First Interstate Bank of Kalispell, N.A. v. Wann , 235 Mont. 111 ( 1988 )

NO. 88-294
IN THE SUPREME COURT OF THE STATE OF MONTANA
1988
FIRST INTERSTATE BANK OF KALISPELL,
N.A., a National Ranking Association,
Plaintiff and Respondent,
-vs-
DWAYNE B. F7ANN and KATHY A. WANN,
Defendants and Appellants.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable Michael Keedy, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Warden, Christiansen, Johnson & Rerq; Gary R.
Christiansen, Kalispell, Montana
For Respondent:
Murphy, Robinson, Heckathorn & Phillips; Steve F .
5 Cumminqs ,
, K ! ispell, Montana
a
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Submitted on Briefs: Oct. 27, 1988
Decided: December 8, 1988
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Filed: s1
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*
Clerk
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.
Defendants appeal from the grant of plaintiff's motion
for summary judgment and the subsequent judgment against the
defendant in the amount of $10,262.45 entered by the District
Court of the Eleventh Judicial District, Flathead County,
Montana. We affirm the judgment.
The sole issue upon appeal is whether the plaintiff, as
holder of a promissory note secured by a junior trust
indenture, is barred from recovery upon the note after the
holder of the senior trust indenture foreclosed upon and sold
the indentured property?
The parties in this case do not dispute the facts,
which are summarized as follows. On September 14, 1984, the
defendants, Dwayne and Kathy Wann, purchased a house and
assumed the existing first trust deed executed in favor of
Alliance Mortgage Company. The Wanns also signed a
promissory note in favor of First Interstate Rank of
Kalispell (Bank). This note was secured by a second trust
deed on the house purchased by the Wanns.
The Wanns failed to make the semi-annual payments due
on the Bank note, so the Bank renewed the note on October 22,
1985, with a monthly payment schedule. The Wanns also failed
to make payments on this renewed note and on the note held by
Alliance Mortgage. Alliance Mortgage consequently began
foreclosure proceedings on the first trust deed. On February
20, 1987, Alliance Mortgage purchased the indentured house at
the foreclosure sale with the high bid. The Bank did not bid
at this auction.
The Bank thereafter filed suit against the Wanns for
nonpayment of the amount owing on their promissory note --an
unsecured note hv reason of the sale of the indentured
property by the owner of the first trust deed. On December
10, 1987, the Bank filed a motion for summary judgment. The
Wanns subsequently filed a similar motion.
On February 18, 1988, the court granted the Bank's
motion for summary judgment. Judgment was entered on April
5, 1988 against the defendants in the amount of $10,262.45.
This amount reflected $7,338.93 in principal owing on the
note, $1,123.52 in interest accrued since June 10, 1986, and
$1,800 in costs and attorneys' fees. The Wanns appeal from
this judgment.
A court may grant a motion for summary judgment if no
genuine issue of any material fact exists and if the moving
party is entitled to a judgment as a matter 05 law. Rule
56 (c), M.R.Civ.P. ; Vogele v. Estate of Schock (Mont. 1987) ,
745 P.2d 1138, 1141, 44 St.Rep.
1950, 1953. In the present
case, both parties admit that no material issue of fact
exists. We therefore need only determine whether the
District Court was correct in holding that the plaintiff was
entitled to a judgment as a matter of law. We will not
overturn this holding unless the District Court abused its
discretion.
Appellants contend that the District Court erred in
entering a judgment against them for the amount still owing
upon the promissory note because the Bank is prohibited from
seeking a deficiency judgment for the remaining balance due
upon the Bank's note once the holder of the first trust deed
has foreclosed upon the indentured property. Appellants cite
to the case of First State Bank of Forsyth v. Chunkapura
(Mont. 1987), 734 P.2d 1203, 44 St.Rep. 451, as support for
this contention.
We note at the outset that the holding in the
Chunkapura case is inapposite to the case at hand. The Court
in -
Chunkapura stated that the creditor institutinq a judicial
foreclosure upon an occupied, single family residential home
under a trust deed may not seek a deficiency judgment.
Chunkapura, 734 P.2d at 1208, 1210. This holding applies
onlj~to the foreclosing creditor. It does not apply to a
creditor, such as the Bank, holding a note which is no longer
secured because of a foreclosure action taken by another
creditor possessing a first trust deed.
The statutory prohibitions against deficiency judgments
after foreclosure by advertisement and sale upon a note
secured by a trust indenture similarly apply only to the
foreclosing creditor. As stated in § 71-1-317, MCA:
When a trust indenture executed in
conformity with this part is foreclosed
by advertisement and sale, no other or
further action, suit, or proceedings
shall be taken or judgment entered for
any deficiency against the grantor or his
surety, guarantor, or successor in
interest, if any, on - note, bond, or
the
other obligation secured by - trust
the
indenture or against any other person
obligated on such note, bond, or other
obligation. (Emphasis added.)
Use of the definite article, "the," plainly indicates that
only the creditor possessing the foreclosed note and trust
indenture is prohibited from seeking a deficiency judgment or
maintaining any other action for amounts still owing on the
secured note. This statutory interpretation is in keeping
with existing case law which has generally held that a second
lienholder whose lien is extinguished by the foreclosure of a
first lien may maintain a direct action on the note. See,
e.g., Avco Financial Services v. Christiaens (1982), 201
Mont. 2 1 7 , 652 P.2d 220; Bailey v. Hansen (1937), 105 Mont.
552, 74 P.2d 438; Rrophy v. Downey (1902), 26 Mont. 252, 67
P. 31.2.
The foreclosure by Alliance Mortgage through no fault
of the Rank, extinguished the Rank's security interest in the
Wanns' house. The Rank, with an extinguished lien on the
house, was thus entitled to sue directly on the note. The
Rank did just that. We therefore hold. that the District
Court, as a matter of law, did not err in granting the
plaintiff's motion for summary judqment under the facts of
this case.
The judqment is affirmed.
We concur:
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