No. 88-567

INTHE SIJPREME COURTOF THE STATE OF MONTANA

JOHND. ROMAIN, DefendantandAppellant,-vsEARL SCHWARTZ COMPANY, A Partnership, composed of EARL SCHCVARTZ

## ,GLADYS SCHWARTZ, KAY SCHWARTZ YORK,RAY L. YORK, KATHY SCHWARTZMAU, ROBERTMAU and KARLA LEA SCHWARTZ, Partners,
Defendantand Respondent.

APPEAL FROM: District Court of the Twelfth JudicialDistrict, In and for the County of Hill, The Honorable Chan Ettien, Judgepresiding.

COUNSELOF RECORD:

ForAppellant:
Robert J. Emmons and Joseph Sullivan; Emmons & Coder, Great Falls,Montana

For Respondent:

STUART 

### c ~~WCKENZIE,E~U~~S, Solem & MacKenzie,Chinook, Montana

Submitted on Briefs: June 30, 1989 Decided: Au-yust25, 1989

2 *qc



# . CJustice R. C. McDonough delivered the Opinion of the Court.

This is an appeal from an action begun to foreclose a mortgage on agricultural real property. Defendant John D. Romain (Romain) appeals from the judgment of the District Court of the Twelfth JudicialDistrict,Hill County, finding adverse to his cross-claim asserted against Earl Schwartz Company, a partnership (partnership)

# . We affirm inpart and

reverse inpart. Although Romain presents several issues for review,we find that consideration of only two are necessary to decide this case. These issues are: 1) Did the trial court err in determining that Romain

as vendor and grantor divested himself of all alleged rights to repossession under a contract for deed covering the property upondelivery of awarranty deed to thepartnership, vendee and grantee? 2) Did the trial court err in holding that Romain failed to mitigate his damages and therefore should not be allowed to assert a right of indemnity against the partnership for damages caused by the partnership's default

on the mortgage? The facts in this case are somewhat complicated. On July 26, 1979, John Romain agreed to sell his farm by contract for deed to the partnership for $4,635,000. When this contract was entered into, the farm was subject to a mortgage held by John Hancock Mutual Life Insurance Company

(John Hancock)

# . As part of the purchase price, the partnership agreed to pay the remaining balance owed John Hancock by Romain. On July 31, 1979, Earl Schwartz as an individual delivered his personal guaranty of Romain's note, to the extent of $1,000,000,to JohnHancock.In January 1980, the partnership paid off the balance owed Romain on the contract for deed. Romain then conveyed the legal titleby warranty deed to thepartnership, "subject to," theJohnHancockmortgage. In 1986 and 1987, payments on the mortgage were not made,putting the note andmortgage indefault. As a result, John Hancock sued to foreclose on the property. Named as defendantswere the partnership and the individualpartners, Earl Schwartz in his individual capacity as guarantor, John and Maradel Romain and other lienholders. Upon learning of the default, Romain cross-claimed against the partnership and sought cancellation of the contract fordeed,possession of theproperty and growing crops, and all monies from any federal farm programs on the farm. On August 29, 1988, the trial judge granted John Hancock a decree of foreclosure with a judgment against John and Maradel Romain for $3,966,973.46, and a judgment againstEarl Schwartz based on his guaranty in the amount of $1,269,310.87. The trial judgemade separate Findings of Fact,Conclusions of Law and Judgment on Romain's cross-claim. On this issue, the trial court denied Romain relief and redemption rights and left the partnership in possession of the farm property and crops, and all monies from the 1987 and 1988 farm programs. In reaching this conclusion, the court found that Romain lost all rights to repossession of theproperty upon delivery of the warranty deed by him to the partnership. Because he had no right to possession of the property, the trial court also found that Romain had no claim to any growing crops or farm program money. Rather, his only existing remedy under the contract for deed was indemnification by the partnership fordamages sustained as a consequenceof thedefault.Any right to indemnification, however, was contingent upon Romain'smitigation ofdamages. In August of 1988,John Hancock wrote Romain and informed him that if he executed a deed transferring all of his rights and interest in the property to JohnHancock,he would be absolved of all claims againsthim resulting from the foreclosureand any deficiency whichmay arise. Romain refused to execute such adeed. The trial court found this refusaltobe a failure on hispart to mitigate damages. Consequently,Romain was denied indemnification for any deficiency judgmentwhichmay arise from the foreclosure sale. This appeal followed. I Romain argues that his delivery of the warranty deed to the partnership did not operate to divesthim of his right to repossession of the farm under the contract for deed. We disagree. In support of our conclusion,we begin by examining two statutes. Section 70-1-508, MCA, provides that a grant of property takes effect only upon delivery by the grantor. Moreover, $ 70-1-510, MCA, provides that a grant cannot be delivered conditionally. Rather, delivery to a grantee is deemed to be absolute and the instrument takes effect upon its delivery. Any prior conditions are discharged at time of delivery. Examination of these two statutes leads to the conclusion that Romain divested himself of all interest in the property upon delivery of the deed to the partnership. The language of the warranty deed is clear. Romain gave up the legal title and any other interest in theproperty. Romain argues, however, that itwas not his intent,upon delivery of the deed, to give up his right to repossession upon foreclosing or cancelling the contract for deed. He maintains that it was always his intention, to allow theforfeiture clause of the contract for deed to remain in effect until the JohnHancock loanwas fullyrepaid. Because he remained liable for any deficiency underlying the multi-million dollar mortgage, Romain argues that his intention to retain his right to repossession should be obvious. We recognizethat avalid delivery of title requiresnot only actual manual transfer, but also an intent on the part of the grantor to pass title to the property. Hartley v. Stibor (Idaho 1974), 525 P.2d 352, 355. Therefore, it is possible that there isno legal delivery although the instrument has been delivered to the grantee. Hayes v. Moffatt

(1928), 83 Mont. 214, 226, 271 P. 433, 437. Romain argues that this lack of intent is evidenced by the default provisionwithin the contract for deed and the languagewithin the warranty deed which states that the conveyance is "subject to" the JohnHancockmortgage. This logic fails in light ofMontana statutory law, the language of the warranty deed, and established case law. Section 70-1-519, MCA, in accordance with established case law, provides that upon transfer of property, the transferee obtains all title held by the transferor unless a different intention is expressed or is necessarily implied. As stated earlier, Romain maintains that this intent should be implied from the languagewithin the contract and thewarranty deed, and the circumstances surrounding the conveyance. The language of the deed giving up all right, title and interest in the property clearly indicatesRomain's intent to transfer full title to the partnership, including all his security interest. The fact that the warranty deed contained language stating that it was "subject to" the John Hancock mortgage does not render inoperative the presumption that Romain intended to convey his entire interest. It ispresumed that one who conveys property by deed intends to convey his entire interest unless a portion of the interest. is expressly excepted. The words "subject to" are a limitation upon the warranty of title and not such an exception. FirstNational Bank of Denver

### v. Allard (Colo.1972), 506 P.2d 405,406. Moreover this intention, manifested by the deed, prevails over any contrary intentwhich may be gleamed from the contract for deed. It has long been recognized that an unambiguous provision in a deed prevails over an inconsistent provision in a sales contractpursuant to which the deed was given. Johnson v. Ware (Cal. 1943), 136 P.2d 101, 102; McCafferty v. Young, (1964), 144 Mont. 385, 397 P.2d 96. I1 Romain next contests the trial court's decision to deny him any right to indemnity for damages sustained as a result of the respondent's default. The trial court ruled that Romain failed to mitigate his damages by refusing to execute

adeed transferring all ofhis rights in theproperty to John Hancock. In exchange for this performance, John Hancock promised to absolve Romain of any possible deficiency judgment. Because of this failure to mitigate, the court held that Romain could not avail himself of any indemnificationby the partnership for damages sustained as a consequence of theirdefault. In this regard, we disagree with the trial judge. A damaged party is only expected to dowhat is reasonable under the circumstancesand need not embark upon a course of action which may cause further detriment to him. Spackmanv. Ralph M. Parsons Co. (1966),147Mont. 500, 414 P.2d 918. Romain may have reasonablydetermined that a release of his interest in the property to John Hancock would jeopardize his ownershipof the claim here. Therefore,we decide thatunderthese facts, Romain was under no duty to sign over the deed to JohnHancock until he exhaustedhis remedies. However, as

a result of the holding in this case, Romain could now be required to transfer all of his rights in the property pursuant toJohnHancock's offer. Accordingly, on this issue the trial court is reversed and the case is remanded for proceedings consistent with this opinion.