No. 90-262
IN THE SUPREME COURT OF THE STATE OF MONTANA
BERRY W. OTTERSEN, a/k/a
BERRY W. OTTERSON,
Plaintiff and Respondent,
-vs-
.
WALLACE F RUBICK, FLORENCE RUBICK,
LARRY F. LONG, PEGGY M. LONG, and
LYNNE GEIER a/k/a LYNN GEIER,
Defendants and Appellants.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Russell K. Fillner, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
James P. Healow, Esq.; Sweeney & Healow, Billings,
Montana
For Respondent:
Martin J. Elison, Esq. ; Law Offices of Douglas Y.
Freeman, Hardin, Montana
Submitted on Briefs: September 20, 1990
1
~ecided: December 18, 1990
Filed:
Justice Diane G. Barz delivered the Opinion of the Court.
Defendants and appellants Wallace F. and Florence Rubick
appeal the judgment awarded plaintiff and respondent Berry Ottersen
following a non-jury trial in the District Court, Thirteenth
Judicial District, Yellowstone County. We affirm.
The issues are:
1. Whether plaintiff creditor is barred from obtaining a
deficiency judgment under the facts of this case when, although
there was no notice of sale for a portion of the repossessed
collateral, there were judicial proceedings and approval of sale
for the balance of the collateral?
2. Was the finding of the District Court erroneous when it
found that no foreclosure occurred and the plaintiff could pursue
both termination and repossession and sue for the balance under the
Sales Agreement?
3. Did plaintiff prevent performance of the Sales Agreement
by defendants?
4. Did the District Court err when it considered matters not
raised in the pretrial order?
On April 1, 1982, the plaintiff as seller, and defendants as
buyers, entered into a Sales Agreement for the sale of a business
known as ItBerryts
Tall Fashions." The defendants remained liable
under the agreement but assigned their interest to Larry and Peggy
Long and the Longs assigned to Lynne Geier. Geier filed bankruptcy
in June, 1987. After Geiertslast payment on the contract in May,
1987, the sum of $48,188.76 plus ten percent per annum interest
remained outstanding. Default notices by certified mail were sent
by plaintiff to defendants Rubicks and the other assignees on
September 15, 1987. The default was not cured within thirty days
of notice. Geier had an automatic stay in bankruptcy and the
bankruptcytrustee assumed control over all assets of the business.
Plaintiff received a key to the business premises from the trustee.
The owner of the premises demanded that all personal property be
removed since rental payments were not made. plaintiff removed the
inventory and stored most of it in her garage. The display cases
were placed in commercial storage and sold at a private sale in
November, 1987 without notice to the defendants. The cash obtained
was placed in an interest bearing account at the disposal of the
bankruptcy court.
The plaintiff asked the District Court in a February, 1988,
complaint against defendants to: (1) establish plaintiff's security
position in the collateral; (2) establish possession of the
collateral; (3) order foreclosure of the collateral; and (4) grant
judgment for the amount owed on the Sales Agreement less proceeds
from the sale of collateral. In April, plaintiff moved the
District Court for an order to allow sale of the inventory and
fixtures held as collateral. A hearing on the motion was set for
April 26, 1988. None of the defendants appeared at the hearing and
the motion to allow the sale was granted. It appears that
plaintiff's counsel sent a copy of the notice of sale to each of
the defendantsf attorneys on April 26, 1988. All of the money
obtained from the sale was placed in an interest bearing savings
account by plaintiff. After a non-jury trial, plaintiff was
awarded judgment, costs and attorney's fees and defendants appeal.
The first issue raised on appeal is whether plaintiff creditor
is barred from obtaining a deficiency judgment under the facts of
this case when, although there was no notice of sale for a portion
of the repossessed collateral, there were judicial proceedings and
approval of sale for the balance of the collateral. If a creditor
forecloses on collateral pursuant to a note of indebtedness,
commercially reasonable notice of sale must be sent to the debtor
prior to disposition of the collateral or the creditor cannot
obtain a deficiency judgment. Westmont Tractor Co. v. Continental
I, Inc. (1986), 224 Mont. 516, 731 P.2d 327; Bank of Sheridan v.
Devers (1985), 217 Mont. 173, 702 P.2d 1388; Wippert v. Blackfeet
~ r i b e(1985), 215 Mont. 85, 695 P.2d 461; and Farmers State Bank
v. Mobile Homes Unlimited (1979), 181 Mont. 342, 593 P.2d 734.
These cases interpreted 5 30-9-504(3), MCA.
[Elvery aspect of the disposition . . .must
be commercially reasonable. [Rleasonable
notification . . . shall be sent by the
secured party to the debtor. ...
The statute refers to both duties in separate sentences and in
mandatory language. Different interests are protected by the two
requirements.
In an Ohio State Law Journal article, the author stated:
[Tlhe purpose of commercial
reasonableness .is to set standards of
propriety at the time of disposition of the
collateral. Notice on the other hand was
included to insure that the debtor (and other
secured parties) could protect his interest in
the collateral itself after default and before
disposition.
Note, Denial of Deficiency: A Problem of Reasonable Notice Under
UCC 5 9-504(3), 34 Ohio St. L.J. 657, 666 (1973).
However, 5 30-9-507 (2), MCA, provides that a disposition which
has been approved in any judicial proceeding shall conclusively be
deemed to be commercially reasonable. Therefore, in this case the
plaintiff should be able to avoid all controversy over the
reasonableness ofthe disposition and the notice provided since she
went to court prior to the disposition. Any objections about the
manner of notice were met by complying with the provisions of the
Montana Rules of Civil Procedure. There is also no question that
defendants received a notice of default and notice of acceleration
of the Sales Agreement.
The defendants introduced no evidence that the price obtained
at court-approved sale was unreasonable. In Dulan v. Montana Nat.
Bank of Roundup (1983), 203 Mont. 177, 661 P.2d 28, this Court
stated:
This Court interpreted these two sections of the UCC
[ 30-9-504(3) and 30-9-507(2), MCA] in the Talcott
case, supra. We held that the reasonableness of the sale
is not determined by price but the manner in which the
sale was conducted. In other words, if the sale is
considered commercially reasonable then the price is
reasonable.
Thus, in light of the above authority and the fact
that "reasonable pricett 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. (Emphasis in original.)
Dulan, 661 P.2d at 32.
The disposition and sale of some display cases in November of
1987 prior to the initiation of court proceedings was clearly
without notice required in 5 30-9-504 (3), MCA. Defendants contend
that sale alone should bar the plaintiff from recovering a
deficiency judgment. The fair market value of these display cases
does not appear in evidence and the defendants introduced no
evidence that the price obtained at the private sale was
unreasonable. Defendant Rubick testified that he saw the display
cases in the empty store but took no action.
clear this case that the plaintiff did mitigate
damages by terminating storage expenses and placing all proceeds
in an interest bearing account. The defendants only suffered
damages, if at all, in an amount equal to the difference between
what the cases were worth and what they sold for. Section 30-9-
507(1), MCA, provides an adequate remedy for sale of a minor
portion of the collateral:
If the disposition has occurred the debtor or
any person entitled to notification or whose
security interest has been made known to the
secured party prior to the disposition has a
right to recover from the secured party any
loss caused by failure to comply with the
provisions of this part. If the collateral is
consumer goods, the debtor has a right to
recover in any event an amount not less than
the credit service charge plus 10% of the
principal amount of the debt or the time price
differential plus 10% of the cash price.
Farmers State Bank v. Mobile Homes Unlimited (1979), 181 Mont.
342, 347, 593 P.2d 734, 737, states:
It is also generally held that a secured
creditor's failure to give the notice required
under U.C.C. 1 9-504 (3) ( . . section 30-9-
504(3), MCA) prior to disposition of
collateral precludes or limits the creditor's
right to recover a deficiency judgment.
(Emphasis added.)
This case indicates that this Court has recognized that a total bar
of a deficiency judgment is not warranted in some cases.
The Montana cases: Westmont Tractor Co.; Bank of sheridan;
W i ~ ~ e r tand Farmers State Bank; supra, all indicate that notice
;
requirements are mandatory for reasons which vary from case to
case, but it is important to enable the debtor to protect his
interest in the property by paying the debt or by being present at
the sale to the end it not be sacrificed by a sale less than its
true value. When a deficiency judgment is barred, it sometimes
suggests that the creditor is proceeding with unclean hands or
without good faith. This is completely absent in this case. Here
the defendant Rubick, a sophisticated businessman who already had
another court deny him a deficiency judgment, obviously thought he
would do the same to a 71-year-old retired lady. In this case the
fair market value of the display cases, even if different from the
price obtained at the private sale, falls far short of the $48,000
due under the Sales Agreement and amounts to less than one-fifth
of the total proceeds from sold collateral turned over to the
District Court.
Defendants next contend that under the Sales Agreement
plaintiff must elect to terminate and repossess, or sue for the
balance due, but may not have both remedies. They argue that all
of the plaintiff's actions were foreclosure actions barring
recovery of the balance due on the contract. The District Court's
finding of fact number 22 states:
22. The Court finds that the plaintiff did not
intend to foreclose her security interest in the
property, but rather elected to terminate the contract
and demand payment in full on the unpaid balance, an
option that she was entitled to under the terms of the
Sales Agreement as well as under the terms of Section 30-
9-501(1). While some terminology in some of the default
notices as well as the pleadings seem to indicate a
foreclosure of the security interest, the actions taken
by the plaintiff are consistent with her election to
reduce her claim to judgment. Furthermore, action, if
any, to foreclose her.security interest was not pursued
to a conclusion.
In this case the contract between the parties does not limit
or restrict the remedies of plaintiff upon default. Section 30-
9-501(1) and (2) make it clear that the statement of rights and
remedies of the Uniform commercial Code do not exclude other
remedies provided by agreement.
We hold that finding of fact number 22 is not clearly
erroneous. There is substantial evidence in the record which
supports the finding that no foreclosure occurred. "In the absence
of a contractual provision expressly limiting the remedy or
remedies available, a party may pursue any remedy which law or
equity affords, as well as the remedies specified in the contract.
Glacier Campground v. Wild Rivers, Inc. (1978), 182 Mont. 389, 403,
The third issue on appeal is whether Ottersen prevented
performance of the Sales Agreement by Rubicks. Rubicks argue that
by Ottersen allowing Geier to run the store into default and
removing the merchandise from the store before the Rubicks had a
chance to run the business, she removed the Rubicksf chance to
perform. Defendant Rubick has failed to meet that requisite burden
of proof in the District Court. The burden of proving it was not
possible to perform falls upon the Rubicks. Ehly v. Cady (1984),
212 Mont. 82, 687 P.2d 687.
The last issue raised by appellants is whether the District
Court erred when it considered matters not raised in the pretrial
order.
Rule 16, M.R.Civ.P. relating to pretrial procedures is a
permissive not mandatory rule. Bell v. Richards (1987), 228 Mont.
215, 217, 741 P.2d 788, 790. "A pretrial order . . . should be
liberally construed to permit any issues at trial that are
embraced within its language. (Citation omitted. ) Bell at 2 17,
741 P.2d at 790. Furthermore, all of the legal issues considered
by the District Court, if not set forth specifically in the
pretrial order, were argued in the briefs presented to the court.
We hold that there was no error.
Affirmed .
We concur:
. ,
Justice R. C. McDonough dissenting.
I dissent. This case involves the Disposition of Collateral
after default under the U.C.C. Such disposition is governed by
statute, 30-9-504(3) (a), MCA, which clearly provides: If. . .
reasonable notification of the time and place of any public sale
or reasonable notification of the time after which any private sale
or other intended disposition is to be made shall be sent by the
secured party to the debtor . . . This section provides that
disposition of collateral must be commercially reasonable. The
burden of proof as to whether or not a disposition is commercially
reasonable is on the secured party. It is generally held that a
''secured creditor's failure to give the notice required [now under
§ 30-9-504 (3), MCA] prior to disposition of collateral precludes
or limits the creditor's right to recover a deficiency judgment.
Annot. 59 ALR 3rd 401." See Farmers State Bank v. Mobil Homes
Unlimited (1979), 181 Mont. 342, 374, 593 P.2d 734, 737.
In the case of Wippert v. Blackfeet Tr. of Blackfeet Ind. Res.
(1985), 215 Mont. 85, 695 P.2d 461, the secured party, after
default of the debtor, sent a letter informing the debtor of its
intent to foreclose and apply the proceeds to the loan. The
secured party failed to state the time or place of the proposed
sale. The collateral (cattle) was later sold at public auction for
less than the indebtedness. The Court stated:
This letter failsto satisfy the notice requirements
of either the U.C.C. or the security agreement. There
is no mention of either the time or place of sale, and
without that information a debtor is precluded from
taking action to assure that a competitive price is
obtained for his collateral at a public sale.
We hold that failure to provide the notice required
by section 30-9-504 (3) , MCA, precludes a creditor s right
to obtain a deficiency judgment.
In Bank of Sheridan v. Devers, 217 Mont. 173, 702 P.2d 1288,
the secured party sent notice of the sale of the collateral to the
debtor, but the date of sale therein was wrong. This Court held
that the secured party failed to give the debtor commercially
reasonable notice of the sale of the collateral and therefore the
bank was precluded from recovery of any deficiency judgment.
In Westmont Tractor v. Continental I, Inc. (1986), 224 Mont.
516, 731 P.2d 327, one of two debtors agreed with secured party as
to how collateral would be sold. The collateral was sold
accordingly and no notice of agreement or sale was ever given to
the other debtor. The Court held that failure of the secured party
to provide notice of sale bars a deficiency judgment against the
other debtor. Westmont Tractor, 731 P.2d 331.
In this case the collateral was fixtures and inventory of a
store. The secured creditor sold the display cases without any
notice whatsoever to the appellant debtor. The judicial
proceedings cannot be relied upon as to the other property because
the motion to sell the balance of the collateral noted that the
sale would occur upon notice to the defendants and the court's
order allowing sale stated that sales are to be conducted by the
respondent upon notice being given. The notice allegedly given is
not part of the record and did not comply with the parties1
agreement nor did it comply with the statutory law and the District
Court did not find in its findings that proper notice of sale was
given.
As set forth above every aspect of the disposition must be
commercially reasonable. Here there was a failure of any proper
notice. Whether or not a notification is reasonable as to time and
place as set forth by the statute is one thing, but where no proper
notice is given at all, the question of reasonableness is not even
reached. This case has been essentially decided on equitable ad
hoc grounds by the District Court and this Court. One wonders what
the decision would be under these same facts if the creditor was
a large financial institution and the debtor was a little grey
haired grandmother who co-signed her grandchild's or child's note
and security agreement and the institution was seeking a deficiency
judgment against her.
Chief Justice J.A. Turnage and Justice Wm. E. Hunt, Sr.,
concur in the foreg,oing dissent. -07
Chief Justice
(rl