                                   No. 12294

         I N THE SUPREME COURT OF THE STATE O F M N A A
                                                 OTN




STATE OF MONTANA, e x re1 ; CUARLES STEPHENS
and NOLA M, STEPHENS, h i s wife; and FORREST
G. HIGGINS and MILDRED L. FIGGINS, h i s w i f e ,

                          R - e l a t o r s and A p p e l l a n t s ,



THE CITY O HAMLT,TON , MONTANA, A Munic i p a 1
          F
Corporation,

                         Respondent and Respondent.



Appeal from:      D i s t r j - c t Court of t h e Fourth J u d i c i a l D i s t r i c t ,
                  Honorable Jack L. Green, Judge p r e s i d i n g .

Counsel o f Record:

    For Appellants :

           Boone, K a r l b e r g and Haddon, Plissoula, IuIontana ,
           Thomas H. Boone a r g u e d , Missoula, Montana.

    F o r Respondent :

           Taurence P e t e r s e n a r g u e d , B i l l i n g s , Montana.



                                                 Submitted:             October 1 7 , 1972

                                                    Decided :DFf
                                                              -         J   1 ,972
Filed:   D F 1~ 972
Hon. Peter G. Meloy, District Judge, sitting in place of Mr.
Justice Frank I. Haswell, delivered the Opinion of the Court.
        This is an appeal from a judgment entered by the
district court of Ravalli County.     Involved is an ordinance
of the City of Hamilton to extend its boundaries to include
certain contiguous real property.     The issue presented is
whether or not the district court erred in concluding that
the sellers and not the purchasers under contract for deed
were "freeholders" and concluding that a majority of the free-
holders failed to protest the annexation.
        Charles A. Stephens and Nola M. Stephens, his wife,
and Forrest G. Higgins and Mildred L. Higgins, his wife, the
appellants, brought an action seeking a writ of mandamus or
other appropriate writ against the City of Hamilton, Montana,
a municipal corporation, to set aside Ordinance No. 317 extend-
ing the boundaries of the City of Hamilton, Montana, to include
the real property set forth in exhibit "A" to the petition for
alternative writ of mandamus.    The appellants, along with others
who are owners of real property within the area sought to be
annexed, protested the annexation by the City of Hamilton.
        The City of Hamilton is a city of the third class and
is a municipal corporation organized and existing under the
laws of the State of Montana.    Proceeding under section 11-403(2)
R.C.M. 1947, Hamilton city council passed Resolution No. 316
which was a resolution of intention to extend the corporate
boundaries and notice thereof was given.    Protests were filed
with the city clerk of Hamilton, Montana.
        On January 10, 1972, the Hamilton city council adopted
Ordinance No. 317 extending the corporate boundaries to include
the real property in question.    This ordinance was to be effec-
tive 30 days after its passage.     This action was commenced on
February 9, 1972, at which time an alternatkwrit of mandamus
was issued by the court.
       As of the final protest date, there were 670 individuals
with recorded deeds of whom 315 registered their protests in
writing with the clerk of the Hamilton city council.    Of the
6 7 0 there were 12 individual contract sellers (none protested)

not owning other property in the area who were selling to indi-
viduals who have recorded notices of purchaser's interest with
the Ravalli county clerk and recorder.   Also of the 6 7 0 were
40 individual contract sellers (none protested) not owning other
real property in the area whose contracts were evidenced by a
notation in the "in-care-of" files of the Ravalli county assessor.
Not included in the 6 7 0 or in the protesters were 85 individuals
(44 protested) who were contract purchasers of real property in
the area, whose interest was evidenced by either recorded notices
of purchaser's interest or in the "in-care-of" files of the
Ravalli county assessor.   The Hamilton city council determined
that there were insufficient protests by freeholders within the
area sought to be annexed, and passed the ordinance annexing the
area.
        The City of Hamilton has agreed, if relevant, that the
"in-care-of" file were contract purchasers of real property with-
in the area.
        The parties in presentation of the issue to the district
court stipulated the following conditional conclusions:
        "IT IS FURTHER AGREED that if the court
        determines:
        u(l.) That a freeholder is only the contract
        seller, then a majority of the freeholders
        failed to protest the annexation and the
        Relators' suit should be dismissed with
        prejudice.
        " (2.) That a freeholder is only the contract
        buyer, then a majority of the freeholders did
        protest the annexation and the City should
        revoke Ordinance No. 317.
        "(3.1 That a freeholder means both the contract
        seller and the contract buyer, then a majority
        of the freeholders failed to protest the
        annexation and the Relators' suit should be
        dismissed with prejudice.
        " (4.) That freeholder means contract sellers
        other than those selling to individuals who
        have filed or recorded Notices of Purchasers'
        Interest at the Ravalli County Clerk and
        Recorder's Office, and such individuals who have
        filed or recorded such notices, then a majority
        of the freeholders failed to protest the
        annexation, and the Relators' suit should be
        dismissed with prejudice."
        It is incumbent upon the Court to determine the intent
of the legislature in the use of the language of section 11-403(2).
In sub-section (1) the words used are "resident freeholders".    In
sub-section (2) the legislature curiously used the wordsl'property
holders" when directing notice to be given but used the word
"freeholders" as to those entitled to protest.
        The appellants contend that in a contract for deed
situation it is only the purchaser who is the "freeholder". The
respondent contends that the seller is the "freeholder".
        The case of First State Bank v. United States, 92 F.2d
132, 134-135, (9th Cir. 1937), we think clearly states the legis-
lative intent as to the character of a freeholder as follows:
        "Clearly, between these two parties, it is the
        vendee who is closest to the land; who is the more
        interested in its preservation; who is better able
        to take the safeguarding steps contemplated by
        the statute."
        This Court in Kunesh v. City of Gt. Falls, 132 Mont. 285,
291, 317 P.2d 297, has reiterated the reason for the legislative
intent in the approval of the following language:
       " ' * * * the legislature intended those only
       should be permitted to act who had attained the
       status, standing, and dignity attributable to
       those who are owners of property of the stable
       character of real estate * * * It was evidently
       the purpose of the Legislature * * * to place
       the matter * * * primarily in the hands of those
       having their own homes and interests within the
       municipality or ward where the license was to be
       sought; hence the use of the words "resident
       freeholders" which must be construed to mean
       those living within the subdivision holding
       title to real estate.'"
           the situation     contract for deed      is the purchaser
who usually may be characterized as the party with the real
interest of owning and residing permanently upon the premises.
The purchasers would be the ones who would have, as was said
in Kunesh, the ones "having their own homes and interests within
the municipality" and thus have the interest in subjecting the
property to the regulatory authority.
         In Kunesh, at p. 290, this Court reiterated the statutory
definition (section 67-506, R.C.M. 1947) of freeholder as "'one
who holds an estate in real property, either of inheritance or
for life.'"
         We are here concerned with the situation of a so-called
"contract for deed". This Court in Kern v. Robertson, 92 Mont.
                   concerned itself with the status of the vendor
and the vendee in the instance of a contract for deed.   This
Court characterized the vendee to be the "real" or "beneficial"
owner.   There the Court said:
         "The authorities are in accord that an enforce-
         able contract for the purchase and sale of real
         property passes to the purchaser the equitable
         and beneficial ownership thereof, leaving only
         the naked legal title in the seller, as trustee
         for the purchaser, and as security for the un-
         paid purchase price. If the purchaser dies
         while the contract is in force and effect,
         his interest passes to his heirs as real prop-
         erty. If the seller dies while the contract
         is in force and effect, his interest passes to
         his personal representative as personal property,
         and not to his heirs."
         The Court then quoted from 1 Pomeroyls Equity Jurisprudence,
4th Ed. B 105, pp. 117, 118, as follows:
         "In short, equity regards the two contracting
         parties as having changed positions, and the
         original estate of each as having been lconverted',
         that of the vendee from personal into real prop-
         erty, and that of the vendor from real into
         personal property."
         The case of State v. Kistner, 132 Mont. 437, 318 P.2d
223, follows the same equitable conversion principle as applied
to inheritance tax.
         The above cases are cited by the respondent to support
the contention that section 11-403(2), the annexation statute
here involved, when it refers to "freeholders" means "legal
title holders".
This position presents an anomalous situation when ref-
erence is made to the position taken by this Court in Kunesh
describing the legislative intent in enacting section 11-403(2).
        It would appear that the language used in Kunesh as to
legislative intent would be consistent with the approved equit-
able conversion doctrine, i.e. the purchaser in effect being
the "real" owner and having the statutorily defined inheritable
interest.
        In Kunesh this Court was concerned only with the word
"resident" in the term "resident freeholders".   Likewise in the
case of Brodie v. City of Missoula, 155 Mont. 185, 468 P.2d
778, this Court was concerned only with residence.
        It will be noted that this Court, in Kunesh, at p. 292,
stated as follows:
        "It would appear then that a resident freeholder
        qualified to protest annexation may be defined
        as one who is a resident within the area to be
        annexed, holding a present legal title to a free-
        hold estate in real property * * *."
        The respondent relies on the Kunesh and Brodie cases.
The respondent contends that since this Court used the words
"present legal title to a freehold" that this Court meant
"naked legal title" as occurs in a contract for deed situation.
This Court was not there concerned with nor did it hear arguments
upon a case involving a contract for deed.   The intendment of
the words in those cases is to the effect that there must be
"title" to a freeho&d and it must be lawful.   Had this Court
have held as the respondent contends the result would have been
obiter dictum.
        The respondent further states that examination of the
records of the county, in order to determine the freeholders,
extends only to recorded deeds.   This, respondent states, leads
t o t h e conclusion           " * * *      t h a t t o be a f r e e h o l d e r , one must

p o s s e s s a recorded deed".                Such i s n o t t h e law under t h e Montana

d e c i s i o n s i n Swaim v . Redeen, 1 0 1 Mont. 521, 55 P.2d 1 and
S t a t e ex r e l . Wilson v . Musburger, 1 1 4 Mont. 175, 178-179, 133

P.2d 586.         These c a s e s i n d i c a t e t h a t t h e o b l i g a t i o n of examin-

a t i o n of t h e county r e c o r d s e x t e n d s t o a l l of t h e r e c o r d s i n

t h e county i n c l u d i n g t h e c l e r k of t h e d i s t r i c t c o u r t ' s r e c o r d s ,

t h e r e c o r d s of t h e c l e r k and r e c o r d e r and t h e r e c o r d s of t h e
county a s s e s s o r ' s o f f i c e .

             W t h e r e f o r e hold t h a t t h e term " f r e e h o l d e r " a s used
              e
i n s e c t i o n 1 1 - 4 0 3 ( 2 ) , R.C.M.     1947, means t h e p u r c h a s e r and n o t

t h e s e l l e r under a c o n t r a c t f o r deed.             To hold o t h e r w i s e would

c o n t r a d i c t our p r i o r i n t e r p r e t a t i o n s of b o t h t h e l e g i s d a t i v e

i n t e n t of t h i s s e c t i o n and t h e s t a t u t o r y d e f i n i t i o n of " f r e e -

holder".         It would a l s o u n j u s t l y and unreasonably d e p r i v e t h e

r i g h t of p r o t e s t from t h o s e w i t h s u b s t a n t i a l p r e s e n t and f u t u r e
i n t e r e s t s i n r e a l p r o p e r t y i n f a v o r of t h o s e r e t a i n i n g b a r e

legal t i t l e .

             The d i s t r i c t c o u r t e r r e d i n f i n d i n g t h a t a m a j o r i t y of
freeholders f a i l e d t o p r o t e s t t h e annexation.

             The judgment i s r e v e r s e d and t h e c a u s e i s remanded w i t h
d i r e c t i o n s f o r f u r t h e r proceed                           s i s t e n t with t h i s

opinion.
                                                                                           ---------
                                                                                     strict
                                                     Judge, s i t t i n g w $ l a c e of M r .
                                                     J u s t i c e Frank I. Haswell.




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