Title: AVCO v CHRISTIAENS

State: montana

Issuer: Montana Supreme Court

Document:

No. 8 2 - 8 8 I N THE SUPREPI COURT OF THE STATE OF MONTANA 1 9 8 2 AVCO FINANCIAL SERVICES OF BILLINGS ONE, INC. , P l a i n t i f f and A p p e l l a n t , DANIEL L. CHRISTIAENS, BEVERLY A. CHRISTIAENS , 1,ELVIN R. CEIRISTIAENS , LINDA K. CMRISTIAENS, ROBERT M. RODMAN AND SUSAN A. RODMAN, D e f e n d a n t s and R e s p o n d e n t s . A p p e a l f r o m : D i s t r i c t C o u r t of t h e Second J u d i c i a l D i s t r i c t , I n and for the C o u n t y of Silver Bow H o n o r a b l e A r n o l d O l s e n , Judge presiding. C o u n s e l of R e c o r d : For P l a i n t i f f : John L e s l i e H a n m e r , B u t t e , M o n t a n a For D e f e n d a n t s : M a u r i c e A. M a f f e i , B u t t e , Ilontana S u b m i t t e d on briefs: A u g u s t 1 9 , 1 9 8 2 D e c i d e d - : O c t o b e r 1 4 , 1 9 8 2 Filed OCT&qSZ M r . J u s t i c e Fred J. Weber d e l i v e r e d t h e Opinion of t h e Court. Following t h e d e f a u l t by Daniel and Beverly C h r i s t i a e n s ( ~ h r i s t i a e n s ) on a loan +e AVCO F i n a n c i a l S e r v i c e s (AVCO), f i x 0 m AVCO obtained a judgment a g a i n s t C h r i s t i a e n s f o r $8,575.19. AVCO brought a d e c l a r a t o r y judgment a c t i o n t o determine i f t h e judgment c o n s t i t u t e d a l i e n on c e r t a i n S i l v e r Bow County property. The D i s t r i c t Court of t h e Second J u d i c i a l D i s t r i c t f o r S i l v e r Bow County e n t e r e d a judgment f i n d i n g t h e r e was no e f f e c t i v e l i e n . W e v a c a t e t h a t judgment. The following i s s u e s w i l l be considered on review: (1) Is a secured p a r t y f i r s t r e q u i r e d t o d i s p o s e of c o l l a t e r a l given f o r s e c u r i t y of a d e b t i n o r d e r t o reduce t h e amount of t h e judgment before seeking an a l t e r n a t i v e remedy. ( 2 ) I f a j u n i o r encumbrancer purchases a s e n i o r encum- brancer ' s i n t e r e s t under a t r u s t i n d e n t u r e and t h e r e a f t e r sells t h e property, does t h i s c o n s t i t u t e a f o r e c l o s u r e under T i t l e 71, MCA, and i s t h e secured p a r t y thereby precluded from pursuing f u r t h e r remedies. AVCO loaned C h r i s t i a e n s a sum of money on June 8 , 1978. A s s e c u r i t y f o r t h e loan C h r i s t i a e n s executed a promissory note and a s e c u r i t y agreement i n favor of AVCO which gave AVCO a l i e n on v a r i o u s household goods and on two o l d e r automobiles. AVCO a l s o received a second t r u s t i n d e n t u r e l i e n on r e a l property on Excelsior Avenue i n Butte owned by C h r i s t i a e n s . The f i r s t l i e n was held on t h i s property by Nationwide Finance Company (Nationwide) . On September 28, 1979, t h e l o a n w i t h AVCO was i n d e f a u l t . AVCO f i l e d an a c t i o n a g a i n s t C h r i s t i a e n s and judgment was e n t e r e d on November 1, 1979, by d e f a u l t a g a i n s t C h r i s t i a e n s f o r $8,575.19 p l u s c o s t s and i n t e r e s t . The o b l i g a t i o n due Nationwide was a l s o i n d e f a u l t and Nationwide noticed foreclosure on i t s t r u s t indenture on t h e Excelsior Avenue property. The s a l e was conducted on November 8, 1979, and AVCO, t h e second t r u s t indenture l i e n holder, purchased the property a t the t r u s t e e ' s s a l e . AVCO has subsequently s o l d the property on Excelsior Avenue a t a l o s s . O n November 1, 1979, t h e d a t e of e n t r y of judgment a g a i n s t C h r i s t i a e n s , they a l s o owned i n t e r e s t s of record i n land described a s p l a t 170-B located i n S i l v e r B o w County. O n March 28, 1980, Christiaens sold t h e i r t r a c t 170-B land t o defendants Rodman f o r $70,000--of which $8,611.19 was held back by Summit Valley T i t l e Company pending f i n a l determination of AVCO by way of t h e i r judgment l i e n . The f i r s t i s s u e i s whether a secured p a r t y is f i r s t required t o dispose of c o l l a t e r a l given f o r s e c u r i t y of a debt i n order t o reduce t h e amount of the judgment before seeking an a l t e r n a t i v e remedy. I n order t o secure t h e loan with AVCO, C h r i s t i a e n s gave AVCO a l i e n on a 1969 Oldsmobile, a 1972 Chevrolet pickup, and household goods and f u r n i t u r e . After d e f a u l t AVCO d i d not attempt t o take possession of any of t h e s e c u r i t y . C h r i s t i a e n s t e s t i f i e d t h a t he drove t h e Oldsmobile " u n t i l t h e f r o n t end b a l l j o i n t s w e r e r e a l bad" and t h a t he "parked t h e c a r and eventually it was junked out." C h r i s t i a e n s a l s o t e s t i f i e d t h a t the transmission went o u t on the Chevrolet pickup and t h a t he " f i n a l l y sold it f o r p a r t s . " Most of t h e household goods and furnishings were l e f t i n t h e house on Excelsior Avenue, b u t t h e C h r i s t i a e n s s t i l l had t h e washer and d r i e r . Mark Ayers, manager of t h e Butte AVCO o f f i c e , t e s t i f i e d t h a t AVCO does n o t repossess a s e c u r i t y i f they f e e l t h a t t h e r e was no way they would g e t t h e i r p r i n c i p a l back by doing so. C h r i s t i a e n s contend t h a t AVCO i s f i r s t r e q u i r e d t o t a k e possession of t h e c o l l a t e r a l and f i r s t d i s p o s e of it i n a reasonably commercial manner before attempting t o a c q u i r e any d e f i c i e n c y and t h a t s i n c e AVCO d i d n o t repossess any of t h e c o l l a t e r a l it should be precluded from attempting t o enforce i t s judgment on t h e s a l e of t h e t r a c t 170-B land. S e c t i o n 30-9-504(1), MCA, provides: "A secured p a r t y a f t e r d e f a u l t may sell, l e a s e o r otherwise d i s p o s e of any o r - of t h e c o l l a t e r a l i n i t s then c o n d i t i o n . . ." (Emphasis added.) I n a d d i t i o n , s e c t i o n 30-9-501(1), MCA, provides: "When a debtor i s i n d e f a u l t under a s e c u r i t y agreement, a secured p a r t y . . .may reduce h i s claim t o judgment, f o r e c l o s u r e o r otherwise e n f o r c e t h e s e c u r i t y i n t e r e s t by any a v a i l a b l e j u d i c i a l procedure." The Utah Supreme Court, i n considering t h e same Uniform Commercial Code s e c t i o n allowed a secured p a r t y t o " a t i t s o p t i o n , ignore t h a t s e c u r i t y [personal property] and s a t i s f y i t s judgment from o t h e r p r o p e r t y [ r e a l property] i n t h e hands of t h e judgment d e b t o r . " Kennedy v. Banlc of Ephraim (Utah 1 9 7 9 ) , 594 P. 2d 881, 884. " [ T l h e c r e d i t o r can ignore h i s s e c u r i t y i n t e r e s t and o b t a i n a judgment on t h e underlying o b l i g a t i o n and proceed by execution and levy." J. White & R. Summers, Uniform Commercial Code, a t 962-963 (1972). I t may n o t always be p r a c t i c a l f o r t h e secured p a r t y t o f i r s t t a k e possession of t h e c o l l a t e r a l and attempt t o s e l l it i f t h e v a l u e of t h e c o l l a t e r a l has s o diminished t h a t t h e proceeds from r e s a l e would c l e a r l y be i n s u f f i c i e n t t o s a t i s f y t h e d e b t . I t may then be t o t h e secured p a r t y ' s advantage t o proceed by judgment and execution because i n t h a t way he can reach a s s e t s i n a d d i t i o n t o t h e c o l l a t e r a l and can e l i m i n a t e t h e two-step process of f i r s t s e l l i n g t h e c o l l a t e r a l and then suing f o r a d e f i c i e n c y . W e hold t h a t a secured c r e d i t o r i s n o t r e q u i r e d t o f i r s t t a k e possession and dispose of c o l l a t e r a l b e f o r e o b t a i n i n g a judgment and execution upon o t h e r property owned by t h e debtor. The second i s s u e i s i f a j u n i o r encumbrancer purchases a s e n i o r encumbrancer's i n t e r e s t under a t r u s t i n d e n t u r e and t h e r e a f t e r s e l l s t h e property, does t h i s c o n s t i t u t e a f o r e c l o s u r e under ~ i t l e 71, MCA, and i s t h e secured p a r t y thereby precluded from pursuing f u r t h e r remedies. A s p a r t of t h e c o l l a t e r a l , AVCO r e c e i v e d a second l i e n i n t h e form of a t r u s t i n d e n t u r e on p r o p e r t y t h a t C h r i s t i a e n s owned on E x c e l s i o r Avenue. Nationwide had t h e f i r s t l i e n a l s o i n t h e form of a t r u s t indenture. On November 8, 1979, Nationwide f o r e c l o s e d and t h e property was s o l d by b i d i n conformance with T i t l e 71, MCA, regarding t r u s t i n d e n t u r e s . AVCO was t h e s o l e bidder f o r $7,856.61--the amount due on Nationwide's balance. AVCO then s o l d t h e property through a B u t t e r e a l t o r . AVCO received a g r o s s s a l e p r i c e of $8,200 and a f t e r paying t h e t a x e s and s e l l i n g expenses, AVCO n e t t e d approximately $6,711. C h r i s t i a e n s contend t h a t when AVCO bought and s o l d t h e E x c e l s i o r Avenue p r o p e r t y , AVCO proceeded under T i t l e 71, MCA, and i s prevented from any f u r t h e r recovery because of a d e f i c i e n c y under s e c t i o n 71-1-317, MCA, which provides: "When a t r u s t i n d e n t u r e executed i n conformity with t h i s p a r t i s foreclosed by advertisement and s a l e , no o t h e r o r f u r t h e r a c t i o n , s u i t , o r proceedings s h a l l be taken o r judgment entered f o r any d e f i c i e n c y a g a i n s t t h e g r a n t o r . . I' The contention on t h e p a r t of C h r i s t i a e n s and t h e holding of t h e ~ i s t r i c t Court suggests confusion a s t o t h e p a r t y who in fact foreclosed. AVCO did not foreclose on the Excelsior Avenue property. Nationwide did foreclose on that property in accordance with the procedure under Title 71, MCA, the "Small Financing Act." At the sale conducted by Nationwide, AVCO bid on the property in the amount owed to Nationwide and AVCO then received a trustee's deed covering the Excelsior Avenue property. The title which AVCO received by that trustee's deed had no relationship to AVCO's junior trust indenture lien, or to AVCO's judgment lien. Section 71-1-318, MCA, describes the trustee's deed: "(3) The trustee's deed shall operate to convey to the purchaser, without right of redemption, the trustee's title and all right, title, interest, and claim of the grantor and his successors in interest and of all persons claiming by, through, or under them in and to the property sold. . ." The trustee's deed in this case transferred the title originally held by Nationwide as trustee and including all right, title and interest of the Christiaens and all those claiming through them in and to the Excelsior Avenue property. Such trustee's deed has the affect of eliminating the AVCO trust indenture lien under its junior trust indenture, and also eliminating the AVCO judgment lien. As a result of the trustee's deed, AVCO became the owner of the Excelsior Avenue property with a right to sell the same in any manner it chose. Under section 71-1-317, MCA, relied upon by the Christiaens, Nationwide was prohibited from taking a deficiency judgment. That section in no way applied to AVCO as a purchaser. AVCO therefore had the right to sell the Excelsior Avenue property without regard to section 71-1-317, MCA. AVCO did suffer a loss of approximately $1,145 when it sold the Excelsior Avenue property, but AVCO is not attempting to recover from Christiaens any part of that loss. AVCO is only seeking to recover the amount of its judgment entered on November 1, 1979, plus interest. We hold that AVCO is entitled to a declaratory judgment establishing that its judgment of November 1, 1979, constituted a lien upon the land described as plat 170-B, Silver Bow County. We vacate the judgment of the District Court in favor of the Christiaens, and direct the court to enter a judgment for AVCO in accordance with this opinion. We Concur: ~LdLdl. %+ Chief Justice