No. 94-410

IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

CHARLEY JOHNSON, PARK COUNTY

SHERIFF, THE STATE OF MONTANA,

EQUIPMENT USED TO CULTIVATE

MARIJUANA; REAL PROPERTY, A TRACT (,I;/,!',;' ')

DESCRIBED AS TRACT ONE (1) OF CERTIFICATE

t" [i &y;

OF SURVEY NO. 370, ALL IN SECTION TWENTY-TWO

(ZZ), TOWNSHIP TWO (2) SOUTH, RANGE NINE (9) diLtp:,: ., <'i;, ~'.yy

EAST; TIMOTHY JEROME HULBERT & RUSSELL J.

-I..:!-: ::$:;, ~_ ,~. ., ,'~,.~~,.,: in, ~~,'~-.'cs, ,;,;:i,

YOUNG,

Defendant and Appellant

APPEAL FROM: District Court of the Sixth Judicial District,

In and for the County of Park,

The Honorable Bryon L. Robb, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Karl Knuchel, Livingston, Montana

For Respondent:

Wm. Nels Swandel, Park County Attorney, Livingston,

Montana; Honorable Joseph P. Mazurek, Attorney

General, John Paulson, Assistant Attorney General,

Helena, Montana

Filed:

Submitted on Briefs: February 16, 1995

Decided: June 20, 1995
Justice Fred J. Weber delivered the Opinion of the Court.

This is an appeal from a decision of the Sixth Judicial

District Court, Park County, to allow the seizure and sale of real

property involved in a drug felony. We affirm in part and remand.

The only issue for review is whether the District Court erred

in permitting the real property to be seized and sold despite the

owner's issuance of a quitclaim deed to the seller following the

owner's arrest and charge for the crime.

Appellant Russell J. Young (Young) and Timothy J. Hulbert

(Hulbert) were involved in a business together. That relationship

ended in March of 1988. Following dissolution, Hulbert made

arrangements to purchase the business property from Young, subject

to payment of an outstanding bank loan owed to Young. The sale of

the property was by contract for deed from Young to Hulbert.

On January 12, 1993, law enforcement officers from the Park

County Sheriff's Office and Livingston Police Department searched

Hulbert's residence and discovered that he was growing marijuana in

his home. Hulbert was thereafter arrested for possession with

intent to sell. On January 21, 1993, Hulbert issued a quitclaim

deed for his residence to Young who paid Hulbert $5,000.

A petition to institute forfeiture proceedings was filed on

February 23, 1993, against Hulbert for both the real property and

the drug paraphernalia found in the residence. Young was added as

a respondent on March 10, 1993. Hulbert never filed an answer and

a default was entered. Young filed an answer and counterclaim

which was subsequently withdrawn.

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The parties stipulated that the only issue to be considered

was whether the quitclaim deed to Young prevented the State's

subsequent seizure of the real property. Following a bench trial

after which Hulbert was convicted of possession with intent to

sell, the court considered the quitclaim deed and found that

although Young had a legitimate interest in the property, his

quitclaim deed did not cut off the State's right to forfeit the

real estate. The court reasoned that the relation back doctrine

applied and that although the quitclaim deed preceded the State's

petition for forfeiture, the State's interest in seizing the

property was ripe upon the commission of the crime, January 12,

1993, and a transfer of the property subsequent to the crime was

void.

In its June 13th Findings of Fact and Conclusions of Law, the

court ordered the Park County Sheriff to sell at public auction the

seized property described as Tract one (1) of certificate of survey

no. 370, located in section 22, T2S, RYE, Park County, Montana.

The court stated that Young was due the balance owed him on the

said contract for deed, plus whatever interest had accumulated.

Young appeals the forfeiture of the real property deeded to

him by the quitclaim deed.

Did the District Court err in permitting the real property to

be seized and sold despite the owner's issuance of a quitclaim deed

to the seller following the owner's arrest and charge for the

crime?

Young argues on appeal that he is an innocent owner pursuant

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to § 44-12-102(l) (i), MCA. The State argues that it has not

forfeited Young's interest in the property; Young's security

interest in the residence was fully recognized by the court in its

June 13, 1994 Order. The State points out that the interest

recognized, however, is not that of owner because Hulbert was the

owner on January 12, 1993; Young has a security interest in the

property.

The District Court correctly based its decision on the

"relation back doctrine" set out for the first time in United

States v. Stowell (1889), 133 U.S. 1, 10 S.Ct. 244, 33 L.Ed 555.

The doctrine, followed for many decades, states that whenever a

statute determines that upon commission of a certain act specific

property used in or connected with that act shall be forfeited,

"the forfeiture takes effect immediately upon the commission of the

act." Stowell, 133 U.S. at 16, 10 S.Ct. at 247, 33 L.Ed at 559.

We adopt the doctrine of relation back as established in

Stowell with regard to the facts of the present case. As a result,

we conclude that by relation back, the crime was committed on the

date of discovery, that being, January 12, 1993. As a result, upon

that day, the State had the right to seize the real property which

had been directly used to facilitate the offense. The controlling

provision is the following portion of § 44-12-102, MCA:

Things subject to forfeiture. (1) The following are

subject to forfeiture:

iii . .real property, including any right, title, and

interest in any lot or tract of land and any

appurtenances or improvements, that is directly used or

intended to be used in any manner or part to commit or

facilitate the commission of or that is derived from or

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maintained by the proceeds resulting from a violation of

Title 45, chapter 9, that is punishable by more than 5

years in prison. An owner's interest in real property is

not subject to forfeit by reason of any act or omission

unless it is proved that the act or omission was the

owner's or was with his actual knowledge or express

consent.

The next question is whether Young's interest in the property can

be classed as an owner's interest in real property. As previously

mentioned, Young executed a contract for deed under which he was

the seller and Hulbert was the buyer. The doctrine of equitable

conversion establishes that as a result of the contract for deed,

Young had only the naked legal title which he held as trustee for

the purchaser and as security for the unpaid purchase price. The

rule was stated in In the Matter of the Estate of Wooten (1982),

198 Mont. 132, 137-38, 643 P.2d 1196, 1199:

we find that this is a proper case for application

of the doctrine of equitable conversion. We have applied

this doctrine many times in the past. A suitable example

of its operation can be seen in Kern v. Robertson (1932),

92 Mont. 283, 12 P.2d 565, where we stated:

"The authorities are in accord that an

enforceable contract for the purchase and sale

of real property passes to the purchaser the

equitable and beneficial ownership thereof,

leaving only the naked legal title in the

seller, as trustee for the purchaser, and as

security for the unpaid purchase price. . .

1,

A more recent case, In Re Estate of Rickner (19741,

164 Mont. 51, 518 P.2d 1160, states:

"It has long been established by this Court

that a contract for the sale of real property

converts the seller's interest from an owner

of real property to that of an owner of

personalty, this being the doctrine of

equitable conversion. . .

Based upon the foregoing authority, we conclude that the

5
interest owned by Young at the time of the commission of the crime

on January 12, 1993, was as an owner of personalty rather than as

an owner of real property. AS a result, we conclude that Young's

specific interest in the property was not covered by the above last

sentence of 5 44-12-102(l) (i.), MCA.

This leads us to the statutes which control the procedure for

forfeiture. y\c kThe pertinent parts of 5 44-12-205,are as follows:

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44-12-205. Disposition of property following

hearing. (1) If the court finds that the property was

not used for the purpose charged or that the property

listed in 44-12-102(l) (g) was used without the knowledge

or consent of the owner, it shall order the property

released to the owner of record as of the date of the

seizure.

(2) If the court finds that the property was used

for the purpose charged and that the property listed in

44-12-102(l) (g) was used with the knowledge or consent of

the owner, the property shall be disposed of as follows:

(a) If proper proof of his claim is presented at the

hearing by the holder of a security interest, the court

shall order the property released to the holder of the

security interest if the amount due him is equal to or in

excess of the value of the property as of the date of

seizure, it being the purpose of this chapter to forfeit

only the right, title, or interest of the owner. If the

amount due the holder of the security interest is less

than the value of the property, the property, if it is

sold, must be sold at public auction by the law

enforcement agency that seized the property in the same

manner provided by law for the sale of property under

execution or the law enforcement agency may return the

property to the holder of the security interest without

proceeding with an auction.

Paragraph (1) of the above code section first states that if the

court finds the property was not used for the purpose charged, it

shall order the property released to the owner of record. The

court here of course found the property was used for the purpose

charged so that provision does not apply.

Next paragraph (1) provides that if the court finds that the

6
Next paragraph (1) provides that if the court finds that the

property listed in § 44-12-102(l) (g), MCA, was used without the

knowledge or consent of the owner, it shall order the property

released to the owner of record. This is a confusing portion of

the statute. First, it is essential to note that § 44-12-

102(1) (g) , MCA, provides:

(1) The following are subject to forfeiture:

isi .everything of value furnished or intended to be

furnished in exchange for a controlled substance in

violation of Title 45, chapter 9; all proceeds traceable

to such an exchange; and all money, negotiable

instruments, and securities used or intended to be used

to facilitate a violation of Title 45, chapter 9 .

Because the property with which we are here involved is not within

the definition of § 44-12-102(l) (g), MCA, we must conclude that no

part of § 44-12-205111, MCA, is applicable here.

This then leads us to paragraph (2) of § 44-12-205, MCA. In

substance paragraph (2) provides that if the court finds as it did

here that the real property was used for the purposes charged, the

property shall be disposed of as provided in subparagraphs (a) to

(c). In the present case, Young proved that he was the holder of

a secured interest by virtue of his position as a seller under a

contract for deed. The specific provision of subparagraph (a) is

that the property should be released to the holder of such a

security interest if the amount due is equal to or in excess of the

value of the property as of the date of seizure. The subparagraph

further provides that if the amount due the holder of the security

interest is less than the value of the property, then the property

is to be sold or the property may be returned to the holder of the
security interest. The key point here is that the District Court

is required to determine the value of the real property as of the

date of seizure. In the present case, if that determination had

been made, and if it had been determined that the value of the real

property was less than the security interest, the court should have

ordered the property delivered to Young. On the other hand, if the

District Court determined that the value of the real property

exceeded the security interest, then the property could have been

sold, Young could have been paid out of the proceeds with the

balance going to the State. The record before us establishes that

the District Court did not establish the value of the real property

on the date of seizure, or the specific amount owing to Young under

his security interest.

We hold that because of our application of the Stowell

doctrine, Hulbert's issuance of a quit claim deed to Young was

ineffective so far as the drug seizure is concerned and that the

District Court did not err in permitting the real estate to be

seized. We further hold that the record does not yet establish a

basis for the sale of the property and we remand to the District

Court in order that it may determine the value of the real property

as of the date of seizure, and the amount owing to Young under his

security interest. At that point, the District Court shall then

determine under the statute whether or not it is appropriate to

surrender the real property to Young as the holder of the security

interest, or to order the sale of the property with the requirement

that the proceeds shall be used first to pay off the entire amount

a
owing to Young under his security interest with the balance to go

to the State of Montana.

We remand to the District Court.

We Concur:

Chief Justice

Justices

9
Justice W. William Leaphart, dissenting.

I dissent. The Court's analysis is based upon the premise

that Young was not the owner of the property in question. Rather,

that, as a seller under a contract for deed, he merely had a

security interest in the property and that his security interest is

personalty only. Using that assumption, the Court avoids the issue

of whether Young is an "innocent owner" under the provisions of

§IJ 44-12-102(l) (i) and 44-12-205, MCA, and then proceeds to

conclude that he was legitimately treated as a secured party under

§ 44-12-205(2) (a), MCA.

Although there is support for such a conclusion, I do not

believe that that is the result envisioned by the legislature when

it adopted Chapter 12 of Title 44, MCA. I say this for two

reasons. First of all, although the statutes on forfeiture make

reference to "owner," they also make reference to "owner of

record." See 44-12-205(l), MCA. "Owner of record" is not defined.

I take that term to mean the holder of the legal title. As the

Court correctly concludes, under the doctrine of equitable

conversion, Young, as the seller under a contract for deed, becomes

an owner of personalty with naked legal title to the property.

Estate of Wooten (1982), 198 Mont. 132, 643 P.2d 1196. Legal title

remains vested in the vendor (Young) until such time as the

contractual provisions are fully performed. In my view, however,

that bare legal title is sufficient to qualify Young as the "owner

of record" as that term is used in Title 44, Chapter 12, MCA.

The District Court found that the warranty deed from Young to

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Hulbert was to be held in escrow until it was paid for. Since

Hulbert was in default, the warranty deed obviously was not "of

record." In fact, there is no indication that a notice of

purchaser's interest was filed in Hulbert's favor. Accordingly,

Young is clearly the "owner of record" as contemplated by the

statutory scheme.

The District Court found that Young was not an "innocent

owner" as of the date of the January 21, 1993 quit claim deed since

he had actual knowledge (at that time) that the residence had been

used to facilitate a violation of law. Accordingly, the District

Court concluded that Young proceeded at his own risk in purchasing

Hulbert's interest in the premises. However, in applying the

"innocent owner" test--the court focused on the wrong time period.

The statute provides: "An owner's interest in real property is not

subject to forfeit by reason of any act or omission unless it is

proved that the act or omission was the owner's or was with his

actual knowledge or express consent." Section 44-12-102(l) (i),

MCA. Obviously, the question to be answered is: "Did Young have

actual knowledge of the criminal activity at the time is was

occurring, or did he expressly consent to that activity either

before or at the time it was occurring?" The court merely held

that, when Young received the quitclaim deed, he knew that Hulbert

had been arrested and was being charged with operating a marijuana

grow operation. That after the fact knowledge, however, is totally

irrelevant to the inquiry. The statute is clear, an owner's

interest cannot be forfeited unless he had actual knowledge of the

1 1
activity or consented to such activity. Section 44-12-102(l) (i),

MCA. Further, the law clearly requires that if the owner is

innocent, the property is to be released to the owner of record as

of the date of the seizure. Section 44-12-205(l), MCA. The

District Court‘s finding that "Young had actual knowledge that the

residence and property had been used to facilitate the commission

of a violation of title 45, chapter 9, when the January 18 transfer

occurred . . . " does not disqualify Young as an innocent owner.

As such, he is entitled to the property totally aside from the

existence or timing of the quitclaim deed.

My second reason for believing that the legislature did not

intend to treat a vendor under a contract for deed as having a mere

interest in personalty is found in the burden of proof requirements

imposed upon an owner of personalty. Section 44-12-204(3), MCA.

The Court holds that Young, by virtue of being a vendor under a

contract for deed, is a secured party; an "owner of personalty

rather than an owner of real property." As a secured party, the

Court concludes that Young is entitled to disposition of his

interest under § 44-12-205(2), MCA. However, a secured party is

entitled to disposition under § 44-12-205(2), MCA, only upon

"proper proof of his claim." The proof required of a secured party

is set forth in § 44-l2-204(3), MCA. In relegating Young to the

status of a secured party with a mere interest in personalty, the

Court is thereby subjecting all vendor's interests in real estate

to forfeiture unless such vendor can prove that his/her security

interest (contract for deed) is "bona fide and that it was created

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after a reasonable investigation of the moral responsibility,

character, and reputation of the purchaser and without knowledge

that the property was being or was to be used for the purpose

charged." Section 44-12-204(3), MCA. This will no doubt come as

somewhat of a shock to sellers of real estate who have been

neglecting to check out the moral responsibility, character, and

reputations of their purchasers.

The majority reasons that the State's right to forfeiture

relates back and thereby preempts the January 18, 1993 quitclaim

deed to Young. As pointed out above, I am of the opinion that

Young is an "owner of record" by virtue of his bare legal title.

That interest predates either Hulbert's equitable interest or the

State's interest by virtue of the relation back doctrine. His

claim of ownership is not dependent upon the quitclaim deed.

However, as an alternative rationale, I must point out that, in my

opinion, Young's interests as a seller under a contract for deed

(which contract was in default) are superior to the forfeiture

rights of the State of Montana. The contract for deed was in

default due to Hulbert's failure to make his required payments. As

the District Court noted, the contract for deed contemplated use of

a quitclaim deed in the event of default. Thus, Young was entitled

to invoke the default provisions of the contract or to accept a

deed in lieu of foreclosure, which, in effect, he did. He did this

in January of 1993, before the State had commenced any forfeiture

proceedings against the property. The State had not physically

seized the property nor had it filed a lis pendens to cloud the

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title. Although the State has a right to seek forfeiture, it is

not required to do so. Young was under no obligation to sit back

and wait to see if the State was going to exercise that option, He

acted as a reasonably prudent seller under a contract for deed

which is in default. The State was simply too slow.

I do not suggest that a defendant in a criminal proceeding be

allowed to thwart the forfeiture laws by quickly and collusively

deeding the subject property to a friend or previously uninterested

person. Under such circumstances, the relation back doctrine would

probably defeat the claim of the new collusive "owner." Under the

present facts, however, Young is no strawman owner. Rather, his

interest in the property stems from his prior status as the owner

of record and as a vendor under a contract for deed which was in

default.

With or without the quitclaim deed, Young was an "innocent

owner" who was entitled to rer;urn of the property. The majority of

this Court has elevated the forfeiture rights of the State of

Montana above the rights of an innocent owner of record. In

forfeiting title to the State, the Court purports to do nothing

more than put the State in the shoes of Hulbert. In doing so,

however, it ignores the fact that Hulbert did not have legal title

and that he was in default under the contract for deed. As a

result, the Court places the State in shoes much more well-heeled

than any Hulbert ever wore. I respectfully dissent.

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Chief Justice J.A. Turnage and Justice Karla M. Gray join in the

foregoing dissent of Justice W. William Leaphart.

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