and will not now be penalized for fulfilling its contractual and fiduciary obligations by deeming it a volunteer. Guaranty National, as the excess insurer, is entitled to indemnification and subrogation by State Farm, the primary insurer.

We affirm in this case that State Farm is the primary insurer and that Guaranty National is the excess insurer and remand for a resolution of issues pending before the District Court.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, SHEEHY, McDONOUGH, WEBER and GULBRANDSON concur.


source: Caselaw Access Project

author: MR. JUSTICE HARRISON

license: Public Domain

text:
    TRI-COUNTY ATLAS, INC., Plaintiff and Respondent, v. JAMES BRUMMER, d/b/a Brummer Enterprises, Defendant and Appellant.
    No. 88-531.
    Submitted on Briefs June 1, 1989.
    Decided Aug. 3, 1989.
    Rehearing Denied Sept. 27, 1989.
    779 P.2d 46.

      Charles E. Petaja, Helena, Thomas H. Clary, Clary & Clary, Great Falls, for defendant and appellant.
    P. Keith Keller, Keller, Reynolds, Drake, Sternhagen & Johnson, Helena, for plaintiff and respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This appeal arises from an action to foreclose a mechanics’ lien filed by Tri-County Atlas, Inc. for work and materials supplied to a construction project owned by James Brummer. The District Court for the First Judicial District, Lewis and Clark County, entered judgment in favor of Tri-County. We affirm and remand for correction of costs.

James Brummer is a general contractor who conceived and developed the construction of a professional office building located in Helena, Montana. Brummer, through his corporation, Brummer Enterprises, Inc., designed and constructed the building, and utilized subcontractors for electrical, plumbing, heating, air conditioning and other aspects of the construction. Tri-County was hired by Brummer to install the heating, ventilation, and air conditioning (HVAC) system, and the domestic plumbing in the building. The parties had no written contract but merely discussed their agreements orally.

Tri-County began work on the building in early February of 1987, and continued installation of both the HVAC system and the domestic plumbing until August, when it walked off the job because of nonpayment. In September, Tri-County filed its lien and brought this action to foreclose. Brummer counterclaimed for alleged defects in Tri-County’s workmanship.

The District Court entered judgment for Tri-County, and awarded damages, attorney’s fees and costs. Brummer raises the following issues for our review:

1. Was the District Court’s award of damages to Tri-County supported by substantial evidence?

2. Was it error for the District Court to award attorney’s fees and costs?

The standard of review is clear. We must affirm the trial court if its findings are supported by substantial evidence and are not clearly erroneous. We will not substitute our judgment for that of the District Court. Hammerquist v. Employment Sec. Div. of Montana Dept. of Labor and Industry (Mont. 1988), [230 Mont. 347,] 749 P.2d 535, 536, 45 St.Rep. 261, 262; Meridian Minerals Co. v. Nicor Minerals, Inc. (Mont. 1987), [228 Mont. 274,] 742 P.2d 456, 461, 44 St.Rep. 1516, 1523.

At trial, Tri-County alleged it was hired on a not-to-exceed basis,, plus specific amounts to be paid for additional constant air volume (CAV) and variable air volume (VAV) units. Brummer claimed Tri-County had given a flat bid of $112,000 for the entire HVAC system. The evidence was clear, however, that no final plans were submitted to Tri-County on which it could make a firm flat bid because the plans were evolving as the project developed. Additionally, there was evidence that other subcontractors were hired by Brummer on similar time-and-materials, or price-not-to-exceed bases.

Although Brummer’s counterclaim alleged the work performed by Tri-County was not done in a workmanlike manner, no evidence was produced at trial that Tri-County’s workmanship was deficient. TriCounty admitted some work was not completed, because it pulled off the job. Tri-County also admitted there were some product defects which would have been covered by the manufacturer’s warranty, had Brummer not failed to pay. However, there was no evidence the workmanship was poor. Tri-County’s witnesses and even one of Brummer’s witnesses testified that Tri-County’s workmanship was very good.

The evidence was extensive and complicated. During the four day trial, the District Court heard testimony from eleven witnesses, examined all of the exhibits and determined that Tri-County was entitled to judgment. In its Opinion, Memorandum of Decision, and Order, the District Court made the following conclusions:

“The evidence of each party was diametrically opposed to the evidence of the opposing party. The matter resolved itself into a question of which party presented the most credible evidence. If the version of the Plaintiff is accepted, the version of the Defendant must be rejected, and vice versa. As the trial progressed, it became very clear to the Court that Plaintiff presented the most credible witnesses and evidence. Defendant, on the other hand, lacked credibility to a pronounced degree. His version of the events is wholly rejected by the Court.”

We find no abuse of discretion. The findings were supported by substantial evidence in the record. The judgment of the District Court is affirmed.

Brummer’s final issue alleges the District Court erred in its award of attorney’s fees and costs to Tri-County. The first basis of the alleged error, which Tri-County admits, involves the inclusion of expert witness fees and deposition costs within the award of attorney’s fees and costs. Section 26-2-505, MCA. We remand this matter to the District Court to deduct these costs from the award.

The second basis of alleged error involved settlement negotiations between the parties. Brummer apparently offered to pay TriCounty the amount of its lien as settlement of Tri-County’s claims. Tri-County refused because it had already invested substantial amounts of money in attorney’s fees in its attempt to recover. The District Court refused to hear the evidence because it involved settlement negotiations.

Brummer cites Schillinger v. Brewer (1985), 215 Mont. 333, 697 P.2d 919, to support his claim that because Tri-County refused to accept his settlement offer, it is not entitled to attorney’s fees. However, the facts of Schillinger differ from those of this case, and do not support Brummer’s theory. In Schillinger, the District Court awarded the defendant attorney’s fees when judgment was entered for an amount less than that offered in settlement by the defendant. We reversed the award of attorney’s fees because the defendant was only entitled to costs, not attorney’s fees. If Schillinger has any application to this case, it supports Tri-County’s claim for attorney’s fees. Donnes v. Orlando (1986), 221 Mont. 356, 720 P.2d 233. TriCounty prevailed in its action and was therefore entitled to recover attorney’s fees and costs.

Affirmed and remanded for reduction of costs awarded to TriCounty in accordance with this opinion.

MR. JUSTICES McDONOUGH, SHEEHY, HUNT and GULBRANDSON concur.


author: MR. CHIEF JUSTICE TURNAGE

text:
    FIRST NATIONAL BANK OF ALBUQUERQUE, a National banking corporation, Plaintiff and Respondent, v. QUINTA LAND AND CATTLE COMPANY, a New Mexico corporation; Richard D. Bokum, II, and Margaret B. Bokum, Defendants and Appellants.
    No. 88-599.
    Submitted on Briefs June 16, 1989.
    Decided Aug. 3, 1989.
    Rehearing Denied Sept. 13, 1989.
    779 P.2d 48.

      Richard C. Conover, Bozeman, for defendants and appellants.
    William D. Lamdin, III, Crowley Law Firm, Billings, for plaintiff and respondent.
   MR. CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

This is a foreclosure action brought by First National Bank in Albuquerque, New Mexico (Bank), against Quinta Land and Cattle Company a New Mexico Corporation (Quinta), Richard Bokum and his wife, Margaret Bokum. Bank sought foreclosure of a mortgage on certain real property located in Gallatin County, Montana. The mortgage secured certain notes (numbers 753, 109, and 5052 which are herein referred to as the 1982 notes) held by and made payable to Bank. Those notes were the subject of an underlying suit litigated in New Mexico and were found to be in default. A judgment was entered and upheld on appeal by the New Mexico Supreme Court. Brown v. First Nat. Bank in Albuquerque (1987), 106 N.M. 143, 740 P.2d 693. Bank then sought foreclosure in Montana. The Montana District Court, Eighteenth Judicial District, granted Bank summary judgment on the foreclosure issue, dismissed the counterclaims raised by defendants, and awarded certain attorney fees and costs to Bank. Requested relief from summary judgment was denied September 6, 1988. Defendants appeal.

Thus, the issues on appeal are whether any genuine issue of material fact exists to preclude summary judgment for Bank regarding either the foreclosure or the counter-claims, and, whether it was error to award attorney fees.

We affirm.

Quinta is a New Mexico corporation of which Mr. Bokum is the president and sole shareholder. In 1971, Quinta bought a large ranch consisting of several sections of land on the Madison River in Gallatin County (the Montana property).

In 1972 and 1973, Mr. and Mrs. Bokum constructed a large residence on the Quinta Montana property. Mrs. Bokum, although not a part of Quinta, contributed many hundreds of thousands of dollars of her own wealth to this endeavor. The final structure included 30,000 square feet of living space.

Prior to this time, Bank and Bokum had an established banking relationship under which Bokum borrowed considerable amounts of money from Bank over many years. In 1974, Quinta, as well as Bokum, began signing on Bokum’s notes with Bank.

The mortgages and indebtedness at issue in this action are founded on a comprehensive settlement and refinancing agreement executed by Bank, Quinta, and both Bokums on February 6,1981. This agreement is fully evidenced by an Agreement of Accord and Satisfaction and Release; a commitment letter; and a Novation Agreement (referred to collectively herein as the “1981 Release”).

As part of the 1981 Release, Mr. Bokum and Quinta executed two promissory notes in the amounts of $830,000 and $394,360.70. Both notes were dated February 6, 1981, and were due and payable on February 6, 1982.

These two notes were secured by a mortgage on the Montana property which was recorded in the Gallatin County Clerk and Recorder’s office. That mortgage was dated February 6, 1981, and was signed only by Quinta. As additional security for those two notes, Bokum pledged 317,000 shares of stock in Bokum Resources Corporation and all outstanding stock in Quinta. The mortgage on the Montana property and pledged stock for Quinta Corporation represented the collateral agreed upon in the 1981 Release.

The note for $394,360.70 was renewed on February 6, 1982. To evidence this renewal, Quinta and Bokum executed a new promissory note for $394,360.70 bearing a 16 percent per annum interest rate, which was due on or before August 5, 1982. This note is referred to as #753.

Also on February 6, 1982, the $830,000 note was reduced and renewed. Quinta and Bokum executed a new promissory note in the amount of $330,230 also to be repaid with interest at the rate of 16 percent per annum on or before August 5, 1982. This note is referred to as #109.

Lastly, Bank made a loan of $82,000 to Quinta and Bokum on June 9, 1982. Quinta and Bokum executed a promissory note, also dated June 9, 1982, evidencing this debt. The note was due on or before December 9, 1982, together with interest thereon calculated at Bank’s prime rate. This note was also secured by the two mortgages on the Montana property as well as by a pledge of stock in Quinta. It is referred to as #5052. These three notes comprise the 1982 notes, none of which were signed by Mrs. Bokum.

Quinta and Bokum never paid on these notes. Bank initiated this suit in Albuquerque, New Mexico, against Mr. Bokum and Quinta in December 1983. The suit sought joint and several judgment against the defendants as co-makers on the 1982 notes, and foreclosure on the two mortgages executed by Quinta on the Montana property.

In July 1984, Bank started these foreclosure proceedings in Montana, naming both Bokums and Quinta as defendants. (Mrs. Bokum was added because she claimed an “interest” in the residence.) At that time, defendants moved to stay the Montana proceedings until completion of the New Mexico litigation. Defendants argued to the Montana court that the validity of the 1982 notes needed to be established before foreclosure of Bank’s mortgages would be proper. The District Court granted a stay in November 1984, at which time it pledged itself to give full faith and credit to any New Mexico judgment.

The New Mexico litigation was complex and lengthy. However, on March 31, 1986, the New Mexico trial court entered its findings of fact and conclusions of law, finding in favor of Bank. The court then entered judgment against Mr. Bokum on the defaulted notes and ordered Bank to proceed with its foreclosure on the collateral.

Bokum appealed to the New Mexico Supreme Court. While that appeal was pending, Bank moved the Montana court to lift the stay in this proceeding. That motion was granted in March of 1987. Bank’s case was later upheld by the New Mexico Supreme court.

Bank filed motions for summary judgment in Montana on the foreclosure issue and on the late counterclaims raised by Quinta and Mr. Bokum. The District Court, following written and oral argument, issued its consolidated order dated March 2, 1988, granting both motions for summary judgment and awarding attorney fees and costs. Quinta and Mrs. Bokum appeal. Mr. Bokum does not appeal the entry of foreclosure judgment against his interest.

I. Foreclosure Action

Bank needs to prove the following elements to make out a prima facie case for foreclosure:

(1) The debt of defendants;

(2) Nonpayment of the debt; and

(3) Present ownership of the debt by the complaining party. Murray v. Creese (1927), 80 Mont. 453, 260 P.2d 1051.

The record reveals that Bank made its prima facie case of foreclosure at the summary judgment hearing and that no material dispute in the facts could be discerned. At that point, the burden shifted to defendants to present some evidence of a genuine issue of material fact which would defeat summary judgment. Mayer Brothers v. Daniel Richard Jewelers, Inc. (1986), 223 Mont. 397, 726 P.2d 815.

Quinta wholly failed to do so. Rather, Quinta relied on the affirmative defenses raised in its pleadings. Under Rule 56(e), M.R.Civ.P., a party opposing summary judgment has an affirmative duty to respond by affidavits or sworn testimony with specific facts that show the need for trial, and is not allowed to merely rest on its laurels as set forth in the pleadings.

Quinta asserts that the Montana District Court improperly relied on the judgment of the New Mexico court in determining its liability on the 1982 notes. That argument is without merit. The District Court ruled that “any attempt to question the debt between plaintiff [Bank] and [Mr.] Bokum/Quinta is barred by the doctrine of collateral estoppel.” We agree.

Assuming that Quinta raised its usury defense and its accommodation defense timely in the Montana action, those matters were fully litigated in New Mexico and liability was established on the defaulted notes. Specifically noteworthy in the findings of the New Mexico court are the following:

“19. The 1982 notes are valid, binding obligations on Bokum and Quinta. The 1982 Notes were executed and given for valid consideration.
“21. The 1982 notes are not usurious.
“22. The 1982 notes are in default.
“27. The 1982 notes are secured by a mortgage on Quinta’s Montana ranch, all of the outstanding stock of Quinta and 317,000 shares of BRC stock. [Bank] is entitled to foreclose on that security.”

Quinta was not a party to the New Mexico proceeding. However, the defenses raised in Montana by Quinta were identical to those raised by Bokum in New Mexico. The New Mexico court also found:

“23. Bokum did not prove any defenses to the 1982 notes. Under these facts, we affirm the district court finding that Quinta had the opportunity to litigate these matters during the first trial and they are now barred by collateral estoppel.”

We stated in Thoring v. LaCounte (1987), 225 Mont. 77, 733 P.2d 340, that the law of the state where a judgment is rendered controls the interpretation of the effect of the foreign judgment in any subsequent actions between the parties or those with whom there is privity.

Collateral estoppel under New Mexico law requires the following four elements:

(1) The parties must be the same or in privity with the parties in the original action;

(2) The subject matter in the two actions must be different;

(3) The facts or issues were actually litigated; and

(4) The issues were necessarily determined.

Reeves v. Wimberly (App. 1988), 107 N.M. 231, 755 P.2d 75, Reeves interpreted these elements saying: “Collateral estoppel applies to identical issues in the suits where the same parties or parties in privity are involved in both actions even though the subject matter in the second action differs from the first.” Reeves, 755 P.2d at 77.

Quinta disputes that it was in privity with its sole shareholder, Mr. Bokum, and argues that lack of privity should defeat application of the collateral estoppel doctrine. We conclude that argument is also without merit. The record fully supports the trial court’s ruling that collateral estoppel applied to bar Quinta from denying liability on the 1982 notes as was determined conclusively in the previous action.

At this juncture, we would also like to quote from Quinta’s brief in support of its motion to stay the Montana proceeding:

“. . . the issues of the validity of the notes in the suit will be determined under New Mexico law and the Montana court should not have difficulty in applying the findings of the New Mexico court to the Montana litigation as to Quinta since Quinta allegedly signed the notes in suit and Quinta is a company wholly owned by Mr. Bokum”.

Bank also argued that Quinta’s assertion that it was not liable on the 1982 notes would likewise be barred by the 1981 Release, res judicata and judicial estoppel. Since we have decided this issue under a collateral estoppel analysis, it is unnecessary for us to discuss Bank’s further contentions, although they are equally persuasive.

Summary judgment as to Quinta on the foreclosure issue is affirmed.

Next, Mrs. Bokum asserts that she has an “interest” in the residence on the Montana property which should be protected from foreclosure and thus summary judgment as to her foreclosure defense was improper. We disagree.

Quinta, as legal successor to Kyd Cattle Co., is the owner of the mortgaged Montana property. It is undisputed that Mrs. Bokum contributed generously to the residence constructed thereon; however, that building is now affixed to the mortgaged property and legally subject to foreclosure.

It was incumbent upon Mrs. Bokum to take further steps if she intended to sever her interest from Quinta and protect it separately. Specifically, she should have obtained a partial satisfaction of Bank’s mortgage, and a deed from Quinta to the residence and recorded these with the Gallatin County Clerk and Recorder’s office. Absent those steps, Quinta is the owner of the property and house on which Bank has the recorded mortgage which is superior to all other claims of Mrs. Bokum.

Mrs. Bokum’s claimed “interest” fails as a matter of law and summary judgment against her on the foreclosure issue is affirmed.

II. Counterclaims

After the stay was lifted on the Montana proceeding in March 1987, Bank filed an amended complaint against defendants. Defendants filed two amended answers and then asserted the following counterclaims:

1. Breach of fiduciary duty to Mr. Bokum;

2. Failure to release mortgages under § 71-1-212, MCA; and

3. Bad faith failure to release mortgages.

The District Court granted summary judgment on these counterclaims. Quinta and Mr. Bokum appeal summary judgment as to Count II, regarding the violation of § 71-1-212, MCA. Additionally, Mrs. Bokum appeals the District Court’s “disregard for her harassment claim.” We affirm summary judgment on both issues.

Section 71-1-212, MCA, provides for damages when a mortgagee refuses or neglects to issue a certificate of release after the mortgagor’s full performance of the conditions of the mortgage. Bokum and Quinta asserted that Bank wrongfully failed to release its 1976 and 1979 mortgages in the New Mexico action.

The District Court dismissed this claim, ruling that Bokum’s claim was barred in Montana because he was obligated to assert it in the New Mexico action but did not. The District Court likewise dismissed Quinta’s claim (as standing in privity with Bokum) as barred by res judicata. We agree.

The res judicata elements are determined under New Mexico law for our purposes here. Thoring, supra. Under New Mexico law, the following are the requisite elements to apply res judicata:

(1) identity of parties or privies;

(2) same subject matter;

(3) identity of capacity of character of persons for or against whom the claim is made; and

(4) the same cause of action.

Myers v. Olson (1984), 100 N.M. 745, 676 P.2d 822, 824.

New Mexico has adopted the “transactional” analysis found in the Restatement (Second) of Judgment (1980), § 24 and § 25. Under that approach, the cause of action is viewed in the context of the broader transaction, or series of transactions, from which it arose. This approach disregards the fact that a variety of legal theories may be available to the parties under the transaction. Myers holds that the cause of action is “essentially equated with the transaction from which it springs.” 676 P.2d at 824.

As was discussed under the collateral estoppel issue, the record supports the lower court finding with regard to identity of parties (or privies) in both actions. Also, there can be no genuine dispute that the subject matter and the capacities are the same in both actions. Lastly, we conclude that the fourth element regarding cause of action is likewise met under the transactional analysis.

Bokum and Quinta both have failed to bring forth any which would preclude the District Court from applying res judicata to their counterclaims, thus precluding summary judgment. The record is replete with credible evidence supporting the District Court’s application of summary judgment on these counterclaims and that judgment is hereby affirmed.

We note only in passing that both counterclaims are likewise barred as a matter of law as claims specifically intended to be waived when all parties signed the 1981 Release.

We now turn to Mrs. Bokum’s claim of “harassment.” Mrs. Bokum asserts that the Bank tried to recover on property which Bank knew was in her name only. The Montana District Court disregarded Mrs. Bokum’s claim for damages against the Bank for harassment. We agree.

The record reveals that Mrs. Bokum did not plead this claim properly but rather raised the issue for the first time in defendant’s brief filed in opposition to Bank’s motion for summary judgment on the counterclaims. It was not a part of the pleadings and she did not seek leave of the District Court to amend her pleadings as she was required to do under Rule 13, M.R.Civ.P.

Thus, this “claim” was not properly before the District Court, and no error was committed by disregarding it. Bank has carried its burden in showing no genuine issues of material fact exist as to its claims. Defendants have failed to come forward with affidavits or other sworn testimony to show any genuine issues of material fact which would defeat summary judgment. Therefore, summary judgment was proper on the counterclaims and is affirmed.

III. Legal Fees

Following an evidentiary hearing as to the reasonableness of attorney fees, the District Court awarded Bank $50,000 in attorney fees. We conclude that this award was lawful and reasonable.

The 1982 notes and the two mortgages securing those notes all provided contractually for the recovery of attorney fees. Additionally, Montana statute provides for award of attorney fees in foreclosure actions. Section 71-1-233, MCA. Thus, the award of fees was lawful.

The court took in testimony as to the reasonableness of the $62,477 amount requested by Bank. At the close of the testimony, the court awarded $50,000. Both the Montana and the New Mexico courts noted the complexity and the involved nature of this litigation. Based on the record of considerable time and energy spent by Bank and the other evidence presented as to attorney fees, we conclude the amount awarded for legal fees was reasonable.

Here we note that Bank argued in its appellate brief, “clearly the record reflects that Mr. Bokum and Quinta fought [Bank] every step of the way, on issues that could no longer be controverted in good faith, in an effort to delay the inevitable foreclosure that is now nearly seven years overdue.” We conclude that this is an accurate representation of the record.

Bank is also entitled to its attorney fees on appeal.

Defendants were unable to present any evidence to preclude summary judgment when the burden shifted to them and have been unable to raise any meritorious arguments on appeal.

This cause is remanded to the District Court for a determination and award of reasonable attorney fees to Bank as a result of this appeal.

MR. JUSTICES HARRISON, SHEEHY, McDONOUGH and HUNT concur.


text:
    STATE OF MONTANA, Plaintiff and Respondent, v. ROBERT LORASH, Defendant and Appellant.
    No. 88-585.
    Submitted on Briefs May 18, 1989.
    Decided Aug. 7, 1989.
    777 P.2d 884.
    Allen Beck, Billings, for defendant and appellant.
    Marc Racicot, Atty. Gen., Paul Johnson, Asst. Atty. Gen., Helena, Harold Hanser, County Atty., Brent Brooks, Deputy County Atty., Billings, for plaintiff and respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This is an appeal from the District Court of the Thirteenth Judicial District, Yellowstone County, State of Montana, the Honorable G. Todd Baugh presiding. The appellant appeals the imposition of his two-year suspended prison sentence for criminal mischief. We affirm.

In June of 1987, the appellant, Robert C. Lorash, (Lorash) and his companion, Dennis S. Hegg, were driving a pickup truck which was towing a large trailer filled with trees and debris. At the intersection of 24th Street West and Broadwater Avenue in Billings, Montana, they became involved in an altercation with Mark Richardson. Lorash and Hegg followed Richardson to a Billings residence where Richardson exited his car and went inside. Lorash and Hegg then got out of the pickup and proceeded to hit and kick Richardson’s car causing over $1,800 in damage.

Several months later, on September 4, 1987, the State filed its affidavit and motion for leave to file information with the District Court, basing felony jurisdiction on the provisions of § 45-6-101, MCA, which provides:

“(1) A person commits the offense of criminal mischief if he knowingly or purposely:
“(a) injures, damages, or destroys any property of another or public property without consent;
“(3) ... If the offender commits the offense of criminal mischief and causes pecuniary loss in excess of $300,... he shall be fined an amount not to exceed $50,000 or be imprisoned in the state prison for any term not to exceed 10 years, or both.”

On July 25, 1988, Lorash plead guilty to the charge. A presentence investigation report was then prepared which noted that on October 10, 1973, Lorash had been convicted of possession of marijuana, and given a three-year deferred sentence. The presentence investigation report recommended:

“Due to the fact the subject has a previous felony and sentencing was deferred, the sentence must be suspended under MCA 46-18-201(6).”

After receiving Lorash’s guilty plea to the criminal mischief charge, the District Court sentenced the appellant to two years in the Montana State Prison, but suspended the sentence and placed him on probation for two years. At sentencing, the court noted that the reason the appellant did not receive a deferred sentence as did his co-actor, Hegg, was because of the language in § 46-18-201(6), MCA, which provides in part:

“[imposition of sentence in a felony case may not be deferred in the case of a defendant who has been convicted of a felony on a prior occasion whether or not the sentence was imposed, imposition of the sentence was deferred, or execution of the sentence was suspended.”

The issue on appeal is whether § 46-18-201(6), MCA, is violative of Article II, § 17 of the Montana Constitution, which provides that no person shall be deprived of life, liberty or property without due process of law.

At the time of sentencing, Lorash, through counsel, argued that he should receive a deferred imposition of sentence despite his prior felony conviction and the limitation on deferred sentences imposed by § 46-18-201(6), MCA. The court responded that the legislature, in passing § 46-18-201(6), MCA, had limited its sentencing options since that statute requires there shall be no deferred sentence once a previous deferred sentence has been imposed.

We note that Lorash, through counsel, agreed at his sentencing hearing that he had received a deferred sentence in 1973 and that he did not attempt to have the 1973 conviction dismissed, or expunged, pursuant to § 46-18-204, MCA.

This Court has held that the proper standard of review by this Court is:

[T]he constitutionality of a legislative enactment is prima facie presumed, and every intendment in its favor will be made unless its unconstitutionality appears beyond a reasonable doubt.”

T & W Chevrolet v. Darvial (1982), 196 Mont. 287, 292, 641 P.2d 1368, 1370. We have also held that the burden of demonstrating an alleged constitutional infirmity in a legislative enactment rests upon the party raising the challenge. Matter of Kujath’s Estate (1976), 169 Mont. 128, 130, 545 P.2d 662, 663; State v. Henrich (1973), 162 Mont. 114, 121, 509 P.2d 288, 292.

Deferral of a sentence is a significant option given to the sentencing judge. It offers the possibility that an offender may later obtain a dismissal of the charges that have been filed against him. At the time the information was filed in this case, September 4, 1987, Lorash was informed that if he had served that sentence with good behavior the charges could be dismissed. Section 46-18-204, MCA (1985), states:

“Whenever the court' has deferred the imposition of sentence and after termination of the time period during which imposition of sentence has been deferred, upon motion of the court, the defendant, or the defendant’s attorney, the court may allow the defendant to withdraw his plea of guilty or may strike the verdict of guilty from the record and order that the charge or charges against him be dismissed.”

Shortly before Lorash’s sentencing, an amendment was made to § 46-18-204, MCA, which became law on October 1, 1987:

“Upon dismissal of the charges, the court shall send an order directing the department of justice to expunge the defendant’s record. The order must adequately identify the defendant, such as by sex, race, date of birth, and the current status of the charges to be expunged.”

This amendment was repealed on April 6, 1989, and replaced by the following language:

“A copy of the order of dismissal must be sent to the prosecutor and the department of justice, accompanied by a form prepared by the department of justice and containing identifying information about the defendant. After the charge is dismissed all records and data relating to the charge are confidential criminal justice information as defined in 44-5-103 and public access to the information can only be obtained by district court order upon good cause shown.”

It should be noted that under 1989 Mont. Laws, chapter 463, all information concerning a charge that has been dismissed under the first sentence of § 46-18-204, MCA, becomes confidential criminal justice information (§ 44-5-103(3), MCA), and dissemination is thereby limited to criminal justice agencies. Section 44-5-303, MCA. The definition of criminal justice agency includes “any court with criminal jurisdiction,” § 44-5-103(7)(a), MCA. Courts with criminal jurisdiction are therefore entitled to receive and consider information concerning prior charges which are dismissed under § 46-18-204, MCA.

Here Lorash’s argument attacking the constitutionality of § 46-18-201(6), MCA, is moot because the 1987 amendment to § 46-18-204, MCA, was stricken and became ineffective on April 6, 1989, by approval of Chapter 463, Mont. Laws. (1989).

We find that Lorash has not sustained his heavy burden of demonstrating that § 46-18-201(6), MCA, is unconstitutional beyond a reasonable doubt, and for that reason, and all the reasons stated above, we uphold the constitutionality of § 46-18-201(6), MCA.

The decision of the District Court is affirmed.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES WEBER, HUNT and McDONOUGH concur.


author: MR. JUSTICE SHEEHY

text:
    In re the MARRIAGE OF JUDITH ELAINE THANE, Petitioner and Respondent, and DENIS PATRICK THANE, Respondent and Appellant.
    No. 88-606.
    Submitted on Briefs May 4, 1989.
    Decided Aug. 7, 1989.
    777 P.2d 881.
    James P. O’Brien, Missoula, for respondent and appellant.
    Christopher Daly, Missoula, for petitioner and respondent.
   MR. JUSTICE SHEEHY

delivered the Opinion of the Court.

Denis Patrick Thane appeals from a judgment in the District Court, Fourth Judicial District, Missoula County, requiring him to pay to Judith Elaine Thane, his former wife, the sum of $150.00 per month for each of two children, the progeny of their former marriage. We affirm.

Denis Patrick Thane (Patrick) contends on appeal that because he and Judith Elaine (Judith) obtained a joint marital dissolution of their marriage in 1981, under a decree which contained no provisions for child support, that the District Court had no jurisdiction after more than two years to modify the decree with respect to child support. Patrick also contends that the District Court abused its discretion by concluding that the circumstances between the parties had changed so substantially that the terms of the 1981 decree had become unconscionable.

Patrick and Judith were married on August 8, 1970. Their marriage was dissolved following a joint petition for dissolution in the same District Court by a decree issued on June 9, 1981. The decree of dissolution granted joint custody, care and control of the minor parties, Erin Jennifer Thane and Jason Christopher Thane with equal rights and privileges in the parents respecting all decisions to be made. The dissolution decree further required Patrick to carry medical and dental insurance on the minor children of the parties.

On June 13, 1986, Judith filed a petition for modification of child support in the District Court. On August 29,1986, Judith also filed a motion for temporary support. On January 9, 1987, the District Court granted temporary child support to the respondent, which grant was upheld on a subsequent motion for reconsideration. On June 17, 1988, a hearing was held on the original petition for modification dated June 13, 1986, after which the District Court issued findings of fact, conclusions of law and order dated July 25, 1988, which granted Judith child support in the monthly amount of $150.00 per child to be paid by Patrick to Judith. This appeal followed.

On the issue of lack of jurisdiction in the District Court, Patrick contends that at the time of the original dissolution, no child support was sought by Judith and none was included in the original decree of dissolution. He contends that since no child support was awarded in the original decree, the decree cannot be modified to provide child support under the provisions of § 40-4-208(2)(a), MCA. He relies on Marriage of Cooper (Mont. 1985) 216 Mont. 34, 699 P.2d 1044, and Marriage of Hagemo (Mont. 1988), [230 Mont. 255,] 749 P.2d 1079. It is provided in § 40-4-208(2)(a), MCA, that:

“Whenever the decree proposed for modification does not contain provisions relating to maintenance or support, modification under subsection (1) may only be made within two years of the date of the decree.”

The District Court determined in its conclusions of law that because the decree of dissolution contained a specific provision relating to Patrick’s obligation to provide support, i.e., medical and dental insurance, the District Court had jurisdiction to modify the decree.

The District Court had the provision of health insurance and more to rely on in asserting jurisdiction for the purpose of modification. In the original decree, the District Court had decided that it was in the best interests of the minor children that the parents have joint custody, care and control, with equal rights and privileges, and with all decisions affecting the welfare of the children to be made by the mutual consent of the parties. Under this provision of the decree, since the dissolution, the children have been shared equally between the parents as far as custody and support is concerned. The result has been that the children have spent as much time in the home of the father, receiving there shelter and support, as they have in the home of the mother. There is no argument that this arrangement was what was contemplated by the parties at the time of the original decree of dissolution. There can be no doubt that the equal sharing of the sheltering and support of the children from and after the decree of dissolution was in effect an award of one-half of the cost of supporting the children to the husband. If, in fact, the District Court had intended that the husband pay no child support, then the court would have been under a duty to state the reasons for not ordering child support from a parent from whom a duty of support existed, under § 40-4-204(2), MCA. The original decree of dissolution is bare of any statements by the court as reasons for not requiring child support from the father.

Thus, the two year statute after which decrees may not be modified in the circumstances described in § 40-4-208(2)(a), MCA, is not met here. Both in providing directly for health insurance for the children and in providing for their joint care and support, the District Court in effect required child support from the husband and so had jurisdiction to modify the child support provisions even after the lapse of two years.

The second prong of Patrick’s appeal is that the District Court had no basis upon which to find that the method of child support was unconscionable. Section 40-4-208(2)(b), MCA, provides that when a decree proposed for modification contains provisions relating to maintenance and support, modification may be had only upon a showing of changed circumstances so substantial and continuing as to make the terms unconscionable, unless the parties consent otherwise.

The findings of the District Court with relation to the care of the children are that the children have been well cared for in both homes and have warm relationships with both parents. Both parents have provided for all of the needs of the children including food, shelter, health, social and recreational and academic needs.

The findings further show that after the dissolution, the wife became employed and that her income has increased from the time of the dissolution with relatively little earnings to $13,035.00. To obtain this income, she worked at Community Hospital 24 hours a week at $7.41 per hour and at State Farm Insurance Company for 31 hours a week at $5.25 per hour. Her mother contributes $150.00 monthly to Judith’s support.

The husband is certified as an elementary teacher in Missoula and earns more than $30,000.00 per year with a net take home pay of $1,817.00 per month. Since the dissolution, his annual income has increased from $23,838 in 1983 to $30,677 in 1987, the last year shown in the findings. His income increases each year. The husband does not work in the summer months when school is out.

Judith intended to terminate her employment with State Farm Insurance Company on or about September 1, 1988, and to engage in cleaning houses at $7.00 per hour and selling encyclopedias. She felt these jobs would be flexible in the hours of work so that she would have more time for contact with her children, especially her daughter. The wife has no retirement plans or benefits other than available through her employment at Community Hospital. Husband is able to carry medical and dental insurance on the minor children of the parties through his employment.

The District Court concluded that the child support provision as constituted under the 1981 decree of dissolution was unconscionable and should be modified because the parties are presently bearing the support of the children equally but the wife has a lesser income than the husband. His income has been increasing regularly each year while her income varies and increases cannot be depended upon. Accordingly, the District Court decided that the husband should pay $300.00 per month in child support to equalize the disproportionate burden currently being borne by the wife.

Essentially, Patrick argues against unconscionability on two grounds 1) that there is nothing in the evidence to show that there is a need by the children for his additional support, and 2) his monthly expenses as exhibited to the District Court show that he cannot afford the increased child support required by the District Court.

It is true that in Marriage of West (1984), 212 Mont. 374, 692 P.2d 1213, this Court remanded the cause for an evidentiary hearing because the District Court had failed to make findings on the needs of the children and this Court wanted the District Court to determine whether those needs could be met at the current level of support payments. That is not the situation here. Judith is bearing one-half of the cost of the support of the children although her annual income is less than one-half of that of her former husband.

The needs and resources of the parents with respect to child support are also factors to be looked at by the District Court. Marriage of Callahan (Mont. 1988), [233 Mont. 465,] 762 P.2d 205. Here the District Court determined that Patrick’s net take home pay was $1,817,00 per month and noted his claimed current expenses of $1,850.00 per month. The District Court said this included a house payment at $696.00 per month and a payment for savings of $100.00 per month.

The spirit of our law respecting child support is that the parties will be required to contribute to the support of the children in proportion to their ability to make such contributions. Each case is decided on a case-to-case basis. We established that requirement in Marriage of Carlson (1984) 214 Mont. 209, 693 P.2d 496, and continued it in adopting Guidelines for Determining Child Support, effective January, 1987, [227 Mont. 1,] [Published in 44 St.Rep. 828 (1987), and in the Desk Book published annually by the State Bar of Montana]. Because of the disparity in the parties’ incomes, the court found it unconscionable that the wife should bear one-half of the cost of supporting the children and fashioned a contribution from the husband accordingly.

The changes in the couple’s financial circumstances since the dissolution were so substantial and continuing as to make the earlier support arrangement unconscionable. Marriage of Jensen (1986) 223 Mont. 434, 727 P.2d 512. We uphold the District Court on this issue.

Under Rule 54 (a), M.R.Civ.P., findings by a district court are to be sustained by us, unless clearly erroneous. We do not find the District Court in error and therefore affirm.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, HUNT, WEBER, GULBRANDSON and McDONOUGH concur.


text:
    MICHAEL E. SCHRAPPS, Claimant and Appellant, v. SAFEWAY STORES, INC., Employer, and Home Insurance Company, Defendant and Respondent.
    No. 88-522.
    Submitted on Briefs June 1, 1989.
    Decided Aug. 8, 1989.
    777 P.2d 887.
    Leonard J. Haxby, Butte, for claimant and appellant.

      Alan L. Joscelyn; Gough, Shanahan, Johnson & Waterman, Helena, for defendant and respondent.
   MR. JUSTICE HARRISON

delivered the Opinion of the Court.

This case comes on appeal from a judgment entered by the Workers’ Compensation Court, the Honorable Timothy Reardon presiding, which concluded the claimant, Michael Schrapps, was not entitled to permanent partial disability benefits under § 39-71-703, MCA. We affirm.

Claimant injured his lower back on December 20, 1977, while employed by Safeway Stores, Inc., as a forklift operator at its Butte, Montana warehouse. The injury occurred when Mr. Schrapps was pinned between his forklift and an iron beam. After the accident, claimant was taken to St. James Community Hospital and treated for injuries to his stomach and back. The employer accepted liability for the injury and paid temporary total disability compensation and medical benefits from the date of injury through July 4, 1978.

In February, 1978, the claimant returned to his job with Safeway. However, he was able to work only four hours, and claimed lower back pain prevented him from performing his usual job duties. Since the accident, claimant has been employed as a car salesman.

After his initial hospitalization and doctor’s release to return to work, claimant complained of radiating lower back pain and numbness in his left leg. Thereafter, claimant sought treatment with numerous physicians, orthopedic surgeons, neurosurgeons and chiropractors. He also underwent an extensive evaluation at the University of Washington Medical Center in Seattle, Washington.

Claimant filed a petition for hearing against Safeway Stores, Inc. and its insurer in March, 1987, alleging a continued physical limitation due to his 1977 injury. On July 25, 1988, the Workers’ Compensation Court entered judgment, in which it concluded the medical evidence shows claimant’s reduction in earnings was not due to his 1977 industrial injury. The court stated the medical reports uniformly failed to reflect objective evidence to support the claimant’s contention.

On review, claimant challenges the Workers’ Compensation Court’s decision. He argues the judgment is not supported by substantial evidence. We disagree.

This Court will not substitute its judgment for that of the Workers’ Compensation Court concerning the credibility of the witnesses or the weight to be given their testimony. Where the findings are based on conflicting evidence, our function of review is confined to determining whether there is substantial evidence to support such findings. Ridenour v. Equity Supply Co. (1983), 204 Mont. 473, 483, 665 P.2d 783, 788. However, the instant case deals primarily with deposition testimony, which allows this Court to examine the evidence more closely:

“[w]hen the critical evidence, particularly medical evidence, is entered by deposition, we have held that ‘this Court, although sitting in review, is in as good a position as the Worker’s [sic] Compensation Court to judge the weight to be given to such record testimony, as distinguished from oral testimony, where the trial court actually observes the character and demeanor of the witness on the stand.’ ” Frost v. Anaconda Co. (1985), 216 Mont. 387, 389, 701 P.2d 987, 988, quoting Shupert v. Anaconda Aluminum Company (1985), 215 Mont. 182, 187-88, 696 P.2d 436, 439.

Initially, claimant has the burden of proving a causal connection by a preponderance of the evidence. “Evidence demonstrating only a medical possibility ‘does not mandate the conclusion that the claimant has met his burden of proof under the Act.’ ” Brown v. Ament (Mont. 1988), [231 Mont. 158,] 752 P.2d 171, 174, 45 St.Rep. 508, 512, citing Currey v. 10 Minute Lube (Mont. 1987), [226 Mont. 445,] 736 P.2d 113, 116, 44 St.Rep. 790, 793. The medical evidence does not reveal structural or neurological abnormalities which support claimant’s subjective complaints. A brief examination of the medical reports illustrates this point:

“IMPRESSION: (1) No evidence of organic neurologic disorder. (2) Low back pain and leg paresthesias described, etiology undetermined. The distribution of the lumbar pain might suggest a low back strain but this is not supported by the lack of any relationship to physical activity or posture and the lack of muscle spasm, etc. Also the duration of symptoms unchanged approaching six months suggests low back strain as unlikely. [Report of Dr. Johnson, June 7, 1978.]
“Mr. Schrapps has been seen by me on numerous occasions with a vague complaint of low back pain over the entire back. I have examined him on numerous occasions and find no reason for his low back pain. [Report of Dr. Murphy, June 19, 1978.]
“In my opinion, on his last visit there was no permanent impairment, and I could find no organic basis to substantiate his subjective complaints at that time. [Report of Dr. Blom, September 22, 1978.]
“As a result of my examination, I am not able to find any significant orthopaedic impairment in this patient. He does have significant nonorganic signs (i.e., overreaction and nonanatomical sensory change . . .) I feel that no further treatment is indicated. [Report of Dr. Friedrick, September 16, 1987.]

After an extensive examination, the University of Washington Medical Center was also unable to locate an objective cause for claimant’s complaints. Claimant’s only support rests with the testimony of Dr. Baggenstos, a neurosurgeon who first examined the claimant in 1985. Dr. Baggenstos stated that claimant had chronic back pain with localized back tenderness. However, in accord with the other physicians, Dr. Baggenstos could not identify solid, objective evidence to support the claimant. Dr. Baggenstos’ diagnosis did not result from diagnostic studies, such as myelograms and X-rays, but rather from claimant’s statements to him during the various medical examinations.

Numerous physicians examined the claimant following his industrial injury, and without exception all were unable to medically explain claimant’s complaints. We find that the claimant has not proved by a preponderance of the evidence that his lower back problems were caused by the 1977 industrial injury.

Affirmed.

MR. JUSTICES SHEEHY, WEBER, GULBRANDSON and HUNT concur.


text:
    STATE OF MONTANA, Plaintiff and Respondent, v. TIMOTHY ERNEST KRUM, Defendant and Appellant.
    No. 89-164.
    Submitted on Briefs July 13, 1989.
    Decided Aug. 10, 1989.
    777 P.2d 889.

      Allen Beck, Billings, for defendant and appellant.
    Marc Racicot, Atty. Gen., Kathy Seeley, Asst. Atty. Gen., Helena, Harold Hanser, County Atty., Charles Bradley, Deputy County Atty., Billings, for plaintiff and respondent.
   MR. CHIEF JUSTICE TURNAGE

delivered the Opinion of the Court.

Krum appeals his January 4, 1989, conviction following a two-day trial by jury in the Thirteenth Judicial District for criminal possession of a dangerous drug in violation of § 45-9-102(1), MCA. Krum was sentenced on February 7, 1989, to five years in the Montana State Prison. This sentence was scheduled to run consecutively to the prison term currently being served by Krum on another offense.

Krum asserts on appeal that there was insufficient evidence in the record to sustain his conviction. We disagree and herein affirm Krum’s conviction for criminal possession of a dangerous drug.

Krum was charged by information on July 19, 1988, for violation of § 45-9-102(1), MCA. Jury trial was held January 3 and 4, 1989. Prior to trial, a stipulation was entered into between the State and the defendant. The stipulation was read by the court to the jury at the opening of the State’s case.

The following facts were contained in the stipulation: Krum’s arrest on July 12, 1988, was lawful. At the time of his arrest, two pill bottles were taken from his backpack. The two bottles contained 173 yellow caplets (State’s Exhibit #1). One bottle originally contained Dilaudid and the prescription for that was issued in the name of Bill Davis, Krum’s stepfather. The prescription label was affixed to that bottle. The pills were analyzed by the state crime lab, and it was determined that the caplets in Exhibit #1 contained Talwin NX, a Schedule IV controlled substance which contains pentazocine, a Schedule IV analgesic (pain killer). See § 50-32-229, MCA. The chain of possession of both bottles and their contents had not been disturbed and there is no evidence of tampering.

At trial, Krum testified that he found two bottles of pills in a park located six blocks from his stepfather’s house. He testified that he read the label which was affixed to one bottle and believed the contents to be Dilaudid. He put the bottles in his backpack and had them there for two or three days prior to his arrest. He was in possession of them at the time of his arrest.

Krum further testified that the bottle to which was affixed the prescription label made out to his stepfather was not one of the two bottles he found in the park and put in his backpack. Krum asserted that someone had switched the bottles and assumed the switch was made by law enforcement personnel. When questioned about his theory regarding the “switch,” Krum said law enforcement personnel could have gone to his stepfather’s house, rang the front doorbell, and asked for a bottle of Davis’s prescription pain killers. Krum denied on cross-examination that he took the pills from his stepfather’s house while Krum was living there.

The State’s evidence consisted of the stipulation, the bottles and the pills. On appeal, Krum asserts that there is insufficient State’s evidence to sustain a conviction because he did not “know” the contents of the bottles to be a controlled substance; rather, he believed he was in possession of Dilaudid. We do not agree.

Felony criminal possession of a dangerous drug requires proof that a defendant: (1) possessed (2) dangerous drugs. State v. Smith (1983), 203 Mont. 346, 661 P.2d 463. “Possession” is defined as:

“[t]he knowing control of anything for a sufficient time to be able to terminate control.”

Section 45-2-101(52), MCA. Thus, the mental state of “knowingly” is also contained in the definition of possession of dangerous drugs. Section 45-9-102(1), MCA. “Knowingly” is defined as follows:

“ ‘Knowingly’ — a person acts knowingly with respect to conduct or a circumstance described by a statute defining an offense when he is aware of his conduct or that the circumstance exists . . . when knowledge of the existence of a particular fact is an element of an offense, such knowledge is established if a person is aware of a high probability of its existence . . .”

Section 45-2-101(33), MCA.

Additionally, a mental state may be inferred from the acts of the accused and the facts and circumstances connected with the offense. Section 45-2-103, MCA. The court instructed the jury in Instruction Nos. 4 and 7 that the State had to prove that Krum “purposely” possessed Talwin. The result was that the State had to prove that Krum both purposely and knowingly was in control of a dangerous drug. As noted in the elements set forth above, the State is only obligated to prove “knowing” control of the dangerous drug. However in this case, the State carried its burden of proof on the instruction of “purposely” as well. No prejudice to Krum can be found in the erroneous placement of this additional burden on the State.

The standard of review applied to this case is whether, after reviewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the three essential elements of the crime charged (violation of § 45-9-102(1), MCA) beyond a reasonable doubt. If so, then there is sufficient evidence to support the verdict. Jackson v. Virginia (1979), 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560; State v. McDonald (Mont. 1987), [226 Mont. 208,] 734 P.2d 1216, 44 St.Rep. 593. We conclude that a rational trier could find all elements satisfied and thus, for the reasons set forth below, there was sufficient evidence to support the verdict.

a. Knowledge.

Krum hinges his defense on what he asserts is his lack of knowledge. That argument is without merit. Although knowledge cannot be inferred from mere possession alone, knowledge may be proved by evidence of acts, declarations or conduct of the accused from which an inference of knowledge may be drawn. State v. Anderson (1972), 159 Mont. 344, 351, 498 P.2d 295, 299. With that in mind, we examine Krum’s conduct and declarations.

Krum was carrying the two bottles of pills when he was arrested. He stated he believed them to be a prescription of Dilaudid which he found in the park. Although he testified that he examined the pills and believed them to be Dilaudid, the record reflects that each yellow pill was marked with the letter “T” on one side. Further, Krum testified that part of the prescription label was torn from the bottle, but the part that remained showed that the prescription was issued in the name of “Billy D.” Yet, Krum stated these pills he “found” could not have belonged to his stepfather, Bill Davis.

When questioned as to whether he had taken the pills with his stepfather’s name on them while he had been living in his stepfather’s home, Krum responded that “someone” must have switched the pill bottles on him.

Krum’s testimony regarding where he had obtained the two bottles of controlled substances and how his stepfather’s prescription bottle got in his backpack was incredible. This raised an inference allowing the jury to disbelieve Krum. Viewing this in the light most favorable to the State, there is sufficient evidence to prove “knowledge” beyond a reasonable doubt. The remaining elements are not as easily contested.

b. Control.

Krum was exercising exclusive control of the two pill bottles and their contents when he placed them into his backpack. He kept them in his backpack for two or three days. That time is certainly of a sufficient length wherein Krum could have terminated control. However, Krum did not terminate his control over the contents of the two bottles, and they were still in his backpack when he was arrested.

It is hard to dispute control when Krum was carrying the pills around for two or three days. At one point on cross-examination, Krum was asked why he did not throw the drugs away if he had found them. Krum answered, “I more or less forgot they were in there . . .” That testimony is still insufficient to dispute that Krum had control of the pills for a sufficient time to terminate control.

The State proved this element beyond a reasonable doubt.

c. Dangerous Drug.

The results of the state crime lab analysis of the contents of the pill bottles revealed them to be Talwin, NX, a prescription drug containing pentazocine. The defendant stipulated to the result and to the accuracy of the results.

A dangerous drug, as defined by § 50-32-101, MCA, means any substance or immediate precursor delineated in Schedules I-V in the statutes. In § 50-32-229, MCA, the Schedule IV controlled substances are listed. At § 50-32-229(5)(a), pentazocine is specifically listed by name as a dangerous drug. Little more can be said regarding this element, especially since the defendant stipulated to the results of the crime lab analysis.

Based on the foregoing analysis, we conclude there was sufficient evidence to support the jury’s verdict. Krum’s conviction for violation of § 45-9-102(1), MCA, and the sentence imposed thereon are hereby affirmed.

MR. JUSTICES WEBER, HUNT, McDONOUGH and GULBRANDSON concur.


text:
    AMERICAN FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff and Respondent, v. A. LEE BUCKLAND, The Montana Power Company, Les Morrison, d/b/a City Sign, Edward C. and Marilyn Eberly, et al., Defendants and Appellants.
    No. 88-432.
    Submitted on Briefs June 1, 1989.
    Decided Aug. 11, 1989.
    777 P.2d 1289.

      Jackson & Rice, Gregory A. Jackson, Helena, for defendants and appellants.
    Alan L. Joscelyn, Gough, Shanahan, Johnson & Waterman, Helena, for plaintiff and respondent.
   MR. JUSTICE HUNT

delivered the Opinion of the Court.

A. Lee Buckland, defendant and appellant, appeals from the foreclosure of a trust indenture on his property entered in favor of American Federal Savings and Loan Association, plaintiff and respondent, by the District Court of the First Judicial District, Lewis and Clark County. American Federal cross-appeals on the issue of a mechanic’s lien entered in favor of Buckland. We affirm in part and remand for a recalculation of amounts due under the trust indenture.

The issues raised on appeal are:

1. Whether American Federal improperly carried forward a mechanic’s lien from one property to another.

2. Whether American Federal breached its duty of good faith and fair dealing by mismanaging rental property.

3. Whether the District Court properly found that American Federal was entitled to foreclosure of its note secured by a trust indenture on Buckland’s property.

In 1978, Buckland, a real estate broker, purchased an apartment building on Rodney Street in Helena, Montana, on a contract for deed. Buckland refinanced the property by obtaining a loan with American Federal. Originally, the loan was secured by a trust indenture on the property for $35,000.00 but it was later refinanced for $45,000.00.

In 1981, Buckland hired Blackfoot Electric to rewire the building. Blackfoot submitted a written bid for the job at $4,700.00 but ran into unanticipated problems. Consequently, Blackfoot billed Buck-land for over $9,000.00. Because Buckland did not pay the bill, Blackfoot filed a mechanic’s lien against the property in January of 1982 for $9,148.74.

In 1983, Buckland arranged an exchange transaction involving his Rodney Street property, a Warren Street property, also located in Helena, and a fifteen-acre tract portion of a subdivision located in Lewis and Clark County known as Sunny Vista. The exchange involved Buckland, as owner of the Rodney Street property, Thomas Fenton, as the owner of the Warren Street property, American Federal, as the holder of a first trust indenture on the Rodney Street property and the holder of a first trust indenture on the Warren Street property, Edward Eberly, as the holder second trust indenture on the Warren Street property, and Robert King, as the owner of the Sunny Vista tract.

However, before the exchange could take place, the Blackfoot mechanic’s lien needed to be settled. Since American Federal held a security interest in Buckland’s Rodney Street property, its approval was necessary to settle the. mechanic’s lien and complete the exchange of properties. Consequently, American Federal acted as pointman, with Buckland’s input, in the mechanic’s lien negotiations. The mechanic’s lien was settled for $10,500.00, which totaled $11,700.00 with interest. Buckland objected to settling the lien for that amount which included the original $9,148.74 lien plus costs. American Federal paid the settlement and took assignment of the lien.

On July 22, 1983, the properties were exchanged and, as part of the exchange, American Federal loaned Buckland $11,700.00, the amount paid by American Federal on the mechanic’s lien, which was secured by a trust indenture on Buckland’s newly acquired property. The trust indenture, when added to a previous debt owed American Federal, totaled $29,700.00. Further, Buckland’s Sunny Vista property was subject to a trust indenture securing a $29,700.00 debt due American Federal; Buckland assumed responsibility for Fenton’s $9,479.37 debt to Eberly; Buckland took on a third trust indenture for a $5,000.00 debt he owed to King; and the mechanic’s lien, settled at $10,500.00, was carried forward.

Subsequently, Buckland traded his Sunny Vista property for a Billings Avenue duplex located in Helena, valued at $48,500.00 and owned by Sharon Hubbell. Hubbell owned the Billings Avenue property subject to a contract for deed which was transferred upon the exchange. The holders of the first, second and third trust indentures against the Sunny Vista property agreed to transfer their trust indentures to the Billings Avenue property in order to facilitate the Buckland-Hubbell exchange. The mechanic’s lien was also carried forward. In addition, on August 3, 1983, American Federal loaned Buckland $4,477.00. The loan was secured by a fourth trust indenture on the Billings Avenue property.

Hence, Buckland’s Billings Avenue property was subject to the following trust indentures:

(1) A first trust indenture of July 22, 1983, to First Montana Title, as trustee, and in favor of American Federal Savings and Loan Association, as beneficiary, to secure payment of $29,700.00, with interest at 13 % percent per annum, payable in monthly installments.

(2) A second trust indenture of July 22, 1983, to First Montana Title, as trustee, and in favor of Edward C. and Marilyn Eberly, as beneficiaries, to secure payment of $9,479.37, with interest at 11 percent per annum, payable in semiannual installments.

(3) A third trust indenture of July 22, 1983, to first Montana Title Insurance Company, as trustee, and in favor of Robert King and Margaret King, as beneficiaries, to secure payment of $5,000.00, with interest at 10 percent per annum, payable in annual installments.

(4) A fourth trust indenture, of August 3, 1983, to First Montana Title Insurance Company, as trustee, and in favor of American Federal Savings and Loan Association, as beneficiary, to secure payment of $4,477.00, with interest at 15 percent per annum, payable in October 1983. The security for this payment was “the proceeds of real estate commissions.”

The first and fourth trust indentures are the subject of this dispute.

Buckland’s payments to American Federal under the first trust indenture (the July note) were $358.60 per month to begin on August 1, 1983. The fourth trust indenture (the August note) was due, in full, in October of 1983. American Federal notified Buckland by letter that the July and August notes had gone into default — the July note in September of 1983 and the August note in October of 1983.

In 1983, Buckland made payments on the July note in the total amount of $3,644.46. In January of 1984, Buckland made only two payments towards the July note — one in the amount of $291.60 and the other in the amount of $67.00.

In June of 1984, Buckland moved to Georgia and arranged for Kelly Patzer to manage the Billings Avenue property and remit rents collected to American Federal for application to the July and August notes owed on the Billings Avenue property. On September 24, 1984, American Federal received a letter from Buckland informing it of Buckland’s instruction to Patzer to bring American Federal the rents, “to be applied to the loans.” On October 29, 1984, American Federal sent Buckland a letter informing him it was applying rents received on his account to satisfy the August note first and then to satisfy the July note.

In July of 1984, American Federal advanced monies for the payment of taxes and insurance due on the property. Early in 1985, Patzer turned management of the Billings Avenue property over to Steve Schmitz. Under Schmitz’s management, rents were not remitted to American Federal. In August of 1985, Schmitz turned management of the property over to American Federal at which time American Federal advanced monies towards maintenance, utilities and repairs. At that time, one rental unit was vacant and the other was four months delinquent. American Federal reduced the rent on the vacant rental and shortly thereafter found a tenant. Rents received under American Federal’s management were not applied to the July note but were documented in a general ledger non-interest bearing account which totaled $9,734.81 through November 22, 1987 ($1,114.49 of the rents collected were applied to the August note which was paid off in September of 1985).

In January of 1986, American Federal commenced foreclosure proceedings on its trust indenture securing the July 1983 note. Buck-land returned to Helena in May of 1986. American Federal had originally scheduled a trustee’s sale but it was canceled due to the insistence of Buckland, Eberly and King. American Federal settled the claims of Eberly and King prior to trial but commenced with a judicial foreclosure in District Court against Buckland. Buckland counterclaimed on the issue of breach of American Federal’s duty of good faith and fair dealing.

On November 23, 1987, the case was tried in the District Court, sitting without a jury. The court’s findings of fact and conclusions of law included the following:

“1. American Federal is entitled to foreclosure of its security interests in the property but was not entitled to a deficiency judgment nor attorney fees;
“2. The money paid to satisfy the mechanic’s lien on the Rodney Street property should not have been carried forward to the Billings Avenue property;
“3. Buckland did not establish by a preponderance of the evidence that American Federal breached the implied covenant of good faith and fair dealing;
“4. Rents received by American Federal beginning in August of 1985 should not have been put in the general ledger account; and
“5. There should be a recalculation of amounts due American Federal.”

On April 11, 1988, Buckland filed a post-trial motion to amend the findings of fact and conclusions of law and a motion for a new trial. On April 14, 1988, American Federal filed cross-motions on the same subject matter. The motions were denied under Rule 59(d), M.R.Civ.P. Buckland appeals and American Federal cross-appeals.

In Dennis v. Tomahawk Services, Inc. (Mont. 1989), [235 Mont. 378,] 767 P.2d 346, 347, 46 St.Rep. 69, 70, we provided:

“The standard of review for a civil case for a judge sitting without a jury is whether or not the District Court’s findings are clearly erroneous. (Citation omitted.) . . . this Court will not substitute its judgment for that of the trial court’s absent that showing, even where there is evidence in the record to support appellant’s contentions.”

The first issue raised on appeal is whether American Federal improperly carried forward a mechanic’s lien from Buckland’s Rodney Street property to his Billings Avenue property.

The July 22, 1983, $29,700.00 note, secured by a trust indenture, originally applied to Buckland’s Rodney Street property. The note was transferred to the Sunny Vista property and eventually to the Billings Avenue property under a complicated property exchange.

Buckland argues, and correctly so, that the $29,700.00 figure was inflated because it included the $10,500.00 ($11,700.00 with interest) mechanic’s lien which, according to the Rodney Street closing statement, was paid from the proceeds of the $65,000.00 sale price received from Fenton on the Rodney Street property. (No actual money changed hands as the transaction was on an exchange basis.) Thus, the July note need be reduced by the amount of the mechanic’s lien lest American Federal recover twice.

The second issue raised on appeal is whether American Federal breached its duty of good faith and fair dealing by mismanaging the Billings Avenue rental property. Buckland contends that for numerous reasons, American Federal breached its duty as set forth in § 30-1-203, MCA:

“Every contract or duty within this code imposes an obligation of good faith in its performance or enforcement.”

In June of 1984, Buckland moved to Georgia, leaving management of the Billings Avenue property in the hands of Kelly Patzer. Patzer was instructed to remit rents received to American Federal as payments on Buckland’s July and August notes. On September 24, 1984, American Federal received a letter from Buckland which read in part: “I have instructed Kelly to bring the rent into you to be applied toward the loans.”

On October 29, 1984, American sent Buckland a letter informing him that it was applying rents received first to satisfy the August note and next to satisfy the July note. Buckland argues that this was a breach of American Federal’s duty of good faith and fair dealing since it had an obligation to apply rents to July note before the August note. We disagree.

The relationship between bank and customer is that of debtor-creditor. Under § 28-1-1106(2), MCA, when a debtor owes more than one debt and does not direct the creditor as to how payment is to be applied, the creditor may apply the payment to any obligation owing. See also, National Bank of Montana v. Bingham (1931), 91 Mont. 62, 5 P.2d 554.

In the present case, Buckland never instructed American Federal as to which note to apply rents to and he never objected to the order of application of rents until threatened with foreclosure. American Federal duly notified Buckland of its intention to apply rents as it did and cannot now be said to have breached its duty of good faith and fair dealing for doing so.

Further, in 1985, Patzer turned management of the Billings Avenue property over to Steve Schmitz who turned management of the property over to American Federal in August of 1985. Buckland argues that when American Federal took over management it breached its duty of good faith by arbitrarily reducing rents and failing to qualify a delinquent renter for Helena Housing Authority guaranteed payments. American Federal notes, however, that it reduced rent on a vacant apartment in order to find a renter and shortly thereafter found one. Further, the record indicates that American Federal did attempt to qualify the delinquent tenant for the Helena Housing Authority guaranteed payments but Helena Housing required Buckland’s signature which American Federal could not obtain due to Buckland’s absence from the state. There was no breach of duty by American Federal on this contention.

Buckland also argues that American Federal breached its duty of good faith by placing payments, which should have applied to the July note, in a non-interest bearing general ledger account presently totaling $9,734.81 ($3,092.51 as of the date the complaint was filed). He argues that interest on the note accrued at a higher rate because the amount had not been reduced.

The trust indenture provided that when the lender is in possession, rents received shall apply to the cost of management and then to the sums secured by the trust indenture. Instead of applying the sums in this manner, sums were merely documented in the ledger. Under the terms of the agreement, American Federal had the authority to apply rents received to the cost of management. Although American Federal expended $4,636.95 paying taxes, (not including an additional $433.29 on the first half taxes due in November of 1987), insurance, maintenance, utilities and repair expenses on the property, it did not deduct these costs from the general ledger account as provided for in the trust indenture. On the same note, it did not so apply the funds toward the interest nor the principal owed by Buck-land on the July note. American Federal argues that it let the funds lay dormant in the account because there were never enough rental receipts at any one time to pay oif interest accrued on the note. While we do not condone the handling of the funds in the general ledger account, the evidence under these circumstances is insufficient to hold that American Federal breached its duty of good faith on this allegation.

Buckland also contends that American Federal breached its duty of good faith and fair dealing in settling the mechanic’s lien for $10,500.00. The original bid for rewiring the Rodney Street building was $4,700.00. Due to unanticipated problems, Blackfoot billed Buckland $9,148.74. Buckland, who proposed to sell the property, needed American Federal’s approval since it had a security interest therein. Hence, American Federal negotiated the settlement, with Buckland’s input, for $10,500.00, which included the lien plus costs. Buckland objected to this amount. However, the settlement of the lien was necessary before the exchange could take place since a mechanic’s lien is prior to a trust indenture. See Home Interiors, Inc. v. Hendrickson (1984), 214 Mont. 194, 692 P.2d 1229. Buckland, an experienced real estate broker, opted to go through with the settlement, although he found it objectionable, in order to facilitate the Rodney Street property exchange and admitted that the settlement was in his own best interests. We cannot, therefore, hold that a breach of American Federal’s duty on this contention is founded.

Buckland did not establish by a preponderance of the evidence that American Federal breached its duty of good faith and fair dealing. The evidence is insufficient.

The last issue raised on appeal is whether American Federal was entitled to foreclosure of its July 1983 note secured by a trust indenture on Buckland’s Billings Avenue property.

As noted, Buckland’s Billings Avenue property was subject to four trust indentures upon transfer. A first trust indenture secured the payment of the July note in the amount of $29,700.00 with interest at 13 Vi percent per annum, payable in monthly installments at $358.60. Payments were to begin August 1, 1983.

On September 2, 1983, American Federal sent Buckland a letter stating that the loan payment had not been received. Buckland proceeded to make payments in the total amount of $3,644.46 for 1983. In January of 1984, Buckland made only two payments toward the July note — one in the amount of $291.60 and the other in the amount of $67.00. No further payments were made by Buckland toward the July note.

On April 5, 1984, American Federal once again sent a letter to Buckland informing him that his loan payment was delinquent. On September 19, 1984, American Federal sent Buckland a letter which broke down amounts due on both the July and August notes. The letter also stated that American Federal was willing to work with Buckland on the notes but required a response by September 30, 1984, or it would proceed with foreclosure.

Buckland did respond on September 24, 1984, stating that rents from his Billings Avenue property were to be deposited by the current manager of the building, Patzer, and were to be “applied to the loans.” On October 29, 1984, American Federal responded that it would first apply the rents to the August note until paid off and then to the July note. American Federal added that as long as “rent continues to come on a regular basis the foreclosure will be held off.”

However, early in 1985, management of the property was turned over to Steve Schmitz. Under his management, there were vacancies and problems with remitting rents collected to American Federal. In August of 1985, Schmitz turned management over to American Federal. American Federal applied the rents first to the August note, which was paid in full in September of 1985, and the trust indenture was released. Through November of 1987, American Federal collected rents in the amount of $9,734.81 which were placed in a non-interest bearing general ledger account. As noted, the funds could have been used towards American Federal’s costs of managing the Billings Avenue property but were not. Although we disagree with the handling of the funds, the funds, if applied to the July note, would still have been insufficient to bring the note current. The foreclosure was proper.

Neither Buckland in his appeal nor American Federal in its cross-appeal proved the District Court’s findings to be clearly erroneous. We will not disturb the court’s findings.

A problem remains as to the amount due on the July 1983 note. The note was for $29,700.00 which included sums improperly carried forward on the Blackfoot mechanic’s lien. A recalculation on the amount due by Buckland is necessary. We note that when recalculation occurs consideration must be given to principal, interest, late charges, expenses of managing the Billings Avenue property, and sums remaining in the general ledger account.

Affirmed in part and remanded for a recalculation on amounts due under the trust indenture.

MR. CHIEF JUSTICE TURNAGE and MR. JUSTICES HARRISON, SHEEHY and McDONOUGH concur.