No. 14340
I N THE SUPREME COURT O F THE STATE O F MONTANA
1979
FARMERS STATE BANK, a M o n t a n a
Corporation, V i c t o r , Montana,
P l a i n t i f f and A p p e l l a n t ,
MOBILE HOMES UNLIMITED, E . R. VALLANCE,
BARBARA VALLANCE and DON GARROD,
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 F o u r t h J u d i c i a l D i s t r i c t ,
H o n o r a b l e E . G a r d n e r B r o w n l e e , 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 :
Jack W. S t a r k argued, V i c t o r , M o n t a n a
For R e s p o n d e n t s :
B o o n e , K a r l b e r g and H a d d o n , M i s s o u l a , M o n t a n a
S a m E . H a d d o n argued, M i s s o u l a , M o n t a n a
C u r t i s C. C o o k argued, H a m i l t o n , M o n t a n a
Submitted: February 13, 1 9 7 9
~ecide:
d A?R 2 0 1979
Filed: A?K 2 0 1979
- --
Mr. Chief Justice Frank I. Haswell delivered the Opinion of
the Court.
Farmers State Bank appeals from findings of fact, con-
clusions of law and judgment entered by the District Court of
Ravalli County, holding that because the bank had acted in a
manner not authorized by the Uniform Commercial Code (U.C.C.)
in repossing certain property and dealing with certain notes,
it was precluded from recovering a deficiency judgment on the
notes from obligor Mobile Homes Unlimited or guarantors E. R.
Vallance, Barbara Vallance, and Don Garrod.
Respondents E. R. Vallance and Don Garrod were the oper-
ators of a trailer sales facility, Mobile Homes Unlimited. Each
owned a half interest in the enterprise. The business had a
"floor plan" financing arrangement with appellant Farmers State
Bank whereby the bank would loan money for the purchase of trailers
and respondents would execute notes to the bank with the trailers
as security, with the idea that respondents would be able to re-
sell the trailers, pay off the notes, and still realize a profit
for the business.
In 1975, Garrod arranged to sell his half interest in
Mobile Homes Unlimited to Vallance. At that time, five trailers
were obligated to the bank under the floor plan arrangement, each
secured by a separate note.
As a result of the sale of Garrod's interest to Vallance,
it was necessary to refinance the Mobile Homes Unlimited units
that were floor planned by the bank. The five notes for the five
units involved were consolidated into a single note for $50,609.
The note named Mobile Homes Unlimited as maker and was executed
by E. R. Vallance, President, and Barbara Vallance, Secretary-
Treasurer. On the reverse side the note was signed individually
by E. R. Vallance, Barbara Vallance, and Don Garrod as guarantors.
At the same time this note was executed (April 7, 1975), a separate
note for $9,287.04, covering other obligations of Mobile Homes
Unlimited to the bank, was also executed in like manner with
the Vallances and Garrod again signing in their individual
capacities as guarantors. The larger note was secured by the
five trailers, and a U.C.C. financing statement listing them
was properly filed. The smaller note was unsecured.
On June 11, 1976, a complaint was filed in the District
Court, Ravalli County, alleging that the two notes were in de-
fault and seeking recovery from respondents of a balance due of
$26,665.55 on the larger note and $8,287.04 on the smaller note.
The complaint noted that two mobile homes remaining under the
security agreement (the other three having already been sold by
Mobile Homes Unlimited) had been repossessed by the bank and would
be sold. They subsequently were sold and the proceeds applied to
the balance due, reducing the amount in controversy.
Separate answers were filed by Garrod, Mobile Homes Un-
limited, and the Vallances. Garrod alleged, among other things,
that any sums owing had been paid. Mobile Homes Unlimited alleged
that plaintiff had derived more than sufficient funds to pay off
the smaller note from the sale of the two trailers it took into
possession under the security agreement, and that the larger note
would have been paid off already if payments which Mobile Homes
previously made had been applied in accordance with an agreement
which had been reached during the negotiations leading to the
execution of the notes, which agreement the bank had allegedly
ignored. The answer of the Vallances also alleged that the notes
would have been paid off already if the payments had been prop-
erly applied, and contended further that they were discharged
of any obligation because the bank allegedly failed to give them
proper notice under the U.C.C. regarding sale of the repossessed
trailers. A later amended answer and counterclaim was filed by
Mobile Homes Unlimited adding the allegation that the bank had
unlawfully seized certain items in which it had no security
interest when it repossessed the trailers. The counterclaim
sought $10,000 damages for the items allegedly seized unlawfully
and $10,000 punitive damages.
Trial was held before Judge E. Gardner Brownlee on
December 17, 1976, August 27, 1977, and October 28, 1977. The
fragmentation was the result of recesses imposed by Judge Brown-
lee because the evidence was being presented in such a confused
manner that he was unable to follow the arguments and he there-
fore required the parties to sort out their contentions and sub-
mit them in intelligible written form.
The evidence adduced at trial indicated that for certain
checks paid to the bank by Mobile Homes Unlimited which had nota-
tions on them in regard to the manner in which they were to be
applied to reduce the obligations, the bank disregarded the nota-
tions and distributed the funds to suit its own purposes, contrary
to both the notations on the checks and to the manner of dis-
tribution that had been previously agreed upon in the negotiations
leading up to the execution of the notes.
The evidence in regard to the repossession and sale of
the collateral was that an officer of the bank, accompanied by
respondent Garrod, had gone to the Mobile Homes Unlimited lot;
that the two trailers still covered by the security agreement
together with a third trailer not covered by any agreement but
which had been received as a trade-in on the sale of one of the
other secured trailers were taken; that Don Garrod took and sold
eight furnaces not covered by any security agreement and turned
the proceeds over to the bank; and that in the trailers seized
by the bank were certain items of furniture which defendants
alleged were not covered by the security agreement. There was
conflicting evidence as to whether all respondents had been given
notice as required under the U.C.C. before the sale of the re-
possessed trailers.
It was established that both notes involved had been
extended six months, the extension being signed "Mobile Homes
Unlimited X E. R. Valiance." No notice was given to Don Garrod
that the extension was being made.
The last entry on the reverse of the larger note is under
"Advances Given" and is in the sum of $500, increasing the bal-
ance due from $3,605.55 to $4,105.55. The bank's testimony was
that this was not really an "advance" but rather a return to a
buyer of one of the repossessed trailers because the trailer had
been sold to him as a 1974 model whereas it was actually a 1973.
No notice of this "advance" was given to any of the defendants.
Subsequent to trial, on February 6, 1978, findings of
fact, conclusions of law and judgment were entered. The District
Court found that the bank had taken possession of a trailer not
a part of any security agreement (even though the trailer was a
trade-in on one which was covered by a security agreement); that
the bank took possession of some furniture and furnaces not listed
on any security agreement; that the bank "in effect took over the
operation of the business and made disposition of property in the
manner not completely authorized by the U.C.C. or the Security
Agreement"; that from the evidence submitted it was impossible for
the court to determine what amount would be owed the bank if it
had proceeded properly; and that any deficiency "could just as
well be the result of improper conduct on the part of the plain-
tiff bank as it could be the result of defendants1 actions." The
court also found that the Vallances had filed a counterclaim
against the bank (erroneous--the only counterclaim was filed by
Mobile Homes Unlimited) but were not entitled to any judgment
thereon. Finally, the court found that none of the guarantors
were obligated for any deficiency on the notes. No specific
finding was made whether defendant Mobile Homes Unlimited, the
maker, was or was not so obligated. The single conclusion of law
and the judgment reached from these findings were worded almost
identically: "None of the parties to this action are entitled
to any judgment against any of the other parties." From those
findings, conclusions, and judgment the bank has brought this
appeal.
Broadly stated, the only issue involved in this appeal
is whether the trial court's findings and conclusions are
supported by the evidence. Numerous specific questions under-
lie this general issue, including several matters raised by
Garrod and the Vallances in reliance on the principle that a
guarantor is exonerated if a creditor alters the original ob-
ligation of the principal. See section 30-208, R.C.M. 1947,
now section 28-11-211(1) MCA. These matters, however, do not
appear to have been central to the trial court's decision. Rather,
the underlying basis of the trial court's judgment is that plain-
tiff is barred from recovering any deficiency remaining unpaid
on the notes because it failed to act in a commercially reason-
able manner in regard to the repossession and sale of the col-
lateral.
Under the U.C.C., section 87A-9-504(3), R.C.M. 1947, now
section 30-9-504(3) MCA, a secured party's right to dispose of
collateral after default is subject to the requirement that "every
aspect of the disposition including the method, manner, time, place
and terms must be commercially reasonable." While the District
Court's findings do not specifically state that appellant failed
to act in a commercially reasonable manner, that is the net effect
of the finding that the bank "made disposition of property in the
manner not completely authorized by the Uniform Commercial Code
or the Security Agreement." Therefore, we frame the issue as
follows: Whether the trial court erred in finding that Farmers
State Bank acted in a manner not authorized by the U.C.C. in
handling the repossession and sale of collateral and is thereby
barred from recovering any deficiency judgment from either the
maker or the guarantors of the notes secured by that collateral.
Under the U.C.C., the courts have generally taken the
view that the burden of proving the commercial reasonableness
of the disposition of collateral is on the secured party. Annot.
59 ALR3d 369. It is also generally held that a secured cred-
itor's failure to give the notice required under U.C.C. 59-504(3)
(in Montana, section 87A-9-504(3), R.C.M. 1947, now section
30-9-504(3) MCA) prior to disposition of collateral precludes
or limits the creditor's right to recover a deficiency judgment.
Annot. 59 ALR3d 401.
Rule 52, M.R.Civ.P., which requires that in all actions
tried upon the facts without a jury or with an advisory jury, the
court shall find the facts specially, also provides in pertinent
part :
"Findings of fact shall not be set aside unless
clearly erroneous, and due regard shall be given
to the opportunity of the trial court to judge
of the credibility of the witnesses."
In attempting to apply the foregoing principles to this
case, we have reviewed again and again all the pleadings, exhibits
and testimony comprising the record. Our endeavor leaves us in
complete sympathy with the consternation of the trial court as
attested to in its finding that ". . . from the evidence submitted
. . . it is impossible to determine what, if any, amount would be
due to the plaintiff if the plaintiff had proceeded in a manner
authorized by the U.C.C. and its Security Agreement."
As we previously mentioned, the trial court judge imposed
two recesses in the trial of this matter because the parties'
presentation was so disorganized. Illustrative of the confusion
that characterized this proceeding is the contradictory evidence
on whether notice of the sale of the repossessed collateral was
given. Plaintiff's prime witness, a bank officer, testified that
"to the best of his knowledge" Mobile Homes Unlimited was not
given notice before the trailers were sold. Respondents rely
heavily on this testimony to argue that the bank acted in a
commercially unreasonable manner and is thereby barred from
recovering a deficiency judgment. At a later date in the trial,
however, both Don Garrod and E. R. Vallance appear to testify
on cross-examination that they were sent a letter of notice of
the impending sale as required by the U.C.C. We say they "appear"
to have so testified, because the exhibit they refer to (the
letter) was mislabeled when it was put into evidence. Plaintiff's
counsel never does explain the testimony of his own witness that
no such notice was sent to Mobile Homes Unlimited.
Conflicts in the evidence are not confined to the issue
of notice. There was evidence that the bank repossessed a trailer
that had been taken as a trade-in on one of the secured units,
and on that ground the bank objects to the finding that it took
into possession a trailer home "that was not a part of any sec-
urity agreement." The bank argues that the taking of this trade-
in trailer was merely a seizure of its own property because the
trade-in was "proceeds" of the collateral under section 87A-9-
306, R.C.M. 1947, now section 30-9-306 MCA. In reviewing the ex-
hibits, however, we note that the security agreement filed by
the bank left blank the item providing that "Proceeds of colla-
teral are also covered." The bank has done nothing to show that
it comes within section 87A-9-306, R.C.M. 1947, now section 30-9-
306 MCA. We also note that there was evidence that the bank did
not give Mobile Homes Unlimited full credit for the amount agreed
upon as the value of the trade-in.
There is likewise conflicting evidence on the matter of
whether the bank wrongfully seized some furnaces in which it had
no even arguable security interest. The bank contends that Don
Garrod, not it, seized the furnaces. It appears from testimony
ignored by the bank, however, that it directed Garrod to take
the furnaces and sell them, and if he had not then the bank
would have. Further, the signature of a bank officer appears
on the inventory list of the furnaces drawn up at the time they
were seized.
Appellant complains in its brief that the trial court
"does not feel the need to point out the specific sections of
the Uniform Commercial Code which the Bank failed to observe".
We have indicated in a recent opinion that such an objection
raises no reversible error:
" . ..findings of fact and conclusions of
law will support a judgment, though they are very
general, where they in most respects follow the
allegation of the pleadings. Findings should be
limited to the ultimate facts and if they ascertain
ultimate facts, and sufficiently conform to the
pleadings and the evidence to support the judgment,
they will be regarded as sufficient, though not as
full and complete as might be desired." Holloway
v. University of Montana (1978), Mont . I
582 P.2d 1265, 1268, 35 St.Rep. 1228, 1
23
,
t
i
n
g
Pearson v. Pearson (Utah 1977), 561 P.2d 1080.
If a trial court's findings are sustained by competent,
substantial, although conflicting evidence, they will not be
disturbed on appeal. Holloway, supra. The evidence will be re-
viewed in the light most favorable to the prevailing party, and
the credibility of witnesses and weight accorded their testimony
is for the District Court's determination in nonjury trials.
Arrowhead, Inc. v. Safeway Stores, Inc. (1978), Mont . I
587 P.2d 411, 35 St.Rep. 1830.
On the record before us, we cannot conclude that the Dis-
trict Court's findings are "clearly erroneous". Rule 52, M.R.
Civ.P. As to appellants' contention that patent error was com-
mitted in the finding that the Vallances had filed a counterclaim,
whereas the only counterclaim was filed by Mobile Homes Unlimited,
such error was not prejudicial to appellant and affords no grounds
for reversal in light of the finding that "Defendants are not
entitled to any judgment . . . upon their counterclaim." Given
the state of the record established by appellant, the conflicts
in the evidence, the general rule that the secured party bears
the burden of demonstrating commercial reasonableness upon dis-
position of collateral, and the presumptions in favor of the
correctness of the District Courtis findings, the judgment ap-
pealed from is affirmed.
Chief Justice
Justices
C/'