No. 87-01 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1987 

DEAN POLLARD and POLLARD FINANCE 

CORPORATION, 

Plaintiffs and Appellants, 

-vsCITY OF BOZEMAN, GALLATIN COUNTY TAX 

ASSESSOR'S OFFICE, THE COUNTY OF 

GALLATIN, and DOES I through XX, 

Defendants and Respondents. 

APPEAL FROM: District Court of the Eighteenth Judicial District, 

In and for the County of Gallatin, 

The Honorable Joseph B. Gary, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Jerry R. Bechhold, Bozeman, Montana 

For Respondent: 

A. Michael Salvagni, County Attorney, Bozeman, 

Montana 

Landoe, Brown, Planalp, Kommers & Johnstone; Robert 

Planalp, Bozeman, Montana 

Submitted on Briefs: June 4, 1987 

Decided: August 20, 1987 

Filed: AUG 2 0 198E, 

Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Plaintiff-Appellant Pollard Finance Corporation 

(Pollard) appeals an order of the District Court of the 

Eighteenth Judicial District, Gallatin County, granting 

defendant/respondent City of Bozeman's motion for summary 

judgment. 

The City of Bozeman (City) entered an agreement with 

Pollard Finance in November 1981 for the construction and 

lease of a vehicle storage building on City-owned land. The 

agreement provided that in consideration for construction and 

use the City would pay Pollard rent in the amount of $2,888 

per month for five years with options to renew the agreement 

for three additional five year periods. The agreement 

included an option to purchase throughout the term of the 

lease, with a provision that after 20 years of leasing the 

City could purchase the building for $10.00. 

The City apparently occupied the building in March 1982. 

In 1984 Pollard received notice that taxes had been assessed 

against the building and were owing. Pollard responded by 

filing a complaint for declaratory relief, attorneys' fees 

and damages, asserting that the City had, by the terms of the 

lease agreement, purchased the building and that he was not 

responsible for taxes assessed against it. His argument 

before the District Court relied primarily on a citation of 

this Court's dicta in Hunter v. City of Bozeman (Mont. 1985), 

700 P.2d 184, 42 St.Rep. 784 where, in referring to the same 

building at issue here, it was said: 

There is substantial credible evidence to support 

the finding by the trial court that the "lease" was 

in fact a sale of the building to the City and that 

this was in effect a public works project. 
- Id. at 187, 42 St.Rep. at 787. 

Pollard did not respond to the City's argument, 

contained in its motion for summary judgment, that the lease 

clearly and unambiguously provided that Pollard was the owner 

of the building. The City also distinguished Hunter as 

addressing only the issue of prevailing wage rates, not 

ownership. The District Court agreed with the City's 

assertions and granted its motion for summary judgment. 

Pollard raises seven issues on appeal, three of which we 

will not address because they were not discussed at the trial 

court level. State v. Armstrong (1977), 172 Mont. 296, 562 

The remaining four issues can be consolidated as 

follows: 

Did the District Court err finding that Pollard 

was the owner of the building under the terms of the lease 

for purposes of assessment of taxes? 

2. Did the District Court properly award the City of 

Bozeman attorneys' fees? 

The language of the lease central to the first issue 

reads: 

WHEREAS, the Landlord [Pollard] has agreed to 

construct and own in its own name solely a vehicle 

storage building for the various utilities of the 

City of Bozeman, . . .. 

NOW, THEREFORE, in mutual consideration of the 

covenants contained herein, it is hereby agreed as 

follows: 

1. Description of Premises. Landlord leases to 

Tenant the strucGre to be construed [sic] and 

owned by the Landlord and more specifically 

described and set out in Exhibit "A" . . . . This 

structure, which shall be constructed by the 

Landlord, shall be located on real property owned 

by the Tenant . . . 
21. Option of Tenant - to Purchase. The Tenant 

shall have te option to purchase the leased 

premises at any time during the lease period or any 

renewals thereof. The purchase price shall be the 

total rent for one five-year period multiplied by 

four less all rent paid pursuant to this lease. If 

this lease is renewed for the third time, at the 

end of the twentieth year, the Tenant shall receive 

the building for the sum of $10.00 cash. The other 

consideration shall be the continuing of 

performance of this lease by the Tenant. The 

parties designate First Bank of Bozeman, Bozeman, 

Montana, as the escrow agent of this agreement. 

The Landlord shall deposit a copy of this lease 

together with a bill of sale and a quitclaim deed 

transferring the structure and improvements to the 

Tenant. The Landlord covenants not to allow any 

liens or encumbrances on the leased premises during 

the term of this agreement, and further covenants 

the transfer of the property to the Tenant shall be 

free and clear of all liens, encumbrances and 

restrictions of record. 

Pollard argues on appeal that the arrangement agreed to 

in the lease in fact constituted a sale of the property. 

Proof of the sale is found, he argues, in the fact that 

Pollard granted the property to the City of Bozeman by quit 

claim deed deposited in the escrow account. Further proof is 

found, he asserts, from the dicta in Hunter, supra, stating 

that the lease was in fact a sale, and from other lease 

provisions, such as the liquidated damage clause. 

The City responds asserting that the language of the 

contract was clear and unambiguous in establishing a 

landlord-tenant relationship and that there was no present 

intention to convey title, an essential factor distinguishing 

a sales contract from a lease with an option to purchase. 

The City also explains that a liquidated damage clause does 

not convert a lease agreement to a sales contract. 
The City's assertions on appeal are based in large part 

on the reasoning and conclusions set out in the District 

Court's memorandum in support of its order granting summary 

judgment. The District Court considered the matter entirely 

one of contract interpretation, stating that the "crystal 

clear" language of the document indicated it was a lease with 

an option to buy. It distinguished Hunter, supra, as a 

Department of Labor case dealing with prevailing wage rates, 

and ruled that it was inapplicable. The liquidated damage 

provision, it explained, was common in lease agreements, not 

purchase contracts. Hence, the contract was a lease 

agreement, the District Court concluded, and Pollard, as 

landlord, was liable for taxes. 

Although we agree with the District Court's conclusion 

that Pollard is liable for the tax, it is not necessary to 

conclude that the document at issue was a lease with an 

option to buy. The arrangement more nearly falls under the 

provisions regarding Retail Installment Sales Contracts. 

An option to buy involves a contract wherein the owner 

agreed to give another the exclusive right to buy property at 

a fixed price within a specified time. Nielson v. 

Hendrickson (1922), 63 Mont. 518, 210 P. 905. The option is 

not a sale. It is not even an agreement for a sale. At 

best, it is but "a right of election in the party securing 

the same to exercise a privilege," and only when that 

privilege has been exercised by acceptance does it become a 

contract to sell. Ide v. Leiser (1890), 10 Mont. 5, 24 P. 

695. In other words, a contract of sale and purchase imposes 

upon the vendee an obligation to buy. An option confers a 

privilege or right to elect to buy, ---- but it does not impose 

any obligation - to buy. Ide v. Leiser, 10 Mont. at 11, 24 P. 

at 695; Miller v. Meredith, et al. (1967), 149 Mont. 125, 423 

P.2d 595. 
The rule pertaining to construing whether a writing 

transferring an interest in real estate is a contract for 

sale or an option to purchase depends not only on particular 

words and phrases, but on the intention of the parties to be 

derived from the instrument itself by consideration of its 

parts, and when that is doubtful, from the circumstances 

attending it. State Commissioner of Transportation v. Bakers 

Basin Realty Co. (N.J. Super. 1975), 350 ~.2d 236; DeFeyter 

v. Riley (Colo. App. 1979), 606 P.2d 453. 

Central to our determination that the parties' agreement 

was not a lease with an option to purchase is the clause in 

the contract pertaining to liquidated damages. 

23. Liquidated Damages. As an inducement to 

enter into this lease and to grant to Tenant the 

extensions and renewals of this lease, the Tenant 

agrees that in the event the Tenant fails to renew 

the lease at the end of the original terms of the 

lease or after the first and second renewal 

periods, the Tenant shall deposit with escrow agent 

the sum of $175,000.00 cash as liquidated damages 

for the failure of the Tenant to renew said lease. 

It is further agreed that in the event of default 

for failure to renew this lease, the Tenant shall 

deposit a quitclaim deed to the real property 

beneath and immediately surrounding the building 

together with reasonable access thereto. The 

Landlord shall be entitled to receive this 

quitclaim deed from the escrow agent upon 

termination of the Tenant ' s occupancy of the 

building after default. 

Although liquidated damage clauses generally contribute 

to the conclusion that the agreement is a lease with an 

option contract, this applies only when the liquidated damage 

clause is construed as providing consideration for an option 

upon finding that the instrument did not affirmatively 

obligate the prospective purchaser to buy the property. 

DeFeyter, supra. The agreement between Pollard and the City 
is significantly different. The language of the liquidated 

damage clause imposes an affirmative obligation on the City 

to continue "leasing" the building or to pay a substantial 

amount well forfeit title the property on which 

the building stands. The circumstances clearly indicate that 

the parties did not contemplate or anticipate liquidated 

damage as an alternative. Rather, the evidence indicates 

that the parties intended that the agreement embody a 

contract of sale. Under these facts, the presence of the 

liquidated damage clause does not convert the contract into a 

lease with an option. The City has no economically feasible 

"option" under the terms of the agreement. 

Our determination that the contract was not a lease with 

an option to buy is consistent with our conclusion in Hunter 

v. City of Bozeman (Mont. 1985), 700 P.2d 184, 42 St.Rep. 784 

and is also supported by our decision in Doll v. Major 

Muffler Centers, Inc. (Mont. 19841, 687 P.2d 48, 41 St~Rep. 

429. In Doll, we stated that a lease can be classified as a 

retail installment contract where the terms of the contract 

provide that a lessee will become owner on payment of nominal 

consideration, citing 5 31-1-202 (I), MCA. That section 

provides : 

(n) "Retail installment contract" or "contract" 

means an agreement evidencing a retail installment 

transaction entered into in this state under which 

a buyer promises to pay in one or more deferred 

installments the time sale price of goods or 

services, or both. The term includes a chattel 

mortgage, conditional sales contract, and a 

contract for the bailment or leasing of goods by 

which the bailee or lessee contracts to pay as 

compensation for its use a sum substantially 

equivalent to or in excess of its value and by 

which it is agreed that the bailee or lessee is 

bound to become, or for no further or merely 

nominal consideration has the option of becoming, 

the owner of the goods upon full compliance with 

the provisions of the contract. 
We recognize that retail installment contracts usually 

relate to the sale of goods or services, and not to the sale 

or improvements to real estate, but the analogy holds in this 

case. Except for the object sold here, the definition of a 

retail installment contract fits this agreement. 

The Pollard-City of Bozeman "lease" falls within the 

above definition, i.e., the lessee City has contracted to pay 

as compensation for the building a sum substantially 

equivalent to or in excess of its value, and the City will, 

after payment of nominal consideration, become owner of the 

building. 

Note we find that the City will become owner, and not 

that the City - is owner of the building. This is because 

title bestowing ownership has not transferred from Pollard to 

the City. Pollard deposited a copy of the lease, bill of 

sale and quitclaim deed in escrow with the intent that title 

to the building would pass from Pollard to the City only if 

the City met the conditions set out in the lease. The 

conditions precedent to conveyance of title have yet to 

occur. Delivery, one of the basic requirements for an 

effective conveyance, requires an intent of the parties to 

make the deed presently operable. Bull v. Fenich (Wash. App. 

1983) , 661 P. 2d 1012. "A grant cannot be delivered to the 

grantee conditionally." Section 70-1-510, MCA. 

Title bestowing ownership of the building has not 

transferred from Pollard to the City. Pending final payment, 

title remains with Pollard. The property is subject to tax 

under Pollard's ownership. Section 15-6-01 (1) , MCA. 

Therefore we conclude that Pollard was the owner of the 

building for purposes of assessment of taxes. 

The second issue raised is whether the District Court 

properly awarded attorneys' fees to the City of Bozeman. We 
find that it did under 28-3-704, MCA, the reciprocal 

attorneys' fee statute, which states: 

28-3-704. Contractual right to attorney fees 

treated - as reciprocal. Whenever, by virtue of the 

provisions of any contract or obligation in the 

nature of a contract made and entered into at any 

time after July 1, 1971, one party to such contract 

or obligation has an express right to recover 

attorney fees from any other party to the contract 

or obligation in the event the party having that 

right shall bring an action upon the contract or 

obligation, then in any action on such contract or 

obligation all parties to the contract or 

obligation shall be deemed to have the same right 

to recover attorney fees and the prevailing party 

in any such action, whether by virtue of the 

express contractual right or by virtue of this 

section, shall be entitled to recover his 

reasonable attorney fees from the losing party or 

parties. 

This statute is directly applicable to the provision on 

attorneys' fees in the contract between Pollard and the City. 

The contract provides: 

If the Landlord [Pollard] files an action to 

enforce any agreement contained in this lease, or 

for breach of any covenant or condition, Tenant 

[City] shall pay Landlord reasonable attorneys' 

fees for the services of Landlord's attorney in the 

action, all fees to be fixed by the Court. 

By virtue of § 28-3-704, MCA, the contractual right to 

attorneys' fees contained in the agreement is reciprocal and 

thereby the City, as the prevailing party, is entitled to an 

award of the fees. Lyle v. Moore (1979), 183 Mont. 274, 599 

P.2d 336. 

Half-heartedly, Pollard has claimed in brief that § 

28-3-704, MCA, is unconstitutional as adding provisions to 

the contract made between the parties. No citation of 

authority or further argument is advanced on the issue by 

Pollard. No response was made to this claim by the City. 
The grounds stated are insufficient for us to examine or 

decide the purported constitutional issue. 

Affirmed. 

We Concur: / 
Mr. Justice Fred J. Weber specially concurs as follows: 

I concur with the majority decision to affirm the 

judgment of the District Court. 

I do not join in the conclusion of the majority that the 

contract was not a lease with an option to buy but that the 

agreement constituted a contract of sale. I would affirm the 

District Court in its conclusion that the instrument 

constituted a lease with an option to buy. 

I do not find it essential to determine whether the 

agreement was a lease with an option to buy or a contract of 

sale. The key fact is that title had not passed to the City 

and as a result the City had not become the owner. Because 

the title remained in Pollard, taxation to Pollard was the 

proper result. 

CJJitice