*1 COMPANY, TRAVELERS INSURANCE Corporation, A Connecticut Respondent, Plaintiff v. CENTER VILLAGE SHOPPING HOLIDAY a Montana PARTNERSHIP, LIMITED partnership; limited SEVEN, INC.; SIX SIXTY MONTANA; HILL COUNTY, ROBERT W. BROWN; RECTOR; ROBERT L. CLARKE BOHN; OLIVER; F. JACK RICHARD STREEPER; PARTNERSHIP, and O.B.S. Appellants.
Defendants
No. 95-152.
Argued April
1996.
Submitted June
1996.
January 30,
Rehearing
1997.
As Corrected on Denial of
16, 1996.
Decided December
St.Rep.
1372.
For Daniel Altman, Frank Dunn, Bozeman; Goetz, Madden & (argued); Boucher; Boucher, Havre; A. Altman & David Rice, G. Hill County- Attorney, Havre. Respondent:
For William A. Squires (argued), Randall C. Lester; Matteucci, Falcon, Lester, Squires & Great Falls.
JUSTICE LEAPHART Opinion delivered the of the Court. (collectively HVSC), Appellants appeal from the Amended Find- Fact, ings Law, Conclusions of Judgment, and Decree of Foreclo- sure entered the Twelfth Court, County, Judicial District foreclosing subject their interest property and ordering a sheriff’s sale. We reverse and remand.
We restate the issues raised HVSC as follows: determining 1. Did the District Court err in that HVSC’sinterest subject property subject was to Travelers’ liens? 2. Did the District Court err determining that the subordination granted executed HVSC security Travelers a subject in the fee to the property? the District Did Court err in determining that the leases were
terminated and that Travelers would be entitled to relief from forfei- ture?
4. Did the District Court err in not requiring the delinquent real paid taxes to be out of the proceeds foreclosure sale and in *3 ordering that the costs attorneys’ and fees would be assessed at a later date? Summary
Factual This case arises out of complicated a dispute relating to the financing Holiday Village Shopping Havre, Center located in following Montana. The facts are parties’ taken from the statement stipulated 1975, of Beginning County, Montana, facts. Hill and several adjoining landowners, Brown, Rector, Bohn, Oliver, and (M Streeper, entered into lease agreements with M & M Enterprises M)& the land covering upon Holiday Village which was constructed. agreements The lease had been they modified several times since were executed. 1978,
In the of Hill spring adjoining and the landowners executed and delivered agreements to Travelers. agreements These were executed on M & M’sbehalf so that Travelers necessary would advance the funds shopping to construct the mall. May 1978, In of M & M promissory executed and delivered a note to note, payment promissory Travelers. Tosecure ofthe M &M executed 1980, In of M & M to Travelers. October and delivered Northwestern Union Trust oflease in favor of assignment executed an LIC, day, assigned the lease to Inc. (NWU); the same NWU Company (LIC). warranty deed to time, special M & M executed a At the same and subject property NWU sub- conveying its interest NWU M & M also executed an conveyed its interest to LIC. sequently all of its interest ground giving of lease NWU assignment ground subsequently the leases were as- Again, estates. leasehold in the leasehold 1986, assigned LIC its interest to LIC. In signed 1, 1990, June LAACO LAACO, May Ltd. On 30 and and assignment agreement into an Holiday Village entered Holiday Village entered into an as- Travelers and conveyance and and consent. sumption due under the lease required payments the failed to make
HVSC therefore, landowners; adjoining the County and to to Hill of spring In the in default. HVSC was to make the of default for failure issued notices adjoining landowners A receiver was under the terms of leases. due required payments monthly has made in March of 1993 and manage HVSC appointed the financial condition of regarding the District Court reports to appointment. his HVSC since judgment on the complaint seeking 1992, Travelers filed its
In
security interest
in both
of its
monetary obligation and foreclosure
general
HVSC and its
April
In
personal
the real and
entry
judgment
Seven, Inc., consented
Sixty
Six
partner,
Thus,
is no
interest.
HVSC
of its
and foreclosure
favor of Travelers
remaining
all of the
appeal.
the instant
litigating
longer
moved
County,
adjoining
landowners
Travelers, Hill
parties,
ordered that
The District Court
summary judgment.
for
Seven,
Sixty
pursuant
Inc.
and Six
against HVSC
recover a
did not act as sureties
County and Brown
that Hill
stipulation
leases,
and that
ground
terminate
properly
did not
monthly
rent
recover
adjoining landowners
County and the
to the date of
their leases
under the terms of
due
payments
subject prop-
that the
Court ordered
Finally, the District
judgment.
County and the
Subsequently,
sheriff’s sale.
sold at a
erty be
appeal.
filed
instant
landowners
adjoining
*4
review
Standard of
we use
summary judgment
grant of
district court’s
reviewing a
by
court;
guided
arewe
by
used
the district
as that
criteria
the same
221
56,
Chilberg
(1995),
414, 416,
Rule M.R.Civ.P.
v. Rose
273 Mont.
903
1377,
City
(1993),
1378-79
Minnie v.
(citing
Roundup
P.2d
257
of
214).
429, 431,
212,
Thus,
Mont.
849 P.2d
we determine whether a
of material fact
genuine
moving party
issue
exists and whether the
Chilberg,
is entitled to
as a matter of law.
In the instant the District Court “[t]o determined that this extent resolution of matter turns on the construction and inter instruments, of written such a determination is a matter of pretation reviewing law, law.” In a district court’s conclusions of we determine interpretation Stratemeyer whether the court’s of the law is correct. County (1996), 67, 70-72, 175, 276 v. Lincoln Mont. 915 P.2d Co., (citing (1995), Carbon v. Union Reserve Coal Inc. 469, Steer, 459, 680, 686); Mont. 898 P.2d Department Inc. v. (1990), 470, 474-75, Revenue 803 P.2d 603-04.
Discussion appeal hinges Resolution of upon interpretation an subordination agreements by executed in 1978 Hill and the landowners in adjoining agree- favor of Travelers. The subordination County1 provides part ment with in relevant that:
SUBORDINATION AGREEMENT WHEREAS, undersigned, County, Montana, political a Montana, having Havre, subdivision of the State of an address of Montana, is the in fee simple property owner absolute of the real County, Montana, situated in Hill more on particularly described hereof, A by part Exhibit attached hereto and this reference made a WHEREAS, 29,1975, dated undersigned August lease Agreement dated November supplemented Supplemental August 29, 1975 has leased the parties and executed Enterprises, real to M & M hereinbefore described Partnership; Montana substantially adjoining landowners is identical The subordination with the County. with
WHEREAS, M & M Enterprises applied has to the Travelers Company, Insurance a Connecticut corporation, hereinafter re- ferred to as Travelers for a loan in the amount of FIVE MILLION EIGHT HUNDRED FIFTY THOUSAND and No/100 DOLLARS February ($5,850,000.00) with interest, evidenced a note dated 8, 1978 and secured by a mortgage on the Lessee’s interest hereinbefore described real property of even date with said note June, and recorded on the 14th dav of 1978. in Book 140 of Mortgages on Page Document Records of the Clerk and Recorder of County, Montana, Hill and
WHEREAS, Travelers is unwilling to make said loan or advance funds thereon unless it is assured that the above described mort- gage upon shall be a lien undersigned’s simple title in the fee hereinbefore described real property and unless the undersigned gives Travelers the assurances forth, hereinafter set and
WHEREAS, undersigned willing is to subordinate its fee simple title to said real property to said mortgage and willing is give assurance, such NOW, THEREFORE, in consideration the making said loan of of ENTERPRISES,
to M & M and to induce Travelers to advance thereon, the undersigned hereby subordinates all right, its funds of title and interest in and to said real property to the lien said of mortgage agrees that said mortgage shall continue to be a first upon lien said prior superior in right any right, title and interest the undersigned in and to said real property. The of however, undersigned, shall not be liable for payment any of indebtedness seemed said or performance any of the covenants obligations or of the mortgagor thereunder. undersigned further assures Travelers that the under- signed will not terminate the above described lease without prior written consent of except in the case of a default thereunder M & M ENTERPRISES in which case the under- signed agrees give thereof, Travelers written notice specifying (90) the default and Travelers shall ninety days have after receipt of said notice within which default, to cure said and if the default cured within period, said or if the default is one which cannot be period, cured within said steps but are taken good during faith period diligently said pursued, the lease shall not be termi- [Emphasis [.] added.] nated County adjoining they and the landowners assert are agreements
sureties for M & M and that the subordination which Further, they mortgages. executed are not and the they landowners assert that were exonerated when Trav- adjoining M M from liability elers released & all without consent of Hill adjoining argues and the landowners. Travelers that the subordination subjected County’s and the agreements adjoining landowners’ fee agreements are, interests to Travelers’ lien and that the subordination fact, mortgages. Further, Travelers contends that the subordination any statutory right waive of exoneration. contentions, resolving parties’ the District Court concluded that the above-quoted creates a right statutory contractual foreclosure as well as a equitable mortgage an under Montana law it because was “executed *6 required grant with all the formalities for a of real property and the However, execution of a subordination mortgage.” agreements the purporting mortgage contain no words to an interest in 71-1-204, Section MCA. rule,
This Court has stated that
general
“[a]s a
construction and
interpretation
agreements,
including contracts,
of written
ques-
is a
(1994),
tion of law for the court to decide.” Klawitter v. Dettmann
268
275,281,886
416,420
Mont.
(citing
P.2d
First Sec. Bank Anaconda
387).
(1991),
148, 152-53,
v. Vander Pas
250
Mont.
818 P.2d
Similarly, it is a question
ambiguity
of law whether
exists in a written
Klawitter,
instrument.
(citing
dination do on their to be mortgages they [and that] [i]t was error for the district court to conclude that are without resort extrinsic mortgages agree. evidence.” We The Agreements District Court concluded that the “Subordination are unambiguous, and therefore the Court need not look to extrinsic interpretation evidence for of the same.” We that the hold District concluding Court erred in that the agreements subordination were “Subordination Agreement” not The documents are titled ambiguous. MCA, mortgages. 71-1-204, rather than sets forth the form of Section mortgage. operative a The verb in form is to § the documents “mortgage.” Although text of states fee “subordinated,” language purporting it does not contain interest is mortgagee security. to a “mortgage” property agreement only priorities A dictates the between interests, existing example for lien holders —it does not an by A “is a contract which property. mortgage specific interest performance act, of an without the hypothecated is for 71-1-101, necessity change possession.” of a Section MCA. The here has characteristics of both a subordination agreement at issue The in the fact that the mortgage. and a confusion lies mixes the of “subordinate” and concepts “mortgage” the adjoining that Hill landowners subordinate providing simple mortgage. interests to Travelers’ Subordinate means their fee order, class, having position or a lower “[p]laced in a lower rank... (6th scale; secondary, recognized minor.” Black’s Dictionary Law 1990). Since, definition, simple a fee interest is absolute and ed. limitation, an agreement purporting condition or “subor- without presents paradox; simple a fee can a fee simple dinate” limitation, placed be in a lower interest, which is absolute without Thus, secondary agreement?” a “subordination the lan- position or inherently internally agreements of the is inconsistent. guage holding agreements Court was incorrect in The District and that resort to extrinsic evidence was unneces unambiguous are Further, sary. language agreements ambiguous. adjoining landowners assert that had the extrinsic County and the that Travelers itself did not considered it would show evidence been mortgages. to be To resolve consider the subordination parties consider the intent of the at ambiguity, the court must this the execution of the instrument. As this Court has the time of mortgage] this intention create a [to “to establish recognized, surrounding Boysun Boy circumstances.” v. courts will examine 85, 88, (1962), 140 Mont. 368 P.2d sun *7 correctly 28-3-206, MCA, pro out that point
The dissenters § uncertainty, language the of the contract should vides that in cases of the caused the uncer interpreted strongly against party most who be noted, however, not a peremp It should be that this is tainty to exist. non-drafting party prevail that the tory require rule. It does not the Rather, interpretation requires it rule of that all cases. is a strongly” against drafting the the contract “most interpret court (1982), Standards Division example, in Landon v. Labor party. For 1341, 1343-44, the court 153, 158, 649 P.2d even after MCA, strongly most 28-3-206, interpreted and the contract applied § uncertainty who caused the employer party the as the against employer the conclusion that the was correct. exist, it still reached 28-3-206, MCA, case, mandates the present although § interpret agreement strongly against most Trav- District Court deciding whether the constitutes a subordination elers in necessarily mortgage, or a that statute does not dictate after consideration of the the outcome of the court’s deliberation extrinsic evidence. ground properly leases terminated?
Were 13,1992, complaint filed its in this matter on November Travelers County Brown, February et al. issued their months before Hill and March, ground and 1993 notices of default on the leases. On June permission the District Court’s sought deposit pending lease into court resolution of the effect of the payments The court denied the agreements. request. agreements provide: The subordination period, If the default is one which cannot be cured within said but faith steps good during period diligently are taken said and pursued, terminated!.] the lease shall not be that, The District Court in light timely concluded of Travelers’ pursuit litigation request deposit funds with the District Court: faith, good grossly
Travelers so acted in and was not negligent or alleged by willful in its refusal to cure the defaults the Lessors. Therefore, properly terminated!.] leases were not ... ground The District Court’s conclusion that leases were not properly terminated is correct and it is therefore affirmed. Accord- County Brown, affirm the that Hill ingly, holding we also et al. monthly payments are entitled to receive the lease specified judgment.
Summary judgment against Holiday Village Shopping affirm the Center We Sixty Seven, speci- and Six Inc. in the amounts Partnership Limited 1(a) 1(h) Judgment and Decree of paragraph through fied in per provided interest at the rate of annum as Foreclosure with 12% Promissory Note. #16, the District Court stated: In its Conclusion of Law Brown, et al. did not act as sureties as defined 16. Hill (1993). 28-11-401, subject Subor- by Section Mont. Code Ann. Agreements dination were executed for benefit of Brown, obligations under the part et al. as of their contractual *8 to the subject ground by leases induce execution of the same the M], securing Mitchells ofM & thus a benefit [co-partners unto Hill Brown, Subordination County Accordingly, subject and et al. the extinguished were not or exonerated Agreements the release liability Enterprises of M & M and the Mitchells from from the Promissory and Mortgage. Note County Brown, District Court’s conclusion that Hill et al. not, of the specific ground
were under terms leases and the agreements, acting as sureties is correct and is there- Accordingly, Brown, fore affirmed. et al. were not Enterprises the release of M & M and the exonerated Mitchells Promissory and Mortgage. from the Note of the District Court insofar as it We reverse holds create a agreements right the subordination contractual foreclosure, statutory or an equitable mortgage with appellants’ fee interest in the real In that the regard attorneys’ is dependent upon court’s award of costs and fees its mortgages, that the constitute that award is also holding reversed.
Accordingly, we reverse and remand District Court for which, although presented, of the extrinsic evidence consideration determining was not considered whether subject are adjoining landowners’ fee interests foreclosure. Reversed and remanded. GRAY, HARKIN, ERDMANN and DISTRICT JUDGE
JUSTICES JUSTICE HUNT concur. sitting for specially concurring: TURNAGE
CHIEF JUSTICE majority, remanding reached this I concur with the result District Court to consider extrinsic evidence con- case to allow the the “Subordination entering Agree- intent cerning parties’ confident, from the evidence in the record thus far I am ment.” surrounding execution “Subor- concerning the circumstances parties that the intended to create a lien under Agreement,” dination fee title to the on which on the the terms of located. center is shopping dissenting. TRIEWEILER JUSTICE that the subordination majority’s from the conclusion
I dissent requires extrinsic ambiguous interpretation and that its agreement did plain nothing that the terms of evidence. I conclude than County’s more subordinate Hill fee right Travelers’ to foreclose on the lessee’s leasehold interest.
Furthermore, ambiguity event of an in the subordination agreement, statutory Montana’s require case law that uncertain- ties be against resolved the drafter of the document, which in this *9 case was Travelers Insurance Company. For reasons, these I would reverse the judgment of the District Court and enter summary Hill County. for
The subordination agreement by which was executed County Hill in favor of Travelers Company Insurance acknowledged that Hill County subject owned the property in fee simple absolute, but had leased it on August 1975, to M & M Enterprises, a Montana partnership. then acknowledged that M & M had mortgaged its lessee’s loan interest in that property as security for a given by Therefore, Travelers. in the event that M & M defaulted from its obligation repay to loan, Travelers had a right to foreclose on M & M’s leasehold interest.
M & M’s leasehold interest gave it the right to occupy land owned County Hill in fee simple for a period fifty years from October 1, 1975, and build a shopping center on that land. It obligated also M & M to pay rent to Hill County in $20,360 the amount of annually after completion of the shopping center. There were various other terms and conditions set forth in the written agreement. lease How- ever, the leasehold interest was limited to the rights for provided in that agreement and did not include a fee simple interest in the property owned Hill County.
As the lessor and owner of the real estate on which shopping center built, was to be County rights also had pursuant agreement. lease It had right rent, receive right it had the possession to retake of the property in the event that the rent was paid. not
By the written subordination agreement, County agreed, in consideration of Travelers’ loan M, to M & to
[subordinate] all of right, its title and interest in and to said real property to the lien of mortgage said agrees said shall continue to be a upon first lien property prior said superior right any in right, title and interest of the undersigned in and to said real words,
In other simply agreed to defer the enforcement rights of its property to Travelers’ right enforcement of its foreclose on the leasehold A interest. subordination agreement agreement by party having
“an which a a superior right of some agrees having that, sort with someone an inferior right as between them, the inferior right the two of shall be treated as if it were superior.” By executing agreement,
... a lien subordination the subordinat- to demote the ing party agrees priority of its lien to that of another creditor, thereby secured its delaying recourse to the identified until the party’s collateral other secured claim has been satisfied. (Bankr. 1990), In re Lantana Motel S.D. Ohio B.R.
(citation omitted).
However, agreement required while subordination that Hill property during defer its interest in the the term of the leasehold, have, by plain terms, given it could not its any Travelers greater pursuant interest than it had to its compelled by with M & M. That conclusion is the fact that only County only had an interest the leasehold and Hill agreed to defer to Travelers’ leasehold interest. Travelers had no estate, fee simple and none was created agreement.
A to the presented similar issue was United States District Court in for the District of Idaho Old Stone v. John Capital Corp. Hoene (D. 1986), Idaho 647 F. Implement Corp. Supp. 916. (JHI) case, Implement
In that John Hoene Corporation leased property gave from Davis. JHI then a institution a deed of lending operating Davis, trust on its leasehold interest to secure an loan. loan, agreed an inducement for the to subordinate her interest in the lending security to the institution’s interest in the leasehold. lending sought defaulted and the institution on JHI foreclose in simple Davis’s fee interest The Federal District Court that agree- for the District of Idaho first concluded the subordination mortgage simple create a interest in Davis’s fee ment could not estate. However, Stone, language 647 F. at 919. in relevant to the Supp. Old case, in it also concluded that since the lender never had issue this property, acquire an interest in the fee title to Davis’s it could not by virtue of fact that Davis simply kind of interest subordinated it, interest, rights were attendant to the- her fee and whatever held interest in the leasehold. The court as follows: mortgage lender’s summary, the nature of a subordination is such competing must have a interest beneficiary of the subordination which, subordination, to that becomes senior which, after case, Old subordination, interest. In this was the senior before fee an interest of never had lending institution] [the Stone a mortgage to the leasehold only pursuant but property, Davis’s subordination, Old After the the leasehold. interest in junior to Davis’s inter- superior became in the leasehold Stone’s interest nature, of subordination By very the vehicle its est in the leasehold. in the fee. In order an interest grant used to Old Stone could not be trust estate, mortgage or deed of in Davis’s fee an interest to have was executed. executed. No such instrument have been must cannot be elevated Further, agreement the subordination the formalities deed of trust since it lacks mortgage or position of agreement The subordination under Idaho law. required of such fee, upon law, grant any interest not, as a matter of could had, only Foreclosure is be to Old Stone. foreclosure could which affecting the leasehold. the deed of trust possible on Stone, Supp. 647 F. at Old County’s in Hill case, Travelers had no interest in this
Likewise County’s with Hill lessee. mortgage agreement on its fee title based mortgage Travelers’ Therefore, County agreed to defer to when its as lessor nothing rights to do more than waive interest, agreed it freely so that Travelers could period of the lease during competition without from security its interest the leasehold enforce interest. These facts are clear from superior on its based require reversal of the subordination plain terms County. for Hill entry summary judgment of the District Court concludes, if, language of the However, majority “[t]he as the even the result must be the same. ambiguous,” documents, mortgage create a and if it intended to prepared doing so clear County’s property, capable it was interest how to create a fact that it was aware of language. The that it drafted and from the document is evident & M’s mortgage interest in M by M & M to create a had executed estate. leasehold MCA, 28-3-206, provides:
Section of this by parts through uncertainty not removed In cases of *11 most interpreted should be of a contract language chapter, The uncertainty to exist. caused the party who strongly against of a that in the case except party, to be such presumed promisor such, body, private and a officer or public contract between it is all party, presumed uncertainty that was caused by private party. repeatedly
We have also held ambiguous that contracts should be against party See, resolved that that e.g., drafted contract. Topeo, (1996), 360, 805, Inc. v. State 275 Mont. 810; P.2d Mueske v. (1993), Piper, Jaffray Hopwood, 207, 216, & Inc. 859 P.2d 449-50; Paul Cumiskey (1983), St. Fire & Marine Ins. Co. v. 350, 363, Mont. 665 P.2d majority not opinion does address the standard rule regarding However, contracts.
ambiguous when rule is it applied, clearly construing the requires subordination in favor of Hill County and Travelers’ against implausible suggestion sub- merely ordination was not agreement, but mortgage agreement, was in fact a though even it makes no mention any conveyance. language of a nor includes reasons, these I I majority opinion. For dissent from would the judgment reverse of the District Court and enter summary favor Hill on the issue of whether Travelers County’s in Hill has a joins foregoing NELSON dissenting opinion. JUSTICE