PETER A. DULAN, J R . ,
P l a i n i t f f and A p p e l l a n t ,
D e f e n d a n t and R e s p o n d e n t .
Appeal from: District Court of t h e Thirteenth J u d i c i a l District,
I n a n d f o r c h e County o f Y e l l o w s c o n e , Tile I f o n o r a b i e
C h a r l e s Luedke, J u d g e p r e s i d i n g .
C o u n s e l o f Record:
For Appeliant:
T e r r y L. S e i f f e r t , B i l l i n g s , Montana
For Respondent:
K. R o b e r t F o s t e r , Lewistown, Montana
Submitted: J a n u a r y 1 8 , 1983
Decided : March 24, 1983
Filed:
MAR 2 4 1983
@ - ---
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Clerk
Mr. C h i e f J u s t i c e F r a n k I . H a s w e l l 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.
A p p e l l a n t b o u g h t Shanon S t u d i o s , a B i l l i n g s p h o t o g r a -
phy b u s i n e s s , i n 1964 and i n 1966 i n c o r p o r a t e d u n d e r Shanon
Studios, Inc. On J u n e 2, 1971, he executed a promissory
n o t e f o r $ 7 , 5 0 0 w i t h r e s p o n d e n t and a s c o l l a t e r a l a s s i g n e d
t h e s t o c k of t h e c o r p o r a t i o n .
On May 22, 1972, appellant agreed to sell Shanon
Studios, Inc., t o G e r a l d L. Wolfe f o r $ 1 8 , 0 0 0 . his a g r e e -
ment c o n t a i n e d t h e f o l l o w i n g p a r a g r a p h :
"4. Unless otherwise agreed i n w r i t i n g ,
upon f a i l u r e o f B u y e r s t o make p a y m e n t s
w i t h i n 90 d a y s of t h e d a t e s d u e h e r e -
u n d e r , a l l amounts p a i d by B u y e r s on t h e
above p u r c h a s e p r i c e s h a l l be r e t a i n e d by
S e l l e r s a s l i q u i d a t e d damages, and t h i s
a g r e e m e n t s h a l l t h e r e u p o n become v o i d , i f
s a i d B u y e r s r e c e i v e w r i t t e n n o t i c e o f the
f a i l u r e -t o. make s a i d p a y m e n t d u e b e f o r e
t h e s a i d 90th dav. Buvers havina a l l
r i g h t s and o b l i g a t i o n s a c c r u i n g f r o m s a i d
stock u n t i l said event occurs, i f a t
all." (Emphasis added.)
Also, on May 22, 1972, the buyer and seller executed an
escrow a g r e e m e n t which appointed the respondent a s escrow
a g e n t and i n c l u d e d t h e f o l l o w i n g p r o v i s i o n :
"Upon r e c e i v i n g n o t i c e f r o m P e t e r A .
Dulan, J r . , t h a t any o t h e r p a r t y h e r e
undersigned has f a i l e d t o perform its
p a r t of t h e agreement mentioned above, a s
s e t o u t i n P a r a g r a p h Number F o u r , p a g e
f i v e o f s a i d A g r e e m e n t , t h e Escrow A g e n t
a t t h e e x p i r a t i o n of t e n ( 1 0 ) d a y s from
t h e d a t e of r e c e i v i n g s a i d n o t i c e , s h a l l
t r a n s f e r a l l s t o c k c e r t i f i c a t e s and docu-
m e n t s h e l d i n t h i s e s ---- t o ---------
crow P e t e r A.
Dulan, J r . " (Emphasis added.)
No representative of the respondent signed this escrow
agreement.
On J u l y 22, 1 9 7 2 , a p p e l l a n t e x e c u t e d a r e n e w a l p r o m i s -
s o r y n o t e f o r $7,500. The c o l l a t e r a l was l i s t e d a s " A s s i g n .
of note of Shanon Studios stock payments per schedule
attached."
On October 17, 1972, Wolie, the appellant, and the
v l c e p r e s i d e n t of r e s p o n d e n t e x e c u t e d a n e s c r o w r e c e l p t on
the standard form wherein the respondent acknowledged
r e c e i p t of t h e a g r e e m e n t t o s e l l and t h e s h a r e s o f stock.
The p r i o r e s c r o w a g r e e m e n t was n o t l i s t e d a s b e i n g p a r t o f
the contents of the escrow. The October 17 escrow a l s o
contained the following: "Credit payments to: Peter A.
Uulan note." Thus, the arrangement was that Wolfe made
payments to respondent t o discharge his obligations under
t h e a g r e e m e n t t o s e l l t h e s t o c k and t h e s e p a y m e n t s w e r e i n
turn directly applied to plaintiff's obligation under the
$7,500 renewal p ro m i s s or y n o t e .
E a r l y i n 1973 p u r s u a n t t o c o r r e s p o n d e n c e between t h e
parties, appellant signed a financing statement granting
respondent a s e c u r i t y i n t e r e s t i n t h e s t o c k held i n escrow.
R e s p o n d e n t f i l e d t h i s document w i t h t h e s e c r e t a r y o f state
on March 1 4 , 1 9 7 3 . O r i g i n a l l y , a s s i g n m e n t o f t h e s t o c k was
l i s t e d on t h e a c t u a l s t o c k c e r t i f i c a t e . The bank f e l t t h a t
t h e a s s i g n m e n t s h o u l d b e made on a s e p a r a t e document. This
t r a n s p i r e d e v e n t h o u g h on J u l y 22, 1 9 7 2 , a p p e l l a n t e x e c u t e d
a r e n e w a l p r o m i s s o r y n o t e i n which t h e c o l l a t e r a l was l i s t e d
a s t h e a s s i g n m e n t o f t h e n o t e f r o m Wolfe f o r h i s p u r c h a s e o f
the business. The a s s i g n m e n t o f t h e s t o c k a n d t h e a s s i g n m e n t
of t h e n o t e e v i d e n c e two d i f f e r e n t t y p e s of c o l l a t e r a l .
On May 6, 1974, respondent sent appellant a letter
advising appellant that Wolfe had n o t made t h e Pliarch and
A p r l l payments. Consequently, appellant's p a y m e n t s on h i s
n o t e t o r e s p o n d e n t w e r e d e l i n q u e n t i n t h e amount o f $558.88.
The t o t a l amount s t l l l owing on t h e n o t e was $ 1 , 4 2 7 . 4 4 . On
August 21, 1974, r e s p o n d e n t s e n t a n o t h e r l e t t e r t o a p p e l l a n t
by c e r t i f i e d m a i l which s t a t e d t h e f o l l o w i n g :
" T h i s l e t t e r is t o a d v i s e you t h a t a
demand is b e i n g p l a c e d on you i n t h e
amount o f $ 1 , 4 9 9 . 3 8 w h i c n i s r e l a t i v e t o
y o u r n o t e o f May 22nd, 1 9 7 2 , i n t h e
o r i g i n a l . amount of $ 7 , 5 0 0 . G O . This
i n c l u d e s p r i n c i p a l of $1,427.44 and
i n t e r e s t of $ 7 1 . 9 4 . This pays i n t e r e s t
t h r o u g h August 3 1 s t , 1974, and i f n o t
r e c e i v e d by t h a- a- w e w i l l t h e n p r o -
t -t e -
d
teed a g a i n s t t h e s t o c k c e r t i f i c a t e c o n -
s i s t i n g o f 4995 s h a r e s o f S h a n o n S t u d i o
s t o c k w h i c h y o u a s s i g n e d t o t h e Montana
N a t i o n a l Bank." ( E m p h a s i s a d d e d . )
The record indicates that appellant received this
letter. lie responded with a letter dated September 10,
1974, suggesting methods by which Wolfe could meet his
payment obligations. Appellant testified that if these
suggestions proved ineffective, the respondent should
c o n t a c t him.
On O c t o b e r 3 , 1 9 7 4 , r e s p o n d e n t s e n t a n o t h e r l e t t e r t o
appellant by certified mail to the address the previous
l e t t e r had b e e n s e n t t o , advising appellant t h a t the stock
would be advertised and sold on October 17, 1974. The
p r o c e e d s would b e a p p l i e d t o a p p e l l a n t ' s p a s t - d u e loan. The
r e c o r d shows t h a t t h i s l e t t e r was r e t u r n e d u n c l a i m e d . There
is c o n £ 1i c t i n g testimony regarding whether the appellant
n o t i f i e d t h e respondent of h i s change of address. Appellant
testified that h e had notified an attorney with the firm
t h a t represented t h e respondent.
On a b o u t November 14, 1974, the stock was sold to
Wolfe, t h e same p e r s o n who was b u y i n g t h e s t o c k u n d e r the
original contract, for t h e remaining amount d u e on a p p e l -
lant's note t o respondent ($1,590). T h e r e was a b o u t $ 8 , 5 0 0
d u e on t h e o r i g i n a l c o n t r a c t b e t w e e n Wolfe and appellant.
Appellant indicated at trial that had he known the stock
would be s o l d t o s a t i s f y t h e amount r e m a i n i n g on h i s n o t e h e
would h a v e p a i d i t i n f u l l .
On December 7, 1977, appellant filed a complaint
alleging that respondent breached its fiduciary duty to
a p p e l l a n t by f r a u d u l e n t l y f o r e c l o s i n g o n t h e s t o c k w i t h o u t
notice of such foreclosure. Appellant sought $6,000 in
a c t u a l damages and $ 1 5 , 0 0 0 i n p u n i t i v e damages. Respondent
answered denying any b r e a c h of fiduciary relationship and
alleging that appellant was not entitled to punitive
damages.
The District Court dismissed appellant's complaint,
finding that respondent acted in good faith in notifying
a p p e l l a n t o f t h e f o r e c l o s u r e and s a l e . From t h i s d i s m i s s a l ,
appellant brings t h i s appeal.
Three i s s u e s a r e p r e s e n t e d on a p p e a l :
1. Did t h e r e s p o n d e n t b r e a c h a f i d u c i a r y d u t y when i t
f o r e c l o s e d on t h e s t o c k ?
2. Did t h e r e s p o n d e n t g i v e p r o p e r n o t i c e o f the sale
of t h e s t o c k ?
3. Was t h e f o r e c l o s u r e s a l e c o n d u c t e d i n a commer-
c i a l l y r e a s o n a b l e manner?
The appellant contends first that the respondent
breached i t s f i d u c i a r y d u t y t o t h e a p p e l l a n t when i t f o r e -
c l o s e d on t h e s t o c k h e l d i n e s c r o w . An e s c r o w a g e n t i s a
f i d u c i a r y and c a n n o t b r e a c h t h i s c o n f i d e n c e t o a c t f o r i t s
own a d v a n t a g e . Appellant a s s e r t s t h i s breach is c l e a r a s
Wolfe bought the stock in the foreclosure sale for the
amount i n default. T h i s was substantially less than the
amount remaining on the contract between appellant and
Wolfe. The respondent contends that it acted completely
within the s t a t u t o r y authority vested i n a secured c r e d i t o r
when a d e b t o r d e f a u l t s .
A security interest is defined as an interest in
p e r s o n a l p r o p e r t y which s e c u r e s payment o r performance o f a n
obligation. S e c t i o n 30-1-201(37), MCA. A security interest
a t t a c h e s b i n d i n g t h e c r e d i t o r a n d t h e d e b t o r when t h e r e i s
a n agreement between t h e p a r t i e s t h a t it a t t a c h , value is
given to the debtor, and the debtor has rights in the
collateral. S e c t i o n 30-9-204(1), MCA. I n the present case
the security interest a t t a c h e d on J u n e 2, 1 9 7 1 , when the
s t o c k was p l e d g e d . T h e r e was c l e a r l y a n a g r e e m e n t b e t w e e n
the parties that the security interest attach t o the stock,
t h e a p p e l l a n t was g i v e n c r e d i t o r a n e x t e n s i o n t h e r e o f , a n d
the appellant owned the stock when attachment occurred.
Further, the s e c u r i t y i n t e r e s t continued in the collateral
notwithstanding the sale t o Wolfe. S e c t i o n 30-9-306 ( 2 )
MCA.
W a l s o n o t e t h a t t h e s e c u r i t y a g r e e m e n t became b i n d -
e
ing b e f o r e t h e p a r t i e s e n t e r e d i n t o t h e escrow arrangement.
The s e c u r i t y i n t e r e s t a t t a c h e d o n J u n e 2 , 1 9 7 1 . The p a r t i e s
entered into the escrow agreement on October 17, 1972.
C o n s e q u e n t l y , t h e s e c u r i t y i n t e r e s t would r e m a i n a t t a c h e d t o
t h e s t o c k i n t h e escrow account.
T h u s , we h o l d t h e s e c u r i t y i n t e r e s t h a d a t t a c h e d a n d
remained s o while t h e s t o c k w a s i n escrow. Upon d e f a u l t t h e
respondent a c t e d w i t h i n its s t a t u t o r y r i g h t s t o f o r e c l o s e on
the collateral t o s a t i s f y appellant's obligation. Section
30-9-504, MCA.
The e s c r o w a r r a n g e m e n t was a c o n v e n i e n t means t o h a v e
payments from Wolfe, for the corporation, credited against
appellant's original indebtedness to the respondent. It
should not, however, create an obstacle for a secured party
in exercising its statutory rights to foreclose on col-
lateral when the debtor defaults. Moreover, the fiduciary
duties respondent owed to the appellant, as an escrow agent,
did not conflict with this right.
The particular instruction that appellant asserts
would require the respondent to return possession of the
stock certificate to appellant, if Wolfe defaulted on a
payment, was in the May 22, 1972, escrow agreement between
appellant and Wolfe. However, the respondent was merely
appo~nted as depository. It had not legally accepted the
escrow. Hence, this instruction did not bind the respondent.
It was not until October 17, 1972, that respondent legally
became the escrow depository. This is evidenced by the
formal escrow receipt executed on that date. It acknowl-
edged receipt of the agreement to sell and the shares of
stock. The agreement was on a standard form and made no
reference to the Nay 22, 1972, escrow.
The appellant further asserts that the respondent did
not comply with the Uniform Commercial Code in failing to
give notice of the foreclosure sale. The respondent argues
that in Montana such notice only needs to be sent and,
moreover, that the August 21, 1974, letter apprised the
appellant of respondent's intentions to proceed against the
stock.
Section 30-9-504(3), MCA, provides ". . . reasonable
notification of the time and place of any public sale or
reasonable notification of the time after which any private
s a l e or other intended d i s p o s i t i o n i s t o be made s h a l l be
s e n t by the secured party t o the debtor . . ." (Emphasis
added.) S e c t i o n 30-1-201(26), MCA, defines notice as:
". . . t a k i n g s u c h s t e p s a s may be r e a -
sonably r e q u i r e d t o inform t h e o t h e r i n
o r d i n a r y c o u r s e whether o r n o t such o t h e r
a c t u a l l y comes t o know of i t . A person
' r e c e i v e s ' n o t i c e o r n o t i f i c a t i o n when:
"(b) i t is d u l y d e l i v e r e d a t any. . .
o t h e r p l a c e h e l d o u t by him a s t h e p l a c e
f o r r e c e i p t of s u c h communication."
I n James T a l c o t t , Inc. v. Reynolds ( 1 9 7 4 ) , 1 6 5 Mont.
404, 529 P.2d 352, we s p e c i f i c a l l y h e l d t h a t according to
the UCC there is no requirement that the debtor receive
actual notice. It requires the creditor t o take reasonable
s t e p s t o a s s u r e t h a t t h e d e b t o r is n o t i f i e d .
We hold that notice of the sale of the stock was
proper. N o t i c e was sent to the appellant. Further, the
steps taken by the respondent were those reasonably re-
quired t o n o t i f y t h e a p p e l l a n t of the foreclosure. Also,
a c c o r d i n g t o t h e UCC, the appellant received n o t i c e of the
s a l e when i t was d e l i v e r e d to the address t h e August 21,
1974, l e t t e r was s e n t . By r e s p o n d i n g to that letter, the
appellant held t h e a d d r e s s of delivery out as a place for
r e c e i v i n g com~nunications.
Finaily, t h e s t e p s t a k e n by t h e r e s p o n d e n t t o n o t i f y
t h e a p p e l l a n t were s u c c e s s f u l i n g i v i n g a c t u a l n o t i c e . The
August l e t t e r informed a p p e l l a n t of the respondent's inten-
tions to dispose of the collateral to satisfy the appel-
l a n t ' s obligation.
Finally, the appellant contends the sale of the
collateral was not conducted in a commercially reasonable
manner a s mandated by section 30-9-504(3), MCA. The
respondent merely s o l d t h e s t o c k t o t h e o r i g i n a l purchaser
f o r an amount s u b s t a n t i a l l y l e s s than i t s worth and t h e s a l e
was not a d v e r t i s e d .
The respondent a s s e r t s t h a t t h e p r i c e i t s e l f does n o t
warrant a holding that a particular s a l e was commercially
unreasonable. The a p p e l l a n t m u s t prove t h a t the manner of
t h e s a l e was commercially unreasonable.
Under the UCC, every a s p e c t of the f o r e c l o s u r e pro-
ceedings, i n c l u d i n g method, manner, time, p l a c e and terms,
m u s t be commercially r e a s o n a b l e . S e c t i o n 30-9-504(3), MCk.
The f a c t t h a t a b e t t e r p r i c e could be obtained a t a d i f -
f e r e n t s a l e or a d i f f e r e n t method or manner of d i s p o s i t i o n
does n o t e s t a b l i s h t h a t t h e s a l e was commercially unreason-
able. S e c t i o n 30-9-507(2), MCA.
T h i s Court i n t e r p r e t e d t h e s e two s e c t i o n s of t h e UCC
i n the T a l c o t t case, supra. W held t h a t t h e r e a s o n a b l e n e s s
e
of the s a l e is not determined by p r i c e but t h e manner in
which t h e s a l e was conducted. In o t h e r words, if the s a l e
is considered commercially reasonable, then the price is
reasonable.
However, Professors White and Summers in their
t r e a t i s e on t h e UCC p l a c e some importance on t h e p r i c e t h a t
was a c t u a l l y received f o r t h e c o l l a t e r a l . They s t a t e :
ll. . . Notwithstanding t h e s t a t e m e n t i n
507-(2) t h a t low r e s a l e p r i c e alone i s
n o t enough, t h e c r u c i a l i s s u e which one
g l e a n s from t h e 'method, manner, time1
l a n g u a g e and from t h e s e v e r a l c a s e s
i n t e r p r e t i n g 9 - 5 0 4 ( 3 ) is j u s t that--was
the p r i c e s u f f i c i e n t ? The d e b t o r who
a s k s a c o u r t t o ignore 9-507 ( 2 ) probably
expects t o o much, but t h e c a s e s s u g g e s t
t h a t given an unusually low r e s a l e p r i c e
l i t t l e more is needed f o r t h e c o u r t s t o
f i n d t h e s a l e commercially unreasonable
. . ." White and Summers, Uniform Com-
mercial Code 2d Ed., § 26-11 at 1116
(1980).
Some recent cases recognize that the resale price
should be a factor in determining the commercial reasonable-
ness of a sale. In Mercantile Financial Corporation v.
Miller (E.D. Pa. 1968), 292 F.Supp. 797, 7 UCC 402, the
court recognized that:
"Although S 9-507(2) clearly provides
that a discrepancy between a price
received by a creditor disposing of
assets pursuant to 9-504 and an
isolated price later shown to have been
obtainable, is not alone sufficient to
grant a debtor affirmative relief under
9-507(1), certainly such a discrepancy,
if substantial, is relevant to a deter-
mination of whether a challenged sale was
'commercially reasonable'. [citing cases]
The evidence here established that the
price received for the goods sold by the
plaintiff [secured party] was substan-
tially less than both the price original-
ly paid for them by G.F.&M. and the price
which the purchaser of the assets subse-
quently received for them on resale,
i.e., approximately $57,000.00. This
evidence strongly suggested that the
plaintiff did not obtain the fair market
value for these goods at the time of the
sale, and the plaintiff did not rebut
this inference." 292 F.Supp. at 801.
Thus, in light of the above authority and the fact
that "reasonable price" is the objective of a commercially
reasonable disposition, we hold that a large discrepancy in
price can be considered within the parameters of section 30-
9-504(3), MCA. We also conclude that the complaining party
has the burden of proving the price received was less than
the fair market value of the collateral.
In this case, besides the evidence regarding the value
of the stock, the appellant made little effort to prove the
actual sale was commercially unreasonable. The record is
replete with speculations of the value of the stock when it
was d i s p o s e d . The a p p e l l a n t a s s e r t e d t h a t t h e a s s e t s o f t h e
c o r p o r a t i o n were v a l u e d a t $22,279.79 the year before t h e
s a l e of t h e c o l l a t e r a l . However, t h e r e was a l s o t e s t i m o n y
that Wolfe did not do w e l l with the business after the
a p p e l l a n t s o l d i t t o him. M o r e o v e r , Wolfe f i l e d c o r p o r a t e
b a n k r u p t c y a p p r o x i m a t e l y two and o n e - h a l f y e a r s a f t e r i t was
sold.
Thus, we h o l d t h a t t h e a p p e l l a n t d i d n o t p r o v e t h a t
t h e s a l e was c o n d u c t e d i n a c o m m e r c i a l l y u n r e a s o n a b l e manner
p u r s u a n t t o s e c t i o n 30-9-504(3), MCA. W e f u r t h e r hold t h a t
t h e r e is s u b s t a n t i a l e v i d e n c e t o s u p p o r t t h e l o w e r c o u r t ' s
c o n c l u s i o n t h a t a p p e l l a n t d i d n o t meet h i s b u r d e n o f e s t a b -
l i s h i n g t h a t t h e s t o c k was w o r t h a n amount g r e a t e r t h a n t h a t
f o r w h i c h i t was s o l d .
Af f i r m e d .
wcw&@Jp
=344nat
Chief J u s t i c e
W concur:
e
.*As
--.+,"
J
, x
Justices
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