State v. Ford

                                     No.          95-152
              IN THE SUPREMECOURT OF THE STATE OF MONTANA
                                            1996


TRAVELERS INSURANCE COMPANY,
A Connecticut Corporation,
              Plaintiff    and Respondent,


HOL,IDAY VILLAGE SHOPPING CENTER LIMITED ':          ;~ ,,,            ,' - .:-"
PARTNERSHIP, a Montana limited    partnership;               !!,J ,s:,:
SIX SIXTY SEVEN. INC.: HILL COUNTY. MONTANA:i!i;
ROBERT L. BR--DOWN; ROBERT W. RECTOR; RICHARD
F. BOHN; JACK OLIVER; CLARKE STREEPER; and                      _,~' ' ,' ,.:
                                                                  ;
O.B.S. PARTN   ERSHIP,                                     ::~c;;,':,;,::;,,,: w:
                                                        ~', ;.:       ,,.~, ;~:
                                               "" ::~) :'~ i':;".'.~:"l,
                                                     ;':‘::-
           Defendants  and Appellants.




APPEAL FROM:          District  Court of the Twelfth Judicial District,
                      In and for the County of Hill,
                      The Honorable Ted 0. Lympus, Judge presiding.
COUNSEL OF RECORD:
              For Appellants:
                      James H. Goetz (argued),~Robert K. Baldwin                   (argued);
                      Goetz, Madden & Dunn, Bozeman, Montana
                      Frank Altman, Daniel            A. Boucher;      Altman   & Boucher,
                      Havre, Montana
                      David G. Rice,       Hill     County Attorney,      Havre,     Montana
              For Respondent:
                      William A. Squires            (argued), Randall      C. Lester;
                      Matteucci, Falcon,            Squires & Lester,      Great Falls,
                      Montana


                                                              Argued:      April 2, 1996
                                                           Submitted:      June 27, 1996
                                                             Decided:      December 16, 1996
Filed:



                                           ClerK
Justice        W. William         Leaphart             delivered             the Opinion          of the Court.

      Appellants              (collectively                    HVSC),         appeal       from       the      Amended
Findings        of    Fact,       Conclusions                  of     Law,     Judgment,           and Decree            of
Foreclosure           entered       by the Twelfth                    Judicial         District          Court,     Hill
county,        foreclosing              their         interest          in    the      subject        property       and
ordering        a sheriff's             sale.          We reverse             and remand.
      We restate           the issues                 raised        by HVSC as follows:
       1.         Did the District  Court err in determining     that HVSC's
interest        in the subject property  was subject to Travelers'    liens?
       2.     Did the District       Court err  in determining     that  the
subordination        agreements   executed by HVSC granted     Travelers    a
security    interest     in the fee to the subject property?
     3.      Did the District                     Court err in determining   that the leases
were terminated     and that                    Travelers  would be entitled     to relief
from forfeiture?
       4.  Did the District       Court   err  in not   requiring   the
delinquent  real property   taxes to be paid out of the foreclosure
sale proceeds and in ordering      that the costs and attorneys'  fees
would be assessed at a later     date?
                                                Factual          Summary
      This       case arises             out of a complicated                       dispute       relating        to the
financing        of the Holiday                 Village        Shopping Center                located        in Havre,
Montana.        The following                 facts     are taken from the parties'                          statement
of stipulated           facts.           Beginning             in 1975, Hill            County,       Montana,       and
several        adjoining          landowners,               Brown,           Rector,      Bohn,        Oliver,       and
Streeper,        entered         into      lease        agreements             with    M & M Enterprises                   (M
& M) covering          the land upon which                          Holiday     Village        was constructed.
The lease         agreements             had been modified                     several        times       since     they
were executed.
          In    the     spring           of      1978,         Hill          County      and       the       adjoining
landowners         executed            and    delivered             subordination           agreements              to
Travelers.          These agreements                were executed               on M & M's behalf                   so
that    Travelers       would          advance the funds              necessary          to construct           the
shopping      mall.        In May of             1978,        M & M executed              and delivered              a
promissory      note     to Travelers.               To secure              payment of the promissory
note,      M & M executed               and delivered              a mortgage        to Travelers.                  In
October      of 1980, M & M executed                   an assignment              of lease        in favor          of
Northwestern          Union Trust            Company (NWU); the same day,                        NWU assigned
the lease      to LIC,          Inc.      (LIC).      At the same time,                  M & M executed              a
special      warranty      deed to NWU conveying                      its     interest      in the subject
property      and NWU subsequently                  conveyed its              interest      to LIC.          M&M
also    executed       an assignment               of ground         lease      giving      NWU all        of its
interest      in the leasehold                estates.             Again,      the ground         leases      were
subsequently          assigned          to LIC.       In 1986, LIC assigned                      its     interest
in the leasehold           agreements              to LAACO, Ltd.               On May 30 and June 1,
1990,       LAACO and           Holiday          Village           entered        into      an         assignment
agreement      and conveyance                and Travelers            and Holiday          Village        entered
into    an assumption            agreement          and consent.
        HVSC failed        to make the required                     payments       due under            the lease
agreement        to     Hill           County       and       to     the       adjoining          landowners;
therefore,      HVSC was in default.                      In the spring           of 1993, Hill             County
and the adjoining              landowners          issued      notices         of default          for    failure
to make the required                   payments       due under             the terms       of the        leases.
A receiver       was appointed               to manage HVSC in March of                          1993 and has
made monthly          reports          to the District             Court      regarding      the financial
condition      of HVSC since               his     appointment.

                                                          3
         In 1992,         Travelers             filed         its       complaint         seeking             a judgment           on
the monetary            obligation            and foreclosure                    of its       security          interest            in
both     the real         and personal                  property.                In April         of     1993,         HVSC and
its     general        partner,         Six Sixty             Seven, Inc.,                consented            to the entry
of judgment            in favor         of Travelers                    and foreclosure                of its         interest.
Thus,        HVSC is      no longer             litigating                 the    instant         appeal.              In 1994,
all     of     the     remaining              parties,              Travelers,            Hill         County,          and       the
adjoining            landowners          moved for                  summary judgment.                         The District
Court        ordered      that     Travelers               recover            a judgment           against             HVSC and
Six Sixty         Seven,        Inc.     pursuant             to the stipulation                       that     Hill      County
and Brown did             not     act        as sureties                 and did        not properly                  terminate
the      ground         leases,          and        that            Hill         County          and     the          adjoining
landowners           recover       the monthly                rent         payments due under the terms                            of
their        leases      to the date              of the judgment.                        Finally,            the District
Court        ordered       that        the      subject             property           be sold          at     a sheriff's
sale.        Subsequently,             Hill      County and the adjoining                              landowners           filed
the instant            appeal.
                                               Standard             of review
         In reviewing             a district              court's            grant      of summary judgment                        we
use the        same criteria                 as that          used by the district                           court;       we are
guided        by Rule 56, M.R.Civ.P.                           Chilberg           v. Rose (1995),                     273 Mont.
414, 416,         903 P.2d 1377,                 1378-79            (citing          Minnie       v. City        of Roundup
(1993),        257 Mont.          429, 431, 849 P.2d 212, 214).                                   Thus, we determine
whether        a genuine           issue         of material                  fact      exists         and whether                the
moving party            is entitled             to judgment                 as a matter           of law.             Chilberq,
903 P.2d          at     1379.          Here,           the     parties              submitted          a statement                 of

                                                                    4
stipulated           facts        and the         court         entered         its      findings              of     fact,
conclusions           of law,        and decree           based on the                stipulated              facts      and
oral     argument.            No genuine        issue          of material             fact        exists.
         In the instant             case,     the District              Court         determined             that     "[t]o
the extent          resolution          of this       matter       turns      on the construction                        and
interpretation               of written        instruments,               such a determination                         is      a
matter       of    law."          In reviewing            a district            court's             conclusions             of
law,     we determine             whether     the court's           interpretation                    of the law is
correct.           Stratemeyer        v. Lincoln           County        (Mont.        1996),         915 P.2d 175,
177,     53 St.Rep.           245,      246    (citing          Carbon County                 v.     Union          Reserve
Coal     Co.,       Inc.      (1995),        271 Mont.           459,     469,         898 P.2d              680,     686);
Steer,      Inc.     v. Department            of Revenue (1990),                  245 Mont.            470, 474-75,
803 P.2d 601,              603-04
                                                  Discussion

         Resolution           of the appeal           hinges       upon an interpretation                            of the
subordination              agreements         executed          in 1978 by Hill                     County          and the
adjoining           landowners          in    favor       of     Travelers.               The subordination
agreement          with    Hill      County1 provides              in relevant                part      that:
                                      SUBORDINATION              AGREEMENT


                 WHEREAS, the undersigned,   Hill    County, Montana, a
         political   subdivision  of the State of Montana, having an
         address of Havre, Montana, is the owner in fee simple
         absolute   of the real property    situated    in Hill  County,
         Montana,    more particularly     described      on Exhibit     A
         attached hereto and by this reference made a part hereof,
         and
                   WHEREAS,the undersigned                      by a lease dated August                         29,

      1 The subordination                    agreement with the adjoining                            landowners               is
substantially   identical                    to the agreement with Hill                             County.
                                                           5
1975, as supplemented    by Supplemental    Agreement dated
November 1, 1976, and executed by the parties      August 29,
1975 has leased the hereinbefore  described    real property
to M & M Enterprises,  a Montana Partnership;      and
       WHEREAS, M & M Enterprises            has applied      to the
Travelers   Insurance Company, a Connecticut           corporation,
hereinafter    referred     to as Travelers     for a loan in the
amount of FIVE MILLION EIGHT HUNDREDFIFTY THOUSANDand
No/100 DOLLARS ($5,850,000.00)          with interest,     evidenced
by a note dated          February 8, 1978         and secured by a
mortgage on the Lessee's         interest    in the hereinbefore
described   real property      of even date with said note and
recorded on the         14th dav of June, 1978, in Book 140 of
Mortgaqes on Page 348,           Document Records of the Clerk
and Recorder of Hill County, Montana, and
       WHEREAS,Travelers   is unwilling   to make said loan or
advance funds thereon unless it is assured that the above
describedmortyaye    shall be a lien upon the undersigned's
fee simple     title  in the hereinbefore      described   real
property  and unless the undersigned      gives Travelers    the
assurances hereinafter    set forth,    and
       WHEREAS, the undersigned   is willing     to subordinate
its   fee simple   title  to said real       property   to said
mortgage and is willing    to give such assurance,
      NOW, THEREFORE, in consideration             of the making of
said loan to M & M ENTERPRISES, and to induce Travelers
 to  advance       funds    thereon,       the  undersigned     hereby
subordinates      all of its right,       title and interest    in and
to said real property          to the lien of said mortgage         and
agrees that said mortgage           shall continue      to be a first
lien upon said property          prior    and superior    in right    to
any right,    title    and interest      of the undersigned     in and
 to said real property.          The undersigned,      however, shall
not be liable      for the payment of any indebtedness         secured
by said mortgage          or the performance         of any of the
covenants or obligations          of the mortgagor thereunder.
        The undersigned     further    assures Travelers      that the
undersigned will not terminate           the above described lease
without    the prior written       consent of Travelers      except in
the case of a default        thereunder     by M & M ENTERPRISES in
which case the undersigned              agrees to give Travelers
written      notice   thereof,      specifying      the default     and
Travelers      shall have ninety       (PO) days after     receipt   of
said notice within which to cure said default,              and if the
default    is cured within      said period,     or if the default   is
one which cannot be cured within             said period,    but steps
are taken in good faith during said period and diligently
                                   6
       pursued,            the lease              shall      not be terminated[.l                               [Emphasis
       added.]
       Hill        County and the adjoining                             landowners             assert           that       they    are
sureties          for M & M and that                  the subordination                     agreements                 which they
executed      are not mortgages.                          Further,            Hill   County and the adjoining
landowners          assert          that     they were exonerated                       when Travelers                     released
M & M from           all      liability              without           consent          of Hill              County         and the
adjoining          landowners.                    Travelers             argues          that         the        subordination
agreements          subjected              Hill      County's            and the adjoining                         landowners'
fee    interests              to      Travelers'              lien            and    that            the        subordination
agreements          are,       in     fact,         mortgages.                 Further,          Travelers                 contends
that   the         subordination                  agreements             waive        any       statutory               right       of
exoneration.
       In     resolving              the      parties'             contentions,                 the          District            Court
concluded          that     the above-quoted                       subordination                agreement               creates          a
contractual           right          of foreclosure                    as well       as a statutory                        mortgage
and    an     equitable               mortgage             under             Montana        law         because             it     was
"executed          with       all      the        formalities                required          for      a grant             of    real
property           and      the        execution              of        a      mortgage.”                       However,           the
subordination              agreements              contain         no words purporting                          to mortgage         an
interest          in property.                Section         71-l-204,              MCA.
       This Court             has stated              that      "[aIs         a general              rule,       construction
and interpretation                    of written             agreements,              including                 contracts,          is
a question          of law for              the court           to decide."                 Klawitter              v. Dettmann

(1994) I 268 Mont.                   275,     281,        886 P.2d 416,                 420 (citing                 First         Sec.
Bank of Anaconda v. Vander Pas (1991),                                           250 Mont.              148,       152-53,         818
P.2d       384,     387).             Similarly,              it        is     a question                  of     law       whether
                                                                   7
ambiguity          exists         in a written                instrument.                Klawitter,              886 P.2d at
420 (citing           Audit        Sews.             Inc.     v.    Systad          (1992),       252 Mont.              62, 65,
826 P.2d 549,              551);        Johnson v. Nyhart                       (1995),        269 Mont.            379,           387,
889 P.2d 1170,              1174.
         Hill       County        and the             adjoining           landowners             argue           that      " [t]he
subordination               agreements                do not,           on their              face,     purport               to     be
mortgages           [and       that]          [ilt      was error               for     the      district               court        to
conclude           that      they        are         mortgages            without             resort        to      extrinsic
evidence."                We agree.                  The District                  Court       concluded               that         the
"Subordination              Agreements                are unambiguous,                  and therefore                  the Court
need not           look      to     extrinsic                evidence           for      interpretation                   of        the
same."           We hold       that       the District                  Court         erred      in concluding                  that
the subordination                 agreements                were not ambiguous.                       The documents                 are
titled          "Subordination                Agreement"               rather         than     mortgages.                Section
71-l-204,          MCA, sets            forth         the      form of a mortgage.                       The operative
verb     in the §204 mortgage                        form is to "mortgage."                       Although              the text
of the documents               states          that         the fee interest                 is "subordinated,"                      it
does not          contain         language            purporting              to      "mortgagelt        property               to a
mortgagee          as security.
         A subordination                 agreement            only dictates                the priorities                between
existing          interests,            for     example lien              holders--it             does not mortgage
an interest           in the property.                        A mortgage               "is     a contract               by which
specific          property         is     hypothecated                  for     the performance                   of     an act,
without          the necessity                of a change of possession."                                   Section            71-l-
101, MCA. The agreement                              at issue          here has characteristics                           of both
a subordination                agreement              and a        mortgage.               The confusion                 lies        in

                                                                   8
the fact         that        the agreement               mixes the concepts                          of "subordinate"                     and
"mortgage"               by     providing               that          Hill            County             and        the      adjoining
landowners               subordinate             their          fee        simple            interests               to Travelers'
mortgage.              Subordinate              means "[pIlaced                       in a lower               order,        class,         or
rank                      and having              a lower             position               in      a recognized                   scale;
secondary,             minor."          BLACK'S        LAW DICTIONARY              1426           (6th     ed. 1990).               Since,
by       definition,                a fee        simple          interest               is         absolute               and without
condition           or limitation,                 an agreement                   purporting                   to     "subordinate"
a     fee      simple           interest           presents                a paradox;                    can         a     fee      simple
interest,           which        is absolute              and without                  limitation,                  be placed            in a
lower       or secondary               position           by a "subordination                             agreement?"                   Thus,
the       language             of      the      agreements                 is         inherently                  and      internally
inconsistent.
           The      District             Court           was      incorrect                    in        holding             that         the
agreements             are unambiguous                   and that               resort            to extrinsic                   evidence
was unnecessary.                       The language                   of        the     agreements                   is    ambiguous.
Further,          Hill         County and the adjoining                                landowners               assert           that     had
the extrinsic                 evidence         been considered                    it        would show that                  Travelers
itself           did      not         consider            the         subordination                       agreements                to      be
mortgages.               To resolve             this      ambiguity,                  the court            must consider                  the
intent         of        the        parties        at      the         time            of     the         execution               of      the
instrument.                   As this           Court       has         recognized,                      "to        establish            this
intention              [to      create          a mortgage]                  the        courts             will           examine         the
surrounding              circumstances."                   Boysun v. Boysun (1962),                                      140 Mont.        85,
88,      368     P.2d 439,            440.
            The dissenters                    correctly           point           out         that         § 28-3-206,                   MCA,

                                                                  9
provides           that       in cases of uncertainty,                         the language                    of the contract
should       be interpreted                 most strongly                    against         the party                 who caused
the uncertainty                  to exist.             It     should          be noted,            however,              that     this
is    not     a peremptory                 rule.             It     does         not      require              that       the     non-
drafting           party        prevail          in    all         cases.             Rather,            it      is      a rule      of
interpretation                 that      requires           that        the court         interpret                the contract
"most strongly"                 against          the drafting                party.        For example,                  in Landon
v.    Labor        Standards           Division             (1982),          200 Mont.             153,         158,      649 P.2d
1341,       1343-44,            even after            the court              applied         § 28-3-206,                  MCA, and
interpreted               the contract            most strongly                  against           the employer                 as the
party       who caused             the uncertainty                      to    exist,        it         still          reached      the
conclusion              that     the      employer           was correct.                   In the              present          case,
although            §      28-3-206,             MCA, mandates                     that          the          District          Court
interpret           the agreement most strongly                               against       Travelers                 in deciding
whether        the        agreement         constitutes                  a subordination                       agreement          or a
mortgage,           that       statute      does not necessarily                          dictate              the outcome of
the      court's           deliberation               after         consideration                      of       the      extrinsic
evidence.
                        Were the         ground       leases            properly          terminated?

         Travelers             filed      its      complaint             in this          matter              on November 13,
1992,       months            before      Hill        County            and Brown,            et        al.       issued        their
February           and March,            1993 notices               of default              on the ground                   leases.
On June 18, 1993, Travelers                            sought            the District              Court's             permission
to deposit              the lease payments                   into        court        pending           resolution              of the
effect        of        the     subordination                agreements.                   The court                  denied       the
request.

                                                                   10
         The subordination               agreements            provide:
         If the default      is one which cannot be cured within said
         period,    but steps are taken in good faith     during said
         period    and diligently    pursued, the lease shall not be
         terminatedI.
         The District            Court       concluded           that,          in     light          of    Travelers'
timely      pursuit      of the litigation                   and request              to deposit             funds      with
the District           Court:
         Travelers   so acted in good faith,                                  and was not grossly
         negligent  or willful   in its refusal                               to cure the defaults
         alleged by the Lessors.      Therefore,                               the leases were not
         properly  terminatedL.1    . .
         The District            Court's        conclusion             that      the ground                leases       were
not   properly         terminated          is     correct        and it          is         therefore            affirmed.
Accordingly,          we also affirm             the holding             that        Hill      County and Brown,
et    al.    are      entitled        to     receive           the      monthly              lease         payments          as
specified         in the judgment.
                                                      Summary

         We affirm      the judgment             against        Holiday         Village          Shopping Center
Limited       Partnership           and         Six    Sixty         Seven,           Inc.       in        the     amounts
specified         in paragraph        l(a)       through        l(h)      of the Judgment and Decree
of    Foreclosure         with       interest           at     the       rate         of      12% per            annum as
provided       in the Promissory                 Note.
         In its       Conclusion         of Law #16,            the District                  Court        stated:
         16.     Hill     County and Brown, et al.             did not act as
         sureties      as definedby     Section 28-11-401,       Mont. Code Ann.
          (1993).         The subject      Subordination       Agreements    were
         executed for the benefit          of Hill County and Brown, et al.
         as part        of their     contractual      obligations     under the
         subject ground leases to induce the execution of the same
         by the Mitchells        [co-partners     of M & Ml, thus securing a
         benefit      unto Hill County and Brown, et al.           Accordingly,
         the      subject       Subordination        Agreements       were      not
         extinguished       or exonerated by the release from liability
                                                         11
         of      M & M Enterprises         and               the      Mitchells            from       the
         Promissory         Note and Mortgage.
         The District          Court's      conclusion        that     Hill    County and Brown, et
al.    were not,       under the specific              terms of the ground leases                      and the
subordination              agreements,       acting         as sureties           is      correct       and is
therefore          affirmed.        Accordingly,            Hill      County         and Brown,         et     al.
were not          exonerated       by the      release        of M & M Enterprises                    and the
Mitchells         from the Promissory            Note and Mortgage.
         We reverse          the   judgment      of the District               Court        insofar         as it
holds     that     the subordination            agreements           create      a contractual              right
of foreclosure,             a statutory       mortgage        or an equitable               mortgage         with
regard        to appellants'            fee interest         in the real          property.            In that
the     court's      award of costs           and attorneys'              fees       is   dependent          upon
its    holding      that     the agreements        constitute           mortgages,           that     award is
also     reversed.
         Accordingly,          we reverse       and remand to the District                          Court      for
consideration           of the extrinsic          evidence           which,      although         presented,
was not          considered        in     determining         whether         Hill        County      and      the
adjoining         landowners'           fee interests         are subject            to foreclosure.
         Reversed       and remanded.




                                                       12
We concur:


         Chief    Justice




             Justices


Judge of the District         Court,   sitting
for Justice William         E. Hunt,   Sr.




                                            13
Chief         Justice             J.     A.     Turnage         specially              concurring:


          I     concur            with         the     result         reached          by the         majority,            remanding

this          case         to         allow          the     District             Court         to     consider            extrinsic

evidence                  concerning                   the       parties'              intent           in        entering             the

"Subordination                         Agreement."               I am confident,                     from    the     evidence           in

the      record                 thus          far     concerning                 the     circumstances               surrounding

execution                 of      the          "Subordination                    Agreement,"             that       the       parties

intended             to        create          a lien         under        the     terms        of    the    mortgage          on the
fee     title         to        the      property            on which,the              shopping         center        is     located.




                                                                      14
Justice                 Terry                N.      Trieweiler                    dissenting.
             I              dissent                    from             the           majority's                            conclusion                     that              the
subordination                                agreement                  is     ambiguous                    and         that          its        interpretation

requires                    extrinsic                      evidence.                  I conclude                        that          the        plain          terms          of

the        agreement                         did      nothing                more      than            subordinate                       Hill          County's              fee

interest                    to         Travelers'                  right           to foreclose                       on the          lessee's              leasehold

interest.

             Furthermore,                             in     the        event         of an ambiguity                            in      the         subordination
agreement,                              Montana's                    statutory                     and             case            law               require            that
uncertainties                                 be      resolved                against                 the         drafter                of       the      document,

which             in             this         case          was         Travelers                  Insurance                    Company.                   For         these

reasons,                     I         would          reverse                the      judgment                   of      the       District                Court             and

enter            summary                     judgment               for       Hill         County.

             The subordination                                     agreement                which                was executed                    by Hill           County

in         favor                 of      Travelers                   Insurance                   Company                acknowledged                       that         Hill

County             owned                 the         subject              property               in       fee         simple             absolute,               but         had

leased                 it          on        August               29,        1975,          to        M & M Enterprises,                                   a Montana

partnership.                                   The          agreement                 then             acknowledged                           that        M & M had
mortgaged                        its         lessee's              interest                in      that           property               as security                   for      a

loan             given                  by        Travelers.                       Therefore,                      in        the         event           that          M & M
defaulted                        from          its         obligation                 to        repay            that         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 by Hill                                County          in     fee       simple             for        a period               of        fifty        years         from

October                 1,         1975,             and build               a shopping                   center              on that             land.           It    also

obligated                        M & M to pay rent                             to Hill             County               in the              amount        of      $20,360
annually               after             completion                     of      the        shopping              center.                  There         were
various             other          terms          and conditions                           set      forth         in      the     written              lease

agreement.                     However,                  the        leasehold                interest               was         limited           to      the

rights             provided              for       in        that            agreement              and      did       not        include          a fee

simple             interest              in      the        property              owned            by Hill          County

              As      the      lessor              and         owner            of         the      real         estate           on       which          the

shopping               center             was          to          be    built,             Hill        County             also        had        rights

pursuant              to     the        lease          agreement.                     It    had the          right         to receive                  rent,

and      it        had      the         right          to      retake             possession                of      the      property             in      the

event          that         the     rent          was not               paid
              By the        written              subordination                        agreement,             Hill         County          agreed,              in

consideration                      of     Travelers'                     loan         to    M & M, to

               [subordinate]        all of its right,        title     and interest      in and
              to said real         property   to the lien           of said mortgage        and
              agrees     that    said mortgage        shall      continue    to be a first
              lien    upon said property          prior      and superior        in right    to
              any right,      title     and interest        of the undersigned          in and
              to said real property.

              1n      other             words,              Hill             County          simply              agreed           to      defer           the

enforcement                  of its             rights             in the         property            to Travelers'                    enforcement

of       its          right              to       foreclose                     on         the       leasehold                   interest.                      A

subordination                      agreement                  is

              "an agreement    by which a party  having   a superior                                                              right      of
              some sort   agrees with    someone having     an inferior                                                                right
              that,   as between    the two of them,     the inferior                                                                  right
              shall  be treated    as if it were superior."



                          . . By executing      a lien     subordination         agreement,
              the subordinating        party    agrees to demote the priority                 of
              its    lien    to that    of another       secured     creditor,       thereby
              delaying      its recourse     to the identified         collateral       until
              the other       party's   secured    claim    has been satisfied.

                                                                                  16
InreLantanaMotel                        (Bankr.            S.D.          Ohio           1990),                  124      B.R.          252,          255,           256

(citation              omitted).

           However,               while           the      subordination                           agreement                 required             that            Hill

County           defer           its       interest               in         the    property                     during           the         term          of      the

leasehold,                 it     could           not      have,             by its                plain         terms,           given           Travelers
any      greater                interest             in     the         property                    than         it      had pursuant                       to      its

mortgage              agreement             with          M & M.               That           conclusion                  is     compelled                  by the

fact      that         Travelers                  only      had an interest                                in     the        leasehold               and Hill
County           only            agreed             to     defer              to      Travelers'                        leasehold                 interest.

Travelers              had         no interest                    in         the     fee            simple             estate,             and none                 was

created           by the               subordination                     agreement.

          A similar                    issue         was presented                            to     the         United           States             District

Court           for        the         District             of          Idaho            in         Old Stone Capital                 Corp.      v. John Hoene

ImplementCorp.                  (D.     Idaho            1986),          641 F. Supp.                           916.

           In     that           case,         John         Hoene             Implement                    Corporation                     (JHI)            leased

property              from        Davis.             JHI     then            gave        a lending                     institution                a deed of
trust           on      its            leasehold             interest                    to          secure              an      operating                   loan.

Davis,           as     an        inducement                 for         the        loan,              agreed             to      subordinate                       her

interest              in        the        property                to        the        lending                  institution's                       security

interest               in         the          leasehold.                          JHI             defaulted                    and        the          lending

institution                     sought         to        foreclose                 on Davis's                     fee        simple           interest                   in

the     property.                     The Federal                District                Court             for         the      District               of        Idaho

first       concluded                   that        the      subordination                            agreement                  could           not        create

a mortgage                    interest              in     Davis's                 fee         simple                 estate.              Old Stone,               64 7

F.      Supp.         at        919.           However,                 in     language                    relevant               to       the       issue               in


                                                                                   17
this          case,           it        also          concluded                  that        since           the        lender             never        had         an
interest               in     the         fee         title          to Davis's                property,                it     could         not     acquire

that          kind           of         interest                   simply         by        virtue           of         the        fact      that         Davis

subordinated                       her          fee      interest,                and whatever                     rights            were         attendant

to      it,       to        the          lender's                  mortgage             interest              in        the        leasehold.                 The

court          held          as follows:

                       In summary,           the nature        of a subordination                 is such
              that     the beneficiary              of the subordination                  must have a
              competing           interest         which,       after       the       subordination,
              becomes senior            to that which,            before      the subordination,
              was the senior             interest.          In this      case,       Old Stone          [the
              lending      institution]            never had an interest                in the fee of
              Davis's       property,          but only        pursuant         to the leasehold
              mortgage       a junior         interest       in the leasehold.                 After     the
              subordination,             Old Stone's           interest         in the         leasehold
              became superior             to Davis's       interest       in the leasehold.                By
              its   very nature,            the vehicle         of subordination               could     not
              be used to grant               Old Stone an interest                 in the fee.             In
              order      to have an interest                    in Davis's            fee     estate,        a
              mortgage        or deed of trust              must have been executed.                       No
              such instrument            was executed.           Further,        the subordination
              agreement          cannot        be elevated            to    the      position         of     a
              mortgage       or deed of trust             since it lacks            the formalities
              of such required                under     Idaho      law.        The subordination
              agreement          could      not,      as a matter            of law,         grant       any
              interest       in the fee, upon which foreclosure                         could be had,
              to Old Stone.             Foreclosure          is only possible              on the deed
              of trust        affecting         the leasehold.

Old Smne ,             647         F.     Supp.               at    919.

              Likewise                  in       this              case,         Travelers                  had     no         interest              in      Hill

County's                fee             title            based              on    its         mortgage                  agreement                with        Hill

County's               lessee.                    Therefore,                     when Hill                 County            agreed         to      defer           to

Travelers'                    mortgage                  interest,                 it        agreed           to     do nothing                    more       than

waive          its      rights                  as lessor              during           the period                 of        the    lease          agreement

so that              Travelers                   could             freely        enforce             its      security               interest             in the

leasehold                    without                  competition                       from         Hill          County                 based         on     its


                                                                                       18
superior           interest.                   These       facts          are      clear             from          the         plain         terms             of

the      subordination                   agreement                and     require               reversal                  of      the        District

Court         and entry            of     summary            judgment              for        Hill           County.

           However,            even       if,         as the        majority              concludes,                       "[tlhe            language
of      the       agreements              is          ambiguous,"               the           result               must          be         the        same.

Travelers            prepared             the         documents,                and      if      it          intended                 to     create             a

mortgage            interest              in      Hill       County's                 property,                    it      was         capable                 of

doing           so by clear              language.                 The fact              that          it         was aware                 of        how to
create           a mortgage              interest            is      evident              from              the         mortgage             document

that       it     drafted            and        had       executed              by       M & M to                  create              a mortgage

interest           in    M & M's               leasehold            estate.

           Section          28-3-206,                 MCA, provides:

           III cases of uncertainty              not removed by parts     1 through     5
           of this      chapter,       the language         of a contract   should     be
           interpreted         most strongly         against   the party   who caused
           the uncertainty          to exist.       The promisor   is presumed     to be
           such party,        except     that in the case of a contract        between
           a public      officer      or body, as such, and a private           party,
           it   is presumed         that     all   uncertainty    was caused by the
           private     party.
           We have          also         repeatedly                held        that       ambiguous                      contracts                    should

be resolved                against             that       party         that       drafted                  the         contract.                     See. e.g.,

Topco,Inc.v.        State      (1996),           275      Mont.         352,         360,        912 P.2d                  805,            810;        Mueske

v. Piper,JaJfray&Hopwood,                      Inc.      (1993),          260 Mont.                  207,          216,          859 P.2d                444,

449-50;           St. PaulFire&MarineIns.                   Co. v. Cumiskey              (1983),                  204 Mont.                 350,         363,

665      P.2d       223,       229.

           The      majority               opinion             does          not         address                   the          standard                 rule

regarding            ambiguous             contracts.                   However,              when that                   rule         is     applied,

it     clearly          requires           construing               the        subordination                        agreement                    in    favor


                                                                        19
of    Hill         County        and against                  Travelers'                implausible              suggestion         that
the          subordination                    agreement                   Was     not       merely           a     subordination
agreement,                but      was     in        fact          a mortgage             agreement,             even      though      it

makes          no        mention         of      a      mortgage                 nor     includes           any      language          of
conveyance.

             For    these          reasons,            I      dissent            from      the     majority          opinion.               I

would         reverse           the   judgment                of     the    District             Court      and enter         summary

judgment            in     favor      of      Hill          County         on the        issue      of     whether         Travelers
has     a mortgage               interest             in      Hill         County's         property.




                                                                           /              Jus      ide


Justice            James        C. Nelson             joins          in    the     foregoing             disse       ing    opinion.




                                                                           20
                    IN THE SUPREMECOURT OF THE STATE OF MONTANA
                                                        No. 95-152


TRAVELERS INSURANCE COMPANY, a
Connecticut corporation,

                                                                                  i
                    Plaintiff            and Respondent,
          v.                                                                      ;                    ORDER
HOLIDAY VILLAGE SHOPPING CENTER                                                   i
LIMITED PARTNERSHIP, a Montana
limited  partnership; SIX SIXTY                                                   i
SEVEN, ZINC.; HILL COUNTY, MONTANA;
ROBERT L. BROWN; ROBERT W. RECTOR;                                                ;                         JAW30 1999
RICHARD F. BOHN; JACK OLIVER; CLARKE                                              )
STREEPER and OBS PARTNERSHIP,                                                                          22          S&?L
                                                                                                   CLERKOd        SUPREME    COURT
                                                                                                         STATE    OF MONTANA
                    Defendants            and Appellants.

          On January             3,      1997,         appellants          Hill          County,       Brown,          Rector,
Oliver,        Bohn, Streeper                  and OBS filed             with         this     Court      a petition          for
rehearing              in     the     above-entitled                 matter;                 respondent,           Travelers
Insurance           Company filed                its     objections              on January            13, 1997.
          Having            considered         the petition               and objections,
          IT IS ORDERED:
          1.        The following                stricken         language               is     hereby       deleted        from
this      Court's           December 16, 1996, Opinion                           (slip        op. at page 3, second
line      from      the top):
          Travelers.   These agreements were executed v
          b&a++ so that Travelers  would advance the funds                                                       . . . .
In all         other         respects,         the Opinion               shall        remain       the same.
          2.        The petition               for      rehearing          is DENIED.
          3.        The Clerk             is     directed           to     mail          a true        copy        hereof       to

                                                              1
counsel      of   record   for    the   respective    parties,      to   State   Reporter

Publishing                               Publishing    Company.
      DATED this                 'stay of January,    1997.




                                                        Chief     Justice




                                                              Justices


The Honorable Douglas G. Harkin,  District Court Judge, sitting                        for
Justice    William E. Hunt, Sr;, would also deny the Petition                          for
Rehearing.