Rudio v. Yellowstone Merchandising Corp.

No. 82-67

I N THE SUPREME COURT O F THE S T A T E O F MONTANA

MORRIS R U D I O , d/b/a RUDIO'S,

P l a i n t i f f , R e s p o n d e n t and C r o s s - P l a i n t i f f ,

YELLOWSTONE MERCHANDISING C O R P . , et al.,

D e f e n d a n t s and A p p e l l a n t s .

Appeal from; D i s t r i c t C o u r t of t h e T h i r t e e n t h 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 Y e l l o w s t o n e , T h e H o n o r a b l e
R o b e r t 13. W i l s o 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 A p p e l l a n t ;

A l e x a n d e r & B a u c u s , G r e a t Falls, Montana
D z i v i , C o n k l i n & Nybo, G r e a t Falls, Montana

For R e s p o n d e n t :

Mouat & Martinson, Billings, Montana

S u b m i t t e d on B r i e f s : J u n e 3, 1 9 8 2
Decided: October 4, 1982

Filed :
Mr. Justice J o h n Conway H a r r i s o n d e l i v e r e d t h e O p i n i o n of the
Court.

Morris Rudio i n i t i a t e d t h i s a c t i o n f o l l o w i n g t h e d e f a u l t of
Yellowstone Merchandising on their contract to buy Rudio's

business. Defendant, Yellowstone Merchandising C o r p o r a t i o n , w a s
the original buyer on the sale contract. Defendant,
Intermountain Merchandising Corporation, was assigned the

c o n t r a c t by Yellowstone. D e f e n d a n t s , Eugene B. Thayer , Penelope
Thayer, Robert G. Hicks, and Barbara J. Hicks, signed an
agreement guarantying the original obligation. Defendant,
Montana Merchandising , Inc ., is the parent corporation and
secured creditor of Intermountain Merchandising, Inc . The
District Court found Yellowstone primarily liable to Rudio f o r
the amount owing on the contract. The District Court found
I n t e r m o u n t a i n Montana M e r c h a n d i s i n g , Eugene T h a y e r , and Robert
Hicks secondarily liable. From this judgment the defendants

appeal.
Respondent ( h e r e i n a f t e r also r e f e r r e d t o as R u d i o ) e n t e r e d
into an agreement with appellant, Yellowstone Merchandising

Corporation (Yellowstone) to sell property which formerly
c o n s t i t u t e d r e s p o n d e n t ' s b u s i n e s s known as R u d i o ' s . The p r o p e r t y
c o n s i s t e d o f i n v e n t o r y , g o o d w i l l , f i x t u r e s and o t h e r a s s e t s . The
purchase p r i c e f o r the i n v e n t o r y was $ 8 4 , 9 6 3 and f o r t h e o t h e r

assets $5,500. The contract provided for a down payment of
$12,500, w i t h t h e b a l a n c e t o be p a i d i n m o n t h l y i n s t a l l m e n t s of
$750 e a c h commencing S e p t e m b e r 1, 1 9 7 6 , w i t h i n t e r e s t computed a t
9 percent per annum. The agreement w a s executed on or a b o u t
July 31, 1976, by Rudio and by Yellowstone through Rex
Marguardt, vice president, and Robert Hicks, secretary.
Under the terms of the agreement, Rudio was granted a
s e c u r i t y i n t e r e s t i n t h e p r o p e r t y w h i c h was t h e s u b j e c t m a t t e r
of the agreement. Rudio properly perfected his interest by

filing a financing statement in the office of the

Y e l l o w s t o n e c o u n t y c l e r k and r e c o r d e r on O c t o b e r 21, 1 9 7 6 , and i n
t h e o f f i c e of t h e s e c r e t a r y of s t a t e of t h e S t a t e of Montana on

November 4, 1976. The financing s t a t e m e n t covered a l l of the

p e r s o n a l p r o p e r t y i n v o l v e d i n t h e t r a n s a c t i o n as w e l l as t h e pro-
c e e d s of any s a l e of t h e c o l l a t e r a l .

Shortly after the agreement w a s entered into, on or a b o u t
September 30, 1976, Yellowstone was merged with appellant,

Intermountain Merchandising Corp . ( IMCO) . Pursuant to the
merger, IMCO assumed all liabilities, c o n t r a c t s and o b l i g a t i o n s
of Yellowstone incurred prior to September 30, 1976.
IMCO c o n t i n u e d t o o p e r a t e t h e w h o l e s a l e and r e t a i l b u s i n e s s
p u r c h a s e d f r o m R u d i o much as it had b e e n o p e r a t e d b y Y e l l o w s t o n e .
Rudio remained as an employee of Yellowstone, and then of
IMCO, as a consultant and salesman. Sometime prior to the

e n d o f 1 9 7 6 o n e c a t e g o r y o f i n v e n t o r y w a s c o m p l e t e l y removed from

Rudio's warehouse. An inventory on J a n u a r y 2 1 , 1977, showed
there was less inventory remaining in the warehouse than the
a m o u n t owed on t h e c o n t r a c t . The buy and s e l l a g r e e m e n t b e t w e e n
Rudio and Yellowstone contained a clause which stated:

" U n l e s s o t h e r w i s e a g r e e d t o by s e l l e r , i n v e n t o r y s h a l l n o t be
r e d u c e d i n v a l u e t o less t h a n t h e amount s t i l l owing o n t h e p r i n -

c i p a l u n d e r t h e terms o f t h e a g r e e m e n t ."
S h o r t l y a f t e r J a n u a r y 2 1 , 1 9 7 7 , Rudio i n f o r m e d t h e m a n a g e r of
Rudio's, Mr. D a l l o n Thomas, t h a t he was n o t to remove a n y more
i n v e n t o r y from t h e warehouse u n l e s s Rudio g a v e him p e r m i s s i o n .
Late in January 1977, the officers of IMCO decided to
transfer the assets located in their Billings operations to
Great Falls. R u d i o i n f o r m e d t h e m a n a g e r t h a t h e would n o t a l l o w
t h e i n v e n t o r y t o be removed from t h e B i l l i n g s w a r e h o u s e u n l e s s he
had a d d i t i o n a l s e c u r i t y . On F e b r u a r y 1 0 , 1 9 7 7 , Eugene T h a y e r and
Robert Hicks, the owners of IMCO, and their wives, signed a
guaranty agreement whereby they guaranteed the payments of

Yellowstone, now a s s i g n e d t o I M C O , t o R u d i o i n c o n s i d e r a t i o n of
Rudio's p e r m i s s i o n t o allow t h e t r a n s f e r of the i n v e n t o r y from

B i l l i n g s to Great F a l l s .
 The i n v e n t o r y was moved t o Great F a l l s w h e r e it was s t o r e d
with other i n v e n t o r y owned b y IMCO. IMCO c o n t i n u e d to o p e r a t e
i t s w h o l e s a l e and r e t a i l b u s i n e s s i n G r e a t F a l l s . I n May 1 9 7 7 ,

Thayer agreed t o buy a l l o f H i c k ' s IMCO s t o c k which t e r m i n a t e d
H i c k ' s o w n e r s h i p i n IMCO.

Sometime a f t e r the f i r s t of January 1978, IMCO o b t a i n e d a

l o a n f r o m t h e N o r t h w e s t e r n N a t i o n a l Bank o f G r e a t F a l l s i n t h e
principal amount of $450,000. Northwestern took a security
interest in IMCO' s inventory which was secondary to Rudio I s

security interest. The loan was also guaranteed by Montana
Merchandising I n c . , (MMI), a c o r p o r a t i o n owned by Eugene T h a y e r .
IMCOts loan from Northwestern went in default and the bank

r e q u e s t e d M M I t o honor its guaranty. MMI paid t h e n o t e and t o o k
a n a s s i g n m e n t from N o r t h w e s t e r n of the bank's security interest
i n IMCO' s i n v e n t o r y . Thus, one c o r p o r a t i o n o b t a i n e d a s e c u r i t y

interest in the other corporation's assets, while both cor-
porations were owned by the same person, Eugene Thayer.
On March 6, 1 9 7 8 , IMCO made i t s l a s t payment to R u d i o . On

August 9 , 1978, Rudio f i l e d a c o m p l a i n t i n Y e l l o w s t o n e County
against Yellowstone and IMCO, for the amount owed on the
contract up to the date of the filing of the complaint.

I n t h e w i n t e r of 1 9 7 9 , IMCO d e c i d e d t o l i q u i d a t e i t s e n t i r e

s t o c k of inventory. On or a b o u t March 2 2 , 1979, R u d i o became
aware o f t h e l i q u i d a t i o n s a l e v i a a memorandum s e n t by IMCO t o

various dealers. IMCO did not send Rudio any n o t i c e of the
l i q u i d a t i o n sale. The p r o c e e d s of t h e l i q u i d a t i o n s a l e amounted
t o a p p r o x i m a t e l y $280,000. The p r o c e e d s w e r e a l l d e p o s i t e d into
t h e a c c o u n t of M M I , R u d i o r e c e i v e d n o t h i n g . Rudio t o o k no l e g a l
action to e x e c u t e upon the proceeds of the l i q u i d a t i o n sale.
On December 22, 1978, Rudio n o t i f i e d appellants, H i c k s and

Thayer, of the default of Yellowstone and his intention to
e n f o r c e t h e terms o f t h e g u a r a n t y a g r e e m e n t .
On J u n e 17, 1982, a trial was h e l d in D i s t r i c t Court in

Yellowstone County. The D i s t r i c t C o u r t f o u n d t h e a p p e l l a n t s to
be l i a b l e t o R u d i o i n t h e amount of $ 6 0 , 0 9 8 . 5 5 w i t h i n t e r e s t a t

t h e r a t e of 9 p e r c e n t f o r t h e b a l a n c e of t h e c o n t r a c t . A s between

t h e d e f e n d a n t s t h e c o u r t o r d e r e d l i a b i l i t y t o be i n t h e f o l l o w i n g

order:
First - Yellowstone Merchandising
Second - I n t e r m o u n t a i n M e r c h a n d i s i n g (IMCO)

T h i r d - Montana M e r c h a n d i s i n g ( M M I )
F o u r t h - Eugene T h a y e r and R o b e r t Hicks, joint guarantors
The c o u r t a l s o awarded R u d i o a t t o r n e y ' s f e e s i n t h e amount of

$13,189.15. The court further held that there was no con-
s i d e r a t i o n f o r the wives, P e n e l o p e T h a y e r and B a r b a r a H i c k s , to
b e bound b y t h e g u a r a n t y t h e y s i g n e d and t h u s Rudio is l i a b l e to

them f o r t h e i r a t t o r n e y ' s f e e s and c o s t s .
From t h a t judgment, appellants appeal.
Numerous i s s u e s a r e r a i s e d by t h e v a r i o u s p a r t i e s on a p p e a l .

The s u b s t a n c e of t h e i s s u e s is a s f o l l o w s :
1. W h e t h e r t h e a p p e a l b y a p p e l l a n t , R o b e r t H i c k s , was t i m e l y

filed .
2. W h e t h e r t h e g u a r a n t y a g r e e m e n t s i g n e d by Eugene T h a y e r ,
Penelope Thayer, Robert Hicks and Barbara H i c k s was void for
l a c k of c o n s i d e r a t i o n .

3. Whether the respondent, Morris Rudio , r e l e a s e d his
s e c u r i t y i n t e r e s t i n I M C O 1 s i n v e n t o r y by a n i m p l i e d w a i v e r , and

thus exonerated the guarantors.
4. W h e t h e r t h e t r i a l c o u r t e r r e d i n i t s c a l c u l a t i o n of the
amount of t h e j u d g m e n t .
5. W h e t h e r t h e t r i a l c o u r t e r r e d i n i t s c a l c u l a t i o n of the
a w a r d s of a t t o r n e y ' s f e e s .
R e s p o n d e n t moved t o d i s m i s s t h e a p p e a l of R o b e r t H i c k s and
B a r b a r a H i c k s on t h e g r o u n d s t h a t it w a s n o t t i m e l y f i l e d u n d e r

Rule 5, M.R.App.Civ.P. Rule 5, M.R.App.Civ.P., requires an
appeal be taken within t h i r t y days of the e n t r y of judgment,

e x c e p t where s e r v i c e of n o t i c e of e n t r y of judgment is r e q u i r e d
b y Rule 7 7 ( d ) , M.R.Civ.P., t h e t i m e s h a l l be t h i r t y d a y s from t h e
s e r v i c e of notice of e n t r y of judgment. T h i s case is one in

w h i c h n o t i c e o f e n t r y o f judgment is r e q u i r e d u n d e r R u l e 7 7 ( d ) ,

M.R.Civ.P. As the original judgment of t h e D i s t r i c t C o u r t was
amended w e h o l d t h a t t h e t h i r t y d a y p e r i o d d i d n o t commence to
run until the final notice of e n t r y of judgment was m a i l e d .
Here, the final notice of entry of judgment was mailed on

November 5, 1981. A p p e l l a n t s Robert and Barbara Hicks filed
t h e i r n o t i c e of a p p e a l on December 7 , 1981. However, allowing

t h r e e d a y s f o r m a i l i n g t h e n o t i c e of a p p e a l w a s f i l e d w i t h i n t h e

t h i r t y day requirement.
A p p e l l a n t s , T h a y e r and H i c k s , a r g u e t h e g u a r a n t y which they

a n d t h e i r w i v e s s i g n e d on F e b r u a r y 1 0 , 1 9 7 7 , w a s v o i d f o r l a c k of

consideration. We disagree. I t i s t r u e t h a t a g u a r a n t y m u s t be

b a s e d upon a c o n s i d e r a t i o n . Doorly v. Goodman ( 1 9 2 4 ) t 7 1 Mont.

529, 230 P. 779. What constitutes consideration has been
defined in various ways. Section 28-2-801, MCA, states :
"Any b e n e f i t c o n f e r r e d o r a g r e e d t o be con-
f e r r e d upon t h e p r o m i s o r by a n y o t h e r p e r s o n ,
t o which t h e p r o m i s o r i s n o t l e g a l l y e n t i t l e d ,
or any o t h e r p r e j u d i c e s u f f e r e d o r agreed t o
b e s u f f e r e d by such p e r s o n , o t h e r t h a n such a s
h e i s a t t h e t i m e o f c o n s e n t l a w f u l l y bound t o
s u f f e r , as a n i n d u c e m e n t t o t h e p r o m i s o r is a
good c o n s i d e r a t i o n f o r a p r o m i s e ."
Forebearance t o enforce a l e g a l r i g h t is a s u f f i c i e n t con-

sideration to support a contract if there is a n agreement to
forebear. -o o r l y ,
D- supra. It is h o r n b o o k l a w t h a t a p r o m i s e to
perform an e x i s t i n g legal obligation does not c o n s t i t u t e con-

sideration for a contract. 1 7 Am. J u r . 2 d . C o n t r a c t s , S e c t i o n 119
a t 465. It is e q u a l l y w e l l - e s t a b l i s h e d t h a t the relinquishment
o f a l e g a l o r c o n t r a c t r i g h t is s u f f i c i e n t c o n s i d e r a t i o n t o sup-
port a contract. 1 7 Am.Jur.2d Contracts, S e c t i o n 1 0 9 a t 455.
Rickett v. Doze (1979), - - - - Mont . ---- , 6 0 3 P.2d 679,
36 S t . R e p . 2170. M u t u a l p r o m i s e s a l o n e a r e enough to c o n s t i t u t e

valid consideration. 17 C.J.S. Contracts, Sections 97, 98.
Miller v. Titeca (1981), ---- Mont . 628 P.2d 670,

38 S t . R e p . 853.
Here, w e f i n d t h e c o n s i d e r a t i o n c o u l d meet a n y o f t h e above-
mentioned tests. The facts indicate Rudio was becoming

increasingly concerned about the size of the inventory. An

i n v e n t o r y taken i n January 1977 appeared t o show t h e amount of
i n v e n t o r y remaining in t h e w a r e h o u s e was less t h a n t h e amount
owed on the contract at that time. The contract did have a
c l a u s e w h i c h r e q u i r e d t h a t t h e i n v e n t o r y s h o u l d n o t be r e d u c e d i n
value to less than the amount still owing on the principal.
The contract a l s o contained a c l a u s e which stated a n y l i n e of

inventory sought to be "eliminated" would be subject to the
a p p r o v a l of Rudio. A t the t i m e a p p e l l a n t s sought t o t r a n s f e r the

i n v e n t o r y f r o m B i l l i n g s t o Great F a l l s , Rudio c o u l d have taken
s t e p s to p r e v e n t t h e t r a n s f e r a l t h o u g h t h e c o n t r a c t d i d n o t spe-

c i f i c a l l y state t h a t the inventory could not be moved without

Rudio's consent. Certainly, Rudio c o u l d h a v e b r o u g h t a n a c t i o n
f o r b r e a c h o f c o n t r a c t when t h e i n v e n t o r y v a l u e became l e s s t h a n

the value of the remaining principal. Rudio could also have
sought to enjoin the removal of the inventory relying on the
clause which prohibited "elimination" of inventory without

Rudio ' s c o n s e n t .
W a r e n o t s p e c u l a t i n g a s to t h e o u t c o m e o f R u d i o l s p r o s p e c -
e
tive actions. We merely point out that Rudio did have legal

rights and could have attempted to block the tansfer of the
inventory. Rudio d i d r e l i n q u i s h t h e s e r i g h t s i n exchange f o r t h e
p r o m i s e o f T h a y e r and H i c k s t o g u a r a n t y Y e l l o w s t o n e ' s o b l i g a t i o n .

The guaranty agreement was made , " [i]n c o n s i d e r a t i o n of per-

m i s s i o n b e i n g g r a n t e d b y Morris R u d i o , " f o r t h e t r a n s f e r of the
i n v e n t o r y from B i l l i n g s t o G r e a t F a l l s , "and f o r o t h e r v a l u a b l e
consideration ." A p p a r e n t l y T h a y e r and H i c k s t h o u g h t a t t h e t i m e
t h e y s i g n e d t h e g u a r a n t y t h a t R u d i o c o u l d p r e v e n t t h e t r a n s f e r of
the inventory. As t h e o w n e r s of Y e l l o w s t o n e C o r p o r a t i o n , they

h a d a p e r s o n a l i n t e r e s t i n t h e move from B i l l i n g s t o G r e a t F a l l s .

C o n s e q u e n t l y , we h o l d t h e r e was c o n s i d e r a t i o n f o r t h e i r s i g n i n g

as guarantors f o r Yellowstone.

I n its c o n c l u s i o n s of law, p a r a g r a p h 7 , the District Court
ruled :

"7. P l a i n t i f f is e n t i t l e d t o j u d g e m e n t f o r
s a i d amount a g a i n s t Montana M e r c h a n d i s i n g as
p u r c h a s e r of t h e s e c u r e d c o l l a t e r a l . .
.I1

Although w e a g r e e w i t h t h e D i s t r i c t C o u r t ' s r u l i n g t h a t Rudio

i s e n t i t l e d t o a judgment a g a i n s t M I we d o n o t a g r e e w i t h t h e
M,

court's reason. The D i s t r i c t C o u r t h e l d t h a t M M I p u r c h a s e d t h e
i n v e n t o r y f r o m IMCO. T h i s is w h o l l y u n s u p p o r t e d b y t h e r e c o r d .

The record shows that MMI, while remaining a separate entity,
g u a r a n t e e d a l o a n IMCO o b t a i n e d from N o r t h w e s t e r n N a t i o n a l Bank.

When N o r t h w e s t e r n a s k e d M M I t o h o n o r i t s g u a r a n t y , M M I r e p a i d t h e
l o a n and t o o k t h e b a n k ' s s e c u r i t y i n t e r e s t i n IMCO's inventory.
MMI did not a c t u a l l y purchase the inventory b u t m e r e l y had a
s e c u r i t y i n t e r e s t which w a s i n f e r i o r to R u d i o l s .

S e c t i o n 30-9-312(3), MCA, states:
"(3) A p u r c h a s e money s e c u r i t y i n t e r e s t i n
inventory collateral has p r i o r i t y over a
c o n f l i c t i n g s e c u r i t y i n t e r e s t i n t h e same
c o l l a t e r a l -:
if
" ( a ) t h e p u r c h a s e money s e c u r i t y i n t e r e s t i s
a time -- - e b t o r r e c e i v --d
p e r f e c t e d -- t t h e -- the d e
p o s -s s i o n ; and-
- - se

"(b) any secured p a r t y whose security
i n t e r e s t i s known t o t h e h o l d e r of the
p u r c h a s e money s e c u r i t y i n t e r e s t or who, p r i o r
t o t h e d a t e o f t h e f i l i n g made by t h e h o l d e r
o f t h e p u r c h a s e money s e c u r i t y i n t e r e s t , had
f i l e d a f i n a n c i n g s t a t e m e n t c o v e r i n g t h e same
items o r t y p e o f i n v e n t o r y , h a s r e c e i v e d n o t i -
fication of the purchase money security
i n t e r e s t before the debtor receives possession
o f t h e collateral covered by t h e purchase
money s e c u r i t y i n t e r e s t ; and
" ( c ) such n o t i f i c a t i o n states t h a t the person
g i v i n g t h e n o t i c e h a s o r e x p e c t s to a c q u i r e a
p u r c h a s e money s e c u r i t y i n t e r e s t i n t h e i n v e n -
t o r y of t h e d e b t o r , d e s c r i b i n g s u c h i n v e n t o r y
by i t e m or type ." (Emphasis s u p p l i e d . )
A p p e l l a n t s r e l y h e a v i l y o n s e c t i o n 30-9-306 ( 2 ) , MCA, which
states:

" ( 2 ) Except where t h i s c h a p t e r o t h e r w i s e pro-
v i d e s , a s e c u r i t y i n t e r e s t c o n t i n u e s i n colla-
t e r a l n o t w i t h s t a n d i n g s a l e , e x c h a n g e or o t h e r
d i s p o s i t i o n t h e r e o f b y t h e d e b t o r u n l e s s -- i s
h
a c t i o n was a u t h o r i z e d -- -- s e c u r e d p a r t y i n
by t h e
t h e s e c u r i t - a g r e e m e n t or o t h e r w i s e , and a l s o
y
continues in any identifiable proceeds
i n c l u d i n g c o l l e c t i o n s r e c e i v e d by t h e d e b t o r . "
( Emphasis s u p p l i e d . )
 A p p e l l a n t s a r g u e t h a t Rudio waived h i s s e c u r i t y i n t e r e s t by

implied consent. A p p e l l a n t s claim t h a t R u d i o had n o t i c e of the
l i q u i d a t i o n s a l e and a u t h o r i z e d i t by n o t t a k i n g a c t i o n to p r e -

vent it. They cite Clovis National Bank v Thomas (1967),

77 N.M. 5 5 4 , 4 2 5 P.2d 7 2 6 , and a s t r i n g o f f o l l o w i n g cases which
hold t h a t a p l a i n t i f f who a c q u i e s c e s i n t h e sale of collateral

has thereby consented to the sale and waives his security

interest against a subsequent purchaser. However, -l o v i s
C- is
d i s t i n g u i s h a b l e f r o m t h e case a t h a n d . -o v i s i n v o l v e d a p l a i n -
Cl
-

t i f f who l o a n e d money t o t h e d e b t o r t o p u r c h a s e c a t t l e . When t h e

debtor sold the cattle to the defendant, plaintiff sued for
conversion. The N e w Mexico Supreme C o u r t r u l e d t h a t t h e p l a i n -
tiff had consented to the sale of the collateral, waived his

security interest, and thus was unable to hold the defendant
l i a b l e f o r conversion. The C o u r t f u r t h e r h e l d t h a t t h e p l a i n t i f f
was u n a b l e t o trace t h e p r o c e e d s b e c a u s e t h e f i n a n c i n g s t a t e m e n t

d i d not cover proceeds.

H e r e a p p e l l a n t s are n o t p u r c h a s e r s as t h e d e f e n d a n t was i n
t h e C l o v i s case. A p p e l l a n t s were s i m p l y s e c u r e d c r e d i t o r s w i t h a

security interest inferior to Rudio's. W h e t h e r or not Rudio
w a i v e d h i s s e c u r i t y i n t e r e s t h a s no b e a r i n g o n h i s r i g h t to t h e
p r o c e e d s of t h e s a l e as a g a i n s t c o m p e t i n g c r e d i t o r s s u c h as M M I .

In, In Re Mid State Wood Products Company (D.111. 1957)r
3 2 3 F.Supp. 853, t h e Federal District Court held:
" S e c t i o n 9 - 3 0 6 ( 2 ) o f t h e code e x p r e s s l y r e s e r -
v e s t h e r i g h t to proceeds n o t w i t h s t a n d i n g
a u t h o r i z a t i o n to s e l l t h e primary collateral.
W h e t h e r t h e s a l e was a u t h o r i z e d is made d e t e r -
m i n a t i v e o n l y of t h e s e c u r e d p a r t y ' s r i g h t to
f o l l o w t h e collateral a f t e r sale a f f e c t i n s h i s
~ r i o r i t i e sas a a a i n s t t h e .. u r c h a s e r .-- u t - -
A - - - 2
~ b i n no
m a n n e r a f f e c t s -- i n t e r e s t i n t h e r e t a i n e d
his
procegds as a g a i n s t competing c r e d i t o r s .
7 - -7
This
construction o f t h e s t a t u t o r y provision i s
e m p h a s i z e d i n t h e O f f i c i a l c o d e Comment upon
t h a t provision. S e e UCC, O f f i c i a l Code
Comment, s e c t i o n 9 - 3 0 6 ( 2 ) a t p a r . 2 ...
"As previously discussed , the Uniform
Commercial Code is e x p l i c i t i n p r e s e r v i n g t h e
p r i o r i t y of t h e s e c u r e d p a r t y to t h e p r o c e e d s
n o t w i t h s t a n d i n g h i s c o n s e n t t o t h e s a l e of t h e
p r i m a r y c o l l a t e r a l and f u r t h e r n o t w i t h s t a n d i n g
h i s c o n s e n t to t h e d e b t o r I s u n r e s t r i c t e d u s e
 and d i s p o s i t i o n of t h e s e p r o c e e d s so l o n g a s
they remain
s e c t i o n s 9-306,
identifiable . See
9-205 and t h e O f f i c i a l Code
UCC

Comments upon t h e s e s e c t i o n s .

" A u t h o r i z a t i o n to s e l l collateral a t b e s t
a f f e c t s the secured p a r t y ' s r i g h t s a g a i n s t the
s u b s e q u e n t p u r c h a s e r but n o t as a g a i n s t t h e
creditor." ( E m p h a s i s added ) 323 F.Supp. a t
857.
W e a g r e e w i t h t h e F e d e r a l D i s t r i c t C o u r t ' s i n t e r p r e t a t i o n of

9-306(2) , codified as 30-9-306(2), MCA. It appears that the
d r a f t e r s o f t h e UCC o n l y i n t e n d e d w a i v e r to a p p l y to a s u b s e q u e n t
p u r c h a s e r of the collateral. Thus, the purchaser is p r o t e c t e d

f r o m a n y a t t e m p t by t h e s e c u r e d c r e d i t o r to o b t a i n p o s s e s s i o n of
t h e collateral, a f t e r t h e c r e d i t o r a u t h o r i z e d its sale. However,
the creditor does not waive his security interest as a g a i n s t
o t h e r secured o r unsecured c r e d i t o r s .
I n t h i s case M M I , t h e p a r e n t c o r p o r a t i o n , v i r t u a l l y conducted

I M C O ' s l i q u i d a t i o n and simply deposited a l l proceeds into MMI 's

account. C o n s i d e r i n g b o t h c o r p o r a t i o n s were owned by t h e same
person, the t r a n s a c t i o n comes v e r y close t o b e i n g a fraudulent
c o n v e y a n c e r e g a r d l e s s o f w h e t h e r t h e r e w a s a w a i v e r or n o t . MMI

h a d no r i g h t to s i m p l y d e p o s i t t h e l i q u i d a t i o n p r o c e e d s i n t o i t s

own account in violation of Rudio's security interest.
T h e r e f o r e , w e h o l d t h a t M M I is s e c o n d a r i l y l i a b l e to Rudio f o r
t h e amount o f t h e j u d g m e n t .
A p p e l l a n t s , T h a y e r and H i c k s a r g u e t h a t i f t h e r e w a s a w a i v e r

of Rudiogs security i n t e r e s t , t h e n t h e y s h o u l d be e x o n e r a t e d a s
guarantors. They c i t e s e c t i o n 28-11-211, MCA, which p r o v i d e s :
" ( 1 ) A g u a r a n t o r is e x o n e r a t e d , e x c e p t so f a r
a s he may be i d e m n i f i e d by t h e p r i n c i p a l , i f
by any act of t h e c r e d i t o r w i t h o u t t h e c o n s e n t
o f t h e g u a r a n t o r t h e o r i g i n a l o b l i g a t i o n of
t h e p r i n c i p a l is a l t e r e d i n a n y r e s p e c t o r t h e
r e m e d i e s or r i g h t s of t h e c r e d i t o r a g a i n s t t h e
p r i n c i p a l i n r e s p e c t t h e r e a r e i n a n y way
impaired o r suspended."
If w e were t o a p p l y t h i s s t a t u t e t o a p p e l l a n t , Thayer, we
would be holding that Rudio should have stopped the sale of
IMCO's inventory, owned by Thayer, so t h a t M M I , a l s o owned by
T h a y e r , would be p r o t e c t e d from I M C O ' s i r r e s p o n s i b l e a c t s . W e do
n o t c h o o s e t o d o so.

Appellant, Hicks, also argues that if Rudio waived his
security interest in the inventory, then Hicks should be ex-

o n e r a t e d as g u a r a n t o r . A s w e d i d n o t f i n d t h a t Rudio had w a i v e d

h i s s e c u r i t y i n t e r e s t w e do n o t need t o comment upon t h i s a r g u -
ment f u r t h e r . B o t h T h a y e r and H i c k s a g r e e t h a t w i t h o u t a w a i v e r ,
t h e r e is no e x o n e r a t i o n .

A p p e l l a n t s a r g u e t h e t r i a l c o u r t e r r e d i n t h e c a l c u l a t i o n of
t h e amount d u e on t h e c o n t r a c t . They b a s e t h i s claim o n t h e p r o -

v i s i o n of t h e c o n t r a c t which a l l o w e d e l i m i n a t i o n of inventory i f
the p r o c e e d s were applied to the principal amount d u e on the
contract. A p p e l l a n t s claim t h a t R u d i o o n l y c r e d i t e d a n amount of

$15,644.96 f o r e l i m i n a t i o n of i n v e n t o r y which had a n e t cost of

$20,186.32. The f u n c t i o n of t h i s C o u r t on a p p e a l is to d e t e r m i n e
if 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 f i n d i n g s of the

District Court. We will not reverse the findings of the
D i s t r i c t C o u r t u n l e s s t h e r e is a c l e a r p r e p o n d e r a n c e of the evi-
dence a g a i n s t such f i n d i n g s . Schulz v. P e a k e ( 1 9 7 8 ) , 1 7 8 Mont.

2 6 1 , 583 P.2d 425. Here, w e a r e n o t p r e s e n t e d w i t h e n o u g h docu-

m e n t a t i o n to r e v e r s e t h e D i s t r i c t Court. W i t h o u t s u c h documen-
t a t i o n t h e r e is n o t a c l e a r p r e p o n d e r a n c e of t h e e v i d e n c e a g a i n s t
the trial court's finding. The t r i a l c o u r t s a t t h r o u g h d a y s of
t e s t i m o n y and e x h i b i t s . I t b a s e d i t s f i n d i n g upon t h a t e v i d e n c e .

It is n o t our function to o v e r t u r n the trial court's finding

b a s e d on two f i g u r e s n o t s u p p o r t e d b y e x a m i n a t i o n . W e h o l d t h e

t r i a l c o u r t ' s c a l c u l a t i o n o f t h e amount d u e o n t h e c o n t r a c t to be
correct.

The trial court awarded attorney's fees to two of the
g u a r a n t o r s , P e n e l o p e T h a y e r and B a r b a r a H i c k s , when it r u l e d t h a t
t h e r e w a s no c o n s i d e r a t i o n t o b i n d them t o t h e g u a r a n t y a g r e e m e n t .

The original buy-sell agreement be t w e e n Rudio and Y e l l o w stone

contained the following clause: " I n t h e e v e n t s u i t o r a c t i o n is

b r o u g h t by a n y p a r t y u n d e r t h i s a g r e e m e n t t o e n f o r c e a n y o f its
terms, it is a g r e e d t h a t t h e p r e v a i l i n g p a r t y s h a l l be e n t i t l e d
to a reasonable attorney's fee to be fixed by the trial and

appellate courts. "
In First Westside National Bank of Great Falls v. Llera

( 1 9 7 8 ) , 1 7 6 Mont. 4 8 1 , 580 P.2d 100, we r u l e d t h a t o n l y p a r t i e s

to the original contract have reciprocal rights to attorney's
fees. P a r t i e s which are n o t p a r t i e s to t h e o r i g i n a l c o n t r a c t c a n
i n no e v e n t become e n t i t l e d to a t t o r n e y f e e s e i t h e r under the

c o n t r a c t or the statutory provision. Here, Barbara Hicks and
P e n e l o p e T h a y e r were n o t p a r t i e s t o t h e o r i g i n a l c o n t r a c t , t h e y

s i m p l y s i g n e d a g u a r a n t y a g r e e m e n t which t h e y had n o i n t e n t i o n to
honor. S i n c e t h e y were n o t p a r t i e s to t h e o r i g i n a l c o n t r a c t , t h e
trial court erred in awarding them attorney fees.
Affirmed in part, reversed in part and remanded to the

District Court for judgment dance with this opinion.

Justice

W e concur:

34wE&,
Chief
~~&..&p
Justice