No. 80-125 IN THE SUPREME COURT OF THE STATE OF MONTANA 1980

MARGARETTE M. AYE, CLARA E. GREGORY, et al., Plaintiffs and Appellants,

ADOLPH FIXAND ROBERT PIX, Defendants and Respondents.

Appeal from: District Court of the SixteenthJudicial District, In and for the County of Carter, The Honorable A. B. Martin, Judgepresiding.

Counsel of Record:

ForAppellants: Robert L. Stephens,Billings, Montana Kinnard and Woodward, Billings, Montana For Respondents: Gene Huntley, Baker, Montana R. W. Heineman,Wibaux, Montana

Submitted on Briefs: November 19, 1980 Decided: April 20, 1981

Filed: 

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## 19flMr. JusticeDaniel JLShea delivered the Opinion of the Court.

PlaintiffsRalph and Frances Bruski appeal the judgment of the Carter County District Court awarding them only $3,013.21 for the defendants' occupation of certain stateleased land during the years 1971, 1977 and 1978, in derogation of the Bruskis' right topossession. The dispute between the parties centers on the right to occupy and farm a section of state-leased land known informally

as the "school section"or the "school lands",State Lease No. 49401. The parties have been embroiled in litigation

over the property at both the trial and the appellate levels for nearly a decade. The case has become confusing and complex. For that reason,wewill review the factualbackground and procedural history of the case befare setting out the issues presented for review. TheAyes, are now and always have been the official lessees of the school section from the state. The Fixes and the Bruskis both claim to have had the right to occupy and farm the land in 1971under separate,but conflicting transfers from theAyes--the Fixes as sublessees and the Bruskis as assignees of theAyes' leasewith the state. In December 1963,Willis Aye (Aye)orally agreed to assign the state lease of the school lands toAdolph Fix

(Fix)in order to induceFix to buy some other farmland fromhim known as the "Perso"place. Fixpaid the purchase price that had been agreed upon and received a deed for the Persoplace,but no assignment of the state lease. Shortly thereafter, on January 3, 1964, JohnAye (thebrother of

I Willis) leased 5,000 acres of land to Fix. The lease agreement expressly granted to Fix a sublease to the school lands forthe entire unexpired term of theAye leasewith the state. Fix objected to this sublease language because he understood that he was supposed to be the assignee of the state lands rather than a sublessee. Aye explained to Fix that he would get the state lease at the end of the term. Fix accepted these oral assurances as a sufficient assignment of the lease. TheAyes' leaseof the school lands from the state-- and, therefore, the Fixes' right to possession under their sublease from theAyes--was set to expire on February 28, 1972. But before this expirationdate, on February 12, 1971,theAyes' attorney sentwritten notice of cancellation of the sublease agreement to Fix. At about the same time, the Ayes entered into a contract for deed which assigned the state lease to the Bruskis. TheAyes renewed their lease of the school landswhen it expired by exercising their statutory right to meet the highest competitive bid for the land. Their right as state lessees of the land remained subject to the contract fordeed with the Bruskis. The Fixes refused tovacate the school lease land and litigation ensued. On July 13, 1972, the trial court ordered that the Fixes surrender possession of the state-leased lands to theAyes in accordancewith the 1972 renewal lease issued by the Departmentof State Lands and Investments. The Bruskis, under the assignment of the land from the Ayes, then occupied the school lands from July 13, 1972 until March 23, 1977. Following a bench trial on the merits, the trial courtruled that Fix was the "owner"of the state lease based on the oral agreement between Fix and JohnAye that Fixwould be assigned the state lease aspart of the sale of the Persoplace. After the trial court judgment intheir favor,the Fixes reoccupied the premises on March 23, 1977, and remained in possession until August 25, 1978. TheAyes and the Bruskis appealed the trial court judgment to this Court. We reversed. Invoking the statute of frauds and the par01 evidence rule,we held that the trial court should not have admitted evidence on an oral agreement to assign the state-leased lands to the Fixes because the written agreementsbetween theAyes and the Fixes expressly referred only to a sublease and not to an assignment of the state lease. Because the Fixes had been inpossession of the property for parts of the years 1977 and 1978 under the trial court judgment, we remanded for a determinationof damages they owed to the Bruskis. Aye v. Fix (1978), 176 Mont. 474, 580 P.2d 97. After our reversal, the Bruskis again re-entered the property and are now in possession. At this point in the litigation, the Bruskis and the Fixes are the only real parties in interest. TheAyes claim no right to compensation for the Fixes' use of the land during any of the three years in dispute. The Bruskis now appeal the amount of compensation awarded them by the trial court for the three years during which the Fixes were in possession of the land: 1971, 1977 and 1978. They raise three issues. First, they assert that the trial court erred in finding that the Fixes did not owe them any rent for the use of land in 1971. Second, they assert

error on the trial court's ruling that the Fixes could offset certain leasepayments made directly to the state from the reasonable rental owing to the Bruskis. Third, they challenge the trial court'sholding that the Fixeswerethe rightful recipientsof certain federal farmbenefits for the years theywere inpossession of the land. We affirm in part and vacate inpart. On remand, the trial court ruled that the Bruskis were entitled to no rental from the Fixes for the year 1971. In so ruling, the trial court relied on its original finding before the first appeal of this case that the Fixes were the "lawful owners" of the lease for the year 1971. This finding

was based on the 1964 lease agreementwhere theAyes expressly subleased the land to the Fixes for the full unexpired term of Ayes' lease of the land from the state. Given the state of the record before us, we are unable to adequately review the trial court's determination that Fixes, and not Bruskis, were entitled to possession of the property in 1971. Neither the record before us nor the briefs of the parties indicate whether either the Fixes or the Bruskis ever recorded their respective conveyances from theAyes. We do not know if the recording statutes (Title 70,Ch. 21) were compliedwith. Nor dowe knowwhether Bruskis were aware of Fixes' occupation of the land at the time the Ayes assigned the state lease to the Bruskis in 1971. See, section 70-21-102,MCA. Therefore,we have no way of knowingwhose interesthas priority under the law. See, section 70-21-304,MCA. We, therefore,remand to the trial court tomake that determination. Furthermore,we disagree with the Bruskis' argument that former section 81-419,R.C.M. 1947,nullified the sublease that Fixes received fromAye in 1964. At the time the sublease to the Fixes was made, that sectionprovided that a sublease of state landwas illegal unless a copy of the subleaseaccompanied by a fee of $2.00 had been filedwith the state land office and approved by the commissioner. Section 81-419 does not override the provisions of section 70-21-102,MCA, which provides that "[aln unrecorded instrument isvalid as between the parties and those who have notice thereof." The purpose of section 81-419,R.C.M. 1947, is to facilitatethemanagement of state lands but itdoes not abrogate general principles ofproperty law. The statute must be read in the context of the chapter inwhich it appears. By declaring a sublease that is not filed with the commissioner to be illegal, the statute allows the commissioner to look to the original state lessee as the party responsible for full compliance with the terms of the state lease. The

### ruski is also argue that because of our reversal of the trial court's judgmenton the first appeal of this case, the trial judge could not rely on his original finding that the Fixeswere rightfully in possession of the property under the 1964 sublease from the Ayes. But a reversal extends only to those issueswhich the appellate court decided in actuality or by necessary implication; it does not affect collateralmatters not before the court. Phalen v. Rilley (1970),156 Mont. 91, 475 P.2d 998, 999;Ryan v. Ald, Inc. (1967), 149 Mont. 367, 427 P.2d 53, 56. On remand, the parties stipulated that the measure of damages owing to the Bruskis from the Fixes would be the reasonable rental value of the land for the years that the Fixes occupied the premises in derogation of the Bruskis' right to possession. On this issue, the Bruskis contend that the trial court erred in permitting the Fixes to offset from reasonable rental value the leasepayments which the Fixesmade directly to the State of Montana. We find noerror. As a general rule, the party to whom property has been awarded under an erroneous judgmentmay, upon reversal, deduct expenses that he necessarily incurred in the protection of that property and the payment of taxes and liens. RestatementRestitution S 74,Comment (e) (1937). The rentalwhich the Fixespaid to the statewas an expense incurred to protect the property and was therefore properly deducted from the stipulated rental. We cannot agree with the Bruskis' attempts to label the lease payments to the state as a "cost of production" forwhich the Fixes as crop producers should be responsible. To require the Fixes to pay the Bruskis a reasonable rental and then to add to that

sum the rent due the State of Montana is--as the trial court found--to require the Fixes to pay rent twice. Finally, the Bruskis urge that the trial court should have awarded them and not the Fixes the benefits of the federalA.S.C.S. program for the years 1971, 1977, and 1978. A.S.C.S. payments aremade to producers who raise crops in accordancewith certain federalguidelines. One-third of these payments went to the state as part of the rental due

on the state lease. The remaining two-thirds has been withheld pending a final determination as to which of the parties is entitled to theA.S.C.S. payments. Neither party has had access to these fundsduring the pendency of the litigation. The Bruskis argue that these payments represent an issue of the land to which they areproperly entitled. Generally, a party who has been dispossessed of property by

an erroneous judgment is entitled, upon reversal,not only to specific restitutionof the property in question,but also to rents, issues orprofits therefrom. 5B C.J.S.Appeal and Error 

### 5 1983 (1958);Mann v. Thompson (Fla.App. 1960), 118 So.2d 112, 114-15; see also,Waggoner v. Glacier Colony of Hutterites (1957),131Mont. 525, 312 P.2d 117. We agree that the trial court should have awarded theA.S.C.S. benefits to the Bruskis for the years 1977 and 1978. Had it not been for the trial court's erroneous judgment before the first appeal of this case, the Bruskis would have been in possession of the land, could have farmed it, and would have been entitled to the lessee's two-thirds share of the A.S.C.S. payments. Who is entitled to the A.S.C.S benefits for 1971depends, of course, onwhich of the two conveyances from theAyes had priority in that year. In occupying the land in 1977 and 1978under the trial court judgment in their favor,the Fixeswere not in the position of trespasserswhose wrongs were to be corrected by

an action at law. Theywere trustees, subject to make such restitution as a court of equity might determine, if the trial court judgmentwere overturned. They were charged with the knowledge that they entered onto the land by force of a judgment not yet final. A trial court's judgment depends for its validity on being sustained. When it is reversed or set aside, the party who has received the benefit of that judgment must make restitution to the other party. Nothing prevents a court, however, in exercise of its equitable powers, to allow the party making restitution reasonable compensation for labor or improvementsbenefiting the land. We affirm the trial court's judgment insofar as it permits the Fixes to deduct from the rental owed to the Bruskis the lease payments paid directly to the state. Wevacate the trial court's judgment insofar as it awards the lessee's share of theA.S.C.S. payments to the Fixes for the years 1977 and 1978. We order thosebenefits to be paid to the Bruskis. We vacate the trial court's ruling that the Fixes were lawfully inpossession of the land in 1971and remand for the trial court to determinewhether the Fixes' or the Bruskis' interest in the land had priority for that year. The trial court isdirected to award the 1971A.S.C.S.

We Concur:

Chief Justice

I. Justices

This causeswas submitted prior to January 5, 1981.