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    LEE WAREING AND DONNA WAREING, Plaintiffs, Counter-Defendants and Respondents, v. CLYDE SCHRECKENDGUST, Defendant, Counterclaimant and Appellant.
    No. 95-553.
    Submitted on Briefs August 1, 1996.
    Decided December 13, 1996.
    53 St.Rep. 1362.
    280 Mont. 196.
    930 P.2d 37.

      See C.J.S. Waters § 351.

      For Appellant: Dirk A. Williams, Church, Harris, Johnson & Williams, Missoula.
    For Respondent: Walter E. Congdon, Congdon Law Office, Missoula.
   JUSTICE NELSON

delivered the Opinion of the Court.

This is an appeal from the Twenty-First Judicial District Court, Ravalli County. Following a bench trial, the District Court awarded Plaintiffs, Lee and Donna Wareing, a prescriptive ditch easement across Schreckendgust’s property, costs and attorney fees. Additionally, the District Court ordered the parties to equally share the costs of replacing the ditch culvert crossing Defendant Schreckendgust’s property. Defendant Schreckendgust appeals. We affirm.

We restate the issues on appeal as follows:

1. Must the elements of a prescriptive easement be proved by a preponderance of evidence or by clear and convincing evidence?
2. Did the District Court err in concluding that Wareings established all elements of their prescriptive ditch easement claim?
3. Under the doctrine of estoppel, are Wareings precluded from asserting a prescriptive easement right against Schreckendgust after they acquired an express ditch easement from a neighboring landowner over property previously owned by Schreckendgust?
4. Did the District Court err when it failed to expressly limit the scope of Wareings’ prescriptive ditch easement both as to location and method of maintenance?
5. Is Schreckendgust entitled to attorney fees under § 70-17-112, MCA?
6. Should this case have been remanded for a new trial?

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs, Lee and Donna Wareing, (Wareings) own real property situated in a portion of the SE1/4 of Section 11, Township 10 North, Range 20 West, P.M.M., Ravalli County, Montana, lying east of the right of way of Montana Rail Link. They acquired their property in 1960. Defendant Clyde Schreckendgust (Schreckendgust) owns real property situated in the Wl/2 of Section 11, Township 10 North, Range 20 West, P.M.M., Ravalli County, Montana. Schreckendgust acquired his property from his father in 1962. Wareings’ property lies east of Schreckendgust’s property. See Appendix A for a map of the relevant portions of the parties’ properties. This map is an overlay on the relevant township map derived from the Water Resources Survey, Ravalli County, Montana, State Engineer’s Office (Helena, Montana, June 1958) (Map 31).

Wareings’ property is irrigated by water flowing from One Horse Creek through the “Samuel Miller Ditch” (ditch) that crosses various properties, including property owned by Schreckendgust. Specifically, the ditch crosses two lots owned by Schreckendgust, described as Florence Orchard Homes Lots 19 and 20. Between these lots and Wareings’ property is Florence Orchard Homes Lot 38, previously owned by Schreckendgust, but acquired by Steve Schertenleib in 1988. Also between the parties’properties lies a Ravalli County road, U.S. Highway 93 and the Montana Rail Link railroad right-of-way.

As it crosses Schreckendgust’s Lots 19 and 20, the irrigation ditch flows through a concrete culvert under an old airstrip. As the ditch crosses Florence Orchard Homes Lot 38, it enters an underground pipeline installed by Schertenleib. After exiting Lot 38, the irrigation ditch, through a series of culverts, crosses under a Ravalli County road, U.S. Highway 93 and the Montana Rail Link railroad right-of-way to reach Wareings’ property.

Samuel Miller is Wareings’ original predecessor in interest for most of their affected property. Samuel Miller conveyed his property to Ambrose Miller in 1897, and Ambrose Miller in turn conveyed the property to William E. Gleason and Lorenzo A. Gillett in 1898. After Gillett conveyed his interest in the property to Gleason in 1913, Gleason sold various parcels of the property to others. In the 1940s and 1950s, Ed Martin owned the bulk of the property. In 1960, Wareings acquired their property from Ed Martin.

After 1904, but long prior to 1957, the present “Samuel Miller Ditch” was installed and/or extended to what is now Wareings’ property. Gleason used the ditch to convey irrigation water from the 1930s on, and, subsequently, Ed Martin used the ditch continuously to irrigate his property during the 1940s and 1950s. Finally, Wareings have used the ditch for irrigation purposes since 1960. During this period of use, Wareings maintained the ditch by shovel and hand cleaning. Neither Wareings, nor their predecessors-in-interest, expressly sought Schreckendgust’s permission to use the ditch. Instead, they notified Schreckendgust when they intended to run water through the ditch. Such notification was a neighborly custom in the area.

In 1947, Schreckendgust built an airstrip on his property. Where the airstrip crossed the ditch, Schreckendgust installed, at his own expense, a reinforced concrete culvert in the ditch. Lee Wareing testified that in April 1990 he called Schreckendgust in Florida to complain that the 80-foot long culvert, located below Schreckendgust’s airstrip, was obstructed by boulders and other debris. Schreckendgust declined to personally have the culvert cleaned and told Waremg to do whatever he needed and so Wareing had his ranch foreman do the work. To clean the culvert, Wareings’ worker found it necessary to knock holes in the top of the culvert to clear the obstructions. After this initial cleaning, vandals broke out more sections, thereby obstructing the culvert again, which led Wareings’ worker to break out more top pieces to successfully clear the culvert. After returning to his property, Schreckendgust found it necessary to replace the broken culvert.

Wareings initiated this law suit against Schreckendgust through an application for temporary restraining order and preliminary injunction dated August 13, 1991. Wareings alleged that Schreekendgust’s replacement of the airstrip culvert would take some days to complete and would interrupt water flow through the ditch and Wareings would be without water for irrigation and livestock. Schreckendgust prevailed on his motion to quash the temporary restraining order and successfully defended against Wareings’ application for a preliminary injunction on October 18, 1991. Schreckendgust then filed an answer and counter-claim on July 17, 1992. In his answer, Schreckendgust raised several affirmative defenses and denied all allegations set out in Wareings’ application for temporary restraining order and preliminary injunction. In his counter-claim, Schreckendgust sought damages for destruction of the concrete culvert on his property, damages for trespass, a decree quieting title to Lots 18-24, 33-36, 39 and 40, Florence Orchard Homes, Ravalli County, and an order enjoining Wareings from entering Schreckendgust’s real property.

On December 19, 1994, this case was heard by bench trial in the Twenty-First Judicial District Court, Ravalli County, Montana. Immediately prior to testimony being given during trial, the parties stipulated that Wareings could file their complaint wherein Wareings alleged that they, either by prescription, specific grant or reservation, held an easement for the ditch crossing Schreckendgust’s property. Furthermore, the District Court considered Schreckendgust as having denied all allegations in the complaint. On May 15, 1995, the District Court entered its Findings of Fact, Conclusions of Law and Order. The District Court concluded that Wareings had established a prescriptive easement for an irrigation ditch across Schreckendgust’s property and awarded them costs and attorney fees. Additionally, the District Court held that each party was responsible for fifty percent of the cost of replacing the culvert located on Schreckendgust’s property. Finally, after considering Schreckendgust’s objection to certain costs and attorney fees, the District Court entered its final Opinion, Order and Judgment on October 30,1995. Therein, the District Court offset certain costs and attorney fees and directed Schreckendgust to pay Wareings a reduced net amount of costs and attorney fees. From these judgments, Schreckendgust appealed.

For reasons set forth in our discussion of Issue 1, on May 14,1996, we remanded this case to the District Court with instructions to reconsider its decision applying the clear and convincing burden of proof. On June 10,1996, the District Court filed its Amended Findings of Fact and Conclusions of Law. On June 18,1996, we granted counsel for the respective parties the opportunity to file supplemental briefs with regard to the District Court’s Amended Findings of Fact and Conclusions of Law. Counsel for the parties did so. We now consider both the initial issues on appeal as well as the issues raised in the supplemental briefs.

STANDARD OF REVIEW

Our standard of review for a district court’s findings of fact is provided by Rule 52(a), M.R.Civ.P., which in part provides:

Findings of fact... shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses.
We have adopted the following three-part test to interpret this rule: First, the Court will review the record to see if the findings are supported by substantial evidence. Second, if the findings are supported by substantial evidence we will determine if the trial court has misapprehended the effect of evidence. Third, if substantial evidence exists and the effect of the evidence has not been misapprehended, the Court may still find that “[A] finding is ‘clearly erroneous’ when, although there is evidence to support it, a review of the record leaves the court with the definite and firm conviction that a mistake has been committed.”

Public Lands Access Ass’n, Inc. v. Boone and Crockett Club Found. (1993), 259 Mont. 279, 283, 856 P.2d 525, 527 (quoting Interstate Production Credit v. DeSaye (1991), 250 Mont. 320, 323, 820 P.2d 1285, 1287).

Our standard of review for a district court’s conclusions of law is whether the tribunal's interpretation of the law is correct. Public Lands, 856 P.2d at 527.

DISCUSSION

1. Must the elements of a prescriptive easement be proved by a preponderance of evidence or by clear and convincing evidence?

Our standard of review for a district court’s conclusions of law is whether the tribunal’s interpretation of the law is correct. Public Lands, 856 P.2d at 527. On appeal, Schreckendgust originally contended that the District Court erred by basing its opinion on a preponderance of the evidence rather than on clear and convincing evidence to award Wareings a prescriptive easement over Schreckendgust’s property. After researching the issue, we agreed. Consequently, in our May 14, 1996 Order, we remanded the case to the District Court with instructions to reconsider its findings of fact and conclusions of law based on the existing record and applying the clear and convincing burden of proof.

Our research revealed two differing lines of authority as regards the burden of proof in prescriptive easement cases. This is the first case, however, that has raised this anomaly directly. In fact, in most of the prescriptive easement cases that have previously come before this Court on appeal, burden of proof is not even mentioned parenthetically, and it is impossible to tell what burden was utilized by the trial court and litigants. Accordingly, it is necessary that we clarify the law regarding the proper burden of proof in prescriptive easement cases.

In Kostbade v. Metier (1967), 150 Mont. 139,143,432 P.2d 382,385, following a long line of Montana cases, we stated that a party asserting a prescriptive easement must prove his claim by clear and convincing evidence. Moreover, in Warnack v. Coneen Family Trust (1994), 266 Mont. 203,216,879 P.2d 715,723, we stated that the party asserting a prescriptive easement must prove each element of the claim.

In Downing v. Grover, however, without any analysis or reference to Kostbade, we stated that “[a]ll elements of prescriptive easement must be proved by a preponderance of the evidence or the claim will fail.” Downing v. Grover (1989), 237 Mont. 172,175,772 P.2d 850,852 (citing Grimsley v. Estate of Spencer (1983), 206 Mont. 184, 670 P.2d 85). We again adopted this lower burden of proof in Brown v. Tintinger (1990), 245 Mont. 373, 377, 801 P.2d 607, 609 (citing Downing, 772 P.2d at 852), without any apparent recognition of the existence of a contrary line of authority.

In Downing, a landowner sued an adjoining landowner seeking to establish a public road across the adjoining landowner’s property or alternatively a public or private prescriptive easement. When we addressed the prescriptive easement claim, we stated:

The burden at trial on the party seeking to establish the prescriptive easement is to show
1) open
2) notorious
3) exclusive
4) adverse
5) continuous, and
6) uninterrupted use of the easement claimed for the full statutory period. Clemens [Clemans] v. Martin (Mont. 1986), [221 Mont. 483,] 719 P.2d 787, 43 St.Rep. 994. The statutory period is five years. Section 70-19-401, MCA. All elements of prescriptive easement must be proved by a preponderance of the evidence or the claim will fail. Grimsley v. Estate of Spencer (1983), 206 Mont. 184, 670 P.2d 85. All elements must be proved in a case such as this because “one who has legal title should not be forced to give up what is rightfully his without the opportunity to know that his title is in jeopardy and that he can fight for it.” Grimsley, 670 P.2d at 92-93.

Downing, 772 P.2d at 852 (emphasis added).

The above quoted language properly sets forth the elements of a prescriptive easement, the required statutory period and the policy underlying the strict requirements for establishing a prescriptive easement. See Warnack, 879 P.2d at 718. However, the stated lower burden of proof for prescriptive easement claims is not correct.

In Downing, we relied upon Grimsley as authority for this burden of proof and the underlying policy of prescriptive easement claims. In Grimsley, the plaintiffs claimed a prescriptive right to the use of water with only a showing of uninterrupted use. We responded that to acquire water rights by prescription, the party alleging prescription must “satisfy every element of the claim ... and that a failure to satisfy any element is fatal to the entire claim.” Grimsley, 670 P.2d at 91-92. We further explained that:

To allow a plaintiff, or any party for that matter, the opportunity to obtain title to water rights by a showing of mere uninterrupted use would do a disservice to the sound precepts of western water law. Ideally, all water rights should be obtained in as orderly a manner as is humanely [sic] possible. Prescription does not contribute to the maintenance of an orderly system. Indeed, we recognize that, with respect to water rights based on claims made after July 1,1973, acquisition of title by prescription is not permitted. We think this observation is akin to the time-honored proposition that one claiming title to property under adverse possession must bear a heavy burden to show that his use of the property is continuous, hostile, actual, notorious, and exclusive to the owner of record, for one who has legal title should not be forced to give up what is rightfully his without the opportunity to know that his title is in jeopardy and that he can fight for it. Water rights are much to precious to forego without a showing of hostile or adverse use.

Grimsley, 670 P.2d at 92-93 (citations omitted).

Nowhere in Grimsley do we state that the proper burden of proof for prescriptive easement claims is a preponderance of the evidence. We only state that a person claiming a water right by prescription, like a person claiming a property right by adverse possession, must bear “a heavy burden” to prove all of the elements of the prescriptive claim. This is supported by the policy giving landowners with legal title the opportunity to protect and remain secure in their property rights.

It was improper that in Downing we chose to rely upon Grimsley, a prescriptive water right case which did not specifically address the burden of proof for either prescriptive water rights or prescriptive property easements, when we had already previously established a long line of clear precedent setting forth the burden of proof in prescriptive easement cases as that of clear and convincing evidence. See, Kostbade v. Metier (1967), 150 Mont. 139, 432 P.2d 382; Descheemaeker v. Anderson (1957), 131 Mont. 322, 310 P.2d 587; Peasley v. Trosper (1936), 103 Mont. 401, 64 P.2d 109; Maynard v. Bara (1934), 96 Mont. 302, 30 P.2d 93; Violet v. Martin (1922), 62 Mont. 335, 205 P. 221 (overruled on other grounds); Barnard Realty Co. v. City of Butte (1918), 55 Mont. 384, 177 P. 402. Moreover, both Downing and Tintinger were decided on issues that did not involve a question as to the appropriate burden of proof. Accordingly, our reference in those cases to that burden as being preponderance of evidence was purely dicta, in any event. Consequently, in so far as Downing, Tintinger and any other Montana case adopts a preponderance of the evidence burden of proof in prescriptive easement claims, those cases are hereby overruled to that extent.

Moreover, as we stated in Warnack, a prescriptive easement claimant has the burden to prove each element of the prescriptive claim. Warnack, 879 P.2d at 723. Accordingly, the proper burden of proof in prescriptive easement claims is that each element of a prescriptive easement must be proven by the claimant by clear and convincing evidence. Kostbade, 432 P.2d at 385; Warnack, 879 P.2d at 723.

Furthermore, in order to avoid any question as to what constitutes clear and convincing evidence in prescriptive easement cases, we adopt the following definition of clear and convincing evidence from our recent case law:

[CJlear and convincing proof is simply a requirement that a preponderance of the evidence be definite, clear, and convincing, or that a particular issue must be clearly established by a preponderance of the evidence or by a clear preponderance of proof. This requirement does not call for unanswerable or conclusive evidence. The quality of proof, to be clear and convincing, is somewhere between the rule in ordinary civil cases and the requirement of criminal procedure — that is, it must be more than a mere preponderance but not beyond a reasonable doubt.

Matter ofJ.L. (1996), 277 Mont. 284,922 P.2d 459,462. This definition corresponds with the definition the Legislature adopted for the “clear and convincing” evidence burden required in punitive damage claims under § 27-1-221(5), MCA. Matter ofJ.L., 922 P.2d at 462.

Consequently, we hold that a prescriptive easement claimant must prove each element of the prescriptive easement claim by clear and convincing evidence.

2. Did the District Court err in concluding that Wareings established all elements of their prescriptive ditch easement claim?

To establish a private prescriptive easement, the claimant must show “open, notorious, exclusive, adverse, continuous and uninterrupted use of the easement for the full statutory period.” Swandal Ranch Co. v. Hunt (1996), 276 Mont. 229, 233, 915 P.2d 840, 843. Schreckendgust contends that the District Court’s findings of fact are not supported by substantial evidence and that the District Court misapplied the law to conclude that Wareings had established an easement by prescription. Specifically, Schreckendgust argues that Wareings failed to prove two elements of their prescriptive easement claim; that is, their use was neither exclusive nor adverse.

The District Court in its Amended Finding of Fact No. 24 states that “Wareing has had the exclusive use of the ‘Samuel Miller Ditch’ since 1960.” Schreckendgust argues that the District Court does not set forth its analysis or provide a citation to testimony which supports this finding. Schreckendgust further contends that the District Court does not make a corresponding conclusion of law regarding the element of exclusivity.

We disagree that the District Court must provide analysis and a citation to the record for its findings of fact. We have stated before:

To determine the effect of Rule 52(a), M.R.Civ.R, it is necessary to first define what is meant by the terms “findings of fact and conclusions of law.” This Court has said that findings of fact and conclusions of law are not the judgment, but merely the foundation for the judgment. This foundation need not consist of a multitude of evidentiary facts, but must be comprised of ultimate facts.
In other words, the findings of fact required by Rule 52(a) is nothing more than a recordation of the essential and determining facts upon which the District Court rested its conclusions of law and without which the District Court’s judgment would lack support.

In re the Marriage of Barron (1978), 177 Mont. 161,164, 580 R2d 936, 938 (citation omitted).

Here, the District Court heard testimony, reviewed evidence and made the determination that Wareings’ use of the ditch in question was exclusive since 1960. The District Courtis only required to set forth the ultimate facts of the case and it did so. Therefore, the District Court’s Amended Finding of Fact No. 24 is adequate for the purposes of Rule 52(a), M.R.Civ.P. Moreover, upon review of the trial record, we conclude that substantial evidence supports the District Court’s finding that Wareings have had exclusive use of the ditch since 1960. Wareings, including their son, testified extensively about their own use and maintenance of the ditch since 1960 for diverting irrigation water from One Horse Creek to Wareings’ property. Additionally, Wareings testified that throughout their ownership, they rented out their property to others, who also used the ditch to convey irrigation water to Wareings’ property.

Furthermore, contrary to Schreckendgust’s argument, the District Court does make a corresponding conclusion of law regarding the element of exclusivity. In Amended Conclusion of Law No. 2, the District Court states that Wareings have proven, by clear and convincing evidence, all the elements of a prescriptive easement, including that of exclusivity. This conclusion, combined with the rest of the District Court’s findings of fact and conclusions of law, provides the foundation for the District Court’s judgment that Wareings’ have a prescriptive easement across Schreckendgust’s property.

Schreckendgust, nevertheless, asserts that the District Court misapplied the law of exclusivity. Schreckendgust argues that Wareings offered no proof that their right was separate from the rights of others to use the ditch. Schreckendgust claims Wareings did not use the ditch exclusively, but rather shared the use of the ditch with many other landowners in the area. Therefore, Schreckendgust asserts, Wareings could never assert an exclusive right based on the simple fact that other people used the ditch also. We, again, disagree.

This Court dealt with a similar issue 73 years ago. See Hays v. De Atley (1923), 65 Mont. 558, 212 Pac. 296. In Hays, the plaintiff, in his complaint, claimed the right to use one half of the capacity of an irrigation ditch while conceding that the defendants had the right to use the other half of the ditch’s capacity. The defendants responded that based on this claim to only one half the capacity of the ditch, the plaintiff’s use could not have been exclusive. Therefore, the defendants argued that the complaint failed on its face. We held that the plaintiff’s complaint was not subject to such an attack, explaining that:

[T]he term “exclusive” as employed by the courts in enumerating the elements of prescription does not mean that no one else may use the ditch except the plaintiff, the claimant of the easement. It means no more than that his right to use it does not depend on the like right in others. Plaintiff’s use may have been exclusive within the meaning of the rule even though defendants used the ditch, so long as their use did not interfere with the use by plaintiff. ... The rule has its foundation in the general principle, recognized by all the authorities, that the owner of the servient estate may use his property in any maimer and for any purpose consistent with the enjoyment of the easement by the claimant.

Hays, 212 Pac. at 298 (citations omitted).

Likewise, Wareings are claiming a prescriptive easement for use of the irrigation ditch to convey their allotted water from One Horse Creek. Whether others, including Schreckendgust, also used the ditch does not affect Wareings’ claim. Despite the other landowners’ use of the ditch, Wareings’ use was still exclusive within the meaning of the rule. That is, Wareings’ claim of adverse use did not depend upon the other landowners’ use of the ditch. See Hays, 212 Pac. at 298. Consequently, we conclude that the District Court properly applied the law relating to the element of exclusivity in this prescriptive easement claim when it determined that Wareings’ use was exclusive since 1960.

Finally, Schreckendgust argues that Wareings’use was permissive, not adverse. Schreckendgust claims that the record indicates that Wareings’ predecessor-in-interest, William E. Gleason, used the ditch with permission. Specifically, Schreckendgust testified that in 1937, Schreckendgust and his father had a conversation with Gleason wherein Gleason said he had received permission from Schreckendgust’s predecessor-in-interest, Excelsior Realty, to extend the ditch to what is now Wareings’ property. Schreckendgust asserts that Wareings failed to refute this evidence of original permissive use, and, therefore, Wareings cannot now claim that their use of the ditch was adverse. Schreckendgust also contends that the District Court minimized the impact of his testimony concerning the conversation with Gleason, heard no testimony contradicting his own, failed to make a finding that his testimony was so lacking in credibility so as to discard it and ignored his policy of permissive use. Once more, we disagree.

After a claimant has established the elements of a prescriptive right, a presumption of adverse use arises and the burden shifts to the landowner affected by the prescriptive claim to establish that the claimant’s use was permissive. Tanner v. Dream Island, Inc. (1996), 275 Mont. 414, 425, 913 P.2d 641, 648; Lemont Land Corp. v. Rogers (1994), 269 Mont. 180, 185, 887 P.2d 724, 727-28. If the landowner proves the use is permissive, a prescriptive easement cannot be established. Lemont, 887 P.2d at 728. Here, the District Court concluded that Wareings, by clear and convincing evidence, established the elements of a prescriptive right and thereby raised the presumption that their use of the ditch was adverse. Furthermore, the District Court explained that the burden to rebut this presumption then shifted to Schreckendgust.

Yet, the District Court found, in Amended Finding of Fact No. 16, that Schreckendgust’s testimony concerning the 1937 conversation wherein Gleason had received “permission” to extend the ditch “appears to be [Schreckendgust’s] own self-serving conclusion.” Additionally, contrary to Schreckendgust’s contention, in Amended Finding of Fact No. 20, the District Court found evidence contradicting Schreckendgust’s testimony of permissive use. In fact, the District Court found that Schreckendgust himself testified on cross examination that neither Wareings, nor their predecessors-in-interest, expressly sought his permission to use the ditch. Instead, Schreckendgust testified they would notify him when they turned on the water in the ditch. The court found that while Schreckendgust perceived this as an implied request for permission, other witness testimony indicated that this notification was only neighborly custom.

As a result of these findings, the District Court, in Amended Conclusions of Law Nos. 5 and 6, concluded that Schreckendgust failed to rebut the presumption of adverse use, again pointing out that the only evidence Schreckendgust presented was his own “self-serving and unverifiable hearsay testimony” regarding the 1937 conversation with Gleason noted above. The District Court described Schreckendgust’s testimony as a conclusion having no basis in the record. Furthermore, the District Court concluded that both parties testified that for approximately the past 50 years, neither Wareings, nor their predecessors, asked Schreckendgust for permission to use the ditch, but rather used it as a matter of right.

The district court is in a better position to observe the witnesses and judge their credibility than this Court. Double AA Corp. v. Newland & Co. (1995), 273 Mont. 486,494,905 R2d 138,142. Therefore, “[w]e will not second guess the district court’s determination regarding the strength and weight of conflicting testimony.” Double AA Corp., 905 P.2d at 142. Moreover, we review a district court’s findings to determine whether substantial evidence supports those findings, not contrary findings. Rafanelli v. Dale (1996), [278 Mont. 28], 924 P.2d 242, 248.

Consequently, after reviewing the District Court’s findings, we note only that the District Court did not “ignore” Schreckendgust’s testimony concerning his policy to give permission to use the ditch. Rather, the District Court considered this testimony along with Schreckendgust’s testimony concerning the 1937 conversation with Gleason and weighed this against testimony given by Wareings and other witnesses concerning the nature of Wareings’ use of the ditch. The court described the contradicting character of the parties’ testimony and determined that Schreckendgust’s testimony concerning the Gleason conversation was a “self-serving conclusion” and “unverifiable hearsay” and, thereby, effectively discarded it.

By making these findings, the District Court determined that the testimony given by Wareings and other witnesses was more credible than Schreckendgust’s testimony. Based upon this determination, the District Court concluded that Wareings established a presumption of adverse use and Schreckendgust failed to rebut this presumption. The court’s decision was grounded in the record, in its judgment of the witnesses’ credibility and in the law. Accordingly, we hold that the District Court’s findings of fact are supported by substantial evidence and that the District Court properly determined that Wareings’ use was adverse and not permissive.

3. Under the doctrine of estoppel, are Wareings precluded from asserting a prescriptive easement right against Schreckendgust after they acquired an express ditch easement from a neighboring landowner over property previously owned by Schreckendgust?

Schreckendgust asserts that Wareings, in 1989, obtained an express ditch easement from Steve Schertenleib who owns Florence Orchard Homes Lot 38, a lot he purchased from Schreckendgust in 1988. Schreckendgust argues that by obtaining this ditch easement, Wareings admitted that they were not entitled to make a prescriptive easement claim with respect to Lot 38. Therefore, Schreckendgust concludes, Wareings should be estopped from asserting a prescriptive easement across Lots 19 and 20 because Schreckendgust owned these lots with Lot 38, as one unit, until he sold Lot 38 to Schertenleib.

Schreckendgust relies on Kephart v. Portmann (1993), 259 Mont. 232, 237, 855 P.2d 120, 123. Schreckendgust points out that in Kephart, we concluded that the plaintiffs were estopped from challenging the defendants’ ditch right because the plaintiffs had acknowledged the defendants’ superior ditch right in a 1960 Ditch Agreement. Schreckendgust suggests that the Kephart situation is “nearly the mirror image” to the situation concerning Lot 38. Therefore, Schreckendgust argues that because Wareings have acknowledged the superior rights of Schreckendgust’s successor, clearly they should be estopped from denying the superior rights of Schreckendgust.

We find Schreckendgust’s argument unpersuasive. Because estoppel is an affirmative defense, Schreckendgust bears the burden of proof. Rule 8(c), M.R.Civ.P; § 26-1-401, MCA; § 26-1-402, MCA. See also, Insurance Specialists, Inc. v. Longfellow (1982), 201 Mont. 132, 135, 654 P.2d 500, 502; Baker Nat’l Bank v. Lestar (1969), 153 Mont. 45, 50-51, 453 P.2d 774, 777. In Kephart, we carefully considered the six elements of equitable estoppel and the evidence supporting each element to determine that the plaintiffs were estopped from challenging the defendants’ ditch rights. Kephart, 855 P.2d at 123. In this case, Schreckendgust could meet his burden of proof only by specifically arguing that each element of estoppel is present and providing evidence in support. Yet, Schreckendgust did not develop or fully argue any of the estoppel elements, either in the District Court or now on appeal.

In fact, in arguing on appeal that we should apply the Kephart rationale, Schreckendgust fails to identify any of the six elements of equitable estoppel. Instead, Schreckendgust makes a simple conclusory statement that because “the ditch claimant [Wareings] has acknowledged the superior rights of the landowner’s successor [Schertenleib], he clearly should be estopped from denying the superior rights of the landowner himself [Schreckendgust].” It is Schreckendgust’s burden, not this Court’s, to establish that the elements of estoppel are met, and we conclude that Schreckendgust has failed to meet his burden in this case. Accordingly, we hold that Wareings are not estopped from asserting their prescriptive easement claim.

4. Did the District Court err when it failed to expressly limit the scope of Wareings’ prescriptive ditch easement both as to location and method of maintenance?

In its Amended Conclusion of Law No. 8, the District Court stated:

Plaintiffs do therefore possess an easement by prescription across Defendant’s real property for the conveyance of their allotted water rights from One Horse Creek by the course shown in the Water Resource Survey for Ravalli County and labeled by that publication as the “Samuel Miller Ditch.”

Schreckendgust argues that the above language fails to limit the scope of Wareings’ easement for the irrigation ditch. He contends that while he counterclaimed in this suit to quiet title to numerous lots in Florence Orchard Homes, the ditch only crosses Lots 19 and 20. Furthermore, Schreckendgust argues that Wareings have offered no proof of any claim to any parcels in Florence Orchard Homes other than Lots 19 and 20. Therefore, he asserts that the easement should be specifically limited to Lots 19 and 20.

Wareings argue that within Amended Conclusion of Law No. 8, the District Court specifically delineated an easement for the irrigation ditch where it is presently located. Therefore, they contend that the District Court properly limited the scope of the easement.

We have stated that when a prescriptive easement is acquired, “the right of the owner of the dominant estate is governed by the character and extent of use during the period requisite to acquire it.” Warnack, 879 P.2d at 724 (quoting Marta v. Smith (1981), 191 Mont. 179, 183, 622 P.2d 1011, 1013). The evidence shows that Wareings, during the prescriptive period, used the “Samuel Miller Ditch” to convey their allotted water from One Horse Creek to their property. Furthermore, in Amended Conclusion of Law No. 8, the District Court adequately limits the scope of Wareings’ prescriptive easement based on their use during the prescriptive period.

First, the District Court specified that the character of Wareings’ use of the ditch easement was to convey their allotted water from One Horse Creek. Second, the District Court specified the extent of Wareings’ use by indicating that the location of the ditch was shown in the Water Course Survey for Ravalli County and labeled as “Samuel Miller Ditch.” See Appendix A. Therefore, the District Court need not expressly limit the scope of the easement to Schreckendgust’s Lots 19 and 20 in addition to its reference to the location of the ditch as shown by the Water Resources Survey for Ravalli County. Certainly, the District Court’s reference to the Water Resources Survey for Ravalli County adequately indicates the location of the ditch as it crosses Schreckendgust’s property.

Schreckendgust also argues that the District Court did not limit the scope of Wareings’ method of maintaining the ditch. Schreckendgust notes that in Amended Finding of Fact No. 22 the District Court found that Wareings’ maintenance of the ditch “consisted merely of shovel and hand cleaning.” Schreckendgust maintains that although Wareings failed to offer proof that the scope of maintenance of the ditch should go beyond shovel and hand cleaning, the District Court did not expressly limit Wareings’ maintenance of the ditch to shovel and hand cleaning. Wareings respond that no one offered evidence that any large scale maintenance was needed on the ditch. Therefore, Wareings contend that, by implication, their maintenance of the ditch is limited to their historical method of shovel and hand cleaning.

The District Court, in Amended Finding of Fact No. 22, found that Wareings, throughout the prescriptive period, maintained the ditch by shovel and hand cleaning. Wareings’ method of maintaining the ditch cannot exceed the method used during the prescriptive period. See Marta, 622 R2d at 1013. That is, Wareings’ maintenance of the ditch is limited to shovel and hand cleaning. The District Court did not commit reversible error by failing to expressly limit Wareings’ maintenance of the ditch to shovel and hand cleaning.

In conclusion, the District Court adequately limited the scope of Wareings’ prescriptive easement as to the location of the ditch in Amended Conclusion of Law No. 8. Furthermore, the District Court did not commit reversible error by failing to expressly limit the scope of Wareings’ prescriptive easement as to their method of maintenance.

5. Is Schreckendgust entitled to attorney fees under § 70-17-112, MCA?

Schreckendgust argues that if he is successful in defeating Wareings’ prescriptive easement claim on appeal, he would then be the prevailing party and entitled to attorney fees under § 70-17-112, MCA. However, we have affirmed the District Court on all issues raised on appeal; therefore, Wareings are still the prevailing parties. Accordingly, Schreckendgust is not entitled to attorney fees under § 70-17-112, MCA.

6. Should this case have been remanded for a new trial?

Schreckendgust, in his supplemental brief, argues that the Montana Supreme Court erred when it ordered the District Court to reconsider its findings of fact and conclusions of law using the proper burden of proof. Schreckendgust contends that the Montana Supreme Court placed the District Court in the position of determining whether its original application of the lower burden of proof was reversible or harmless error. Therefore, Schreckendgust argues that the Montana Supreme Court should remand this case for a new trial. We disagree.

In our May 14, 1996 Order, we ordered the District Court to reconsider its findings of fact and conclusions of law applying the clear and convincing burden of proof to the existing record. The facts contained in the record were established during trial. Whether the quantum of the evidence presented at trial satisfies merely a preponderance of evidence burden or the higher clear and convincing burden of proof is, in this case, solely within the court’s purview. Therefore, in remanding the case to the District Court with instructions to reconsider its findings of fact and conclusions of law by applying the clear and convincing burden of proof to the existing record, we merely directed the court to determine whether the existing record was sufficient to satisfy the higher burden. The application of a burden of proof does not alter the underlying facts or the law; it simply determines whether the party with the burden has successfully borne the obligation which the law has placed upon him to prove his case by a certain quantum of evidence. Here, the trial court determined that even when applying a higher burden of proof, Wareings had successfully established the elements of their prescriptive easement claim. On the basis of the record here, we do not disagree with the District Court.

Schreckendgust, nevertheless, argues that only by remanding for a new trial can he make a motion for substitution of the District Court Judge under § 3-l-804(l)(g), MCA, and thereby insure the District Court’s impartiality. Schreckendgust argues that the District Court Judge could not provide him with an impartial review when he reconsidered the original findings of fact and conclusions of law. Schreckendgust explains that the current District Court Judge, prior to his election, served as opposing counsel in an action concerning title to real property which was decided in Schreckendgust’s favor. After the current District Court Judge was elected, Schreckendgust brought two additional real property cases before him. In both, Schreckendgust’s claims were defeated. Schreckendgust notes that he appealed both cases, including this case currently before us.

Schreckendgust further notes that he was involved in yet a third case before this same District Court Judge, and promptly made a motion for substitution. Schreckendgust contends that the District Court Judge’s former position as counsel in a suit involving Schreckendgust was adverse, and now his recent decisions as District Court Judge continue to be adverse. Therefore, Schreckendgust asserts “it is fundamentally unfair that [Schreckendgust] was not afforded the due process protection of having a substitute District Judge hear the evidence and issue new Findings of Fact and Conclusions of Law that applied the correct burden of proof.” We disagree.

Aside from finding nothing in the record that would support a conclusion that the District Judge was biased or partial, Schreckendgust had two separate opportunities to move for substitution of district court judge during the original trial. First, under § 3-1-804(1), MCA, each adverse party is entitled to one substitution of a district judge. Second, under § 3-1-805, MCA, Schreckendgust was permitted to make a motion for disqualification for cause. Schreckendgust failed to timely make either motion. Clearly, Schreckendgust was not denied due process in this case. Rather, he voluntarily waived his rights to substitute or disqualify the District Court Judge. Accordingly, we conclude that Schreckendgust’s argument that we should have remanded this case for a new trial is without merit.

Affirmed.

JUSTICES GRAY, HUNT, LEAPHART and ERDMANN concur.


source: Caselaw Access Project

author: JUSTICE LEAPHART CHIEF JUSTICE TURNAGE JUSTICE TRIEWEILER

license: Public Domain

text:
    TRAVELERS INSURANCE COMPANY, A Connecticut Corporation, Plaintiff and Respondent, v. HOLIDAY VILLAGE SHOPPING CENTER LIMITED PARTNERSHIP, a Montana limited partnership; SIX SIXTY SEVEN, INC.; HILL COUNTY, MONTANA; ROBERT L. BROWN; ROBERT W. RECTOR; RICHARD F. BOHN; JACK OLIVER; CLARKE STREEPER; and O.B.S. PARTNERSHIP, Defendants and Appellants.
    No. 95-152.
    Argued April 2, 1996.
    Submitted June 27, 1996.
    As Corrected on Denial of Rehearing January 30, 1997.
    Decided December 16, 1996.
    53 St.Rep. 1372.
    280 Mont. 217.
    931 P.2d 1292.

      See C.J.S. Mortgages § 9.
    For Appellants: James H. Goetz (argued), Robert K. Baldwin (argued); Goetz, Madden & Dunn, Bozeman; Frank Altman, Daniel A. Boucher; Altman & Boucher, Havre; David G. Rice, Hill County-Attorney, Havre.
    For Respondent: William A. Squires (argued), Randall C. Lester; Matteucci, Falcon, Squires & Lester, Great Falls.
   JUSTICE 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 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, LAACO 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.

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. Chilberg, 903 P.2d at 1379. Here, the parties submitted a statement of 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 (1996), 276 Mont. 67, 70-72, 915 P.2d 175, 177 (citing Carbon County v. Union Reserve Coal Co., Inc. (1995), 271 Mont. 459, 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 County 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 29,1975, 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 HUNDRED FIFTY THOUSAND and No/100 DOLLARS ($5,850,000.00) with interest, evidenced by a note dated February 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 Mortgages on Page 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 seemed 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 pursued, the lease shall not be terminated [.] [Emphasis added.]

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 71-1-204, MCA.

This Court has stated that “[a]s 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 ambiguity exists in a written instrument. Klawitter, 886 P.2d at 420 (citing Audit Servs. 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 “[t]he subordination agreements do not, on their face, purport to be mortgages [and that] [i]t 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 71-1-204, 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 71-1-101, MCA. The agreement at issue here has characteristics of both a subordination agreement and a mortgage. The confusion lies in 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 “[p]laced 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, 88, 368 P.2d 439, 440.

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

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 terminated!.]

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 terminated!.] ...

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 1(a) through 1(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 defined by 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 & M], 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 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.

JUSTICES GRAY, ERDMANN and DISTRICT JUDGE HARKIN, sitting for JUSTICE HUNT concur.

CHIEF JUSTICE 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.

JUSTICE 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, to

[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.

In re Lantana Motel (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 Hoene Implement Corp. (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, 647 F. Supp. at 919. However, in language relevant to the issue in 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 Stone, 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 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, “[t]he 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 promisor 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., Topeo, Inc. v. State (1996), 275 Mont. 352, 360, 912 P.2d 805, 810; Mueske v. Piper, Jaffray & Hopwood, Inc. (1993), 260 Mont. 207, 216, 859 P.2d 444, 449-50; St. Paul Fire & Marine Ins. 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 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.

JUSTICE NELSON joins in the foregoing dissenting opinion.

      . The subordination agreement with the adjoining landowners is substantially identical to the agreement with Hill County.