No
No. 97-583
IN THE SUPREME COURT OF THE STATE OF MONTANA
1998 MT 327
AUTO CREDIT, INC.,
Plaintiff and Respondent,
v.
DARRO N. LONG, a/k/a DARRO AND TRACY LONG,
Defendants and Appellants.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
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The Honorable Robert W. Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
D. Michael Eakin, Montana Legal Services; Billings, Montana
For Respondent:
Peter T. Stanley, Attorney at Law; Billings, Montana
Submitted on Briefs: May 14, 1998
Decided: December 30, 1998
Filed:
__________________________________________
Clerk
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Justice Terry N. Trieweiler delivered the opinion of the Court.
¶1. The plaintiff, Auto Credit, Inc., filed a complaint in Yellowstone County Justice
Court to recover a deficiency against the defendants, Darro and Tracy Long, after its
sale of a car which Longs had purchased by a retail installment contract and
returned to Auto Credit. Following entry of judgment for Auto Credit, Longs
appealed to the District Court for the Thirteenth Judicial District in Yellowstone
County. After both parties moved for summary judgment, the District Court granted
in part and denied in part each of their motions and entered the judgment in favor of
Auto Credit from which Longs appeal. We reverse the judgment of the District
Court.
¶2. The sole issue on appeal is whether the District Court erred when it held that the
sale of the vehicle repossessed from Longs was commercially reasonable.
FACTUAL BACKGROUND
¶3. On April 27, 1992, Darro and Tracy Long purchased a 1980 Ford Escort for
$2795 from Auto Credit, Inc. They made a cash down payment of $300 and financed
the balance of the purchase price. The terms of the financing required Longs to pay
$38.84 for eighty-four weeks. Longs made six timely payments for the vehicle. On
June 17, 1992, however, Longs notified Auto Credit that they intended to make no
further payments, and they returned the vehicle to Auto Credit.
¶4. The car was in virtually the same condition, with the exception that they had
driven it 3500 miles. The balance due for the vehicle at the time was $2594.02. On
June 17, 1992, Auto Credit notified Longs that if they failed to pay the remainder of
the balance within ten days, the car would be sold at a private sale on the next
business day after June 27, 1992. However, the car was not sold until August 12,
1992, at which time it was sold at the Billings Auto Auction for $150. After Auto
Credit deducted $229.47 for its expenses from the sale and finance charges, an
additional $79.47 was charged to Longs' account.
¶5. Auto Credit filed an action in the Justice Court to recover a deficiency of
$2934.15. Longs filed a counterclaim to recover damages on the basis that the sale
was unreasonable pursuant to the UCC, and that it violated federal truth in lending
law. After a judgment was entered in Justice Court, Longs appealed to the District
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Court.
¶6. On September 1, 1995, both parties moved for partial summary judgment. The
issues raised included whether Auto Credit had given proper notice of the sale to
Longs; whether the car had been sold in a commercially reasonable manner; and
whether the financing had violated federal truth in lending law. After a hearing, the
District Court granted Auto Credit's motion for summary judgment in part, finding
that it had given proper notice of sale and that the sale had been commercially
reasonable. It denied Longs' motion for summary judgment on those issues, but held
by summary judgment that Auto Credit had violated federal truth in lending law.
Pursuant to its order, the District Court entered judgment against Longs, but offset
the amount by $1000 as a result of its conclusion that federal truth in lending law had
been violated. The parties eventually stipulated to an amount for which judgment
could be entered, and this appeal followed.
DISCUSSION
¶7. Did the District Court err when it held that the sale of the vehicle repossessed
from Longs was commercially reasonable?
¶8. Our standard of review of appeals from summary judgment is de novo. See Mead
v. M.S.B., Inc. (1994), 264 Mont. 465, 470, 872 P.2d 782, 785. We consider whether
the order of the district court is correct as a matter of law. See Bruner v. Yellowstone
County (1995), 272 Mont. 261, 264-65, 900 P.2d 901, 903. Summary judgment is
appropriate when there is no genuine issue of material fact and the moving party has
presented evidence that it is entitled to judgment as a matter of law. See Rule 56, M.
R.Civ.P.; Bruner, 272 Mont. at 264-65, 900 P.2d at 903.
¶9. Section 30-9-504, MCA, governs a secured party's right to dispose of collateral
after a default. It requires that "every aspect of the disposition including the method,
manner, time, place, and terms must be commercially reasonable." Section 30-9-504
(3)(a), MCA. Here, Longs contend that a number of elements of the sale made it
commercially unreasonable, such as the price at which the car sold, the notice that
they received, and the final accounting. Auto Credit, on the other hand, contends
that, based on the affidavit of its general manager, commercial reasonableness was
uncontroverted and it was entitled to judgment as a matter of law.
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¶10. The burden of proving that the sale of repossessed collateral is commercially
reasonable rests on the seller. See Lilly v. Terwilliger (1990), 244 Mont. 93, 100, 796
P.2d 199, 203; Bank of Sheridan v. Devers (1985), 217 Mont. 173, 176, 702 P.2d 1388,
1390; Farmers State Bank v. Mobile Homes Unltd. (1979), 181 Mont. 342, 347, 593
P.2d 734, 737. However, we have also held that when a party contends that a sale is
commercially unreasonable on the basis of a large price discrepancy, the complaining
party has the burden to prove that the price received is less than the fair market
value. See Lilly, 244 Mont. at 100, 796 P.2d at 204; Dulan v. Montana Nat'l Bank
(1983), 203 Mont. 177, 186, 661 P.2d 28, 32.
¶11. We have held that a low price, by itself, will not establish that a sale was
commercially unreasonable. See § 30-9-507(2), MCA; see also Lilly, 244 Mont. at 100,
796 P.2d at 203-04; Dulan, 203 Mont. at 184-85, 661 P.2d at 31-32. Rather, the
reasonableness of a sale is to be determined on a case-by-case basis, and should take
into consideration the totality of the circumstances. See, e.g., GECC Fin. Corp. v.
Jaffarian (Haw. Ct. App. 1995), 904 P.2d 530, 538; Security Fed. Sav. & Loan v.
Prendergast (N.M. 1989), 775 P.2d 1289, 1291; Security State Bank v. Broadhead
(Utah 1987), 734 P.2d 469, 472.
¶12. Many jurisdictions have found that a secured party has an express obligation to
protect a debtor's interests. See, e.g., First Westside Bank v. For-Med, Inc. (Neb.
1995), 529 N.W.2d 66, 70 (noting that secured party's duty to debtor to use all fair
and reasonable means to obtain best price under circumstances does not require the
use of extraordinary means); Prendergast, 775 P.2d at 1291 (citing a good faith duty
to the debtor); American State Bank of Killdeer v. Hewson (N.D. 1987), 411 N.W.2d
57, 61 (referring to the secured party's duty to act in good faith with due diligence,
reasonableness, and care); Chrysler Dodge Country, U.S.A., Inc. v. Curley (Utah Ct.
App. 1989), 782 P.2d 536, 541 ("It is the duty of the secured party to obtain the best
possible price for the benefit of the debtor."). While this Court has not expressly held
that a secured party must, as a matter of law, protect the debtor when it conducts a
disposition sale, we do conclude that collateral cannot be disposed of, as it was in this
case, in total disregard of the debtor's interests.
¶13. Based on the unique facts in this case, we conclude that they permit only one
reasonable interpretation. In order to assess a reasonable fair market value for the
vehicle we need only look to the value that Auto Credit, which admitted to being
involved in dozens of these types of transactions, was willing to assign it when it made
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the original financing arrangement. The fact that Auto Credit secured the $2795
transaction with the vehicle as collateral serves effectively as an admission by Auto
Credit of the vehicle's worth in April.
¶14. There is nothing in the record to suggest that the vehicle's value diminished due
to a mechanical problem, nor has either party suggested that the 3500 miles that
Longs added to the vehicle devalued it by ninety-five percent. Therefore, based upon
the facts before the District Court, we conclude that $150 did not represent
reasonable fair market value for the vehicle repossessed from Longs.
¶15. When we consider the additional fact that following the sale Longs owed more
to Auto Credit than they did before the sale, we necessarily conclude that the sale
was not commercially reasonable. As contended by Longs, they would have been
better off destroying the collateral than they were for returning it. This result would
be inconsistent with the UCC's requirements that repossessed collateral be disposed
of in a manner that takes into consideration the interests of both parties.
¶16. While we will continue to hold in the majority of cases that no single factor is
determinative of whether a sale is commercially reasonable, we recognize that the
most significant interest of the debtor is the price obtained at sale. If a secured party
fails to give the required notice, the detriment to the debtor will depend on the price
obtained at sale. No amount of notice, however, will compensate for a grossly
inadequate price at sale. Therefore, depending on the facts of a given case, the price
received at resale may provide prima facie evidence of whether the sale was
reasonable and protected the interests of the debtor.
¶17. For the reasons stated above, we reverse the District Court's order granting
summary judgment to Auto Credit. We conclude that the sale in question was not
commercially reasonable and remand this case to the District Court for proceedings
consistent with this opinion.
/S/ TERRY N. TRIEWEILER
We Concur:
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/S/ J. A. TURNAGE
/S/ WILLIAM E. HUNT, SR.
/S/ JIM REGNIER
/S/ JAMES C. NELSON
/S/ KARLA M. GRAY
/S/ W. WILLIAM LEAPHART
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