No. 89-204 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1989 

FIRST MONTANA TITLE COMPANY OF 

BILLINGS, a corporation, 

Plaintiff and Respondent, 

-vsNORTH POINT SQUARE ASSOCIATION, a 

Utah Limited partnership, AMERICAN n .. GUARANTY LIFE INSURANCE COMPANY, an o w 

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Oregon corporation; et al., Z 

Defendants and Appellants. Zm zo C: o 

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APPEAL FROM: District Court of the Thirteenth Judicial ~st&icS o 

In and for the County of Yellowstone, z r w 

The Honorable G. Todd Baugh, Judge presiding: F 

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COUNSEL OF RECORD: C 0 ;O 

For Appellant: -4 

Joe Gerbase argued; Anderson, Brown, Gerbase, Cebull, 

Fulton, Harman & Ross, P.C., Billings, Montana 

For Respondent : 

Rodney T. Hartman argued; Herndon, Hartman, Sweeney & 

Halverson, (First Interstate Rank of Billings), 

Billings, Montana 

Donald MacDonald IV,(First Interstate Bank of iss sou la), 

Missoula, Montana 

Jo Mickelson argued; Dorsey & Whitney; and Charles W. 

Hingle, (Interstate Prod. Credit Assoc.) Billings, 

Montana 

David Hoefer, Deputy County Attorney, Billings, 

Montana 

Submitted: September 13, 1989 

Decided: November 21, 1989 

Filed: 
Justice John C. Sheehy delivered the Opinion of the Court. 

We determine in this case, principally as a mat.ter of 

contract law, that it was the duty of the escrow holder here 

to clear title to the parcel of land involved, and then to 

distribute the balance of the funds accruing from the sale of 

the land to the holders of the two underlying mortgages. In 

doing so, we affirm the judgment of the District Court, 

Thirteenth ~udicial District, Yellowstone County, though on 

somewhat different grounds, holding in favor of First 

Interstate Bank of ~illings, First Interstate Bank of 

Missoula, and Interstate Production Credit ~ssociation. The 

parties against whom such judgment is effective are American 

Guaranty Life Insurance Company and Commerce Mortgage 

Company. 

The issue posed by appellants in this case is whether 

judgment liens, which come into effect between the time a 

landowner executes and records an option for the sale of his 

lands and the time the optionee exercises the option, take 

priority over the recorded option. However, we find the 

controlling issue to be the legal effect of the escrow 

agreement executed by the parties. 

Loyd Kimble was the owner of a parcel of land in 

Yellowstone County. He borrowed $3,000,000 from Commerce 

Mortgage Company for which he executed to Commerce Mortgage 

Company a note and mortgage of the land parcel on May 12, 

1980. The note and mortgage were assigned by Commerce 

Mortgage Company to American Guaranty Life Insurance Company 

and the assignment was recorded on June 4, 1981. Loyd Kimble 

also borrowed an additional $150,000, using the same land 

parcel as security, and executed a note and mortgage to 
Commerce Mortgage Company which mortgage was recorded on July 

1, 1981. 

Loyd ~imble defaulted on his loan payments, and the 

mortgages went into default. American Guaranty and Commerce 

Mortgage Company obtained judgment against Kimble on the 

mortgage loans on July 3, 1986, which judgment was subject to 

appeal. No sheriff's sale of the land parcel occurred. 

On July 21, 1986, Kimble entered into an option 

agreement for purchase of the parcel of land by North Point 

Square ~ssociates and G. Walter Gasser, the latter as trustee 

for Walter Gasser Associates, Inc., the option being 

exercisable on or before January 24, 1987. An abstract of 

the option was recorded on July 24, 1986 in the records of 

Yellowstone County. 

An escrow agreement was entered into between Loyd 

Kimble, North Point Square Associates, G. Walter Gasser, 

First Montana Title Company as escrow agent, and American 

Guaranty Life Insurance Company and Commerce Mortgage 

Company. The escrow agreement provided among other things 

that the escrow agent would hold a partial release of lis 

pendens filed in the prior foreclosure action, a release of 

the judgment lien obtained in the prior foreclosure action, a 

release of American Guaranty ~ife Insurance Company's 

mortgage and a release of the mortgage of Commerce Mortgage 

Company, all in order to clear their respective interests in 

the parcel of land if the option was exercised. In 

consideration therefor, both ~merican Guaranty ~ife Insurance 

Company and Commerce Mortgage Company were to receive the 

proceeds of the sale upon exercise of the option as provided 

in paragraph 6 of the escrow agreement, hereinafter set 

forth. 

Before the option was exercised, however, on August 22, 

1986, ~irst Interstate Bank of ~illings obtained a judgment 
which was a lien upon the parcel of land in the sum of 

$77,041.01. First Interstate Bank of Missoula obtained a 

judgment lien upon the parcel of land for $27,000 on 

September 30, 1986. Interstate production Credit ~ssociation 

obtained a third judgment lien against the parcel of land on 

January 1, 1987, as stipulated by the parties. 

On January 21, 1987, North Point Square Associates and 

G. Walter Gasser, timely exercised the option by delivery of 

$336,674.05 to First Montana Title Company, the escrow agent. 

All parties stipulated to allow the transfer of title to the 

parcel of land to the optionee free and clear of all liens 

and encumbrances so that the optionee could proceed with the 

development of the land. This was done with the 

understanding that there would be no waiver of the respective 

claims by the parties, and that the ultimate resolution of 

their claims would be against the $336,674.05 held in 

escrow. The money was placed in an interest-bearing account 

pending the outcome of this lawsuit. 

Paragraph 6 of the escrow agreement executed by the 

parties provided as follows: 

Escrow agent is hereby authorized to use said funds 

to clear title to the property and to then 

distribute the balance of the funds to the two 

underlying mortgagees as follows: 

(a) To American Guaranty Life Insurance Company-- 

97% 

(b) To Commerce Mortgage Company--3% 

When the option agreement had been exercised and the 

money received, the escrow holder, First Montana Title 

Company of Billings, took the position that under paragraph 6 

it must pay off the judgment liens before distributing the 

balance of the funds to ~merican Guaranty ~ife Insurance 

Company and to Commerce Mortgage Company. The latter two 
companies disagreed with this interpretation of the escrow 

agreement. Thereupon First Montana Title Company of 

Billings, as escrow holder, interpleaded the funds in the 

District Court, naming all of the interested parties as 

defendants in the cause, and requesting the District Court to 

determine which parties were entitled to the funds and in 

what amounts. First Montana Title Company of Billings has 

since then been dismissed from the lawsuit. 

The position of American Guaranty Life Insurance Company 

and Commerce Mortgage Company is that an option which is 

recorded prior to the establishment of judgment liens on the 

same property gives the holder of the option a priority over 

such subsequent judgment liens. They contend that the escrow 

agreement had the effect of an assignment for consideration 

prior to the entry of the judgments and that therefore under 

the escrow agreement the funds should pass to American 

Guaranty and Commerce Mortgage Company free of said judgment 

liens. They further contend that the District Court 

improperly applied mechanic's lien law to judgment liens in 

order to hold against them. 

The District Court granted a motion for summary judgment 

in favor of the judgment lienholders and against the 

mortgagees. Judgment was entered thereon and this appeal by 

the mortgagees resulted. 

The mechanic's lien argument of American Federal arid 

Commerce Mortgage Company stems from the use by the District 

Court of Leigland v. ~cGaffick (1959), 135 Mont. 188, 338 

P.2d 1037, a mechanic's lien case, as authority for the 

proposition that a mere right to acquire an interest does not 

constitute an encumbrance or a transfer of title. The 

District Court did determine that an option does not transfer 

legal or equitable title until it is exercised, but the 

District Court also found that the intervening judgment liens 
attached to the landowner's real property interest, and that 

these liens have remained a cloud on the title. 

The mortgagees also rely on Ide v. ~eiser (1890), 10 

Mont. 5, 11, 24 P. 695, 696, to the effect that the optionee 

does receive something of value by obtaining an option, that 

is the right to call for and receive lands if he elects under 

the option. 

In reaching its conclusion nonetheless, the District 

Court did rely on contract law. It determined that the 

option contract and the escrow agreement were executed 

contemporaneously and referred to the same subject matter, 

and therefore should be construed together as one instrument. 

Section 28-3-203, MCA. The District Court noted that there 

was a condition precedent to the payment of the sale of 

proceeds: The mortgagees, through the escrow agent, had to 

deliver to the optionee good and marketable title. 

The controlling issue in this case is the contractual 

effect of the language in the escrow agreement. If the 

escrow holder was required to "clear title" before the 

mortgagees could receive the balance of the funds, the 

relative priorities between a recorded option and judgment 

liens become irrelevant. We hold it was the escrow holder's 

duty to clear title for the optionee under the escrow 

agreement. 

It is clear to us that the decision in this case should 

turn on the language of the escrow agreement, as a matter of 

contract. Under paragraph 6 above quoted, the escrow agent 

was authorized by all of the parties to the agreement to "use 

said funds to clear title to the property," and then to 

distribute the proceeds to the mortgagees. 

In Ogg v. Herman, et al. (1924), 71 Mont. 10, 15-16, 227 

P. 476, 477, this Court said: 
While provision is made that plaintiff shall 

furnish an abstract showing clear title, good 

title, and a marketable title, it is apparent that 

these terms were used interchangeably, and that 

they are in fact synonymous. A clear title means 

that the land is free from encumbrances. (citing 

authority.) A good title is one free from 

litigation, palpable defects and grave doubts, 

comprising both legal and equitable titles, and 

fairly deducible of record. (citing authority.) A 

clear title means a good title (citing authority) 

and a good title means a marketable or merchantable 

title. (Citing authority.) A contract to convey 

in fee simple, clear of all encumbrances, implies a 

marketable title (citing authority), and a 

marketable title is one of such character as 

assures to the purchaser the quiet and peaceable 

enjoyment of the property and one which is free 

from encumbrances. (Citing authority.) 

This Court further noted in Gantt v. Harper (19281, 82 

Mont. 393, 405, 267 P. 296, 298, the following: 

Webster's definition of the word "clear" as here 

employed is "free from encumbrance, obstruction, 

burden, limitation," etc., and the word "title," in 

the sense here used, "the union of all the elements 

which constitutes ownership, at common law, divided 

into possession, right of possession, and right of 

property, the last two now, however, being 

considered essentially the same." 

In our opinion, the words, "clear title" as 

employed in the plaintiff's letter, denied 

admission in evidence, means title to the property 

free from any encumbrance, burden or limitation, 

uniting all the elements constituting ownership, 

including right of possession and right of 

property--i.e., fee-simple title. Such was in 

effect the contract upon which the defendant agreed 

to pay a brokerage commission on the sale of the 

property, and a tender of the performance was 

complete and in accordance with the defendant's 

terms. 

The contractual duty of the escrow agent in this case, 

agreed to by all the parties, was that the escrow holder 

should distribute the funds so as to deliver clear title to 
the optionee upon the exercise of the option. The judgment 

liens were indeed clouds on the title, and clear title could 

not be delivered until those judgment liens were satisfied 

and removed. 

Therefore, we affirm the judgment of the ~istrict Court. 

/ 

Justice F 

Judge, sitting f& the