No. 12294 INTHE SUPREME COURT OF THE STATE OFMONTANA

STATE OF MONTANA, ex re1;CUARLES STEPHENS and NOLA 

### M, STEPHENS, his

### wife; and FORREST G. HIGGINS and MILDRED L. FIGGINS, hiswife, R-elatorsand Appellants,

THE 

### CITY OF HAMLT,TON

## ,MONTANA, A Municipa1 Corporation, Respondent and Respondent.

Appeal from: Distrj-ctCourt of theFourth JudicialDistrict, Honorable Jack L. Green, Judge presiding. Counsel of Record: ForAppellants: Boone, Karlberg and Haddon, Plissoula, IuIontana, Thomas H. Boone argued, Missoula, Montana. ForRespondent: Taurence Petersen argued, Billings, Montana.

Submitted: October 17, 1972 Decided:

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## ,972 Filed:

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## 1 972Hon. Peter G. Meloy, District Judge, sitting in place of Mr. Justice Frank I. Haswell, delivered the Opinion of the Court. This is an appeal from a judgment entered by the district court of Ravalli County. Involved is an ordinance of the City of Hamilton to extend its boundaries to include certain contiguous real property. The issue presented is whether or not the district court erred in concluding that the sellers and not the purchasers under contract for deed

were "freeholders"and concluding that a majority of the freeholders failed to protest the annexation. CharlesA. Stephens and Nola M. Stephens, his wife, and Forrest G. Higgins and Mildred L. Higgins,his wife, the appellants,brought an action seeking a writ of mandamus or other appropriate writ against the City of Hamilton,Montana,

a municipal corporation, to set aside OrdinanceNo. 317 extending the boundaries of the City of Hamilton, Montana, to include the real property set forth in exhibit "A" to the petition for alternative writ of mandamus. The appellants, along with others who are owners of real property within the area sought to be annexed,protested the annexation by the City of Hamilton. The City of Hamilton is a city of the third class and is amunicipal corporation organized and existing under the laws of the State of Montana. Proceeding under section 11-403(2) R.C.M. 1947,Hamilton city council passed Resolution No. 316 which was a resolution of intention to extend the corporate boundaries and notice thereof was given. Protests were filed with the city clerk of Hamilton,Montana. On January 10, 1972, the Hamilton city council adopted Ordinance No. 317 extending the corporateboundaries to include the real property in question. This ordinancewas to be effective 30 days after its passage. This actionwas commenced on February 9, 1972, at which time an alternatkwrit of mandamus was issued by the court. As of the finalprotest date, there were 670 individuals with recorded deeds of whom 315 registered their protests inwriting with the clerk of the Hamilton city council. Of the 670 there were 12 individual contract sellers (noneprotested) not owning other property in the area who were selling to individuals who have recorded notices of purchaser's interest with the Ravalli county clerk and recorder. Also of the 670 were 40 individual contract sellers (noneprotested) not owning other real property in the area whose contracts were evidenced by a notation in the "in-care-of"files of the Ravalli county assessor. Not included in the 670 or in the protesters were 85 individuals

(44protested) who were contractpurchasers of real property in the area,whose interest was evidenced by either recorded notices of purchaser's interest or in the "in-care-of" files of the Ravalli county assessor. The Hamilton city council determined that there were insufficient protests by freeholderswithin the area sought to be annexed, and passed the ordinance annexing the

area. The City of Hamilton has agreed, if relevant, that the "in-care-of"file were contractpurchasers of real property within the area. The parties inpresentation of the issue to the district court stipulated the following conditional conclusions: "IT IS FURTHER AGREED that if the court determines: u(l.) That a freeholder is only the contract seller, then a majority of the freeholders failed to protest the annexation and the Relators' suit should be dismissed with prejudice. 

### " (2.) That a freeholder is only the contract buyer, then amajority of the freeholdersdid protest the annexation and the City should revoke Ordinance No. 317. "(3.1 That a freeholder means both the contract seller and the contract buyer, then a majority of the freeholders failed to protest the annexation and the Relators' suit should be dismissed with prejudice.

### " (4.) That freeholder means contract sellers other than those selling to individualswho have filed or recorded Notices of Purchasers' Interest at the Ravalli County Clerk and Recorder's Office, and such individualswho have filed or recorded such notices,then a majority of the freeholders failed to protest the annexation, and the Relators' suit should be dismissed with prejudice." It is incumbentupon the Court to determine the intent of the legislature in the use of the language of section 11-403(2). In sub-section 

### (1)thewords used are "resident freeholders". In sub-section (2) the legislaturecuriously used the wordsl'property holders" when directing notice to be given but used the word "freeholders" as to those entitled to protest. The appellants contend that in a contract for deed situation it is only the purchaser who is the "freeholder". The respondent contends that the seller is the "freeholder". The case of First State Bank v. United States, 92F.2d 132, 134-135, (9thCir. 1937), we think clearly states the legislative intent as to the character of a freeholder as follows: "Clearly,between these two parties, it is the vendee who is closest to the land; who is the more interested in itspreservation; who is better able to take the safeguarding steps contemplated by the statute." This Court in Kunesh v. City of Gt. Falls, 132Mont. 285, 291, 317 P.2d 297,has reiterated the reason for the legislative intent in the approval of the following language: 

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## * the legislature intended those only should be permitted to act who had attained the status, standing, and dignity attributable to those who are owners of property of the stable character of real estate

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## * * Itwas evidently the purpose of the Legislature

## * * * to place thematter 

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## * * primarily in the hands of those having their own homes and interestswithin the municipality or ward where the licensewas to be sought;hence the use of thewords "resident freeholders" which must be construed to mean those living within the subdivisionholding title to real estate.'" the situation contract for deed is the purchaser who usuallymay be characterized as the party with the real interest of owning and residing permanently upon the premises. The purchasers would be the ones who would have, as was saidin Kunesh, the ones "having their own homes and interestswithin the municipality" and thus have the interest in subjecting the property to the regulatory authority. In Kunesh, at p. 290, this Court reiterated the statutory definition (section67-506,R.C.M. 1947) of freeholder as "'one who holds an estate in real property, either of inheritanceor for life.'" We are here concerned with the situation of a so-called "contract for deed". This Court in Kern v. Robertson, 92Mont. concerned itself with the status of the vendor and the vendee in the instance of a contract for deed. This Court characterized the vendee to be the "real"or "beneficial"

owner. There the Court said: "Theauthorities are in accord that an enforceable contract for the purchase and sale of real property passes to the purchaser the equitable and beneficial ownership thereof, leaving only the naked legal title in the seller,as trustee for thepurchaser, and as security for the unpaid purchase price. If the purchaser dies while the contract is in force and effect, his interestpasses to his heirs as real property. If the seller dies while the contract is in force and effect,his interestpasses to his personal representative as personal property, and not to his heirs." The Court then quoted from 1 PomeroylsEquity Jurisprudence, 4th Ed. B 105,pp. 117, 118,as follows: "In short,equity regards the two contracting parties as having changed positions, and the original estate of each as having been lconverted', that of the vendee frompersonal into real property, and that of the vendor from real into personal property." The case of State v. Kistner, 132Mont. 437, 318 P.2d 223, follows the same equitable conversion principle as applied to inheritance tax. The above cases are cited by the respondent to support the contention that section 11-403(2), the annexation statute here involved,when it refers to "freeholders"means "legal title holders".This position presents an anomalous situationwhen reference ismade to the position taken by this Court in Kunesh describing the legislative intent in enacting section 11-403(2). Itwould appear that the language used in Kunesh as to legislative intentwould be consistent with the approved equitable conversion doctrine, i.e. the purchaser in effectbeing the "real" owner and having the statutorily defined inheritable interest. InKunesh this Court was concerned only with the word "resident" in the term "residentfreeholders". Likewise in the case of Brodie 

### v. City of Missoula, 155Mont. 185, 468 P.2d 778, this Court was concerned only with residence. Itwill be noted that this Court, in Kunesh, at p. 292, stated as follows: "Itwould appear then that a resident freeholder qualified to protest annexationmay be defined as onewho is a residentwithin the area to be annexed,holding a present legal title to 

### a freehold estate in realproperty 

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## *." The respondent relies on the Kunesh and Brodie cases. The respondent contends that since this Court used the words "present legal title to a freehold" that this Court meant "naked legal title" as occurs in a contract for deed situation. This Court was not there concerned with nor did it hear arguments upon a case involving a contract for deed. The intendment of thewords in those cases is to the effect that theremust be "title" to a freeho&d and itmust be lawful. Had this Court have held as the respondent contends the resultwould have been obiter dictum. The respondent further states that examination of the records of the county, in order to determine the freeholders, extends only to recorded deeds. This, respondent states, leadstothe conclusion 

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## * * * that tobe a freeholder, one must possess a recorded deed". Such isnot the law under theMontana decisions inSwaim v. Redeen, 101Mont. 521, 55 P.2d 1and State ex rel. Wilson v. Musburger, 114Mont. 175, 178-179, 133 P.2d 586. These cases indicatethat the obligation of examination of the county records extends toallof the records in the county including the clerk of the districtcourt's records, the records of the clerk and recorder and the records of the county assessor's office. We therefore hold thatthe term "freeholder" asused in section 11-403(2), R.C.M. 1947, means the purchaser and not the sellerunder a contract for deed. To hold otherwise would contradict our prior interpretations of both the legisdative intent of this section and the statutory definition of "freeholder". It would alsounjustly and unreasonably deprive the right of protest from those with substantialpresent and future interests inrealproperty infavor of those retaining bare legal title. The districtcourt erred in finding that a majority of freeholders failed toprotest the annexation. The judgment isreversed and the cause isremanded with directions for further proceed sistentwith this opinion. 

## --------- strict Judge, sittingw$lace of Mr. JusticeFrank I. Haswell.

Associate ~u@es 

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