Hostetter v. Inland Development Corp. of Montana

• Decision Date: 08 April 1977
• Docket Number: No. 13429,13429
• Citation: 34 St.Rep. 147,561 P.2d 1323,172 Mont. 167
• Parties: Robert J. HOSTETTER and Eldon H. Leep et al., Plaintiffs and Appellants, v. INLAND DEVELOPMENT CORPORATION OF MONTANA, a corporation, and Big Sky of Montana, Inc., a corporation, Defendants and Respondents.
• Court: Montana Supreme Court

Page 1323

561 P.2d 1323

172 Mont. 167

Robert J. HOSTETTER and Eldon H. Leep et al., Plaintiffs and Appellants, v. INLAND DEVELOPMENT CORPORATION OF MONTANA, a corporation and Big Sky of Montana, Inc., a corporation Defendants and Respondents.

No. 13429.

Supreme Court of Montana.

Submitted Jan. 11, 1977.

Decided March 15, 1977.

Rehearing Denied April 8, 1977.

Berg, Angel, Andriolo & Morgan, Ben E. Berg, Jr., argued and Richard J. Andriolo, argued, Bozeman, for plaintiffs-appellants.

Thomas I. Sabo, Brown, Petter & Kommers, Gene I. Brown argued, Bozeman, for respondent.

J. David Penwell argued, Holter, Heath & Kirwan, Bozeman, for amicus curiae.

HATFIELD, Chief Justice.

This is an appeal from the district court, Gallatin County, denying appellants' foreclosure on a mechanic's lien.

On April 22, 1974, appellants, doing business as Dutch Touch, entered into a contract with Inland Development Corporation of Montana, a subsidiary of Inland Construction Corporation of Minnesota. Inland Development was the primary contractor responsible to Big Sky of Montana, Inc. for the Glascier Condominium Project located in Meadow Village at Big Sky, Montana. The project consisted of 14 buildings which housed 64 condominium units. The Dutch Touch contract involved the construction of ceramic bathtub enclosures in each individual unit, with no work on the common areas to be performed. This was a single contract, the basis of payment to be the total number of square feet of tile laid. Dutch Touch commenced work on this contract during April 1974.

On August 20, 1974, Big Sky filed and recorded a declaration of unit ownership covering the Glacier Condominiums. During September, October, and November, 1974, Big Sky sold 18 of the 64 condominium units to third parties.

Dutch Touch completed the tile work on March 24, 1975, claiming the amount due for labor, material, and supplies to be $14,554.60. As of June 18, 1975, Dutch Touch had received $13,038.12, leaving $1,516.48 unpaid. On June 18, 1975, Dutch Touch filed a single mechanic's lien for the unpaid balance upon the real property and premises encompassing the 14 buildings and 64 units of the Glacier Condominiums.

On August 19, 1975, Dutch Touch initiated a foreclosure action in district court seeking a personal judgment against Inland Development on the contract and enforcement of its lien against the interest of Big Sky in the Glacier Condominiums. A lis pendens was also filed at this time.

A third party action was filed by Big Sky against Inland Construction on the primary contract. The trial on this third party complaint was suspended until the determination of the lien foreclosure.

The district court, sitting without a jury, entered judgment against Dutch Touch upon the following conclusions of law: 1) That the Glacier Condominium Project became subject to the provisions of the Montana Unit Ownership Act, sections 67-2301 et seq., R.C.M.1947, by reason of the filing of the declaration by Big Sky on August 20, 1974; 2) that a lien covering the entire project was invalid under section 67-2324, R.C.M.1947; and 3) that Dutch Touch failed to establish a lien against any individual unit in the Glacier Condominium Project.

Two issues are presented for review: 1) Was Dutch Touch's single lien rendered invalid when Big Sky filed the declaration? 2) Was Dutch Touch entitled to foreclose against only those units owned by Big Sky for the entire amount of the lien?

This is a case of first impression, the interpretation of section 67-2324, R.C.M.1947, as it relates to a subcontractor's lien arising from work performed and materials supplied during the initial construction of a condominium project.

The interest in unit ownership legislation was generated by federal legislation making Federal Housing Administration insurance available for condominiums, provided that state law concerning unit ownership existed. 12 U.S.C.S. § 1715 y(a). FHA then provided a Model Act which many states, including Montana, followed. The primary purpose of this condominium legislation is to insure the compatability of such housing projects with pre-existing law. 77 Harvard L.Rev. 777 (1964).

Under the pre-existing lien law of Montana, Dutch Touch would be entitled to a blanket lien effective against the entire condominium project. This is so since the work was performed under one contract, and not a series of separate contracts for each unit. Caird Eng. Works v. Seven-Up Min. Co., 111 Mont. 471, 111 P.2d 267 (1941).

We must now determine what effect subjecting the property to the Montana Unit Ownership Act has upon the lien of Dutch Touch.

Section 67-2324, R.C.M.1947, states:

'(1) Subsequent to recording a declaration and while the property remains subject to sections 67-2302 to 67-2342, no lien shall arise or be effective against the property. During such period liens or encumbrances shall arise or be created only against each unit and the undivided interest in the common elements appertaining thereto, in the same manner and under the same conditions as liens or encumbrances may arise or be created upon or against any other separate parcel of real property subject to individual ownership.

'(2) No labor performed or materials furnished with the consent or at the request of a unit owner, his agent, contractor or subcontractor, shall be the basis for the filing of a mechanic's or materialman's lien against the unit of any other unit owner not consenting to or requesting the labor to be performed or the materials to be furnished, except that consent shall be considered given by the owner of any unit in the case of emergency repairs thereto performed or furnished with the consent or at the request of the manager.

'(3) If a lien becomes effective against two or more units, the owner of each unit subject to such a lien shall have the right to have his unit released from the lien by payment of the amount of the lien attributable to his unit. The amount of the lien attributable to a unit and the payment required to satisfy such a lien, in the absence of agreement, shall be determined by application of the percentage established in the declaration. Such partial payment, satisfaction or discharge shall not prevent the lienor from proceeding to enforce his rights against any unit and the undivided interest in the common element appertaining thereto not so released by payment, satisfaction or discharge.'

This is one section of the entire Unit Ownership Act and it is the duty of this Court to interpret it in such a manner as to insure coordination with the other sections of the Act, and fulfill legislative intent. Doull v. Wohlschlager, 141 Mont. 354, 377 P.2d 758 (1963); Aleksich v. Industrial Acc. Fund, 116 Mont. 127, 151 P.2d 1016 (1944).

Reading the Act in its entirety, it becomes apparent that there are safeguards to insure that builders, mechanics, and materialmen involved in the initial construction of a project are to be fully compensated before individual units are sold. Furthermore, Big Sky failed to comply with these safeguards.

Section 67-2303.1 allows the sale of units prior to the completion of construction of the 'building', which the Act defines as a multiple unit building. However, the money from such sales must be placed in escrow. Disbursements cannot be made from this escrow fund until completion of the building and common elements or compliance with section 67-2303.2 through 2303.6, whichever occurs first. In any event, such disbursements are to be only for cost of construction, legal, architectural and financial fees, and other incidental costs of the project. Section 67-2303.1(4) then specifically states:

'* * * The balance of the moneys remaining in the fund shall be disbursed only upon completion of the building, free and clear of all mechanic's and materialmen's liens. * * *' (Emphasis added.)

Big Sky did sell 18 units prior to completion of construction, however it failed to deposit the moneys from these sales in an escrow account as required, and failed to pay this lien.

Section 67-2323 states:

'Blanket mortgages and other blanket liens affecting unit at time of first conveyance or lease. At the time of the first conveyance or lease of each unit following the recording of the declaration, every mortgage and other lien affecting such unit including the undivided interest of the unit in the common elements, shall be paid and satisfied of record, or the unit being conveyed or leased and its interest in the common elements shall be released therefrom by partial release duly recorded.' (Emphasis added.)

Again Big Ksy failed to comply with this provision. At the time of its first sale Big Sky had not satisfied this lien nor did it obtain a partial release as required.

The lien of Dutch Touch arose, attached and became effective against the property when work was commenced, the filing merely perfects the lien. Continental Supply Co. v. White, 92 Mont. 254, 266, 12 P.2d 569, 574 (1932) states:

'* * * The lien constitutes an interest in the property; 'the filing extends its life and preserves it.'

"The lien attaches to the structure as the labor is performed or the material...