NO. 93-201

IN THE SUPREME COURT OF THE STATE OF MONTANA

1993

JAMES TALCOTT CONSTRUCTION,

INC., a Montana corporation,

Plaintiff and Appellant,

P & D LAND ENTERPRISES, a joint venture

consisting of NDI, INC., a Montana corporation*

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STERLING INVESTMENTS, INC., a Montana corporactATE ok ~~.~TAMA

tion; and BVL/WHITEFISH, a California corporation: DAN L. AVERILL; NDI, INC.: STERLING

INVESTMENTS, INC.: BVL/WHITEFISH; EDSEL J.

AUCOIN and DIANNE L. AUCOIN; J. STEPHENS ALLAN

and MARJORIE J. ALLAN: P & D ENTERPRISES; JAMES R.

OLSON, as Trustee for the JOMAR RETIREMENT TRUST:

KENNETH W. SUTTON: ELLEN W. WEEKS: DONALD J.

CORVAN and ELAINE CORVAN; EDWARD W. COLLINS and

DORIS A. COLLINS; LAWRENCE F. ROONEY and ROSALIA

ROONEY; ROBERT J. KIMBALL: WILLIAM H. KIMBALL, JR.;

WILLIAM R. CONNORS and KIM M. CONNORS: MARK POAD;

TODD ERICKSON and RENEE ERICKSON: AVECO PROPERTIES,

INC.: ADRIENNE J. BELL: DOROTHY R. CHIANELLI and

GERALD W. CHIANELLI, as Co-Trustees of the DOROTHY

R. CHIANELLI TRUST,

Defendants and Respondents.

APPEAL FROM: District Court of the Eleventh Judicial District,

In and for the County of Flathead,

The Honorable Ted 0. Lympus, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Jack L. Lewis and William J. Jacobsen, Jardine,

Stephenson, Blew&t & Weaver, P.C., Great Falls,

Montana
For Respondents:

Daniel W. Hileman, Murray & Kaufman, P-C.,

Kalispell, Montana

Randall Ogle, Ogle & Worm, Kalispell, Montana

Submitted on Briefs: September 9, 1993

Decided: October 26, 1993

Filed:

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Chief Justice J. A. Turnage delivered the Opinion of the Court.

James Talcott Construction, Inc. (Talcott), appeals from an

order of the District Court for the Eleventh Judicial District,

Flathead County, approving a letter of credit as a surety bond. We

reverse and remand for further proceedings consistent with this

Opinion.

The issue is whether the letter of credit constitutes a surety

bond within the meaning of § 71-3-551, MCA.

Talcott brought this action to foreclose upon a construction

lien upon certain condominium units in Flathead County, Montana.

The lien, which Talcott filed in July 1992, was for construction

work on the condominiums between August 1991 and May 1992.

Respondent P & D Land Enterprises (P & D) was the contracting owner

of the condominiums. As co-trustees of the Dorothy R. Chianelli

Trust, respondents Dorothy R. Chianelli and Gerald W. Chianelli

(the Chianellis) had purchased a condominium unit before Talcott

filed its construction lien.

Ten days after this action was filed, P & D provided the

District Court with an l'Irrevocable Standby Letter of Credit"

issued by the Mountain Bank of Whitefish, as a bond in lieu of

Talcott's lien. The District Court approved and accepted the

letter of credit, which was addressed to the Clerk of District

Court. It stated:

3
RE: Irrevocable Standby Letter of Credit #MB772

Account of: P & D Land Enterprises, A Montana Joint Venture

dba Whitefish Lake Lodge

Amount of: $121,057.94

Expiration: October 6, 1995

Dear Sir:

Mountain Bank hereby establishes a Standby Irrevocable

Letter of Credit for the sum not exceeding a total of One

Hundred Twenty-One Thousand Fifty-Seven and 94/100

($121,057.94) Dollars for the account of P & D Land

Enterprises, a Montana Joint Venture dba Whitefish Lake

Lodge. This Letter of Credit is issued as a bond in lieu

of lien $9219810350 filed by James Talcott Construction

on 7/15/92, instrument #9219810350 in the amount of

$143,912.81, and amendment lien #9227509510 filed

10/l/92, instrument #9227509510 in the amount of

$80,705.29.

Upon notification by Clerk of District Court that a final

judgement has been extended in favor of the lienor

against this bond or if this Letter of Credit is not

renewed 30 days prior to expiration, Mountain Bank, the

issuer of this Letter of Credit unconditionally promises

to pay the amount of the judgement together with any

interest cost, attorney fees and other sums which such

claimant would be entitled to cover upon the foreclosure

of a lien against the principal sum up to the amount of

$121,057.94.

Draws on this Letter of Credit shall be made by the Clerk

of District Court, Flathead County, and will refer to

Standby Letter of Credit #MB772, and be presented along

with supporting documents to the office of Mountain Bank,

306 Spokane Ave., Whitefish, Montana on or before October

6, 1995.

This Letter of Credit is subject to the Montana Uniform

Commercial Code and the Uniform Custom and Practice for

Documentary Credits (1983 Revision) International Chamber

of Commerce Document #400.

Mountain Bank

4
Talcott filed objections to the irrevocable letter of credit

as a bond. It argued that the letter of credit was not timely

submitted to the District Court and that it was not a bond within

the meaning of § '71-3-551, MCA.

After a hearing, the District Court ruled that the letter of

credit was timely and met the requirements of 5 71-3-551, MCA. The

court entered an order approving the letter of credit. Talcott

appeals.

Before filing its response brief on appeal, P & D.moved to

dismiss this appeal on grounds that Talcott failed to comply with

Rules 9(b) and 10(a), M.R.App.P., concerning transmittal of the

transcript. This Court denied that motion by order dated June 15,

1993.

In their response briefs, both respondents again contend that

this appeal should be dismissed, arguing that no appealable order

has been entered pursuant to Rule 1, M.R.App.P. That rule

provides, in relevant part:

(b) In civil cases a party aggrieved may appeal from a

judgment or order, except when expressly made final by

law, in the following cases:

. . .

(2) From an order . . . dissolving or refusing to

dissolve an attachment[.]

Rule l(b)(2), M.R.App.P.

Respondents argue that this provision applies only to writs of

attachment. However, by its plain terms, the rule speaks of

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"attachments," not "writs of attachment." Title 71, Chapter 3,

Part 5 clearly creates and provides for the "attachmentl' of

construction liens. For example, F, 71-3-535(l), MCA, provides the

circumstances under which a lien "attaches." Section 71-3-541(2),

MCA, provides that "[clonstruction liens attaching at different

times have priority in the order of attachment," and § 71-3-542(l),

(2) I and (4), MCA, provides for the relative priority of interests

attaching to real property before or after a construction lien

"attaches." We conclude that an "attachment" exists under Rule

l(b) (2) r M.R.App.P., through a perfected construction lien as well

as through a writ of attachment.

In reaching this conclusion, we respect the significance of a

lien as a property right. The right to retain a lien until the

debt secured thereby is paid is a substantive property right.

Security-First Nat. Bank v. Rindge Land & Navigation Co. (9th Cir.

1936), 85 F.2d 557, 561, reh. den. 86 F.2d 3, cert. den. 299 U.S.

613, reh. den. 300 U.S. 686. Therefore, the discharge of a lien

amounts to deprivation of a substantive property right. Section

71-3-552, MCA, provides that, upon the filing of a bond, a lien

against real property "shall forthwith be discharged and released

in full and the bond shall be substituted for such lien."

We conclude that the discharge of the lien through the

substitution of the letter of credit is a proper basis for appeal

to this Court under Rule l(b)(2), M.R.App.P. We therefore deny the

respondents' second motion to dismiss this appeal.

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Does the letter of credit constitute a surety bond within the

meaning of 5 71-3-551, MCA?

Section 71-3-551, MCA, provides:

Substitution of bond allowed -- filing -- amount --

condition. (1) Whenever a construction lien has been

filed upon real property or any improvements thereon, the

contracting owner of any interest in such property,

whether legal or beneficial, may, at any time before the

lien claimant has commenced an action to foreclose such

lien, file a bond with the clerk of the district court in

the county in which such property is situated . . . .

(2) Such bond shall be in an amount 1% times the amount

of the lien and shall be either in cash or written by a

corporate surety company. If written by a corporate

surety, such bond shall be approved by a judge of the

district court with which such bond is filed.

(3) The bond shall be conditioned that if the lien

claimant shall be finally adjudged to be entitled to

recover upon the claim upon which his lien is based, the

principal or his sureties shall pay to such claimant the

amount of his judgment, together with any interest,

costs, attorneys' fees, and other sums which such

claimant would be entitled to recover upon the foreclosure of a lien against the principal.

Talcott argues that the bond filed in this case does not meet the

requirements of § 71-3-551, MCA, in that it was filed too late, it

was not written by a corporate surety company, and it imposes

conditions of notification, payment, and other conditions not

authorized by the statute.

The District Court ruled that the bond was timely filed,

reasoning that it was approved before any defendant was served with

process. The court also reasoned that, because a bond "may" be

filed at any time before the lien claimant has commenced an action

to foreclose the lien, the statutory provision is not mandatory.

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Respondents argue that there is no time requirement under the

statute.

We disagree. Section 71-3-551, MCA, is elective only in that

a bond need not be filed at all, in which case the existing lien

will remain in effect. The word "may" relates to the phrase "file

a bond." Nothing in the statute authorizes a bond to be filed

after the lien claimant has commenced an action to foreclose the

lien. The logical purpose for the statutory filing deadline is to

eliminate wasted costs and effort of commencing foreclosure actions

only later rendered moot by the filing of a bond.

In this case, the letter of credit was filed ten days after

the complaint was filed in the foreclosure action. We hold that

the District Court erred in ruling that the bond was timely filed.

The District Court also ruled that Mountain Bank meets the

statutory definition of a corporate surety company found at § 33-

26-101, MCA:

any corporation with a paid-up capital of not less than

$100,000, incorporated under the laws of this state for

the purpose of making, guaranteeing, or becoming a surety

upon bonds or undertakings required or authorized by

law[.]

We again disagree. The articles of incorporation of Mountain Bank,

which Talcott filed in the District Court as an exhibit, show that

Mountain Bank was incorporated for the purpose of conducting the

business of banking, not for "making, guaranteeing, or becoming a

surety upon bonds or undertakings required or authorized by law."

8
We hold that the District Court erred in ruling that Mountain Bank

is a corporate surety company as defined at § 33-26-101, MCA.

The District Court did not specifically address the other

restrictions on the face of the bond which are questioned by

Talcott. Those include: that it is governed by the Montana

Uniform Commercial Code and the Uniform Custom and Practice for

Documentary Credits (1983 Revision) International Chamber of

Commerce Document #400; that it is expressly conditioned to expire

on October 6, 1995; and that it is payable only upon the clerk of

court doing certain enumerated things. In contrast, the statutory

conditions of a lien release bond are set forth at 5 71-3-551(3),

MCA. That statute requires the principal or his surety to

immediately pay a construction lien claimant any judgment the

claimant receives. The statute further requires that a lien

release bond remains effective until such judgment is satisfied or

set aside. We hold that the letter of credit in this case imposes

conditions not authorized by § 71-3-551, MCA.

In conclusion, the letter of credit from Mountain Bank was

untimely filed, was not written by a corporate surety company as

defined at § 33-26-101, MCA, and imposes conditions not authorized

by § 71-3-551, MCA. We therefore reverse the District Court's

order accepting the letter of credit as a bond and remand this

matter for further proceedings consistent with this Opinion.
We concur:

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