No. 13429
I N THE SUPREME COURT O THE STATE O M N A A
F F O T N
1977
ROBERT J . HOSTETTER and ELDON
H. LEEP, d / b / a D T H TOUCH,
UC
P l a i n t i f f s and A p p e l l a n t s ,
INLAND DEVELOPMENT CORPORATION O F
MONTANA, a c o r p o r a t i o n , and B I G S K Y
O MONTANA, I N C . , a c o r p o r a t i o n ,
F
D e f e n d a n t s and R e s p o n d e n t s .
Appeal from: D i s t r i c t Court of t h e Eighteenth J u d i c i a l
District
H o n o r a b l e W. W. L e s s l e y , J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appellant:
B e r g , A n g e l , A n d r i o l o a n d Morgan, Bozeman, Montana
Ben E . Berg a r g u e d and R i c h a r d J . A n d r i o l o a r g u e d ,
Bozeman, Montana
For Respondents:
Thomas I . S a b o , Bozeman, Montana
Brown, P e p p e r a n d Kommers, Bozeman, Montana
Gene I . Brown a r g u e d , Bozeman, Montana
F o r Amicus C u r i a e :
J . David P e n w e l l a r g u e d , Bozeman, Montana
K o l t e r , H e a t h and Kirwan, Bozeman, Montana
Submitted: J a n u a r y 11, 1977
Decided: :flAR i : JLJ/{
,
Filed: i
Mr. C h i e f J u s t i c e P a u l G. H a t f i e l d d e l i v e r e d t h e O p i n i o n o f
t h e Court.
T h i s i s a n a p p e a l from t h e d i s t r i c t c o u r t , G a l l a t i n
County, d e n y i n g a p p e l l a n t s ' f o r c l o s u r e on a m e c h a n i c ' s l i e n .
On A p r i l 22, 1974, a p p e l l a n t s , d o i n g b u s i n e s s a s Dutch
Touch, e n t e r e d i n t o a c o n t r a c t w i t h I n l a n d Development Cor-
p o r a t i o n o f Montana, a s u b s i d i a r y o f I n l a n d C o n s t r u c t i o n
C o r p o r a t i o n o f Minnesota. I n l a n d Development was t h e p r i m a r y
c o n t r a c t o r r e s p o n s i b l e t o Big Sky o f Montana, I n c . f o r t h e
G l a c i e r Condominium P r o j e c t l o c a t e d i n Meadow V i l l a g e a t Big
Sky, Montana. The p r o j e c t c o n s i s t e d o f 1 4 b u i l d i n g s which
housed 64 condominium u n i t s . The Dutch Touch c o n t r a c t i n v o l v e d
t h e c o n s t r u c t i o n of ceramic bathtub e n c l o s u r e s i n each i n d i v i d u a l
u n i t , w i t h no work o n t h e common a r e a s t o b e p e r f o r m e d . This
was a s i n g l e c o n t r a c t , t h e b a s i s o f payment t o be t h e t o t a l
number o f q u a r e f e e t o f t i l e l a i d . Dutch Touch commenced work
on t h i s c o n t r a c t d u r i n g A p r i l 1974.
On August 20, 1974, Big Sky f i l e d and r e c o r d e d a d e c l a -
r a t i o n o f u n i t o w n e r s h i p c o v e r i n g t h e Glacier Condominiums. Dur-
i n g September, O c t o b e r , and November, 1974, Big Sky s o l d 1 8 o f
t h e 64 condominium u n i t s t o t h i r d p a r t i e s .
Dutch Touch c o m p l e t e d t h e t i l e work on March 24, 1 9 7 5 ,
c l a i m i n g t h e amount d u e f o r l a b o r , m a t e r i a l , and s u p p l i e s t o
b e $14,554.60. A s o f J u n e 1 8 , 1975, Dutch Touch had r e c e i v e d
$13,038.12, l e a v i n g $1,516.48 u n p a i d . On J u n e 1 8 , 1 9 7 5 , Dutch
Touch f i l e d a s i n g l e m e c h a n i c ' s l i e n f o r t h e u n p a i d b a l a n c e
upon t h e r e a l p r o p e r t y and p r e m i s e s encompassing t h e 1 4 b u i l d -
i n g s and 64 u n i t s o f t h e G l a c i e r Condominiums.
On August 1 9 , 1 9 7 5 , Dutch Touch i n i t i a t e d a f o r c l o s u r e
a c t i o n i n d i s t r i c t c o u r t s e e k i n g a p e r s o n a l judgment a g a i n s t
I n l a n d Development on t h e c o n t r a c t and e n f o r c e m e n t o f i t s l i e n
a g a i n s t t h e i n t e r e s t o f Big Sky i n t h e G l a c i e r Condominiums. A
l i s pendens was a l s o f i l e d a t t h i s t i m e .
A t h i r d p a r t y a c t i o n was f i l e d by Big Sky a g a i n s t I n l a n d
C o n s t r u c t i o n on t h e p r i m a r y c o n t r a c t . The t r i a l on t h i s t h i r d
p a r t y c o m p l a i n t was suspended u n t i l t h e d e t e r m i n a t i o n o f t h e
l i e n foreclosure.
The d i s t r i c t c o u r t , s i t t i n g w i t h o u t a j u r y , e n t e r e d
judgment a g a i n s t Dutch Touch upon t h e f o l l o w i n g c o n c l u s i o n s o f
law: 1) T h a t t h e G l a c i e r Condominium P r o j e c t became s u b j e c t
t o t h e p r o v i s i o n s o f t h e Montana U n i t Ownership A c t , sections
R.C.M.
67-2301 e t s e q . , / 1 9 4 7 , by r e a s o n o f t h e f i l i n g o f t h e d e c l a r -
a t i o n by Big Sky on August 20, 1974; 2) t h a t a l i e n c o v e r i n g
t h e e n t i r e p r o j e c t was i n v a l i d u n d e r s e c t i o n 67-2324, R.C.M.
1947; and 3 ) t h a t Dutch Touch f a i l e d t o e s t a b l i s h a l i e n a g a i n s t
a n y i n d i v i d u a l u n i t i n t h e G l a c i e r Condominium P r o j e c t .
Two i s s u e s a r e p r e s e n t e d f o r r e v i e w : 1) Was Dutch
T o u c h ' s s i n g l e l i e n r e n d e r e d i n v a l i d when Big Sky f i l e d t h e
declaration? 2 ) Was Dutch Touch e n t i t l e d t o f o r e c l o s e a g a i n s t
o n l y t h o s e u n i t s owned by Big Sky f o r t h e e n t i r e amount o f t h e
lien?
This i s a c a s e of f i r s t impression, t h e i n t e r p r e t a t i o n
o f s e c t i o n 67-2324, R.C.M. 1 9 4 7 , a s it r e l a t e s t o a s u b c o n t r a c t o r ' s
l i e n a r i s i n g from work p e r f o r m e d and m a t e r i a l s s u p p l i e d d u r i n g
t h e i n i t i a l c o n s t r u c t i o n o f a condominium p r o j e c t .
The i n t e r e s t i n u n i t o w n e r s h i p l e g i s l a t i o n was g e n e r a t e d
by f e d e r a l l e g i s l a t i o n making F e d e r a l Housing A d m i n i s t r a t i o n
i n s u r a n c e a v a i l a b l e f o r condominiums, p r o v i d e d t h a t s t a t e l a w
concerning u n i t ownership e x i s t e d . 1 2 USCS § 1715 y ( a ) . FHA t h e n
p r o v i d e d a Model A c t which many s t a t e s , i n c l u d i n g Montana,
followed. The p r i m a r y p u r p o s e of t h i s condominium l e g i s l a t i o n
i s t o i n s u r e t h e c o m p a t a b i l i t y of such housing p r o j e c t s w i t h pre-
e x i s t i n g law. 77 Harvard L. Rev. 777 ( 1 9 6 4 ) .
Under t h e p r e - e x i s t i n g l i e n law o f Montana, Dutch Touch
would b e e n t i t l e d t o a b l a n k e t l i e n e f f e c t i v e a g a i n s t t h e e n t i r e
condominium p r o j e c t . T h i s i s s o s i n c e t h e work was performed
u n d e r o n e c o n t r a c t , and n o t a s e r i e s o f s e p a r a t e c o n t r a c t s f o r
each u n i t . C a i r d Eng. Works v . Seven-Up Min. Co., 1 1 Mont.
1
471, 1 1 P.2d 267 ( 1 9 4 1 ) .
1
W e must now d e t e r m i n e what e f f e c t s u b j e c t i n g t h e p r o p e r t y
t o t h e Montana U n i t Ownership A c t h a s upon t h e l i e n o f Dutch
Touch.
S e c t i o n 67-2324, R.C.M. 1947, s t a t e s :
" ( 1 ) S u b s e q u e n t t o r e c o r d i n g a d e c l a r a t i o n and
w h i l e t h e p r o p e r t y r e m a i n s s u b j e c t t o s e c t i o n s 67-
2302 t o 67-2342, no l i e n s h a l l a r i s e o r b e e f f e c t i v e
against t h e property. During s u c h p e r i o d l i e n s o r
encumbrances s h a l l a r i s e o r b e c r e a t e d o n l y a g a i n s t
e a c h u n i t and t h e u n d i v i d e d i n t e r e s t i n t h e common
e l e m e n t s a p p e r t a i n i n g t h e r e t o , i n t h e same manner
and u n d e r t h e s a m e c o n d i t i o n s a s l i e n s o r encum-
b r a n c e s may a r i s e o r b e c r e a t e d upon o r a g a i n s t a n y
other separate parcel of r e a l property subject t o
i n d i v i d u a l ownership.
" ( 2 ) No l a b o r p e r f o r m e d o r m a t e r i a l s f u r n i s h e d w i t h
t h e c o n s e n t o r a t t h e r e q u e s t o f a u n i t owner, h i s
agent, c o n t r a c t o r o r subcontractor, s h a l l be t h e
b a s i s f o r t h e f i l i n g of a mechanic's o r materialman's
l i e n a g a i n s t t h e u n i t o f a n y o t h e r u n i t owner n o t
consenting t o o r r e q u e s t i n g t h e l a b o r t o be performed
o r t h e m a t e r i a l s t o be f u r n i s h e d , e x c e p t t h a t c o n s e n t
s h a l l be c o n s i d e r e d g i v e n by t h e owner o f a n y u n i t i n
t h e c a s e o f emergency r e p a i r s t h e r e t o performed o r
furnished with t h e consent o r a t t h e r e q u e s t of t h e
manager.
" ( 3 ) I f a l i e n becomes e f f e c t i v e a g a i n s t two o r more
u n i t s , t h e owner o f e a c h u n i t s u b j e c t t o s u c h a l i e n
s h a l l h a v e t h e r i g h t t o have h i s u n i t r e l e a s e d from
t h e l i e n by payment o f t h e amount o f t h e l i e n a t t r i b -
utable t o his unit. The amount o f t h e l i e n a t t r i b u t a b l e
t o a u n i t and t h e payment r e q u i r e d t o s a t i s f y s u c h a
l i e n , i n t h e absence of agreement, s h a l l be determined
by a p p l i c a t i o n o f t h e p e r c e n t a g e e s t a b l i s h e d i n t h e
declaration. Such p a r t i a l payment, s a t i s f a c t i o n o r
d i s c h a r g e s h a l l n o t p r e v e n t t h e l i e n o r from p r o c e e d i n g
t o e n f o r c e h i s r i g h t s a g a i n s t any u n i t and t h e u n d i v i d e d
i n t e r e s t i n t h e common e l e m e n t a p p e r t a i n i n g t h e r e t o
n o t r e l e a s e d by payment, s a t i s f a c t i o n o r d i s c h a r g e . "
T h i s i s o n e s e c t i o n o f t h e e n t i r e U n i t Ownership A c t and
it i s t h e d u t y o f t h i s C o u r t t o i n t e r p r e t it i n s u c h a manner
a s t o insure coordination with t h e other sections of t h e A c t ,
and fulfill legislative intent. Doull v. Wohlschlager, 141
Mont. 354, 377 P.2d 758 (1963); Aleksich v. Industrial Acc.
Fund, 116 Mont. 127, 151 P.2d 1016 (1944).
Reading the Act in its entirety, it becomes apparent
that there are safeguards to insure that builders, mechanics,
and materialmen involved in the initial construction of a
project are to be fully compensated before individual units
are sold. Furthermore, Big Sky failed to comply with these
safeguards.
Section 67-2303.1 allows the sale of units prior to
the completion of construction of the "building", which the Act
defines as a multiple unit building. However, the money from
such sales must be placed in escrow. Disbursements cannot be
made from this escrow fund until completion of the building and
common elements or compliance with section 67-2303.2 through
2303.6, whichever occurs first. In any event, such disbursements
are to be only for cost of construction, legal, architectural and
financial feestand other incidental costs of the project. Sec-
tion 67-2303.1(4) then specifically states:
" * * * The balance of the moneys remaining in
the fund shall be disbursed only upon completion
of the building,.fYeeand clear of all mechanic's
and materialmen's liens. * * * " (Emphasis added.)
Big Sky did sell 18 units prior to completion of con-
struction, however it failed to deposit the moneys from these
sales in an escrow account as required, and failed to pay this
lien.
Section 67-2323 states:
"Blanket mortqaqes and other blanket liens affect-
ing unit at time of first conveyance or lease. At
the time of the first conveyance or lease of each
unit following the recording of the declaration,
every mortgage and other lien affecting such unit
including the undivided interest of the unit in
the common elements, shall be paid and satisfied
of record, or the unit being conveyed or leased
and its interest in the common elements shall be
released therefrom by partial release duly re-
corded. " (Emphasis added. )
Again Big Sky f a i l e d t o comply w i t h t h i s p r o v i s i o n .
A t t h e t i m e of i t s f i r s t s a l e Big Sky had n o t s a t i s f i e d t h i s
l i e n n o r d i d it o b t a i n a p a r t i a l r e l e a s e a s r e q u i r e d .
The l i e n of Dutch Touch a r o s e , a t t a c h e d and became
e f f e c t i v e a g a i n s t t h e p r o p e r t y when work was commenced, t h e
f i l i n g merely p e r f e c t s t h e l i e n . C o n t i n e n t a l Supply Co. v.
White, 92 Mont. 254, 266, 1 2 P.2d 569 (1932) s t a t e s :
" * * * The l i e n c o n s t i t u t e s an i n t e r e s t i n t h e
p r o p e r t y ; ' t h e f i l i n g e x t e n d s i t s l i f e and p r e -
s e r v e s it.
"'The l i e n a t t a c h e s t o t h e s t r u c t u r e as t h e l a b o r
i s performed o r t h e m a t e r i a l i s f u r n i s h e d and
e x i s t s w i t h a l l of i t s f o r c e a t a l l t i m e s between
t h e b e g i n n i n g o f t h e performance of l a b o r o r t h e
f u r n i s h i n g of m a t e r i a l u n t i l t h e e x p i r a t i o n o f t h e
t i m e w i t h i n which n o t i c e s of l i e n may be f i l e d . '
(Citation omitted.)
"The t r u e f u n c t i o n o f t h e l i e n i s t o p r e v e n t sub-
s e q u e n t a l i e n a t i o n s and encumbrances, e x c e p t i n
subordination t o i t s e l f . "
See a l s o B l o s e v . Havre O i l & G a s Co., 96 Mont. 450, 461, 31
P.2d 738 ( 1 9 3 4 ) . F u r t h e r m o r e , t h i s l i e n was o r i g i n a l l y e f f e c -
t i v e as a b l a n k e t l i e n a g a i n s t t h e e n t i r e p r o j e c t under t h e
Caird case. W e d i s a g r e e t h a t t h i s l i e n was r e n d e r e d i n v a l i d by
t h e f i l i n g o f t h e d e c l a r a t i o n , a s h e l d by t h e d i s t r i c t c o u r t .
I n s t e a d , w e a d h e r e t o t h e r a t i o n a l e o f t h e Wisconsin Supreme
C o u r t when t h e y f a c e d t h e i s s u e i n S t e v e n s C o n s t . Corp. v .
Draper H a l l , I n c . , 73 Wis.2d 104, 242 N.W.2d 893, 898 ( 1 9 7 6 ) .
The Wisconsin c o u r t was a l s o c o n f r o n t e d w i t h a m e c h a n i c ' s l i e n
based upon work performed d u r i n g i n i t i a l c o n s t r u c t i o n and a
U n i t Ownership Act w i t h a p r o v i s i o n t h e same a s o u r s e c t i o n
67-2324, R.C.M. 1947. The Wisconsin s t a t u t e , S 703.09 W.S.A.,
i s i d e n t i c a l t o o u r s e c t i o n 67-2324, with t h e i r § 703.09(2) t h e
same a s o u r s e c t i o n 67-2324 ( 3 ) .
Their decision i n Stevens s t a t e s :
" S t e v e n s and The Bruce Company a r g u e t h a t t h e i r
l i e n s a r o s e and became e f f e c t i v e when t h e excava-
t i o n s began i n September o f 1971. They contend
that no distinction should be made between when
a lien arises and when a lien becomes effective.
We agree with this proposition but it makes no
difference in terms of the rights of the claimant-
appellants in this case. The word 'effective',
in the context of construction liens, should be
interpreted to mean 'capable of bringing about an
effect.' A construction lien is capable of bring-
ing about an effect at the time it arises, that
is, when 'substantial excavation for the founda-
tions' of the new project begin, as provided in
sec. 289.01(4), Stats. The later events of giving
notice and filing, as required by sec. 289.06,
merely preserve and perfect a lien which is
already effective in the sense of being capable of
having an effect upon the liened land.
"Acceptance of this position of appellants does not
.
mean that sec. 703.09 (2) Stats., is inapplicable to
the facts of this case. On the contrary, we conclude
that this subsection still governs, even though the
cliamants' liens were first 'effective' in September
of 1971, before the condominium declaration was
recorded.
"Subsection (2) provides that a proportional lien
occurs whenever 'a lien becomes effective against
2 or more units.' Obviously the most frequently
occurring situation in which a lien will become
effective against two or more units is when repairs
are made to the common areas of the condominium
unit, and left unpaid. But we conclude that a lien,
originally effective as a blanket lien against the
whole property, becomes effective against two or more
units within the meaning of sec. 703.09(2), Stats.,
when the property is made subject to the provisions
of ch. 703 by the filing of a condominium declara-
tion before the initiation of foreclosure proceedings
against the property as a whole.
"Thus it is not critical that the filing of the lien
claims came after the condominium declaration was
filed, as the trial court decided. Even if the claims
were filed before the condominium declaration was
recorded, only proportional liens would attach to the
individual units. On the other hand, if foreclosure
proceedings are begun before the condominium declara-
tion is recorded, and a lis pendens filed, the situ-
ation is frozen so that the subsequent recording of
a declaration does not transform the blanket lien
into a proportional lien on individual units."
Likewise, the mechanic's lien filed by Dutch Touch was
not rendered inaalid when Big Sky filed its declaration, but
remained a valid single lien, which was proportionately effective
against each unit, pursuant to section 67-2324(3), R.C.M. 1947.
The second issue presented involves the enforcement of
the lien once it is established. The foreclosure of a mechanic's
lien is governed by the rules of equity. Cole v. Hunt, 123
Mont. 256, 211 P.2d 417 (1949). The general rule is that a
blanket construction lien against an entire property consisting
of several parcels cannot be enforced in toto against less than
all of such parcels. Annot. 68 A.L.R.3d 1300. The reason is
that it would be inequitable to burden some lesser portion of
the liened premises with charges for labor and materials which
were not actually furnished to that particular parcel. Conse-
quently, this single lien, proportionately effective against
each unit, would only be enforceable against each unit pro-
portionately. It is the duty of those purchasing, or taking
liens on, property under construction or on which improvements
are being made, to make inquiry to ascertain whether or not the
property is encumbered by mechanics' or materialmen's liens,
and such parties, having knowledge of the fact that the work is
going on, are charged with constructive, if not actual, notice
of any such lien as has attached to the premises. Continental
Supply Co. v. White, supra.
However, any unit owners, other than Big Sky, whose
property is subject to Dutch Touch's mechanic's lien, were put
into that position by Big Sky's total disregard of the provisions
of the Unit Ownership Act concerning mechanics' liens and pre-
completion sales.
Big Sky failed to place the proceeds of these sales,
made prior to completion of construction, into an escrow account,
as required by section 67-2303.1, R.C.M. 1947. Therefore, the
mechanics' liens, effective against each unit so sold, were not
satisfied from the escrow fund as contemplated by section 67-2303.1.
1947,
Big Sky further ignored section 67-2323, R.C.M./whereby every
blanket lien or blanket mortgage must be satisfied before the
first conveyance or lease of a unit, or a partial release for
such u n i t o b t a i n e d and r e c o r d e d .
E q u i t y w i l l g r a n t t h e r e l i e f s o u g h t when i n view of a l l
c i r c u m s t a n c e s t o deny it would p e r m i t one o f t h e p a r t i e s t o
s u f f e r a g r o s s wrong a t t h e hands o f t h e o t h e r p a r t y who b r o u g h t
about t h e condition. T h i s t e d v . Country Club Tower Corp., 146
Mont. 87, 405 P.2d 432 (1965) ; Dutton v . Rocky Mountain Phos-
p h a t e s , 1 5 1 Mont. 54, 438 P.2d 674 ( 1 9 6 8 ) . This Court cannot
i g n o r e t h e f a c t t h a t t h i s s i t u a t i o n would n e v e r have o c c u r r e d ,
had Big Sky f u l l y complied w i t h t h e U n i t Ownership Act.
E q u i t y demands t h a t Dutch Touch be a l l o w e d t o s a t i s f y
t h e e n t i r e amount of i t s l i e n f i r s t from t h o s e u n i t s r e t a i n e d
by Big Sky.
T h e r e a f t e r , s h o u l d any amount o f t h e l i e n remain un-
s a t i s f i e d , Dutch Touch may s e e k p r o p o r t i o n a t e enforcement o f
s u c h b a l a n c e a g a i n s t t h e 18 u n i t s p r e v i o u s l y s o l d by Big Sky
a f t e r t h e owners o f t h e s e u n i t s a r e made p a r t i e s t o t h e a c t i o n .
I n t h e r e c o r d t h e r e i s a motion by Big Sky t o j o i n t h e s e u n i t
owners a s p a r t i e s d e f e n d a n t p u r s u a n t t o Rule 1 9 , M.R.Civ.P.
T h i s motion was n e v e r r u l e d upon by t h e d i s t r i c t c o u r t . The
Committee Note t o Rule 1 9 s t a t e s t h a t it i s c l e a r t h a t whenever
f e a s i b l e t h e persons m a t e r i a l l y i n t e r e s t e d i n t h e s u b j e c t of
a n a c t i o n s h o u l d be j o i n e d a s p a r t i e s s o t h a t t h e y may be h e a r d
and a c o m p l e t e d i s p o s i t i o n made. Such i s t h e c a s e of t h e s e u n i t
owners s h o u l d Dutch Touch have t o e n f o r c e any p o r t i o n of t h e l i e n
a g a i n s t t h e i r u n i t s i n t h e e v e n t t h e u n i t s r e t a i n e d by Big Sky
do n o t s a t i s f y t h e l i e n . For t h i s r e a s o n t h e motion o f Big Sky
s h o u l d have been g r a n t e d .
T h i s judgment o f t h e d i s t r i c t c o u r t i s v a c a t e d and
t h i s c a u s e remanded t o r e h e a r t h e f o r c l o s u r e a c t i o n i n compliance
with t h i s decision.
Chief J u s t i c e
I)
We concur: