No. 13429 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1977 

ROBERT J. HOSTETTER and ELDON 

H. LEEP, d/b/a DUTCH TOUCH, 

Plaintiffs and Appellants, 

INLAND DEVELOPMENT CORPORATION OF 

MONTANA, a corporation, and BIG SKY 

OF MONTANA, INC., a corporation, 

Defendants and Respondents. 

Appeal from: District Court of the Eighteenth Judicial 

District 

Honorable W. W. Lessley, Judge presiding. 

Counsel of Record: 

For Appellant: 

Berg, Angel, Andriolo and Morgan, Bozeman, Montana 

Ben E. Berg argued and Richard J. Andriolo argued, 

Bozeman, Montana 

For Respondents: 

Thomas I. Sabo, Bozeman, Montana 

Brown, Pepper and Kommers, Bozeman, Montana 

Gene I. Brown argued, Bozeman, Montana 

For Amicus Curiae: 

J. David Penwell argued, Bozeman, Montana 

Kolter, Heath and Kirwan, Bozeman, Montana 

Submitted: January 11, 1977 

Decided: :flAR i :, JLJ/{ 

Filed: i 
Mr. Chief Justice Paul G. Hatfield delivered the Opinion of 

the Court. 

This is an appeal from the district court, Gallatin 

County, denying appellants' forclosure 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 

Glacier 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 quare 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 forclosure 

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 

R.C.M. 

67-2301 et seq.,/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 USCS § 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 preexisting 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 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 feestand 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,.fYee 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 mortqaqes 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 Sky 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 (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 is furnished and 

exists with all of its force at all times between 

the beginning of the performance of labor or the 

furnishing of material until the expiration of the 

time within which notices of lien may be filed.' 

(Citation omitted.) 

"The true function of the lien is to prevent subsequent alienations and encumbrances, except in 

subordination to itself." 

See also Blose v. Havre Oil & Gas Co., 96 Mont. 450, 461, 31 

P.2d 738 (1934). Furthermore, this lien was originally effective as a blanket lien against the entire project under the 

Caird case. We disagree that this lien was rendered invalid by 

the filing of the declaration, as held by the district court. 

Instead, we adhere to the rationale of the Wisconsin Supreme 

Court when they faced the issue in Stevens Const. Corp. v. 

Draper Hall, Inc., 73 Wis.2d 104, 242 N.W.2d 893, 898 (1976). 

The Wisconsin court was also confronted with a mechanic's lien 

based upon work performed during initial construction and a 

Unit Ownership Act with a provision the same as our section 

67-2324, R.C.M. 1947. The Wisconsin statute, S 703.09 W.S.A., 

is identical to our section 67-2324, with their § 703.09(2) the 

same as our section 67-2324 (3). 

Their decision in Stevens states: 

"Stevens and The Bruce Company argue that their 

liens arose and became effective when the excavations began in September of 1971. They contend 
that no distinction should be made between when 

a lien arises and when a lien becomes effective. 

We agree with this proposition but it makes no 

difference in terms of the rights of the claimantappellants in this case. The word 'effective', 

in the context of construction liens, should be 

interpreted to mean 'capable of bringing about an 

effect.' A construction lien is capable of bringing about an effect at the time it arises, that 

is, when 'substantial excavation for the foundations' of the new project begin, as provided in 

sec. 289.01(4), Stats. The later events of giving 

notice and filing, as required by sec. 289.06, 

merely preserve and perfect a lien which is 

already effective in the sense of being capable of 

having an effect upon the liened land. 

"Acceptance of this position of appellants does not 

mean that sec. 703.09 (2) . Stats., is inapplicable to 

the facts of this case. On the contrary, we conclude 

that this subsection still governs, even though the 

cliamants' liens were first 'effective' in September 

of 1971, before the condominium declaration was 

recorded. 

"Subsection (2) provides that a proportional lien 

occurs whenever 'a lien becomes effective against 

2 or more units.' Obviously the most frequently 

occurring situation in which a lien will become 

effective against two or more units is when repairs 

are made to the common areas of the condominium 

unit, and left unpaid. But we conclude that a lien, 

originally effective as a blanket lien against the 

whole property, becomes effective against two or more 

units within the meaning of sec. 703.09(2), Stats., 

when the property is made subject to the provisions 

of ch. 703 by the filing of a condominium declaration before the initiation of foreclosure proceedings 

against the property as a whole. 

"Thus it is not critical that the filing of the lien 

claims came after the condominium declaration was 

filed, as the trial court decided. Even if the claims 

were filed before the condominium declaration was 

recorded, only proportional liens would attach to the 

individual units. On the other hand, if foreclosure 

proceedings are begun before the condominium declaration is recorded, and a lis pendens filed, the situation is frozen so that the subsequent recording of 

a declaration does not transform the blanket lien 

into a proportional lien on individual units." 

Likewise, the mechanic's lien filed by Dutch Touch was 

not rendered inaalid when Big Sky filed its declaration, but 

remained a valid single lien, which was proportionately effective 

against each unit, pursuant to section 67-2324(3), R.C.M. 1947. 

The second issue presented involves the enforcement of 
the lien once it is established. The foreclosure of a mechanic's 

lien is governed by the rules of equity. Cole v. Hunt, 123 

Mont. 256, 211 P.2d 417 (1949). The general rule is that a 

blanket construction lien against an entire property consisting 

of several parcels cannot be enforced in toto against less than 

all of such parcels. Annot. 68 A.L.R.3d 1300. The reason is 

that it would be inequitable to burden some lesser portion of 

the liened premises with charges for labor and materials which 

were not actually furnished to that particular parcel. Consequently, this single lien, proportionately effective against 

each unit, would only be enforceable against each unit proportionately. It is the duty of those purchasing, or taking 

liens on, property under construction or on which improvements 

are being made, to make inquiry to ascertain whether or not the 

property is encumbered by mechanics' or materialmen's liens, 

and such parties, having knowledge of the fact that the work is 

going on, are charged with constructive, if not actual, notice 

of any such lien as has attached to the premises. Continental 

Supply Co. v. White, supra. 

However, any unit owners, other than Big Sky, whose 

property is subject to Dutch Touch's mechanic's lien, were put 

into that position by Big Sky's total disregard of the provisions 

of the Unit Ownership Act concerning mechanics' liens and precompletion sales. 

Big Sky failed to place the proceeds of these sales, 

made prior to completion of construction, into an escrow account, 

as required by section 67-2303.1, R.C.M. 1947. Therefore, the 

mechanics' liens, effective against each unit so sold, were not 

satisfied from the escrow fund as contemplated by section 67-2303.1. 

1947, 

Big Sky further ignored section 67-2323, R.C.M./whereby every 

blanket lien or blanket mortgage must be satisfied before the 

first conveyance or lease of a unit, or a partial release for 
such unit obtained and recorded. 

Equity will grant the relief sought when in view of all 

circumstances to deny it would permit one of the parties to 

suffer a gross wrong at the hands of the other party who brought 

about the condition. Thisted v. Country Club Tower Corp., 146 

Mont. 87, 405 P.2d 432 (1965) ; Dutton v. Rocky Mountain Phosphates, 151 Mont. 54, 438 P.2d 674 (1968). This Court cannot 

ignore the fact that this situation would never have occurred, 

had Big Sky fully complied with the Unit Ownership Act. 

Equity demands that Dutch Touch be allowed to satisfy 

the entire amount of its lien first from those units retained 

by Big Sky. 

Thereafter, should any amount of the lien remain unsatisfied, Dutch Touch may seek proportionate enforcement of 

such balance against the 18 units previously sold by Big Sky 

after the owners of these units are made parties to the action. 

In the record there is a motion by Big Sky to join these unit 

owners as parties defendant pursuant to Rule 19, M.R.Civ.P. 

This motion was never ruled upon by the district court. The 

Committee Note to Rule 19 states that it is clear that whenever 

feasible the persons materially interested in the subject of 

an action should be joined as parties so that they may be heard 

and a complete disposition made. Such is the case of these unit 

owners should Dutch Touch have to enforce any portion of the lien 

against their units in the event the units retained by Big Sky 

do not satisfy the lien. For this reason the motion of Big Sky 

should have been granted. 

This judgment of the district court is vacated and 

this cause remanded to rehear the forclosure action in compliance 

with this decision. 

Chief Justice I) 
We concur: