No. 88-306
I N THE SUPREME COURT OF THE STATE O F MONTANA
1988
VERN D . WARNER a n d BERNICE M . WARNER,
P l a i n t i f f s , Counter-Deqendants
and A p p e l l a n t s ,
-VS-
MICHAEL L . PETERSON,
Defendant, Counter-Claimant and
Respondent,
APPEAL FROM: D i s t r i c t C o u r t of t h e T w e n t i e t h J u d i c i a l D j . s t r ? c t ,
I n and f o r t h e C o u n t y o f S a n d e r s ,
T h e H o n o r a b l e C . R . M c N e i l , Judqe p r e s i d i n g .
COUNSEL O F RECORD:
For Appellant:
G r e g L. Ingraham, R o n a n , Montana
F o r Respondent:
S n a v e l y a n d P h i l l i p s ; R o h e r t J. P h i l l i p s , M i s s o u l a ,
Montana
S u b m i t t e d on B r i e f s : Sept. 9, 1988
Decided: October 17, 1988
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This appeal from the Twentieth Judicial District, in and
for the County of Sanders, arises from a dispute over a
contract for the sale of property near Noxon, Montana. We
affirm.
The relevant facts are as follows: Appellants Warners
agreed in writing to sell the Bull River Resort to respondent
Peterson on an installment. basis. The agreement provided for
an award of attorney fees and litigation costs to the winner
of any dispute arising from the contract.
Peterson stopped making payments for the property
following a dispute with Warners. Warners sued to enforce
t.he contract's forfeiture provision. Peterson counterclaimed
for damages and in the alternative petitioned to rescind the
contract alleging failure of consideration and
misrepresentation on the part of Warners.
The parties tried their claims before a Sanders County
jury. During trial Warners mortgaged the subject property to
their attorney to secure attorney fees owed by Warners.
The jury granted rescission for Peterson. Peterson
moved for attorney fees and litigation costs. The District
Court granted Peterson's motion and incorporated the award in
its judgment entitling Peterson to the return of funds paid
for the property. The judgment ordered payment within 3 0
days. The judgment also provided for satisfaction by
foreclosure of the contract property in the event Warners
failed to pay within 3 0 days.
Warners failed to pay the judgment. Except for the
contract property, Warners have no means to satisfy the
judgment. The sale of the property may or may not provide
sufficient funds to cover both parties' attorney fees.
Peterson filed a motion to determine priorities.
Pursuant to the motion, the District Court held that
Peterson's award of attorney fees and costs was part of a
purchaser's lien which took priority over the mortgage filed
during the course of the litigation to secure Warners'
attorney fee debt. This decision is the the only alleged
error. We affirm.
The District Court applied 7'1-3-1302, MCA, which
reads:
Purchaser's lien on real property. One who
pays to the owner any part of the price of real
property, under an agreement for the sale thereof,
has a special lien upon the property, independent
of possession, for such part of the amount paid as
he may be entitled to recover back, in case of a
fai1u;e of consideration.
Section 71-3-1302, MCA (emphasis added). The lower court
held that the statute's "amount paid" included the award.
The parties agree that if the award of attorney fees and
litigation costs is considered part of the "amount paid",
then Peterson's award of costs and fees has priority over
Warners' mortgage.
The lower court also held that considerations of equity
mandated priority of Peterson's award of fees and costs over
Warners' mortgage. The lower court reasoned that under the
circumstances of this case, it would be unfair to allow the
mortgage to defeat the parties' agreement to award fees and
costs to the winner of a lawsuit arising from the contract.
Warners contend that. the lower court erred by holding
that the lien created by the statute includes Peterson's
costs and fees. To support this argument, Warners cite cases
holding the lien limited to expenditures made to purchases
which improve the contract property. See Occidental Realtv
Co. v. Palmer (N.Y. 1907), 102 N.Y.S. 648, 652 (lien does not
include fees for examining title of contract property) ;
Ungrich v. Shaff (N.Y. 1907), 105 N.Y.S. 1013, 1016 (lien
does not include award of attorney fees).
Peterson responds that New York authority provides too
restrictive a reading of the Montana statute. According to
Peterson, the California Supreme Court, interpreting an
identical statute, has included expenditures similar to
litigation costs and attorney fees in the lien. See
Montgomery v. Meyerstein (Cal. 1921), 199 P. 800, 802
(expenditures for taxes and insurance included in the lien).
Peterson characterizes Montgomery as holding that
expenditures for improvements, taxes, insurance, maintenance,
"and any other amounts expended in reliance upon the
contract" must be included in the lien. Peterson also points
out that the award for litigation costs and attorney fees
compensates for expenditures as provided by the contract.
Better stated, the California Supreme Court's decision
in Montgomery held the purchaser entitled to a lien equaling
"the amount of purchase money paid by her and the
expenditures she made upon the property, including the taxes
and insurance". Montgomery, 199 P. at 802. The decision
also states that the purchaser's lien may include the return
of what has been paid in performance of the contract.
Montgomery, 199 P. at 803.
Generally, a purchaser's lien attaches to the contract
property to facilitate recovery of such funds as the
purchaser may be entitled to recover, including expenditures
for insurance, taxes, and maintenance. 92 C.J.S.
Vendor & Purchaser 556 (1955). Section 71-3-1302, MCA,
conforms to the general rule by directing that the lien equal
the amount of the purchaser price already paid by the
purchaser. We agree with the California Supreme Court that
in the appropriate case, money expended on taxes, insurance,
and maintenance mav be considered part of the amount O F the
purchaser price paid under the statute.
Ilowever, an award of costs and fees is not part of the
value of partial performance which the statute intends to
include for recovery through the lien. To stretch the
language of the statute to include the award at issue here
would be to insert what has been omitted in violation of 5
1-2-101, MCA. Thus, we hold that the District Court decision
may not he affirmed on its interpretation of S 71-3-130?,
MCA .
Nevertheless, we agree with the District Court that the
equities in this case favor payment of Peterson's fees and
costs over Warners' mortgage. Rescissionary remedies
properly require such restoration from the losing party to
the party entitled to rescission "as is reasonably possible
or as may be demanded by equity." Carey v. WaLlner (Mont.
1986), 725 P.2d 557, 561, 43 St.Rep. 1706, 1711.
Furthermore, although no lis pendens was filed here, the
actual knowledge of Warners and their attorney from the time
of service of process that litigation involving the contract
property was pending, and the actual knowledge that one
possible result of the litigation would be an award of fees
and costs by virtue of the terms of the contract, "subjects
them to the results of that litigation in the same way that
the constructive knowledge imparted by the lis pendens does".
Tuft v. Federal Leasing (Utah 1982), 657 P.2d 1300, 1303.
Thus, we affirm because the equities favor Peterson, and
because the actual knowledge o f the pendency of the suit
prevents Warners and their attorney from circumventing the
ultimate result of the litigation.
Affirmed.