No. 88-306 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

VERN D. WARNER and BERNICE M. WARNER, 

Plaintiffs, Counter-Deqendants 

and Appellants, 

-VSMICHAEL L. PETERSON, 

Defendant, Counter-Claimant and 

Respondent, 

APPEAL FROM: District Court of the Twentieth Judicial Dj.str?ct, 

In and for the County of Sanders, 

The Honorable C. R. McNeil, Judqe presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Greg L. Ingraham, Ronan, Montana 

For Respondent: 

Snavely and Phillips; Rohert J. Phillips, Missoula, 

Montana 

Submitted on Briefs: Sept. 9, 1988 

Decided: October 17, 1988 
Mr. Justice R. C. McDonough delivered the Opinion of the 

Court. 

This appeal from the Twentieth Judicial District, in and 

for the County of Sanders, arises from a dispute over a 

contract for the sale of property near Noxon, Montana. We 

affirm. 

The relevant facts are as follows: Appellants Warners 

agreed in writing to sell the Bull River Resort to respondent 

Peterson on an installment. basis. The agreement provided for 

an award of attorney fees and litigation costs to the winner 

of any dispute arising from the contract. 

Peterson stopped making payments for the property 

following a dispute with Warners. Warners sued to enforce 

t.he contract's forfeiture provision. Peterson counterclaimed 

for damages and in the alternative petitioned to rescind the 

contract alleging failure of consideration and 

misrepresentation on the part of Warners. 

The parties tried their claims before a Sanders County 

jury. During trial Warners mortgaged the subject property to 

their attorney to secure attorney fees owed by Warners. 

The jury granted rescission for Peterson. Peterson 

moved for attorney fees and litigation costs. The District 

Court granted Peterson's motion and incorporated the award in 

its judgment entitling Peterson to the return of funds paid 

for the property. The judgment ordered payment within 30 

days. The judgment also provided for satisfaction by 

foreclosure of the contract property in the event Warners 

failed to pay within 30 days. 

Warners failed to pay the judgment. Except for the 

contract property, Warners have no means to satisfy the 
judgment. The sale of the property may or may not provide 

sufficient funds to cover both parties' attorney fees. 

Peterson filed a motion to determine priorities. 

Pursuant to the motion, the District Court held that 

Peterson's award of attorney fees and costs was part of a 

purchaser's lien which took priority over the mortgage filed 

during the course of the litigation to secure Warners' 

attorney fee debt. This decision is the the only alleged 

error. We affirm. 

The District Court applied 7'1-3-1302, MCA, which 

reads: 

Purchaser's lien on real property. One who 

pays to the owner any part of the price of real 

property, under an agreement for the sale thereof, 

has a special lien upon the property, independent 

of possession, for such part of the amount paid as 

he may be entitled to recover back, in case of a 

fai1u;e of consideration. 

Section 71-3-1302, MCA (emphasis added). The lower court 

held that the statute's "amount paid" included the award. 

The parties agree that if the award of attorney fees and 

litigation costs is considered part of the "amount paid", 

then Peterson's award of costs and fees has priority over 

Warners' mortgage. 

The lower court also held that considerations of equity 

mandated priority of Peterson's award of fees and costs over 

Warners' mortgage. The lower court reasoned that under the 

circumstances of this case, it would be unfair to allow the 

mortgage to defeat the parties' agreement to award fees and 

costs to the winner of a lawsuit arising from the contract. 

Warners contend that. the lower court erred by holding 

that the lien created by the statute includes Peterson's 
costs and fees. To support this argument, Warners cite cases 

holding the lien limited to expenditures made to purchases 

which improve the contract property. See Occidental Realtv 

Co. v. Palmer (N.Y. 1907), 102 N.Y.S. 648, 652 (lien does not 

include fees for examining title of contract property) ; 

Ungrich v. Shaff (N.Y. 1907), 105 N.Y.S. 1013, 1016 (lien 

does not include award of attorney fees). 

Peterson responds that New York authority provides too 

restrictive a reading of the Montana statute. According to 

Peterson, the California Supreme Court, interpreting an 

identical statute, has included expenditures similar to 

litigation costs and attorney fees in the lien. See 

Montgomery v. Meyerstein (Cal. 1921), 199 P. 800, 802 

(expenditures for taxes and insurance included in the lien). 

Peterson characterizes Montgomery as holding that 

expenditures for improvements, taxes, insurance, maintenance, 

"and any other amounts expended in reliance upon the 

contract" must be included in the lien. Peterson also points 

out that the award for litigation costs and attorney fees 

compensates for expenditures as provided by the contract. 

Better stated, the California Supreme Court's decision 

in Montgomery held the purchaser entitled to a lien equaling 

"the amount of purchase money paid by her and the 

expenditures she made upon the property, including the taxes 

and insurance". Montgomery, 199 P. at 802. The decision 

also states that the purchaser's lien may include the return 

of what has been paid in performance of the contract. 

Montgomery, 199 P. at 803. 

Generally, a purchaser's lien attaches to the contract 

property to facilitate recovery of such funds as the 

purchaser may be entitled to recover, including expenditures 

for insurance, taxes, and maintenance. 92 C.J.S. 
Vendor & Purchaser 556 (1955). Section 71-3-1302, MCA, 

conforms to the general rule by directing that the lien equal 

the amount of the purchaser price already paid by the 

purchaser. We agree with the California Supreme Court that 

in the appropriate case, money expended on taxes, insurance, 

and maintenance mav be considered part of the amount OF the 

purchaser price paid under the statute. 

Ilowever, an award of costs and fees is not part of the 

value of partial performance which the statute intends to 

include for recovery through the lien. To stretch the 

language of the statute to include the award at issue here 

would be to insert what has been omitted in violation of 5 

1-2-101, MCA. Thus, we hold that the District Court decision 

may not he affirmed on its interpretation of S 71-3-130?, 

MCA . 

Nevertheless, we agree with the District Court that the 

equities in this case favor payment of Peterson's fees and 

costs over Warners' mortgage. Rescissionary remedies 

properly require such restoration from the losing party to 

the party entitled to rescission "as is reasonably possible 

or as may be demanded by equity." Carey v. WaLlner (Mont. 

1986), 725 P.2d 557, 561, 43 St.Rep. 1706, 1711. 

Furthermore, although no lis pendens was filed here, the 

actual knowledge of Warners and their attorney from the time 

of service of process that litigation involving the contract 

property was pending, and the actual knowledge that one 

possible result of the litigation would be an award of fees 

and costs by virtue of the terms of the contract, "subjects 

them to the results of that litigation in the same way that 

the constructive knowledge imparted by the lis pendens does". 

Tuft v. Federal Leasing (Utah 1982), 657 P.2d 1300, 1303. 

Thus, we affirm because the equities favor Peterson, and 
because the actual knowledge of the pendency of the suit 

prevents Warners and their attorney from circumventing the 

ultimate result of the litigation. 

Affirmed.