No. 83-419 

IN THE SUPREME COURT OF THE STATE OF MONTAhiA 

1984 

HOME INTERIORS, INC., a Montana 

Gorp. I 

Plaintiff and Appellant, 

R0BER.T E. HENDRICKSON, an individual, 

and SECURITY PACIFIC MORTGAGE CORP., 

a Colorado corp., 

Defendants and Respondents, 

and 

PIERCE FLOORING, a Montana corp., 

Defendant and Appellant. 

APPEAL FROM: District Court of the Fourth Judicial District, 

In and for the County of Missoula, 

The Honorable Douglas G. Harkin, Judge presidinq. 

COUNSEL OF RECORD: 

For Appellant: 

Snavely & Phillips; Donald V. Snavely argued for Home 

Interiors, Missoula, Montana 

Worden, Thane & Haines; Patrick G. Frank argued for 

Pierce Flooring, Missoula, Montana 

For Respondent: 

Hendrickson & Everson; Mark E. Noenning argued for 

Hendrickson and Security Pacific Mortgaqe Corp., 

Billings, Montana 

Submitted: October 9, 1984 

Decided: December 21, 1984 

Filed: DL[; 2 1 I984 a 

Clerk 
Mr. Justice John Con.way Harrison delivered. the Opinion of the 

Court. 

This appeal involves the question of priority between a 

trust indenture and subsequent mechanics' liens. Appellants 

claim their mechanics' liens should be given priority over 

respondents' trust indenture and assert error in the District 

Court's grant of summary judgment in favor of respondents and 

in the award of attorney's fees and costs to respondents. 

We reverse the judgment of the District Court. 

Issues 

(1) Whether the lien claimants take precedence over a 

prior recorded trust indenture under section 71-3-502, MCA. 

(2) Whether the District Court erred in ruling there 

exist no issues of material fact in view of the question of 

severability of the lienholders' improvements. 

(3) Whether the District Court erred in its award of 

fees, or in the alternative, in the amount of fees awarded. 

Facts 

Rodney and Titut Jones were in the business of buying 

old homes, remodeling them, and then selling them for profit. 

On July 26, 1979, the Joneses entered into a buy/sell 

agreement with Purdon Anderson for the purchase of an older 

residence at 2223 South 3rd West in Missoula. Among other 

things the buy/sell pravided for a purchase price of $50,000, 

the Joneses to obtain an FHA insured loan in the amount of 

$48,950 to fund the purchase price and a provision that 

Anderson would loan back to the Joneses $19,000 of the 

purchase price for the purpose of constructing improvements 

on the property. 
After execution of the buy/sell agreement, the Joneses 

zpplied to Charter First, an Oregon mortgage company, for a 

$48,950 loan. The loan with Charter First was closed on 

October 18, 1979 and to secure the loan the Joneses executed 

a first trust indenture against the house in favor of Charter 

First. One day a.fter closing the loan, Charter First 

assigned the subject note and first trust indenture to 

Security Pacific, respondent herein. 

The Joneses contracted with Home Interiors Inc., 

appellants herein, for installation of carpet and pad for a 

cost of $1,106. The Joneses also contracted vrith Pierce 

Flooring, defendant/appellant herein, for installation of 

subflooring and linoleum for a cost of $657.75. The Joneses 

paid nothing to Home Interiors and on April 15, 1980, Home 

Interiors filed a mechanics' lien against the house. The 

Joneses paid only $100 to Pierce Flooring so Pierce filed a 

mechanics' lien on March 25, 1980. 

About a year after closing the Charter First loan, the 

Joneses defaulted. On December 12, 1980, Security Pacific 

requested the trustee, Hendrickson, to record Notice of 

Trustee's Sale setting a public foreclosure sale for April 

22, 1981, at the Missoula County Courthouse. 

On January 12, 1981, counsel for Home Interiors advised 

Security Pacific by letter of its mechanics' lien. By that 

same letter Security Pacific was also advised that Home 

Interiors claimed priority of its mechanics' lien over the 

trust indenture, and that Home Interiors expected to be paid 

from the foreclosure sale proceeds for its lien. 

At the time of the foreclosure sale, counsel for Home 

Interiors served Hendrickson with the summons and complaint 

in this action. Security Pacific purchased the house at the 
foreclosure sale, bidding the amount still owing by the 

Joneses. 

The District Court found Security Pacific's trust 

indenture took priority over the mechanics' liens and the 

foreclosure sale eliminated those liens from the property. 

The District Court also held Security Pacific was entitled to 

recover its attorneys fees and awarded $7,378.66 to Security 

Pacific . 

Priority 

Title 71, Chapter 3, Part 5 of the Montana Code 

Annotated is devoted to mechanics' liens. More specifically 

section 71-3-502(4), MCA addresses the issue of priority of a 

mechanics' lien in preference to prior liens or encumbrances: 

" (4) The liens attach to the buildings, 

structures, or improvements for which 

they were furnished or the work was done 

in preference to any prior lien, 

encumbrance, or mortgage upon the land 

upon which sairbuildings, structures, or 

improvements are erected; and any person 

enforcing such lien may sell the same 

under execution, and the purchaser may 

remove the property sold within a 

reasonable time thereafter." (Emphasis 

added. 1 

In this case we are dealing with the issue of whether a 

mechanics' lien may take priority over a trust indenture. 

Section 71-1-305, MCA reads as follows: 

"A trust indenture is deemed to be a 

mortgage on real property and is subject 

to all laws relating to mortgages on real 

property except to the extent that such 

laws are inconsistent with the provisions 

of this part, in which event the 

provisions of this part shall control. 

For the purpose of applying the mortgage 

laws, the grantor in a trust indenture is 

deemed the mortgagor and the beneficiary 

is deemed the mortgagee." 
Appellants and respondents agree the appropriate 

interpretation of these two statutes is found in Beck v. 

Hansen (1979), 180 Mont. 82, 589 P.2d 141. In Beck, a 

builder gave two trust indentures as security for money 

borrowed to finance construction of two duplexes on 

unimproved. land. Beck was a subcontractor on the project 

and, along with the other subcontractors, was not paid for 

his material or labor and as a result filed a mechanics' lien 

against the property. The builder also failed to pay the 

bank and consequently the bank started the process of 

foreclosure on the trust indentures. At the foreclosure sale 

the bank purchased the property for the amount of the 

builder's outstanding indebtedness. Beck's attorney appeared 

a.t the sale to serve the bank with notice of the pending suit 

to foreclose the mechanics' liens. The bank then moved to 

dismiss the suit contending its trust indenture had priority 

over the subsequent mechanics' liens. The district court 

eventually ruled the mechanics' liens were a prior secured 

interest in the realty to the extent tha.t material and labor 

were furnished by the lien claimants for the construction of 

the improvements upon the property. The bank appealed and 

this Court affirmed. 

The statutes involved in the Beck case were identical 

to those involved in the instant case. Justice Shea, writing 

for the majority, held "that a mechanics' lien for 

improvements constructed after the grant of a trust indenture 

has priority over the interest of a purchaser at trustee's 

foreclosure sale. " Beck, supra at 144. Justice Shea argued. 

the bank was in the better position to protect itself either 

"by withholding funds to the extent of the contemplated 

improvements or by requiring the grantor to obtain lien 
waivers from mechanics or materials." Finally, Justice Shea 

reasoned: "this result does not . . . portend disaster for 

the beneficiary of a prior secured trust indenture; it 

merely requires the beneficiary to exercise ordinary business 

prudence where construction is contemplated." 

We find no reason to distinguish the Beck case from the 

situation at hand. In both instances the holder of the trust 

indenture seeks to take a.dvantage of the improvements 

provided by the lien claimants without compensation. We 

agree with appellants' reasoning that: 

'I. . . the mortgage and mechanic each 

take priority as to the property relied 

upon or credited by them, that is, the 

mortgage takes priority as to the 

improvements existing at the time the 

mortgage was taken. The mechanic takes 

priority as to the improvements 

constructed thereafter and upon which the 

mortgagee did not rely." 

We therefore hold the party having the greatest ability 

to protect its interests has the burden of exercising due 

care to prevent overreaching by an interested party. In this 

case respondent was in the best position to protect against 

non-payment by the landowner by either withholding funds to 

the extent of the contemplated improvements or by requiring 

the landowner to obtain lien waivers from the mechanics. We 

find no merit in respondents' argument that section 

71-3-502(4) should be construed strictly to pivot on the 

words "upon the land." Such a. narrow interpretation would. 

defeat the purpose of the statute. We hold appellants' liens 

take priority over respond-ents' trust indenture. 

Severability 

Since we have reversed the District Court as to the 

priority issue, we need not discuss the severability issue. 
Attorney Fees 

The District Court awarded attorney fees to respondents 

relying on section 71-3-124, MCA. We have reversed the 

District Court on the issue of priority and we also reverse 

on attorney fees. Appellants have established the validity 

and the priority of their liens and accordingly shall recover 

costs and attorney fees pursuant to section 71-3-124, MCA. 

We remand for determination of fees. 

We concur: 

L'