Court Opinion

ID: 883818
Source: CourtListenerOpinion
Date Created: 2013-06-05 02:39:05.967422+00
Date Added: 2024-06-11T13:19:47.647631
License: Public Domain

No.        95-152
               IN THE SUPREMECOURT OF THE STATE OF MONTANA
                                                       1996

TRAVELERS INSURANCE COMPANY,
A Connecticut Corporation,
              Plaintiff          and Respondent,

HOLIDAY VILLAGE SHOPPING CENTER LIMITED ,;,  ,,
                                            "~                                      :~    '~                " ' -,.-!'~
PARTNERSHIP, a Montana limited partnership;
SIX   SIXTY   SEVEN,      INC.    ;   HILL    COUNTY,          MONTANA;       ii/    1   ’ !~i   “i’:‘-~i

ROBERT L. BROWN; ROBERT W. RECTOR; RICHARD
F. BOHN; JACK OLIVER; CLARKE STREEPER; and                                      ,;: :j '<, ,_;,
O.B.S. PARTNERSHIP,                                                               ,,,,,,.~,: ;:i ;~,;.~~:it*
                                                                                          ;;       ,;,, ,:,‘;
              Defendants          and Appellants.

APPEAL FROM:           District  Court of the Twelfth Judicial District,
                       In and for the County of Hill,
                       The Honorable Ted 0. Lympus, Judge presiding.
COUNSEL OF RECORD:
              For Appellants:
                       James H. Goetz (argued), Robert K. Baldwin                                                (argued);
                       Goetz, Madden & Dunn, Bozeman, Montana
                       Frank Altman, Daniel                    A. Boucher;               Altman                & Boucher,
                       Havre, Montana
                       David G. Rice,            Hill         County Attorney,                   Havre,              Montana
              For Respondent:
                       William A. Squires                  (argued), Randall                        C. Lester;
                       Matteucci, Falcon,                  Squires & Lester,                        Great Falls,
                       Montana

                                                                             Argued:                April 2, 1996
                                                                          Submitted:                June 27, 1996
                                                                            Decided:                December 16, 1996
Filed:

                                                   I
                                                   Clerk
Justice        W. William         Leaphart             delivered              the Opinion           of the      Court.

      Appellants               (collectively                   HVSC),          appeal         from      the      Amended
Findings        of     Fact,      Conclusions                  of       Law,     Judgment,           and Decree             of
Foreclosure           entered      by the Twelfth                       Judicial         District          Court,        Hill
County,        foreclosing          their             interest           in     the      subject       property           and
ordering        a sheriff's             sale.          We reverse              and remand.
      We restate           the issues                 raised        by HVSC as follows:
       1.         Did the District  Court err in determining     that HVSC's
interest        in the subject property  was subject to Travelers'    liens?
       2.     Did the District       Court err  in determining     that                                                   the
subordination        agreements   executed by HVSC granted     Travelers                                                     a
security    interest     in the fee to the subject property?
     3.      Did the District                     Court err in determining   that the leases
were terminated     and that                    Travelers  would be entitled     to relief
from forfeiture?
       4.  Did the District      Court   err  in not   requiring   the
delinquent  real property   taxes to be paid out of the foreclosure
sale proceeds and in ordering     that the costs and attorneys'  fees
would be assessed at a later    date?
                                                Factual          Summary
       This      case arises             out of a complicated                         dispute       relating        to the
financing        of the Holiday                Village          Shopping Center                 located        in Havre,
Montana.        The following                 facts     are taken              from the parties'               statement
of stipulated           facts.          Beginning              in 1975, Hill              County,       Montana,          and
several        adjoining          landowners,               Brown,             Rector,       Bohn,        Oliver,         and
Streeper,        entered         into     lease         agreements              with     M & M Enterprises                      (M
& M) covering           the land upon which Holiday                                Village       was constructed.
The lease         agreements             had been modified                       several        times       since        they
were executed.
          In    the     spring           of      1978,           Hill         County         and     the       adjoining
                                                               2
landowners        executed             and     delivered             subordination           agreements               to
Travelers.          These agreements                 were executed               on M & M's behalf                    so
that    Travelers        would advance the funds                       necessary          to construct            the
shopping      mall.           In May of            1978,       M & M executed             and delivered                a
promissory      note      to Travelers.               To secure              payment of the promissory
note,      M & M executed               and delivered               a mortgage        to Travelers.                   In
October      of 1980, M & M executed                    an assignment              of lease        in favor           of
Northwestern           Union Trust           Company (NWU); the same day, NWU assigned
the lease      to LIC,          Inc.      (LIC).       At the same time,                  M & M executed               a
special      warranty         deed to NWU conveying                    its     interest      in the subject
property      and NWU subsequently                    conveyed its             interest      to LIC.           M&M
also    executed        an assignment              of ground          lease      giving      NWU all         of its
interest      in the leasehold                 estates.             Again,      the ground         leases       were
subsequently           assigned         to LIC.        In 1986, LIC assigned                      its      interest
in the leasehold              agreements           to LAACO, Ltd.                On May 30 and June 1,
1990,      LAX0         and      Holiday           Village          entered        into      an         assignment
agreement      and conveyance                and Travelers             and Holiday          Village         entered
into    an assumption            agreement           and consent.
        HVSC failed           to make the required                   payments       due under             the lease
agreement         to     Hill          County        and       to     the       adjoining          landowners;
therefore,      HVSC was in default.                       In the spring           of 1993, Hill             County
and the adjoining               landowners          issued       notices        of default          for     failure
to make the         required           payments        due under             the terms       of the leases.
A receiver        was appointed               to manage HVSC in March of 1993 and has
made monthly           reports         to the District              Court      regarding       the financial
condition       of HVSC since                his   appointment.

                                                           3
         In 1992,         Travelers           filed         its         complaint        seeking            a judgment            on
the monetary            obligation           and foreclosure                    of its       security          interest           in
both     the real         and personal                property.                 In April         of 1993,             HVSC and
its     general        partner,         Six Sixty           Seven,           Inc.,      consented            to the entry
of judgment            in favor       of Travelers                    and foreclosure                 of its         interest.
Thus,        HVSC is no longer                 litigating                 the      instant       appeal.              In 1994,
all     of     the      remaining           parties,              Travelers,             Hill         County,          and       the
adjoining            landowners          moved for                 summary judgment.                         The District
Court        ordered      that     Travelers             recover             a judgment           against             HVSC and
Six Sixty         Seven,       Inc.      pursuant           to the stipulation                        that     Hill      County
and Brown did not                 act       as sureties                 and did        not properly                  terminate
the      ground         leases,          and      that             Hill         County          and     the          adjoining
landowners           recover       the monthly              rent          payments due under the terms of
their        leases      to the date            of the judgment.                         Finally,            the District
Court        ordered       that       the     subject              property          be sold           at     a sheriff's
sale.        Subsequently,            Hill      County and the adjoining                              landowners           filed
the instant            appeal.
                                             Standard              of     review

         In reviewing             a district            court's             grant      of summary judgment                        we
use the        same criteria                as that         used by the district                            court;       we are
guided        by Rule 56, M.R.Civ.P.                          Chilberg              v. Rose (1995),                  273 Mont.
414, 416,         903 P.2d 1377,               1378-79             (citing          Minnie       v. City        of Roundup

(1993),        257 Mont. 429, 431, 849 P.2d 212, 214).                                  Thus, we determine
whether        a genuine           issue       of material                   fact      exists         and whether                the
moving party            is entitled            to judgment                 as a matter           of law.             Chilberq,
903 P.2d          at     1379.          Here,         the         parties           submitted          a statement                 of

                                                                  4
stipulated           facts         and    the      court         entered        its      findings              of     fact,
conclusions           of law,         and decree           based on the stipulated                            facts      and
oral     argument.           No genuine           issue         of material            fact        exists.
         In the instant              case,      the District            Court         determined             that     "[t]o
the extent          resolution           of this        matter        turns    on the construction                       and
interpretation               of written          instruments,              such a determination                        is      a
matter       of    law."           In reviewing            a district           court's             conclusions             of
law,     we determine              whether      the court's            interpretation                 of the law is
correct.           Stratemeyer           v. Lincoln         County       (Mont.        1996),         915 P.2d 175,
177,     53 St.Rep.           245,       246     (citing         Carbon County                v.     Union          Reserve
Coal     Co.,       Inc.      (1995),         271 Mont. 453,      469,        898 P.2d 680,     686);
Steer,      Inc.     v. Department              of Revenue (1990),                245 Mont. 470, 474-75,
803 P.2d 601,              603-04.
                                                   Discussion

         Resolution          of the appeal hinges                     upon an interpretation                         of the
subordination              agreements           executed         in    1978 by Hill                 County          and the
adjoining          landowners            in     favor      of     Travelers.              The subordination
agreement          with     Hill     County1 provides                 in relevant             part      that:
                                         SUBORDINATION            AGREEMENT
                      . .     .

                 WHEREAS, the undersigned,   Hill    County, Montana, a
         political   subdivision  of the State of Montana, having an
         address of Havre, Montana, is the owner in fee simple
         absolute   of the real property    situated    in Hill County,
         Montana,    more particularly     described      on Exhibit    A
         attached hereto and by this reference made a part hereof,
         and
                   WHEREAS,the undersigned                       by a lease dated August                        29,

      ' The subordination                     agreement with the adjoining                           landowners               is
substantially   identical                     to the agreement with Hill                            County.
                                                            5
1975, as supplemented    by Supplemental   Agreement dated
November 1, 1976, and executed by the parties    August 29,
1975 has leased the hereinbefore  described real property
to M & M Enterprises,  a Montana Partnership;    and
       WHEREAS, M & M Enterprises             has applied      to the
Travelers   Insurance Company, a Connecticut            corporation,
hereinafter    referred     to as Travelers      for a loan in the
amount of FIVE MILLION EIGHT HUNDREDFIFTY THOUSANDand
No/100 DOLLARS ($5,850,000.00)           with interest,     evidenced
by a note dated          Februarv 8. 1978          and secured by a
mortgage on the Lessee's          interest    in the hereinbefore
described   real property      of even date with said note and
recorded on the         14th dav of June, 1978, in Book 140 of
Mortqaqes on Paae 348,            Document Records of the Clerk
and Recorder of Hill        County, Montana, and
       WHEREAS,Travelers   is unwilling   to make said loan or
advance funds thereon unless it is assured that the above
described mortgage shall be a lien upon the undersigned's
fee simple    title   in the hereinbefore      described  real
property   and unless the undersigned     gives Travelers   the
assurances hereinafter    set forth,    and
       WHEREAS, the undersigned   is willing     to subordinate
its   fee simple   title  to said real       property   to said
mortgage and is willing    to give such assurance,
      NOW, THEREFORE, in consideration               of the making of
said loan to M & M ENTERPRISES, and to induce Travelers
 to  advance       funds     thereon,       the   undersigned     hereby
subordinates      all of its right,         title and interest    in and
 to said real     property      to the lien of said mortgage          and
agrees that said mortgage             shall continue      to be a first
lien upon said property           prior     and superior    in right    to
any right,    title      and interest      of the undersigned     in and
 to said real property.           The undersigned,       however, shall
not be liable      for the payment of any indebtedness           secured
by said mortgage           or the performance          of any of the
covenants or obligations           of the mortgagor thereunder.
        The undersigned     further    assures Travelers      that the
undersigned      will not terminate      the above described       lease
without    the prior written       consent of Travelers      except in
the case of a default        thereunder     by M & M ENTERPRISES in
which case the undersigned              agrees to give Travelers
written      notice   thereof,      specifying      the default       and
Travelers     shall have ninety        (90) days after     receipt     of
said notice within which to cure said default,              and if the
default    is cured within said period,          or if the default     is
one which cannot be cured within             said period,    but steps
are taken in good faith during said period and diligently
                                    6
       pursued,            the lease             shall      not be terminated[.l                             [Emphasis
       added. 1
       Hill       County and the adjoining                              landowners             assert           that     they      are
sureties      for     M & M and that                  the subordination                    agreements                  which      they
executed      are not mortgages.                          Further,            Hill     County and the adjoining
landowners         assert           that        they were exonerated                     when Travelers                  released
M & M from           all      liability              without            consent          of Hill             County        and the
adjoining          landowners.                     Travelers             argues         that         the        subordination
agreements          subjected               Hill      County's            and the adjoining                       landowners'
fee    interests              to      Travelers'              lien            and      that         the         subordination
agreements          are,       in fact,              mortgages.                 Further,         Travelers               contends
that   the        subordination                    agreements             waive        any      statutory                right      of
exoneration.
       In     resolving               the        parties'           contentions,                the        District              Court
concluded          that     the above-quoted                        subordination               agreement               creates          a
contractual           right          of     foreclosure                 as well        as a statutory                    mortgage
and    an     equitable               mortgage              under             Montana         law       because            it      was
"executed          with       all         the      formalities                required         for      a grant            of     real
property           and      the           execution           of         a      mortgage."                      However,           the
subordination              agreements               contain         no words purporting                       to mortgage           an
interest          in property.                   Section       71-l-204,               MCA.
       This Court             has stated              that       "[aIs         a general             rule,       construction
and interpretation                    of written              agreements,                including              contracts,           is
a question          of law for              the court            to decide."                  Klawitter            v. Dettmann

(1994),       268 Mont. 275,          281,     886 P.2d 416,                420 (citing                   First      Sec.
Bank of Anaconda v. Vander Pas (1991),                                               250 Mont. 148,       152-53,         818
P.2d 384,     387).              Similarly,              it        is     a question                 of     law      whether
                                                                    7
ambiguity            exists         in a written                instrument.              Klawitter,              886     P.2d at
420 (citing            Audit         Sews.             Inc.     v. Systad             (1992),     252 Mont. 62, 65,
826 P.2d 549,                551);        Johnson v. Nyhart                     (1995),         269 Mont. 379,           387,
889 P.2d 1170,                1174.
            Hill     County         and the             adjoining          landowners             argue          that      l'[t]he
subordination                 agreements                do not,          on their             face,     purport               to     be
mortgages             [and      that1           Lilt      was error             for      the     district               court        to
conclude            that       they        are         mortgages          without             resort        to      extrinsic
evidence."                 We agree.                   The District                Court        concluded              that         the
"Subordination                Agreements               are unambiguous,                 and therefore                  the Court
need not             look      to     extrinsic                evidence         for      interpretation                   of        the
same."             We hold      that        the District                Court         erred      in concluding                  that
the subordination                   agreements                were not ambiguous.                     The documents                 are
titled         "Subordination                   Agreement"             rather         than     mortgages.                Section
71-l-204,            MCA, sets            forth         the form          of a mortgage.                  The operative
verb        in the §204 mortgage                       form is to "mortgage."                     Although              the text
of the documents                states           that         the fee     interest           is "subordinated,"                      it
does not            contain         language            purporting            to      "mortgage"         property               to a
mortgagee            as security.
            A subordination               agreement             only dictates             the priorities                 between
existing           interests,             for     example lien             holders--it            does not mortgage
an interest             in     the property.                     A mortgage            "is     a contract               by which
specific            property         is     hypothecated                for     the performance                   of an act,
without            the necessity                of a change of possession."                                 Section            71-l-
101, MCA. The agreement                            at issue            here has characteristics                          of both
a subordination                 agreement               and a mortgage.                    The confusion                 lies        in

                                                                   8
the      fact       that              the        agreement              mixes            the        concepts                    of      "subordinate"                   and

"mortgage"                      by          providing                   that         Hill               County                    and          the         adjoining

landowners                     subordinate                      their          fee        simple                      interests                to     Travelers'

mortgage.                  Subordinate                     means           "Ipllaced                    in            a lower              order,          class,           or

rank                             and         having             a lower              position                         in        a recognized                      scale;

secondary,                 minor."                  BLACK's LAW DICTIONARY 1426                                            (6th       ed.      1990).             Since,

by       definition,                        a      fee      simple               interest                        is        absolute                  and      without

condition                 or         limitation,                  an agreement                         purporting                        to      "subordinate"

a      fee         simple                  interest              presents                   a       paradox;                         can       a      fee         simple

interest,                which              is     absolute              and without                        limitation,                        be placed               in     a
lower         or secondary                         position              by a "subordination                                         agreement?"                    Thus,

the          language                  of         the       agreements                      is          inherently                            and      internally

inconsistent.
             The         District                       Court           was          incorrect                          in           holding               that         the

agreements                     are         unambiguous                   and      that              resort                 to        extrinsic              evidence

was       unnecessary.                             The      language                 of          the             agreements                    is     ambiguous.

Further,                Hill          County             and the           adjoining                        landowners                       assert         that        had

the      extrinsic                    evidence             been considered                             it        would            show that             Travelers

itself             did               not         consider                the         subordination                                   agreements                   to        be

mortgages.                      To resolve                 this          ambiguity,                     the            court            must        consider            the

intent             of           the         parties               at       the           time               of          the           execution               of        the

instrument.                           As         this      Court           has            recognized,                             "to         establish                this

intention                      [to         create          a      mortgage]                      the             courts               will           examine            the

surrounding                     circumstances."                           Boysun               v.      Boysun                   (1962),            140 Mont. 85,

538,     368 P.2d 439,         440.

             The         dissenters                      correctly                point                out             that             § 28-3-206,                    MCA,

                                                                                     9
provides       that           in cases of uncertainty,                      the language                  of the contract
should      be interpreted                 most strongly                   against       the party                who caused
the uncertainty                  to exist.            It      should       be noted,            however,             that     this
is    not     a peremptory                 rule.             It     does     not       require             that       the     non-
drafting           party        prevail          in    all        cases.          Rather,            it     is       a rule       of
interpretation                 that     requires           that     the court          interpret              the contract
"most strongly"                 against          the drafting            party.         For example,                  in Landon
v.    Labor        Standards            Division           (1982),         200 Mont. 153,         158,       649 P.2d
1341,       1343-44,            even after            the court            applied       § 28-3-206,                   MCA, and
interpreted              the contract             most strongly                against         the employer                 as the
party       who caused                the uncertainty                  to exist,         it     still            reached       the
conclusion              that      the     employer           was correct.                In the             present          case,
although            §      28-3-206,             MCA, mandates                  that          the         District           Court
interpret          the agreement                most strongly              against       Travelers                in deciding
whether       the        agreement          constitutes                a subordination                     agreement          or a
mortgage,           that       statute      does not necessarily                       dictate             the outcome of
the      court's           deliberation               after         consideration                   of      the       extrinsic
evidence.
                        Were the ground               leases           properly        terminated?
         Travelers              filed     its      complaint            in this        matter             on November 13,
1992,       months            before      Hill        County        and Brown,            et        al.       issued         their
February           and March,            1993 notices               of default           on the ground                   leases.
On June 18, 1993, Travelers                            sought          the District             Court's              permission
to deposit              the lease payments                   into      court      pending           resolution              of the
effect        of        the     subordination                 agreements.                The court                denied          the
request.

                                                                  10
         The subordination               agreements            provide:
         If the default     is one which cannot be cured within    said
         period,   but steps are taken in good faith     during    said
         period   and diligently    pursued, the lease shall    not be
         terminatedL.1
         The District            Court       concluded           that,          in     light          of    Travelers'
timely      pursuit      of the litigation                  and request               to deposit             funds      with
the District           Court:
         Travelers   so acted in good faith,                                  and was not grossly
         negligent  or willful   in its refusal                               to cure the defaults
         alleged by the Lessors.      Therefore,                               the leases were not
         properly  terminatedL.1       . .
         The District            Court's        conclusion             that      the         ground        leases       were
not properly           terminated          is     correct        and it          is         therefore            affirmed.
Accordingly,          we also affirm             the holding             that        Hill      County and Brown,
et   al.     are      entitled        to     receive           the      monthly              lease         payments          as
specified         in the judgment.
                                                      Summary
         We affirm       the judgment            against       Holiday          Village          Shopping Center
Limited       Partnership           and         Six    Sixty         Seven,           Inc.       in        the     amounts
specified         in paragraph        l(a)       through        l(h)      of the Judgment and Decree
of   Foreclosure           with      interest          at      the       rate         of      12% per            annum as
provided       in the Promissory                 Note.
         In its       Conclusion         of Law #16,            the District                  Court        stated:
         16. Hill       County and Brown, et al.             did not act as
         sureties    as definedby    Section 28-11-401, Mont. Code Ann.
          (1993).       The subject      Subordination       Agreements    were
         executed for the benefit        of Hill County and Brown, et al.
         as part      of their     contractual      obligations    under      the
         subject ground leases to induce the execution of the same
         by the Mitchells      [co-partners     of M & Ml, thus securing a
         benefit    unto Hill County and Brown, et al.           Accordingly,
         the      subject     Subordination        Agreements      were      not
         extinguished     or exonerated by the release from liability
                                                         11
         of M & M Enterprises      and                      the      Mitchells             from       the
         Promissory Note and Mortgage.
         The District          Court's      conclusion       that     Hill    County and Brown, et
al.    were not,       under the specific             terms of the ground                  leases      and the
subordination              agreements,       acting        as sureties              is    correct       and is
therefore          affirmed.        Accordingly,           Hill      County         and Brown,          et     al.
were not          exonerated      by the       release       of M & M Enterprises                      and the
Mitchells          from the Promissory           Note and Mortgage.
         We reverse          the judgment       of the District               Court         insofar         as it
holds     that     the subordination           agreements           create      a contractual               right
of foreclosure,             a statutory       mortgage       or an equitable                mortgage         with
regard      to appellants'             fee interest         in the real             property.          In that
the     court's      award of       costs     and attorneys'             fees        is   dependent          upon
its    holding      that     the agreements        constitute          mortgages,           that      award is
also     reversed.
         Accordingly,          we reverse       and remand to the District                          Court      for
consideration           of the extrinsic          evidence          which,      although          presented,
was not          considered       in     determining         whether         Hill         County      and the
adjoining         landowners'          fee interests         are subject             to foreclosure.
         Reversed       and remanded.

                                                      12
we concur:

         Chief   Justice

Judge of the Dlstrlct        Court,   sitting
for Justice William        E. Hunt,   Sr.

                                          13
Chief         Justice            J.      A.     Turnage         specially              concurring:

          I     concur            with         the     result         reached           by the        majority,              remanding

this          case         to         allow          the     District             Court         to     consider              extrinsic

evidence                  concerning                   the       parties'              intent           in         entering              the

"Subordination                        Agreement."               I am confident,                      from      the     evidence           in

the      record                 thus          far     concerning                 the     circumstances                 surrounding

execution                 of      the          "Subordination                    Agreement,"                that      the       parties

intended             to        create          a lien         under        the     terms        of    the      mortgage          on the
fee     title         to        the     property             on which        the       shopping         center         is     located.

                                                                                                     Chief         Justice

                                                                      14
Justice                  Terry           N.       Trieweiler                   dissenting.

           I             dissent                   from              the          majority's                         conclusion                       that               the
subordination                             agreement                 is     ambiguous                    and      that           its       interpretation

requires                  extrinsic                    evidence.                  I conclude                    that            the      plain             terms           of

the      agreement                       did       nothing               more         than        subordinate                    Hill           County's                 fee

interest                 to Travelers'                        right            to foreclose                    on the           lessee's               leasehold
interest.

           Furthermore,                           in    the         event         of an ambiguity                          in     the         subordination
agreement,                           Montana's                     statutory                  and          case               law             require               that
uncertainties                             be      resolved                 against                the      drafter                of          the     document,

which          in             this         case         was         Travelers                 Insurance                  Company.                     For          these
reasons,                  I         would         reverse                the     judgment                 of     the          District                Court              and

enter          summary                   judgment              for        Hill         County.

           The subordination                                  agreement                 which            was executed                     by Hill                 County

in      favor                 of      Travelers                    Insurance                Company              acknowledged                         that          Hill

County          owned                 the        subject             property                in     fee        simple            absolute,                  but          had

leased              it         on        August              29,         1975,         to         M & M Enterprises,                                  a Montana

partnership.                                The        agreement                  then            acknowledged                         that          M & M had
mortgaged                     its        lessee's             interest                in     that         property                as security                      for      a

loan        given                   by      Travelers.                         Therefore,                  in        the         event              that           M & M
defaulted                     from         its      obligation                   to        repay         that         loan,            Travelers                   had a

right          to         foreclose                 on M & M's                   leasehold                 interest.

          M & M's                     leasehold                interest                gave         it         the      right            to         occupy          land

owned by Hill                            County         in     fee         simple           for         a period            of        fifty          years          from

October              1, 1975,                    and build               a shopping                center            on that              land.              It     also

obligated                     M & M to pay rent                            to Hill            County            in      the       amount             of     $20,360
annually               after                  completion                    of     the        shopping               center.                 There         were
various             other           terms              and conditions                         set      forth         in      the     written              lease

agreement.                        However,                   the         leasehold              interest               was         limited           to      the

rights             provided                   for      in         that           agreement             and      did       not        include          a fee

simple             interest                   in     the        property              owned           by Hill          County.

              As      the         lessor               and             owner        of        the      real          estate          on       which          the

shopping               center                  was         to          be    built,            Hill       County              also        had        rights

pursuant              to      the         lease            agreement.                    It    had the          right          to receive                 rent,

and      it        had the               right             to      retake           possession                 of      the      property             in      the

event          that         the         rent          was not               paid.

              By the        written                  subordination                       agreement,             Hill         County          agreed,              in

consideration                       of         Travelers'                   loan         to    M & M, tc

               [subordinate]          all of its right,       title     and interest      in and
              to said      real      property   to the lien          of said mortgage        and
              agrees     that      said mortgage       shall      continue    to be a first
              lien    upon said property            prior     and superior        in right    to
              any right,        title     and interest       of the undersigned          in and
              to said real          property.

              In      other              words,                 Hill         County            simply               agreed          to       defer           the

enforcement                 of          its         rights             in the       property             to Travelers'                    enforcement

of       its          right               to          foreclose                    on         the       leasehold                  interest.                       A

subordination                       agreement                     is

              "an agreement    by which a party  having a superior                                                                   right      of
              some sort   agrees   with  someone having     an inferior                                                                   right
              that,   as between    the two of them,     the inferior                                                                     right
              shall  be treated    as if it were superior."
                              .     .

                          .     By executing     a lien    subordination          agreement,
              the subordinating         party   agrees to demote the priority                  of
              its    lien     to that   of another       secured    creditor,         thereby
              delaying      its recourse      to the identified        collateral        until
              the other        party's  secured    claim    has been satisfied.

                                                                                    16
In re LantanaMotel                       (Bankr.             S.D.             Ohio         1990),                 124 B.R. 252,          255,        256

 (citation               omitted).

           However,                while           the       subordination                           agreement                  required              that          Hill

County           defer            its       interest                in        the     property                     during             the          term        of     the

leasehold,                  it     could           not       have,             by its                plain         terms,              given          Travelers

any      greater                 interest              in     the         property                   than          it      had pursuant                        to     its

mortgage              agreement                 with         M & M.             That            conclusion                     is     compelled                by the

fact       that        Travelers                   only       had an interest                                in     the         leasehold                 and Hill

County            only            agreed             to      defer             to         Travelers'                       leasehold                  interest.
Travelers               had         no interest                    in         the     fee             simple             estate,               and        none       was

created           by the                subordination                     agreement.

           A similar                    issue          was presented                            to     the         United             States              District

Court           for         the         District              of         Idaho             in         Old Stone Capital                    Corp.    v. John Home

ImplementCorp.                   (D.     Idaho            1986),          647 F.                Supp.             916.

           In        that         case,          John         Hoene             Implement                    Corporation                       (JHI)           leased

property              from         Davis.              JHI    then             gave        a lending                     institution                  a deed of
trust           on       its           leasehold               interest                    to          secure              an         operating                  loan.

Davis,           as        an inducement                      for         the         loan,             agreed                 to     subordinate                    her

interest               in        the       property                to         the         lending                  institution's                          security

interest               in          the          leasehold.                           JHI             defaulted                      and        the         lending

institution                      sought         to        foreclose                 on Davis's                     fee         simple              interest            in

the     property.                      The Federal                 District                Court             for         the        District              of     Idaho

first        concluded                   that        the      subordination                            agreement                     could          not        create

a mortgage                  interest                 in      Davis's                 fee         simple                 estate.                Old Stone,            64 7

F.      Supp.         at         919.           However,                 in     language                     relevant                 to      the      issue           in

                                                                                     17
this          case,             it     also          concluded                that          since        the         lender          never          had         an
interest                  in    the         fee     title         to Davis's                property,                it     could       not        acquire

that          kind             of     interest                 simply          by       virtue            of        the       fact      that            Davis
subordinated                         her      fee         interest,            and whatever                        rights       were         attendant
to      it,          to        the     lender's                 mortgage              interest                in     the      leasehold.                   The

court           held           as follows:

                       In summary,           the nature        of a subordination                  is such
              that     the beneficiary              of the subordination                   must have a
              competing           interest         which,        after       the       subordination,
              becomes senior            to that which,            before       the subordination,
              was the senior             interest.          In this       case,        Old Stone          [the
              lending      institution]            never had an interest                 in the fee of
              Davis's       property,           but only       pursuant          to the leasehold
              mortgage        a junior        interest       in the leasehold.                  After      the
              subordination,             Old Stone's           interest          in the         leasehold
              became superior            to Davis's        interest        in the leasehold.                 By
              its   very nature,            the vehicle          of subordination               could      not
              be used to grant               Old Stone an interest                  in the fee.              In
              order      to have an interest                    in Davis's             fee     estate,         a
              mortgage        or deed of trust              must have been executed.                         No
              such instrument            was executed.            Further,        the subordination
              agreement          cannot        be elevated             to    the      position         of      a
              mortgage       or deed of trust             since      it lacks        the formalities
              of such required                under     Idaho       law.        The subordination
              agreement          could      not,     as a matter              of law,          grant       any
              interest       in the fee, upon which foreclosure                          could be had,
              to Old Stone.             Foreclosure          is only possible               on the deed
              of trust        affecting         the leasehold.

Old smne , 647 F.                          Supp.          at     919.

              Likewise                 in         this         case,         Travelers                  had         no      interest           in        Hill

County's                  fee         title              based          on     its          mortgage                agreement               with         Hill

County's                  lessee.                 Therefore,                 when Hill                 County             agreed       to     defer             to

Travelers'                     mortgage                  interest,            it        agreed           to         do nothing              more         than

waive          its         rights             as lessor              during           the period                   of the      lease        agreement

so that              Travelers                 could           freely        enforce             its     security              interest             in the

leasehold                      without              competition                      from        Hill              County          based           on      its

                                                                                   18
superior            interest.                  These            facts          are         clear              from          the      plain            terms          of
the       subordination                  agreement                     and      require                  reversal                  of      the        District

Court         and entry             of    summary                 judgment                 for         Hill           County.

           However,           even        if,           as the           majority                  concludes,                       "[tlhe            language
of      the       agreements               is          ambiguous,"                    the              result               must          be        the         same.

Travelers             prepared            the           documents,                   and          if      it          intended                 to     create             a

mortgage             interest             in          Hill         County's                 property,                       it      was         capable              of

doing           so by clear              language.                      The fact                 that           it         was aware                 of        how to

create           a mortgage              interest                  is     evident                 from               the         mortgage             document

that       it      drafted           and         had           executed               by     M & M to                        create             a mortgage

interest            in     M & M's             leasehold                 estate.

           Section           28-3-206,                 MCA, provides:

           In cases of uncertainty               not removed by parts     1 through     5
           of this      chapter,       the language         of a contract   should     be
           interpreted         most strongly         against   the party   who caused
           the uncertainty          to exist.       The promiser   is presumed     to be
           such party,        except     that in the case of a contract        between
           a public      officer      or body, as such, and a private           party,
           it   is presumed         that     all   uncertainty    was caused    by the
           private     party.

           We have           also        repeatedly                     held         that         ambiguous                       contracts                    should

be resolved                against             that           party          that        drafted                     the         contract.                     See, e.g.,

Topco,Inc.        v. State    (1996),             275 Mont. 352,         360,           912 P.2d 805,            810;        Mueske

v. Piper, JasJiayBr          Hopwood,          Inc.          (1993),           260 Mont. 207,              216,          859 P.2d 444,

449-50;           St. PaulFire&MarineIns.                        Co. v. Cumiskey                 (1983),                   204 Mont. 350,         363,

665 P.2d 223,      229.

           The       majority             opinion                      does        not           address                    the         standard                  rule

regarding            ambiguous             contracts.                        However,                  when that                   rule        is     applied,

it     clearly           requires          construing                    the         subordination                           agreement                    in    favor

                                                                              19
of    Hill         County        and against                 Travelers'               implausible           suggestion         that

the          subordination                    agreement              was        not       merely        a     subordination

agreement,                but      was     in        fact         a mortgage            agreement,          even      though      it

makes          no        mention         of      a      mortgage               nor     includes         any     language          of

conveyance.
             For    these          reasons,             I    dissent           from      the     majority        opinion.              I

would         reverse           the   judgment               of     the    District            Court   and enter         summary

judgment            in     favor      of      Hill          County        on the        issue      of whether         Travelers

has     a mortgage               interest              in    Hill         County's        property.

                                                                          /             Jus      ide

Justice            James        C. Nelson             joi                                                       ing    opinion.

                                                                          20
                     IN THE SUPREMECOURT OF THE STATE OF MONTANA
                                                        No. 95-152

TRAVELERS INSURANCE COMPANY, a
Connecticut corporation,

                    Plaintiff            and Respondent,                         ;
          v.                                                                     )                    ORDER
HOLIDAY VILLAGE SHOPPING CENTER                                                  i
LIMITED PARTNERSHIP, a Montana                                                   )
limited  partnership; SIX SIXTY
SEVEN, ZINC.; HILL COUNTY, MONTANA;                                              ;
ROBERT L. BROWN; ROBERT W. RECTOR;                                               1                        JAWS 0 1997
RICHARD F. BOHN; JACK OLIVER; CLARKE
STREEPER and OBS PARTNERSHIP,                                                    ;                        tc!     ZLzifL
                                                                                                  CLERKO~--‘SWREMECOWK
                                                                                 )                     STATE     OF MONTANA
                    Defendants            and Appellants.

          On January             3,      1997,         appellants        Hill           County,         Brown,      Rector,
Oliver,         Bohn, Streeper                 and OBS filed            with         this     Court     a petition            for
rehearing              in     the     above-entitled                matter;                 respondent,           Travelers
Insurance           Company filed                its     objections            on January             13, 1997.
          Having            considered         the petition             and objections,
          IT IS ORDERED:
          1.        The following                stricken         language              is     hereby      deleted         from
this      Court's           December 16, 1996, Opinion                          (slip        op. at page 3, second
line      from      the top):
          Travelers.      These agreements were executed e
          b&&f     so that Travelers  would advance the funds                                               . .        .
In all         other         respects,         the Opinion             shall         remain       the     same

          2.        The petition               for      rehearing        is DENIED.
          3.        The Clerk             is     directed         to     mail           a true        copy       hereof        to

                                                              1
counsel      of   record   for    the   respective    parties,     to    State   Reporter

Publishing                               Publishing    Company.
      DATED this           b     ‘&ay of January,     1997.

                                                              Justices

The Honorable Douglas G. Harkin,  District Court Judge, sitting                        for
Justice    William E. Hunt, Sr:, would also deny the Petition                          for
Rehearing.

                                               2