NO. 91-044 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

DENNIS R. WASHINGTON, 

Plaintiff and Respondent, 

JAMES D. SLACK, JR.; LES HARDY, JR., 

d/b/a HARDY LEASING and BERT E. ARNLUND; 

AETNA LIFE INSURANCE COMPANY, a corp.; 

NORWEST BANK OF BILLINGS, N.A. f/k/a 

THE FIRST NORTHWESTERN BANK OF BILLINGS, 

a National Banking Assoc.; CARBON COUNTY 

OIL COMPANY d/b/a VONDRA'S EXXON; DILL, 

DILL & McALLISTER. a oartnershiw of 

ittornevs . . 

: STANDARD 0% MONTANA ~ESOURCE 

CORP., a Montana corp. 

Defendants and Appellants. 

APPEAL FROM: District court of the Thirteenth Judicial District, 

In and for the County of Carbon, 

The Honorable William J. Speare, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Carol Hardy Conrad; Pedersen & Conrad, Billings, 

Montana 

For Respondent: 

Evonne Smith Wells, Attorney at Law, Missoula, 

Montana 

Filed: 

Submitted on Briefs: April 18, 1991 

Decided: June 13, 1991 
Justice Karla M. Gray delivered the Opinion of the Court. 

The appellants, Les Hardy, Jr. and Bert E. Arnlund, appeal 

from the Judgment and Decree of Foreclosure of the District Court 

of the Thirteenth Judicial District, Carbon County, granting 

summary judgment to the respondent, Dennis R. Washington, as to 

lien priority. We affirm. 

The dispositive issue on appeal is whether the District Court 

erred in concluding that the error contained in the respondent's 

mortgage was not material and therefore, as a matter of law, that 

the appellants, as subsequent judgment lienholders, had 

constructive notice of the respondent's prior recorded mortgage. 

On May 9, 1983, the defendant James D. Slack, Jr., entered 

into an agreement with Atlantic Richfield Company (ARCO) whereby 

Slack agreed to purchase from ARCO four tracts of real property. 

Two of the tracts are contiguous property in an area commonly known 

as Washoe and located in Township 8 South, Range 20 East, P.M.M., 

Carbon County, Montana. The other two tracts are in the Joliet 

area and are located in Township 4 South, Range 22 East, P.M.M., 

Carbon County, Montana. When ARCO deeded the four tracts of land 

to Slack, it reserved unto itself the oil and gas interest in those 

tracts. The deed from ARCO as grantor to Slack as grantee was made 

effective May 9, 1983, and was recorded in the office of the Clerk 

and Recorder of Carbon County, Montana, at 9:45 a.m., May 11, 1983. 

On the effective date of the deed, May 9, 1983, Slack executed 

a promissory note to ARCO, secured by a mortgage on the four tracts 

of land. The mortgage, which named Slack as the mortgagor and ARCO 

2 
as the mortgagee, was recorded in Carbon County on May 11, 1983 at 

9:50 a.m. The deed and the mortgage both contain the same legal 

description of land as to Township, Range, Sections and portions 

of Sections. The mortgage provided in part: 

That Mortgagor hereby mortgages to Mortgagee all 

that property described on attached Exhibit A, 

incorporated herein by this reference, located in Carbon 

County, Montana, as security for the payment to Mortgagee 

of Three Hundred Thousand Dollars ($300,000.00) on or 

before May 1, 1988, with interest thereon at the rate of 

eleven percent (11%)' as required in that certain Note 

of even date herewith. 

Exhibit A, attached to the mortgage, provided that the mortgage 

covered "[all1 ARCO1s right, title, and interest in the following 

described tracts: . . . . This language was followed by the 

correct legal description of the four tracts of land. Exhibit A 

was in error. It should have stated "[all1 Slack's right, title, 

and interest in the following described tracts: . . . . II 

On September 27, 1984, the defendants and appellants, Les 

Hardy, Jr. and Bert E. Arnlund, obtained a judgment against Slack 

in the amount of $78,312.10. An abstract of the judgment was 

recorded in Carbon County on October 4, 1984. The appellants had 

no actual notice of the existence of the Slack-ARC0 mortgage and 

their judgment lien has never been satisfied. 

On October 2, 1987, ARCO assigned its interest in the SlackARCO mortgage and promissory note to the plaintiff and respondent, 

Dennis R. Washington. The assignment of the mortgage was recorded 

on July 1, 1988. Slack failed to pay the full amount of principal 

and accrued interest on or before May 1, 1988, as required by the 

promissory note secured by the mortgage. On April 10, 1989, the 
respondent commenced a foreclosure action on Slack's interest in 

the tracts of land described in the mortgage; he asserted that the 

mortgage had priority over the appellantst judgment lien. 

On April 26, 1989, the appellants answered and cross-claimed, 

asserting that their judgment lien had first priority based upon 

the error in the attachment to the respondent's mortgage. The 

parties filed cross-motions for summary judgment on the issue of 

priority. The District Court determined that the respondent's 

mortgage and the appellantse judgment lien were valid liens against 

the real property and that the mortgage had priority over the 

judgment 1 ien . The court concluded that the error in the 

attachment to the mortgage was not material and, as a matter of 

law, that the appellants had constructive notice of the mortgage. 

The District Court then granted the respondent's motion for summary 

judgment, denied the appellants' motion, and ordered foreclosure. 

Other facts relevant to this appeal will be discussed as necessary. 

Did the District Court err in concluding that the error 

contained in the respondent's mortgage was not material and 

therefore, as a matter of law, that the appellants, as subsequent 

judgment lienholders, had constructive notice of the respondent's 

prior recorded mortgage? 

The appellants maintain that when ARCO deeded the tracts of 

land to Slack and reserved for itself the oil and gas interest in 

those tracts, two separate estates were created. They assert that 

Slack's mortgage to ARCO, stating that it covered all of ARCOts 

interest in the tracts, contained a material error insofar as the 
rights of third parties are concerned because the mortgage 

identified ARCO's oil and gas estate as the encumbered property and 

did not disclose an encumbrance upon Slack's interest in the 

surface estate. 

The appellants further contend that the recording of the 

defective mortgage did not impart constructive notice to them as 

Slack's subsequent judgment creditors. Citing Poncelet v. English 

(l99O), 243 Mont. 481, 795 P.2d 436 and Ely v. Hoida (l924), 70 

Mont. 542, 226 P. 525, they argue that a mortgage describing the 

wrong property is not constructive notice as to other property 

which the parties to the mortgage intended to, but did not, 

describe. 

In Poncelet, the property owner executed to Poncelet a 

mortgage containing an erroneous legal description. The mortgage 

described "Lot 'A' of the Amended Plat of Lots 11 and 12 in Block 

6, City of Polson, Lake County, Montana, according to the official 

plat . . . ." The description left out "of Riverside Addition." 

After recordation of the Poncelet mortgage, the property owner 

executed another mortgage which was subsequently assigned to 

Colonial Savings and Loan Association (Colonial). This mortgage 

contained a correct legal description. Thereafter, Poncelet 

brought suit for foreclosure and reformation of his defective 

mortgage, naming Colonial as a defendant. Colonial moved for 

summary judgment on the basis that its mortgage had priority over 

Poncelet's earlier, but defective, mortgage. This Court affirmed 

summary judgment in favor of Colonial, holding that the second 
mortgage had priority over the first. 

The form of recording of conveyance is paramount unless 

a party has actual notice of a prior claim. (Citations 

omitted.) While this rule may have an undeniably harsh 

effect where Poncelet is concerned, we cannot minimize 

the import of full compliance with proper legal 

descriptions for the purpose of constructive notice from 

recorded instruments. It was incumbent upon Poncelet to 

make certain that the recorded mortgage contained an 

accurate legal description of the property. 

In Elv v. Hoida (1924), 70 Mont. 542, 226 P. 525, 

a case on all fours with the one at bar, this Court 

stated that in order to qive a mortqaqe wrioritv as 

aaainst a subsequent mortqaqee, the mortqaqe must 

describe the land covered bv it with sufficient accuracy 

to enable one examininq the record to identify the land. 

In the present case, as in &r, the mortgage described 

land other than the land intended to be mortgaged. The 

subsequent mortgagee had no duty to inquire further when 

the mortgage appeared on its face to describe some 

property but not specific property . . . . (Emphasis 

added. ) 

Poncelet, 243 Mont. at 484, 795 P.2d at 438. 

In gl.~, Ely's prior recorded mortgage described lots 17 and 

18 in block 1, Lenox addition. This block did not contain any lots 

numbered 17 and 18. The later Bateman mortgage included an 

accurate legal description of the property located outside the 

Lenox addition. In holding that the second mortgage had priority 

over the first, this Court stated: 

When Bateman took her mortgage, if she desired to 

protect herself against prior recorded conveyances or 

mortgages of the property embraced therein, it was, of 

course, her duty to examine the records. If she did so 

and discovered that the Ely mortgage covered lots 17 and 

18 in block 1, Lenox addition, even though she actually 

read this instrument she was under no obligation to 

pursue her inquiry further. There is nothinq uwon the 

face of the Elv mortqaqe to indicate that there was anv 

mistake or imwerfection therein. . . . and one readinq 

it would have a riqht to assume that it was correct, and 

would have no duty imposed uwon him to qo bevond the 

record for the purpose of ascertaining that the parties 
intended to cover land located entirely outside the Lenox 

addition. . . . (Emphasis added.) 

m, 70 Mont, at 547-48, 226 P. at 527 

Construing the Poncelet and decisions together, the 

property covered by the mortgage will be held to be described with 

sufficient accuracy, and will impart constructive notice through 

the operation of the recording statutes, if one examining the 

mortgage may, from the language of the mortgage and the information 

gained from the inquiry clearly suggested by the language of the 

mortgage, identify the specific land intended to be included. 

Because each case depends on its own facts, the determination of 

what constitutes "sufficient accuracy" must be made on a case-bycase basis. 

The appellants are correct in their assertion that when ARCO 

deeded the tracts of land to Slack and reserved the oil and gas 

interest in those tracts, two separate estates were created. See 

In re Hume's Estate (1954), 128 Mont. 223, 272 P.2d 999. However, 

it is also true in this state that, although the oil and gas 

interest is a separate estate, its boundaries continue to be 

dictated by the boundaries of the severed surface estate. Jackson 

v. Burlington Northern Inc. (1983), 205 Mont. 200, 204, 667 P.2d 

406, 408. Therefore, we are presented here with a factual 

situation where more than one property interest exists within the 

boundaries of the land; as such, the case at bar is distinguishable 

from both Poncelet and m. 

In this case, there is no error in the legal description 

contained in the mortgage executed by Slack to ARCO. The legal 

7 
description contained in Exhibit A would lead one examining the 

record directly to the four tracts of land owned by Slack and which 

were the subject of the mortgage. The question then becomes 

whether the mortgage sufficiently denotes the specific property 

interest in those tracts of land which was intended to be covered 

by the mortgage. 

Upon examining the mortgage in its entirety, it is obvious 

from the face of the mortgage that it contains a mistake in its 

reference to the specific property interest encumbered. Slack 

executed the mortgage as mortgagor and was expressly named as 

mortgagor on pages one and three of the instrument. The mortgage 

also provided: 

That Mortgagor hereby mortgages to Mortgagee all 

that property described on attached Exhibit A . . . as 

security for the payment to Mortgagee of Three Hundred 

Thousand Dollars ($300,000.00). . . . 

In Exhibit A, there is language immediately preceding the legal 

description that states: "All ARCO1s right, title, and interest 

in the following described tracts: . . . . This language is 

inconsistent with the body of the mortgage which clearly denotes 

Slack as the mortgagor and ARCO as the mortgagee, since it is 

axiomatic that a mortgagor cannot mortgage a mortgagee's interest 

in property. This mistake in the mortgage is made even more 

obvious by the specific reference to the oil and gas interest 

reserved by ARCO immediately following the legal description of the 

four tracts of land in Exhibit A. This reference was a clear 

indication that the reserved interest was excepted from the 

mortgaged property. 

8 
Under these particular facts, it is obvious from the face of 

the mortgage that the parties to the mortgage intended the mortgage 

to cover Slack's interest in the surface estate. Unlike the 

factual circumstances in Poncelet and m, one examining the 

mortgage containing this obvious error would at least have a duty 

to inquire into the mortgage and would be chargeable with 

constructive notice of all the information in the public records 

which would be gained if the inquiry was pursued to the full extent 

to which it led. Guerin v. Sunburst Oil & Gas Co. (1923), 68 Mont. 

365, 371, 218 P. 949, 951. From the public records, the 

constructive notice given thereby, and the mortgage and deed 

instruments, it is illogical to assert that the mortgage contained 

a material error. 

We hold that the District Court did not err in concluding that 

the error contained in the mortgage was not material and therefore, 

as a matter of law, that the appellants, as subsequent judgment 

lienholders, had constructive notice of the respondent's prior 

recorded mortgage. Where, as here, the specific property intended 

to be mortgaged can be identified from the instrument itself or 

from inquiry clearly suggested by the language of the instrument, 

such error does not affect the validity of the instrument. 

Affirmed. i 

June 13, 1991 

CERTIFICAE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

Carol Hardy Conrad 

Pedersen & Conrad 

1645 Ave. D 

Billings, MT 59102 

Evonne Smith Wells 

Attorney at Law 

P.O. Box 9410 

Missoula, MT 59807 

James D. Slack, Jr. 

P.O. Box 1369 

Red Lodge, MT 59068 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE QF MONTmA