No. 82-88
I N THE SUPREPI COURT OF THE STATE OF MONTANA
1982
AVCO FINANCIAL S E R V I C E S
OF B I L L I N G S ONE, I N C . ,
P l a i n t i f f and A p p e l l a n t ,
DANIEL L . C H R I S T I A E N S , BEVERLY A.
C H R I S T I A E N S , 1,ELVIN R. CEIRISTIAENS ,
LINDA K. CMRISTIAENS, ROBERT M.
RODMAN AND SUSAN A. RODMAN,
D e f e n d a n t s and R e s p o n d e n t s .
Appeal from: D i s t r i c t C o u r t of t h e Second J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of S i l v e r Bow
H o n o r a b l e A r n o l d O l s e n , Judge p r e s i d i n g .
C o u n s e l of R e c o r d :
For P l a i n t i f f :
John L e s l i e H a n m e r , B u t t e , M o n t a n a
For D e f e n d a n t s :
M a u r i c e A. Maf f e i , B u t t e , Ilontana
S u b m i t t e d on b r i e f s : August 19, 1982
Decided-: October 14, 1982
F i l e d OCT&qSZ
Mr. J u s t i c e F r e d J . Weber d e l i v e r e d t h e O p i n i o n o f t h e
Court.
F o l l o w i n g t h e d e f a u l t by D a n i e l and B e v e r l y C h r i s t i a e n s
(~hristiaens)
on a l o a n +e AVCO F i n a n c i a l S e r v i c e s ( A V C O ) ,
0m f i x
AVCO o b t a i n e d a judgment a g a i n s t C h r i s t i a e n s f o r $ 8 , 5 7 5 . 1 9 .
AVCO b r o u g h t a d e c l a r a t o r y judgment a c t i o n t o d e t e r m i n e i f
t h e judgment c o n s t i t u t e d a l i e n on c e r t a i n S i l v e r Bow County
property. The D i s t r i c t C o u r t o f t h e Second J u d i c i a l D i s t r i c t
f o r S i l v e r Bow County e n t e r e d a judgment f i n d i n g t h e r e was
no e f f e c t i v e l i e n . W e v a c a t e t h a t judgment.
The f o l l o w i n g i s s u e s w i l l b e c o n s i d e r e d on r e v i e w :
(1) I s a s e c u r e d p a r t y f i r s t r e q u i r e d t o d i s p o s e o f
c o l l a t e r a l given f o r s e c u r i t y of a d e b t i n order t o reduce
t h e amount o f t h e judgment b e f o r e s e e k i n g a n a l t e r n a t i v e
remedy.
(2) I f a j u n i o r encumbrancer p u r c h a s e s a s e n i o r encum-
b r a n c e r ' s i n t e r e s t u n d e r a t r u s t i n d e n t u r e and t h e r e a f t e r
sells t h e p r o p e r t y , does t h i s c o n s t i t u t e a f o r e c l o s u r e under
T i t l e 71, MCA, and i s t h e s e c u r e d p a r t y t h e r e b y p r e c l u d e d
from p u r s u i n g f u r t h e r r e m e d i e s .
AVCO l o a n e d C h r i s t i a e n s a sum of money on J u n e 8 ,
1978. A s s e c u r i t y f o r t h e loan C h r i s t i a e n s executed a
p r o m i s s o r y n o t e and a s e c u r i t y a g r e e m e n t i n f a v o r of AVCO
which g a v e AVCO a l i e n on v a r i o u s h o u s e h o l d goods and on two
o l d e r automobiles. AVCO a l s o r e c e i v e d a s e c o n d t r u s t i n d e n t u r e
l i e n on r e a l p r o p e r t y on E x c e l s i o r Avenue i n B u t t e owned by
Christiaens. The f i r s t l i e n was h e l d on t h i s p r o p e r t y by
Nationwide F i n a n c e Company ( N a t i o n w i d e ) .
On September 28, 1979, t h e l o a n w i t h AVCO was i n d e f a u l t .
AVCO f i l e d a n a c t i o n a g a i n s t C h r i s t i a e n s and judgment was
e n t e r e d on November 1, 1 9 7 9 , by d e f a u l t a g a i n s t C h r i s t i a e n s
f o r $8,575.19 p l u s c o s t s and i n t e r e s t .
The o b l i g a t i o n due Nationwide was a l s o i n d e f a u l t and
Nationwide n o t i c e d f o r e c l o s u r e on i t s t r u s t i n d e n t u r e on t h e
E x c e l s i o r Avenue p r o p e r t y . The s a l e was conducted on November
8 , 1979, and AVCO, t h e second t r u s t i n d e n t u r e l i e n h o l d e r ,
purchased t h e p r o p e r t y a t t h e t r u s t e e ' s s a l e . AVCO h a s
s u b s e q u e n t l y s o l d t h e p r o p e r t y on E x c e l s i o r Avenue a t a
loss.
O November 1, 1979, t h e d a t e of e n t r y of judgment
n
a g a i n s t C h r i s t i a e n s , t h e y a l s o owned i n t e r e s t s of r e c o r d i n
l a n d d e s c r i b e d a s p l a t 170-B l o c a t e d i n S i l v e r Bow County.
On March 28, 1980, C h r i s t i a e n s s o l d t h e i r t r a c t 170-B l a n d
t o d e f e n d a n t s Rodman f o r $70,000--of which $8,611.19 was
h e l d back by Summit V a l l e y T i t l e Company pending f i n a l
d e t e r m i n a t i o n o f AVCO by way of t h e i r judgment l i e n .
The f i r s t i s s u e i s whether a s e c u r e d p a r t y i s f i r s t
required t o dispose of c o l l a t e r a l given f o r s e c u r i t y of a
d e b t i n o r d e r t o r e d u c e t h e amount o f t h e judgment b e f o r e
s e e k i n g a n a l t e r n a t i v e remedy.
I n o r d e r t o s e c u r e t h e l o a n w i t h AVCO, C h r i s t i a e n s
gave AVCO a l i e n on a 1969 Oldsmobile, a 1972 C h e v r o l e t
p i c k u p , and household goods and f u r n i t u r e . After default
AVCO d i d n o t a t t e m p t t o t a k e p o s s e s s i o n of any of the security.
C h r i s t i a e n s t e s t i f i e d t h a t he d r o v e t h e Oldsmobile " u n t i l
t h e f r o n t end b a l l j o i n t s w e r e r e a l bad" and t h a t h e " p a r k e d
t h e c a r and e v e n t u a l l y it was junked o u t . " Christiaens also
t e s t i f i e d t h a t t h e t r a n s m i s s i o n went o u t on t h e C h e v r o l e t
p i c k u p and t h a t he " f i n a l l y s o l d i t f o r p a r t s . " Most of t h e
household goods and f u r n i s h i n g s were l e f t i n t h e house on
E x c e l s i o r Avenue, b u t t h e C h r i s t i a e n s s t i l l had t h e washer
and d r i e r .
Mark Ayers, manager of t h e B u t t e AVCO o f f i c e , t e s t i f i e d
t h a t AVCO does n o t r e p o s s e s s a s e c u r i t y i f they f e e l t h a t
t h e r e was no way t h e y would g e t t h e i r p r i n c i p a l back by
doing so.
C h r i s t i a e n s c o n t e n d t h a t AVCO i s f i r s t r e q u i r e d t o t a k e
p o s s e s s i o n of t h e c o l l a t e r a l and f i r s t d i s p o s e o f i t i n a
r e a s o n a b l y commercial manner b e f o r e a t t e m p t i n g t o a c q u i r e
any d e f i c i e n c y and t h a t s i n c e AVCO d i d n o t r e p o s s e s s any o f
t h e c o l l a t e r a l i t s h o u l d b e p r e c l u d e d from a t t e m p t i n g t o
e n f o r c e i t s judgment on t h e s a l e o f t h e t r a c t 170-B l a n d .
S e c t i o n 30-9-504(1), MCA, provides: "A s e c u r e d p a r t y
a f t e r d e f a u l t may s e l l , l e a s e o r o t h e r w i s e d i s p o s e o f any -
or
of t h e c o l l a t e r a l i n i t s then c o n d i t i o n . . ." (Emphasis
added.) I n a d d i t i o n , s e c t i o n 30-9-501(1), MCA, provides:
"When a d e b t o r i s i n d e f a u l t u n d e r a s e c u r i t y a g r e e m e n t , a
secured party. . .may r e d u c e h i s c l a i m t o judgment, foreclosure
o r o t h e r w i s e e n f o r c e t h e s e c u r i t y i n t e r e s t by any a v a i l a b l e
j u d i c i a l procedure." The Utah Supreme C o u r t , i n c o n s i d e r i n g
t h e same Uniform Commercial Code s e c t i o n a l l o w e d a s e c u r e d
party t o " a t i t s option, ignore t h a t security [personal
p r o p e r t y ] and s a t i s f y i t s judgment from o t h e r p r o p e r t y [ r e a l
p r o p e r t y ] i n t h e hands o f t h e judgment d e b t o r . " Kennedy v .
Banlc o f Ephraim ( U t a h 1 9 7 9 ) , 594 P . 2d 881, 884.
" [ T l h e c r e d i t o r c a n i g n o r e h i s s e c u r i t y i n t e r e s t and
o b t a i n a judgment on t h e u n d e r l y i n g o b l i g a t i o n and p r o c e e d
by e x e c u t i o n and l e v y . " J . White & R . Summers, Uniform
Commercial Code, a t 962-963 (1972). I t may n o t a l w a y s b e
p r a c t i c a l f o r t h e secured p a r t y t o f i r s t t a k e p o s s e s s i o n of
t h e c o l l a t e r a l and a t t e m p t t o s e l l i t i f t h e v a l u e o f t h e
c o l l a t e r a l h a s s o d i m i n i s h e d t h a t t h e p r o c e e d s from r e s a l e
would c l e a r l y b e i n s u f f i c i e n t t o s a t i s f y t h e d e b t . I t may
t h e n b e t o t h e s e c u r e d p a r t y ' s a d v a n t a g e t o p r o c e e d by
judgment and e x e c u t i o n b e c a u s e i n t h a t way he c a n r e a c h
a s s e t s i n a d d i t i o n t o t h e c o l l a t e r a l and c a n e l i m i n a t e t h e
t w o - s t e p p r o c e s s o f f i r s t s e l l i n g t h e c o l l a t e r a l and t h e n
suing f o r a deficiency.
W e hold t h a t a secured c r e d i t o r i s n o t required t o
f i r s t t a k e p o s s e s s i o n and d i s p o s e o f c o l l a t e r a l b e f o r e
o b t a i n i n g a judgment a n d e x e c u t i o n upon o t h e r p r o p e r t y owned
by t h e d e b t o r .
The second i s s u e i s i f a j u n i o r encumbrancer p u r c h a s e s
a s e n i o r e n c u m b r a n c e r ' s i n t e r e s t u n d e r a t r u s t i n d e n t u r e and
t h e r e a f t e r s e l l s t h e property, does t h i s c o n s t i t u t e a f o r e c l o s u r e
under ~ i t l e
71, MCA, and i s t h e s e c u r e d p a r t y t h e r e b y p r e c l u d e d
from p u r s u i n g f u r t h e r r e m e d i e s .
A s p a r t o f t h e c o l l a t e r a l , AVCO r e c e i v e d a s e c o n d l i e n
i n t h e form of a t r u s t i n d e n t u r e on p r o p e r t y t h a t C h r i s t i a e n s
owned on E x c e l s i o r Avenue. Nationwide had t h e f i r s t l i e n
a l s o i n t h e form o f a t r u s t i n d e n t u r e . On November 8 , 1 9 7 9 ,
Nationwide f o r e c l o s e d and t h e p r o p e r t y was s o l d by b i d i n
conformance w i t h T i t l e 71, MCA, r e g a r d i n g t r u s t i n d e n t u r e s .
AVCO was t h e s o l e b i d d e r f o r $ 7 , 8 5 6 . 6 1 - - t h e amount d u e on
Nationwide's balance. AVCO t h e n s o l d t h e p r o p e r t y t h r o u g h a
Butte realtor. AVCO r e c e i v e d a g r o s s s a l e p r i c e o f $8,200
and a f t e r p a y i n g t h e t a x e s and s e l l i n g e x p e n s e s , AVCO n e t t e d
a p p r o x i m a t e l y $6,711.
C h r i s t i a e n s contend t h a t when AVCO b o u g h t and s o l d t h e
E x c e l s i o r Avenue p r o p e r t y , AVCO p r o c e e d e d u n d e r T i t l e 71,
MCA, and i s p r e v e n t e d from any f u r t h e r r e c o v e r y b e c a u s e o f a
d e f i c i e n c y u n d e r s e c t i o n 71-1-317, MCA, which p r o v i d e s :
"When a t r u s t i n d e n t u r e e x e c u t e d i n c o n f o r m i t y w i t h t h i s
p a r t i s f o r e c l o s e d by a d v e r t i s e m e n t and s a l e , no o t h e r o r
f u r t h e r a c t i o n , s u i t , o r proceedings s h a l l be t a k e n o r
judgment e n t e r e d f o r any d e f i c i e n c y a g a i n s t t h e g r a n t o r . .
I'
The c o n t e n t i o n on t h e p a r t o f C h r i s t i a e n s and t h e h o l d i n g
o f t h e ~ i s t r i c t o u r t s u g g e s t s c o n f u s i o n a s t o t h e p a r t y who
C
in fact foreclosed. AVCO did not foreclose on the Excelsior
Avenue property. Nationwide did foreclose on that property
in accordance with the procedure under Title 71, MCA, the
"Small Financing Act." At the sale conducted by Nationwide,
AVCO bid on the property in the amount owed to Nationwide
and AVCO then received a trustee's deed covering the
Excelsior Avenue property. The title which AVCO received by
that trustee's deed had no relationship to AVCO's junior
trust indenture lien, or to AVCO's judgment lien. Section
71-1-318, MCA, describes the trustee's deed:
"(3) The trustee's deed shall operate to
convey to the purchaser, without right of
redemption, the trustee's title and all
right, title, interest, and claim of the
grantor and his successors in interest and
of all persons claiming by, through, or
under them in and to the property sold. . ."
The trustee's deed in this case transferred the title
originally held by Nationwide as trustee and including all
right, title and interest of the Christiaens and all those
claiming through them in and to the Excelsior Avenue property.
Such trustee's deed has the affect of eliminating the AVCO
trust indenture lien under its junior trust indenture, and
also eliminating the AVCO judgment lien. As a result of the
trustee's deed, AVCO became the owner of the Excelsior
Avenue property with a right to sell the same in any manner
it chose. Under section 71-1-317, MCA, relied upon by the
Christiaens, Nationwide was prohibited from taking a deficiency
judgment. That section in no way applied to AVCO as a
purchaser. AVCO therefore had the right to sell the Excelsior
Avenue property without regard to section 71-1-317, MCA.
AVCO did suffer a loss of approximately $1,145 when it sold
the Excelsior Avenue property, but AVCO is not attempting to
recover from Christiaens any part of that loss. AVCO is
only seeking to recover the amount of its judgment entered
on November 1, 1979, plus interest.
We hold that AVCO is entitled to a declaratory judgment
establishing that its judgment of November 1, 1979, constituted
a lien upon the land described as plat 170-B, Silver Bow
County.
We vacate the judgment of the District Court in favor
of the Christiaens, and direct the court to enter a judgment
for AVCO in accordance with this opinion.
We Concur:
%+
~LdLdl.
Chief Justice