Neel v. First Federal Savings & Loan Assoc.

NO. 83--219
IN THE SUPREfiE COURT OF THE STATE OF MONTANA
1984

HELEN FOSTER NEEL,

Plaintiff and Appellant,

FIRST FEDERAL SAVINGS AND LOAN ASSOC.
OF GREAT FALLS, a Federal Assoc.,
Defendant and Respondent.

APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable E. William Coder, Judge presiding.

COUNSEL OF RECORD:
For Appellant:

Regnier & Lewis; Stephen D. Roberts argued, Great
Falls, Montana

For Respondent :
Dzivi, Conklin & Nybo; E. Lee LeVeque and William
Conklin argued, Great Falls, Montana

Submitted: October 28, 1983
Decided: January 5, 1984

Filed: JRN 5 - 1984

--
Clerk
Mr. Justice John Conway Harrison delivered the Opinion of
the Court.

This appeal is from the District Court's summary
judgment that appellant's homestead declaration is invalid
and that the amendments to Section 70-32-104(2), MCA are not

to be retroactively applied. The question posed is whether
amendments raising the exemption amount should be applied to
debts incurred before the effective date of the amendment,
and the constitutionality of such an application. We
reverse.
The issues in this case are:

(1 Was the property description in appellant's
homestead declaration sufficient to create a valid homestead
exempt ion?
(2) Must the amendment to Section 70-32-104(2), MCA,
raising the exemption amount to $40,000 be retroactively
applied to all who filed homestead declarations prior to
forced sales of their homesteads, without reference to when
the debts were incurred?
(3) If the amendment is applied retroactively, does
that application violate the Contract Clause of the U.S. and
Montana Constitutions?

(4 Is a married person entitled to the full
homestead exemption on his/her individual interest in the
homestead property?
The material facts in this case are not in dispute and
were stipulated to by the parties in the District Court. On
July 25, 1979, appellant and Louise Manzer executed and
delivered to respondent a mortgage note to secure a loan
used to buy property at 412-422 Fourth Street North in Great
Falls, Montana. The loan was secured only by the mortgage
to that property, and respondent did not inquire of, or
request appellant's personal residence be used as additional
collateral for the loan. Appellant's husband did not
participate in obtaining the loan, or sign any of the
documents, nor was their personal residence put up as
collateral for the loan.
On July 21, 1980, appellant and her husband executed
and recorded a declaration of homestead, as husband and
wife, on their personal residence located at 402 Fifth
Avenue North, in Great Falls. The property description on
that declaration described the property as, "Lot 1; Block
191; First Addition to Great Falls, Montana." (Emphasis
added.) The correct legal description of the property is,
"Lot 1; Block 191; town or townsite, Great Falls, Montana."
(Emphasis added.) As of September 1, 1980, the Ownership
Book of Cascade County listed the homestead declaration with
the correct legal description of the property. There is
only one Block 191 in the official plat of Great Falls.
Respondent's loan officer who negotiated the loan had actual
knowledge prior to approval of the loan that appellant and
her husband owned and occupied as their residence, the
property at 402 Fifth Avenue North in Great Falls.
A foreclosure action on the mortgage was filed by
respondent on October 17, 1980. Judgment was entered in
respondent's favor on June 29, 1981, and the mortgaged
property was ordered sold. The property was sold for less
than the loan amount, and respondent recovered a deficiency
judgment in the amount of $44,344.95, plus costs and
interest.
 An execution writ was issued against appellant on
September 9 , 1981, and was levied the following day on her
residence at 402 Fifth Avenue North. Proper notice of the
sale of appellant's home was given, and on September 28,
1981, respondent filed a "Petition to Appoint Appraisers to
Appraise Homestead after Levy of Execution Pursuant to
Section 70-32-203, MCA."
On October 2 , 1981, appellant filed this action
seeking a declaratory judgment on the effect of several
amendments to the Montana Homestead statutes which became
effective October 1, 1981. The amendments increased the
exemption amount from $20,000 to $40,000, and allowed the
homestead declaration to be filed after judgment had been
entered against the declarant. Appellant sought a judgment
declaring that the amount of exemptions claimed before the
effective date of the amendments, automatically increased to
$40,000; and that the amendment allowing a declarant to file
his homestead declaration after judgment has been obtained
exempts that homestead from forced sale if the declaration
is filed before such forced sale. On October 5, 1981, the
District Court granted a stay of the execution proceedings
pending a decision on the declaratory judgment action.
The case was submitted on cross motions for summary
judgment and briefs were filed by both parties. In the
meantime, appellant filed a new homestead declaration on
October 1, 1982, containing a corrected legal description.
Judgment was entered on March 22, 1983, wherein the District
Court, per Judge H. William Coder, found appellant's
original homestead declaration invalid because of the
misdescription, and that the new declaration did not invoke
the amendments because the amendment was effective after
entry of the deficiency judgment. From this judgment the
appeal is taken.
The first issue is whether the misdescription of
plaintiff's homestead property in the July 21, 1980,
declaration of homestead renders the declaration invalid.

The validity of a homestead declaration with an incorrect or
an inadequate legal description is an issue of first
impression in this Court. The respondent relies heavily
upon McCarthy v. Kelley (1922), 63 Mont. 233, 206 P. 782,
and Yerrick v. Higgins (1899), 22 Mont. 502, 57 P. 95. In
McCarthy, supra, the claimant attempted to claim her
homestead on an amount of real estate considerably in excess
of that allowed by the statue and this Court found the

declaration of homestead void. In Yerrick, supra, the Court
disallowed an exemption on the plaintiff's property in which
he attempted to exempt some 2,100 square-feet in excess of
the one fourth of an acre allowed by law. That exemption
was not allowed even though the Court acknowledged that the
excess could be taken off the east side of the lot without
disturbing any of the dwellings. In each of these cases the
reasoning was that the claimants had attempted to exempt
more property than was allowed by law. There were no
statutory provisions for removing the excess from the

claimed amount, therefore it could not be determined which
property was being claimed and the declarations were held
invalid. In addition respondent cites Esten v. Cheek
(9th.Cir.1958), 254 F.2d 667, as a case on all fours with
this case. That particular case involved a bankruptcy where
the claimant incorrectly described her property as Lot 204,
Tract 5069, but in her declaration of bankruptcy, she
declared homestead property located at Lot 104, Tract 5069.
The court in its opinion admitted that the declaration was
faulty only as to one point, and otherwise conformed with
a11 the homestead laws of California. It reversed a
bankruptcy judge who had allowed the exemption holding that
no reformation was possible.
Appellant cites the Montana cases, Oregon Mortgage Co.
v. Dunbar (1930), 87 Mont. 603, 289 P. 559; Williams v.
Sorenson (1938), 106 Mont. 122, 75 P.2d 784; and Howe v.
Messimer (1929), 84 Mont. 304, 275 P. 281. Dunbar, supra,
dealt with a homestead declaration on ten more acres than
were owned by the claimant, but less than the statutory
amount. This Court upheld the validity of the homestead,
reasoning that the Yerrick and McCarthy rationale did not
apply. There could be no mistake as to what was claimed by
the declarant.
We have carefully examined the cases cited above and
other cases in the briefs and find that the weight of
authority on this issue is on appellant's side. As this
Court noted in State v. Lensman (1939), 108 Mont. 118, 88
P.2d 63, "It is not every error in a description which will
invalidate a proceeding or conveyance.'' 108 Mont. at 125,
88 P.2d at 66, citing State ex rel. Arthurs v. Board of
County Commissioners (1911), 44 Mont. 51, 118 P. 804, and
Howe, supra. Further, this Court has stated in Williams,
supra, that: "A substantial compliance with the statute is
sufficient and technical objections will not defeat an
exemption claim." 106 Mont. at 126, 75 P.2d at 786.
In each of these Montana cases the Court looked to the
purpose of the particular requirement in determining whether
the defect would void the entire declaration. Where the
defect would not work to the detriment of another party the
declaration was upheld. The purpose of including the legal
description of the property in homestead declarations, is to
put all the world on notice as to what property is affected
by the declaration. Following the rationale of these prior
Montana cases, if the property can be found by the legal
description contained on the declaration, then the
declaration should be valid. In the present case, the
appellant is further aided by the fact that the respondent
knew where the property was located and knew it was the
subject of the homestead declaration. Combined with the
rule that Montana homestead laws will be liberally construed
in favor of the claimant, Dunbar, supra, this leads us to
hold that the defect does not invalidate the declaration in
this case.
The second issue raised on appeal is whether the
plaintiff's homestead exemption is limited to her exemption
rights as of the time she entered into her contract debt
with the defendant. Section 70-32-104(2), MCA, as amended
October 1, 1981, states:
"Such homestead, in either case, shall
not exceed in value the sum of $40,000.
However, in any proceedings instituted to
determine the value of such homestead,
the assessed value of the land which
included appurtenances, if any, and of
the dwelling house as appears on the last
completed assessment roll preceding the
institution of such proceedings shall be
prima facie evidence of the value of the
property claimed as a homestead."
This section was first enacted in our Civil Code,
1895, and reenacted several times but amended upwards from
the value of $2,500 in the original act, now to the latest
amount $40,000 from the prior $20,000. As noted in the
facts, appellant filed her declaration of homestead prior to
the effective date of the latest amendment.
Respondent relies on a long established statutory rule
of construction in arguing that the increased homestead
exemption amount should not apply to debts contracted prior
to October 1, 1981 because such an application would be
retroactive in effect. Section 1-2-109, MCA, provides that

"no law contained in any of the statutes of Montana is
retroactive unless expressly so declared."
Resolution of this issue involves a two step process.
First it must be determined if the proposed application of
the amendment would be retroactive in effect. If this is
answered in the negative, the application sought is
prospective and the inquiry ends. If the application sought
would be retroactive in effect, then to validate such an
application, a legislative intent for it to operate in such
a manner must exist. See Castles v. State, ex rel.
Department of Highways (Mont. 1980), 609 P.2d 1223, 37
St.Rep. 734. Appellant argues first that the application

sought is not retroactive and second that even if it is, the
legislature intended the amendment to be retroactively
applied.
A retroactive law is one which "[TJakes away or
impairs vested rights acquired under existing laws or
creates a new obligation, imposes a new duty or attaches a
new disability in respect to transactions already past. "
City of Harlem v. State Highway Commission (1967), 149 Mont.
281 at 284, 425 P.2d 718 at 720. The amendment here being
considered, increasing the homestead exemption, obviously
does not create any new obligations or impose any new
duties. Nor does the act making the increased exemption
applicable to all debts whenever contracted, constitute a
law which "takes away or impairs vested rights acquired
under existing contracts."
The contract here between the parties in no way
involved the plaintiff's homestead. Indeed, the homestead
statute itself provided a means by which the respondent
First Federal, could have obtained a vested right to execute
against the appellant s homestead free of any homestead
exemption whatsoever under its "existing contract." See,
Section 70-32-202(3) and (4), MCA, (pre-amendment) and
Section 70-32-202(2) and ( 3 ) , MCA, (post-amendment), which
both specifically exclude any homestead exemption for a
claimant when the creditor executes on a debt secured by a
collateral mortgage on the homestead. Had respondent First
Federal by contract made its loan to the appellant
contingent upon a collateral mortgage on her homestead,
there would be no homestead exemption whatsoever under
either pre-amendment or post-amendment Montana homestead
law.
Here, rather than bargaining for a collateral mortgage
on Mrs. Neel1s homestead as a condition for the loan and
thereby acquiring a vested right under the loan contract,
the stipulation of facts presented to the trial court,
paragraph 5 stated:
". . . at no time prior to making the
loan, did any agent of First Federal ask
plaintiff Neel about her residence as
collateral for the loan, or state to
plaintiff Wee1 that First Federal deemed
plaintiff Neel Is residence property at
 402 F i f t h Avenue N o r t h , G r e a t F a l l s ,
Montana t o b e a d d i t i o n a l s e c u r i t y f o r t h e
loan. The loan for the property
described i n paragraph 2 [ t h e property
p u r c h a s e d w i t h t h e l o a n ] was s e c u r e d by
t h e mortgage t o t h a t p r o p e r t y alone."
Why t h i s was n o t d o n e a s p a r t o f t h e b a r g a i n f o r h e r
l o a n is u n e x p l a i n e d . P e r h a p s i t was d u e t o t h e f a c t , t h a t

t o d o s o would h a v e r e q u i r e d t h e a s s e n t a n d c o n s i d e r a t i o n o f
h e r h u s b a n d , J o h n S. Neel, who owned t h e h o m e s t e a d p r o p e r t y
i n j o i n t tenancy with p l a i n t i f f . I t is c l e a r , however, that

by n o t making a c o l l a t e r a l m o r t g a g e o n p l a i n t i f f ' s h o m e s t e a d

p r o p e r t y a p a r t of t h e c o n t r a c t b a r g a i n between t h e p a r t i e s ,
the respondent was not required to obtain the husband's

approval f o r the loan or obtain h i s signature subjecting h i s
homestead t o be l o s t i f t h e l o a n c o u l d n o t b e r e p a i d . Thus,

w i t h o u t i n a n y way making t h e a p p e l l a n t ' s h o m e s t e a d a p a r t
of t h e b a r g a i n and w i t h o u t o b t a i n i n g t h e h u s b a n d ' s c o n s e n t ,

the respondent was able to negotiate a loan for a

s u b s t a n t i a l sum o f money t o t h e p l a i n t i f f and h e r p a r t n e r
w i t h t h e p r o s p e c t o f r e c e i v i n g a n 11% n t e r e s t r e t u r n .
i

The r i g h t which r e s p o n d e n t c l a i m s was i n f r i n g e d upon
when the legislature applied the increased homestead

e x e m p t i o n t o a l l d e b t s , e v e n a f t e r j u d g m e n t was e n t e r e d , was
t h e r e f o r e n o t a r i g h t a c q u i r e d under an e x i s t i n g c o n t r a c t .

The f a c t t h a t t h e r e s p o n d e n t l a t e r o b t a i n e d a j u d g m e n t
on its d e b t a g a i n s t t h e p l a i n t i f f Neel, moreover, did not
m a g i c a l l y t r a n s f o r m t h i s i n t o a r i g h t a c q u i r e d by c o n t r a c t .

S e e Home B l d g . & Loan A s s o c . v . B l a i s d e l l ( 1 9 3 4 ) , 290 U . S .
398 a t 4 2 9 , 54 S . C t . 2 3 1 a t 2 3 6 , 78 L.Ed. 413 a t 4 2 4 , n. 8 ;
and S t a n f o r d v. Coram ( 1 9 0 3 ) , 28 Mont. 2 8 8 , 7 2 P. 655. As

was s t a t e d i n S t a n f o r d , s u p r a , when a c l a i m on a c o n t r a c t i s
r e d u c e d t o judgment, "The c o n t r a c t b e t w e e n the parties is
voluntarily surrendered and canceled by merger in the
judgment and ceases to exist. It is no longer looked to for
any purpose except as evidence supporting the judgment." 28
Mont. at 292, 72 P. at 655.
However, the right to execution is a "right acquired

under existing laws." We find it unnecessary to determine
when this right vested, suffice it to say that the right did
vest before the effective date of the subject amendments.
Laws existing at the date a contract is executed are as much
a part of the contract as if set forth therein. Rieger v.
Wilson (1936), 102 Mont. 86, 56 P.2d 176. A judgment on a
contract does not create a new right, but only, "[Dlefines
and determines what rights already exist." Stanford, supra,
28 Mont. at 291, 72 P. at 655. Since the application sought
by appellant would impair rights acquired under existing
laws, the proposed application would be retroactive in
effect.
In Montana law, there exists a presumption against
retroactive application of statutes. Dunham v. Southside
National Bank (1976), 169 Mont. 466, 548 P.2d 1383. For a
statute to be retroactively applied, such an intent must be
clearly expressed by the legislature. Section 1-2-209, MCA.
The legislative intent must be gathered from the act itself
and no other source. Penrod v. Hoskinson (1976), 170 Mont.
277, 552 P.2d 325. However, "If it is unmistakable that an
act was intended to operate retrospectively, that
intention is controlling as to the interpretation of the
statute, even though it is not expressly so stated."
Davidson v. Love (1953), 127 Mont. 366 at 370, 264 P.2d 705
at 707.
 Here the legislature entitled the act which increased
the homestead exemption from $20,000 to $40,000, "an act to
revise the homestead laws; increasing the exemption to
$40,000 . .. allowing the exemption to be claimed after a
judgment is recorded." The appellant took advantage of this
act, asserted her rights as the law allows her to do and
claimed the $40,000 exemption after the judgment recovered
by First Federal had been recorded. We find that the
legislative intent is clear and allowed the appellant to
obtain the benefits of the increased exemption on debts
contracted prior to October 1, 1981.
The respondent contends that there is nothing in the
statute, Section 70-32-104, MCA, that expressly declares it
retroactive. Therefore since there is a presumption in
Montana that statutes operate prospectively only, every
reasonable doubt should be resolved against retroactive
application. The appellant counters arguing that Section
70-32-104, MCA, clearly indicates in the title of the
statute the fact that it is remedial in nature, which
requires retroactive application. She further cites to the
legislative history of the act which points to the
legislative objective behind the amendment; to comply with
the Constitutional mandate to "[Elnact liberal homestead and
exemption laws. " Constitution of the State of Montana,
Article XIII, section 5.
We are guided by the maxim of law which favors giving
protection to the homestead. In Montana, the homestead laws
are to be liberally construed in favor of the homestead
claimant. Oregon Mortgage Co. v. Dunbar, supra. Under the
correct approach, the creditor claiming the homestead is on
the same plane as other creditors seeking the proceeds of a
judicial sale and all creditors are paid according to their
respective ranking after payment of cost. The whole theory

of the exemption of the homestead is that the obligation of
the debtor to those whom he owes the duty to support is a
higher obligation than the payment of his debts. The
purpose of the framers of the law was to secure a home
beyond the reach of financial misfortune, around which
gather the affections of the family; the greatest incentive
to virtue, honor and industry. Despite the absence of an
express declaration, we find that the legislative intent is
unmistakable; the amendments are to apply to - debts
all
whenever contracted.
Issue three is whether the amendments to the homestead
act which increase the homestead exemption from $20,000 to
$40,000, and allow the increased exemption to be claimed
even after judgment, violate the Montana and United States
Constitutions' contract clauses.
The United States Constitution, Article 1 Section 10,
cl. 1, in pertinent part reads: "No state shall. . . pass
any. . . law impairing the obligation of contracts . . ."
The language contained in Article 11, section 31 Montana
Constitution 1972, is substantially the same as the contract
clause language of the United States Constitution. This
Court has construed the two contract clauses interchangably,
relying on United States Supreme Court opinions to test the
validity of Montana legislation under both contract clauses,
see e.g., The City of Butte v. Roberts (1933), 94 Mont. 482,
23 P.2d 342.
It is the position of respondent that the act which
allows a homestead-owner, such as appellant to obtain a
homestead exemption increased from $20,000 to $40,000,
violates the contract clause when invoked against creditors
who extended credit or obtained judgments prior to the act's
effective date.
This argument has merit, in that the right to execute
on appellant's homestead was acquired prior to the effective
date of the amendments. As noted in discussion of the prior

issue it is unnecessary to find at what point the right
vested; suffice it to say the vesting predated the
amendments as laws existing at the date a contract is
executed are as much a part of the contract as if set forth
therein. Reiger, supra.
Early case law supports the respondent's position.
See Edwards v. Kearzey (1877), 96 U.S. 595, 24 L.Ed. 793, and
Rieger v. Wilson (1936), 102 Mont. 86, 56 P.2d 176. While

earlier judicial pronouncements lent support to the
contentions of respondent, the latest cases of the United
States Supreme Court and cases of this Court are to the
contrary. See, City of El Pas0 v. Simmons (1965), 379 U.S.

497, 85 S.Ct. 577, 13 L.Ed.2d 446. Earlier cases, Reiger,
supra, held that if a remedy formerly available to enforce a
contract was abrogated or substantially effected by state
action, then the contract itself was impaired. Later the
Court's decisions began to concern themselves with the fine
distinction between the remedy and the obligation.
In Simmons, the United States Supreme Court summarizes
development of the law in this language:
"The City seeks to bring this case within
a long line of cases recognizing that
distinction between contract obligation
and remedy and permitting a modification
of the remedy as long as there is no
substantial impairment of the value of
the obligation. (citations omitted)

"We do not pause ... to chart again the
dividing line under federal law between
'remedy' and 'obligation'. .. For it is
not every modification of a contractual
promise that impairs the obligation of
contract under federal law, any more than
it is every alteration of existing
remedies that violates the Contract
Clause." (citations omitted)

"The decisions 'put it beyond question
that the prohibition is not an absolute
one and is not to be read with literal
exactness like a mathematical formula,'
as Chief Justice Hughes said in Home
Building & Loan Assn. v. Blaisdell, 290
U.S. 389, 428. The Blaisdell opinion,
which amounted to a comprehensive
restatement of the principles underlying
the application of the Contract Clause,
makes it quite clear that ' [nlot only is
the constitutional provision qualified by
the measure of control which the State
retains over remedial processes, but the
State also continues to possess authority
to safeguard the vital interests of its
people. It does not matter that
legislation appropriate to that end "has
the result of modifying or abrogating
contracts already in effect." (citations
omitted) Not only are existing laws read
into contracts in order to fix
obligations as between the parties, but
the reservation of essential attributes
of sovereign power is also read into
contracts as a postulate of the legal
order . . . . This principle of
harmonizing the constitutional
prohibition with the necessary residuum
of state power has had the progressive
recognition in the decisions of this
Court.'(citations omitted) Moreover, the
'economic interests of the State may
justify the exercise of its continuing
and dominant protective power
notwithstanding interference with
contracts.' (citations omitted) The
State has the 'sovereign right.
protect the. . .
. .
general welfare of the
to
people . . . . Once we are in this
domain of the reserve power of a State we
must respect the "wide discretion on the
 part of the legislature in determining
what is and what is not necessary."'
(citations omitted) As Mr. Justice
Johnson said in Ogden v. Saunders, ' [i]t
is the motive, the policy, the object,
that must characterize the legislative
act, to affect it with imputation of
violating the obligation of contracts.'
12 Wheat. 213, 291.
"Of course, the power of a State to
modify or affect the obligation of
contract is not without limit.
[Wlhatever is reserved of state power
must be consistent with the fair intent
of the constitutional limitation of that
power. The reserved power cannot be
construed so as to destroy the
limitation, nor is the limitation to be
construed to destroy the reserved power
in its essential aspects. They must be
construed in harmony with each other.
This principle precludes a construction
which would permit the State to adopt as
its policy the repudiation of debts or
the destruction of contracts or the
denial of means to enforce them.'
Blaisdell, supra at 439." 379 U.S at
503-9, 85 S.Ct. 581-4, 13 L.Ed.2d 451-5.
Following this reasoning is Hooter v. Wilson
(Louisiana 1973), 273 So.2d 516, where the Supreme Court of
Louisiana noted:

"When the state changed the remedy by
increasing the exemption, it did not
abrogate the remedy; it did not make the
remedy any less certain than it was at
the time of contract; it simply in the
interest of the public welfare increased
the debtor's exemption so that he and his
family might be saved from being a charge
upon the state." 273 So.2d at 522.
In Ouachita National Bank v. Rowan -( 1977),
La. App.
345 So.2d 1014, again the Louisiana court reasoned:

"The homestead exemption was not a new
creation of the 1974 Constitution but was
a continuation and a mere modification or
increase of the existing exemption. We
have found that the modification (or
increase) does not impair the contracts
at issue . . . but even should our
findings be otherwise, we also would find
 'the economic interest of the state. .
. [to] justify the exercise of its
continuing dominant protective power
notwithstanding interference with
contracts.' (citations omitted) The
result here does not repudiate the I . ..
debts or destruction of contracts . . .
or [deny the Bank the] the [sic] means
to enforce them.'" 345 So.2d at 1018.
Our holding does not do violence to the holdings of
the cases referred to by respondent under the respective
factual circumstances there present. Those cases were not
decided under similar circumstances or in light of the
authority presented here.
It is to be noted that the respondent in relying on
Kearzey, supra, and Rieger, supra, as being the law, failed
to discuss the most recent United States Supreme Court
Opinion on the contract clause, Energy Reserves Group, Inc.,
v. Kansas Power and Light - (1983)
Co. U.S. -?
- 103

The Supreme Court in Energy Reserves, noted that an
examination of the legislation for validity under the
contract clause requires a three step analysis. The
threshold inquiry is "whether the state law has, in fact,
operated as a substantial impairment of the contractual
relationship. I
' U.S. at , 103 S.Ct. at 704-5, 74
L.Ed.2d 569; citing Allied Structural Steel Co. v.
(1978), 438 U.S. 234 at 244, 98 S.Ct. 2716 at 2722, 57
E.Ed.2d 727. If there is no substantial impairment of the
contractual relationship, the inquiry is ended. Second, if
the legislation substantially impairs the contractual
rights, " [t]he sta,te, in justification, must have a
significant and legitimate public purpose behind the
regulation." U.S. at , 103 S.Ct. at 705, 74
L.Ed.2d 569; citing U.S. Trust Co. v. New Jersey (1977), 431
U.S. 1 at 21, 97 S.Ct. 1505 at 1518, 52 L.Ed.2d 92. Third,
the adjustment of rights and responsibilities of contracting
parties must be based " [ulpon reasonable conditions" and be
"[olf a character appropriate to the public purpose
justifying the legislation's adoption." U.S. at I

103 S.Ct. at 705, 74 L.Ed.2d 569. As the opinion notes,
unless the State is a party to the contract, courts will
properly defer to legislative judgment on this third step.
Since the State is not a party to this contract we will not
question the propriety of this legislation, thus we are
faced with a two part inquiry on the facts presented.
Energy Reserves Group, supra, set forth criteria for
making the threshold determination on substantial
impairment. Total destruction of contractual expectations
is not necessary, and a law which restricts a party to gains
reasonably expected from a contract is not a substantial
impairment. Further, the extent the particular industry has
been regulated in the past will mollify the amount of
impairment, if any. We find that the act as applied in the
manner proposed by appellant does not operate as substantial
impairment of the parties contractual relationship.
In this case, the area in dispute had been heavily
regulated in the past. Indeed there has been a homestead
exemption law literally before Montana became a state. See
Section 194, page 81, Bannack Statutes; Section 1-9, page
77-79, (1869). "When he [respondent] purchased into an
enterprise already regulated in the particular to which he
now objects, he purchased subject to further legislation
upon the same topic." Energy Reserves Group, supra,
U.S. at , 103 S.Ct. at 705, 74 L.Ed.2d 569, citing Viex
v. Sixth Ward Building and Loan Association (1940), 310 U.S.
32 at 38, 60 S.Ct. 792 at 794-5, 84 L.Ed. 1061. Here
respondent made its loan to the appellant and Louise Manzer
subject to further legislation on homestead exemptions.
Respondent's execution rights are granted by law,
independent of its remedies provided in the contract.
"Parties appealing to the law can take only what the law
awards them." Stanford v. Coram (1903), 28 Mont. 288 at

292, 72 P. 655 at 655. The respondent should have been well
aware that the homestead exemption had been increased
regularly over the past fifty years, and knew that
appellant's residence would be subject to homestead
exemption, therefore took its chances that the State might
increase it. See, United States v. Smith (E.D. Louisiana
1980) 486 F.Supp. 76 at 78.
In addition, Montana's act allowed the increased
exemption to be claimed after judgment, which simply
restricted respondent to gains reasonably expected from its
contract. Because the loan was not secured by a collateral
mortgage on the homestead, respondent, at the time of the
loan, could not reasonably have relied upon appellant's
continued ownership of the homestead property to the time of
execution and judgment. Hooter v. Wilson (Louisiana 1973),
273 So.2d 516 at 522. Here respondent did not question
appellant about her residence as collateral for the loan, or
state that it deemed her residential property to be
additional security. Rather than being a "central
undertaking" of the parties in the loan agreement, the
continued existence of appellant's interest in her homestead
property at the time of execution by the respondent was no
more than an unbargained for windfall. In short the
creditor's reasonable expectations were not impaired by the
state act.
We therefore find that the act increasing the
homestead exemption and allowing claimants to claim the
increased $40,000 exemption applies to all debts, whenever
contracted, regardless of whether those debts were already
reduced to judgment. This interpretation is reasonable and
necessary to insure an adequate homestead exemption to the
people of Montana and applies to the case at bar. Even if
the amendment had operated as a "substantial impairment" of
the parties contractual relationship, it would be valid
under the second step of the contract clause analysis. In
the instant case, we must attempt to reconcile the
strictures of the contract clause with the "essential
attributes of sovereign power. .. necessarily reserved to
the states to safeguard the welfare of their citizens."
U.S. Trust Co. v. New Jersey (1977), 431 U.S. 1 at 21, 97
S.Ct. 1505 at 1518, 52 L.Ed. 2d 92. Without this
legislation, a vast class of debts contracted prior to
October 1 , 1981, would be immune from this remedial
legislation, and a large class of citizens would therefore
continue to suffer under the onus of an inadequate $20,000
exemption which the legislature felt did not meet the times
or our Constitution.
Issue four is whether appellant is entitled to the
full $40,000 homestead exemption on the equity in her
undivided one-half interest in her homestead propery.
Appellant argues that an undivided interest is entitled to
the entire homestead exemption instead of an amount
proportional to her interest as suggested by respondent.
The gist of the respondent's argument is that the homestead
exemption applies to property as a whole, there being only
one exemption. Thus when an owner of an undivided interest
in property claims an exemption, he or she is limited to the
exemption amount proportional to his or her undivided
interest. In support thereof, respondent cites a number of
California cases, in particular it alleges as controlling an
appellate court decision, Application of Rauer's Collection
(1948), 87 Cal.App.2d 248, 196 P.2d 803. We note that since
the Rauer's opinion, decisions of the California courts have
refused to follow the holding in that case, thus it is not
good authority for respondent's position. See, Schoenfeld
v. Norberg (1970), 11 Cal.App.3d. 755, 90 Cal.Rep. 47;
Strangman v. Duke (1956), 140 Cal.App.2d 185, 295 P.2d 12.
In Strangman, supra, the California Court noted, "There is
no provision in our statute for the apportionment of an
exemption in any situation." In Montana we likewise have no
such provision. The Strangman decision, supra, held that if
one spouse's creditors move against his/her undivided
interest in the homestead property held in joint tenancy,
that the spouse gets the benefit of the entire exemption.
Finding the California decisions irreconcilable, we believe
the holding in Strangman, supra, is preferable and is in
accord with Montana law.
Section 70-32-103 MCA, provides from whose property
the homestead may be selected. If the claimant is married,
the homestead may be selected from property of either
spouse. In addition to our statute, this Court has held
several times that a homestead may be claimed on an

undivided i n t e r e s t i n t h e land. S e e W a l l v. Duggan ( 1 9 2 6 ) ,

76 Mont. 239, 245 P. 953; Esterly v. The Broadway G a r a g e

Co., e t al. ( 1 9 3 0 ) , 87 Mont. 64, 285 P. 172; DeFontenay v.

Childs ( 1 9 3 3 ) , 9 3 Mont. 480, 1 9 P.2d 650; Isom v. Larson

(1927), 78 Mont. 395, 255 P. 1049. I n L i n d l e y v. Davis

(1887), 7 Mont. 206, 14 P. 717 this Court held that a
tenant-in-common is entitled to the full homestead

exemption.

In addition, as previously noted in this opinion,

s t r o n g p o l i c y c o n s i d e r a t i o n s e x i s t which mandate t h a t e i t h e r

debtor/spouse be entitled to the full $40,000 homestead

exemption on his or her undivided half interest in the

property. I n Montana, homestead laws a r e t o be l i b e r a l l y

construed i n favor of the claimant. O r e g o n M o r t g a g e Co. v .

Dunbar, s u p r a . W e t h e r e f o r e f i n d t h a t a p p e l l a n t is e n t i t l e d

to the full $40,000 homestead exemption on her undivided

one-half i n t e r e s t i n t h e homestead p r o p e r t y .

The j u d g m e n t o f t h e D i s t r i c t C o u r t i s r e v e r s e d a n d t h e

case i s remanded f o r f u r t h e r p r o c e e d i n g s i n c o m p l i a n c e w i t h

t h i s opinion.

W e concur:

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J,%
Chief J u s t i c e
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