No. 92-430 

IN THE SUPREME CllURT OF THE STATE OF MONTANA 

1993 

BLAINE BANK OF MONTANA, 

a Montana Corporation, 

Plaintiff and Respsndent, 

RUSSELL HAUGEN, DONN R. HAUGEN, 

and DELL HAUGEN, d/b/a QUALITY 

ENTERPRISES, a Montana partnership, 

and DORIS HAUGEN, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Seventeenth Judicial District, 

In and for the County of Blaine, 

The Honorable Leonard Langen, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Chris R. Young; Young, Brown & Richardson, 

Havre, Montana 

For Respondent: 

Ward E. Taleff, John P. Paul; Alexander, 

Baucus & Linnell, Great Falls, Montana 

1 Submitted on Briefs: March 25. 1993 

Decided: AU~US~ 
Justice Karla M. Gray delivered the opinion of the Court. 

Russell and Donn Haugen appeal from an order of the 

Seventeenth Judicial District Court, Blaine County, denying their 

motion to preclude entry of deficiency judgment. We affirm. 

We restate the issues on appeal as follows: 

1. Did the District Court err by allowing the Haugens to 

file an action to recover damages, if any, resulting from a 

judicial foreclosure sale which violated 3 25-13-704(2), MCA, 

instead of precluding deficiency judgment? 

2. Did the District Court err by declining to preclude 

deficiency judgment based on its determination that the Haugens did 

not own personal property located in the Shanty Motel when it was 

sold by Blaine Bank? 

In May 1984, Blaine Bank of Montana (Blaine Bank) loaned 

$113,868.16 to Russell Haugen. The promissory note listed the 

borrower as "Russell Haugen d/b/a Quality enterprise^.'^ To secure 

the loan, Blaine Bank obtained and perfected a security interest in 

vehicles and equipment owned by Russell and Doris Haugen (the 

Haugens). As further security for the loan, the Haugens assigned 

their purchasersf interest in a 1981 contract for deed between 

themselves and S-M Corporation for the purchase of the Shanty Motel 

located in Havre, Montana. They also executed a quit claim deed 

for the motel in favor of Blaine Bank to be recorded in the event 

of default. 

On February 24, 1988, Blaine Bank filed a complaint against 

Russell Haugen, his sons Donn and Dell Haugen, and ~uality 
Enterprises, a partnership allegedly formed by the three men. 

Blaine Bank asserted that the defendants had defaulted on the 

May 1984 loan. It elected to accelerate the outstanding debt and 

declared the entire unpaid balance, totaling $116,621.12, due. 

Blaine Bank also sought to foreclose its security interest in 

the collateral and requested that Russell, Donn, and Dell Haugen be 

required to pay any resulting deficiency. The complaint named 

Doris Haugen as a defendant on the basis of her interest in the 

collateral. Russell, Donn, and Doris Haugen asserted a number of 

affirmative defenses and counterclaims. 

A jury trial was held on November 13, 1989. The jury returned 

a verdict against all the named defendants and against Russell, 

Donn, and Doris Haugen on their defenses and counterclaims. The 

District Court subsequently entered judgment in favor of Dell 

Haugen, having determined that he was not a partner in Quality 

Enterprises, and therefore, not liable on the promissory note. 

On January 17, 1990, the District Court filed a judgment and 

decree of foreclosure awarding Blaine Bank $132,427, representing 

the principal and interest on the debt, plus costs and attorney 

fees. The court also foreclosed the Haugens' interest in the 

contract for deed and personal property collateral, directed that 

the collateral be sold at a judicial foreclosure sale, and required 

Russell and Donn Haugen to pay any deficiency. No appeal was 

taken. 

Blaine Bank subsequently purchased the Haugens' purchasers' 

interest in the contract for deed for $60,700 at a judicial 
foreclosure sale held April 18. It also purchased the vehicles and 

equipment at a judicial foreclosure sale held August 30 for 

$18,000; although this sale was held in Blaine County, virtually 

all the property was located in Missoula County. A deficiency 

remained after the proceeds from the sales were applied to the 

judgment . 

In addition to defaulting on the Blaine Bank loan, the Haugens 

had defaulted on the contract for deed for purchase of the Shanty 

Motel. They failed to cure their default and relinquished 

possession of the motel to Henry and Sandra Erickson (the 

Ericksons), successors to S-M Corporation, in January 1990. 

On April 16, 1990, two days prior to purchasing the Haugens' 

purchasers' interest in the contract for deed at the foreclosure 

sale, Blaine Bank agreed to purchase the Ericksonsl sellersg 

interest in the contract and the "real and personal property 

comprising the Shanty Motel.Ig Although no sale documents are of 

record, Blaine Bank apparently purchased the motel property 

according to the terms of the April 16 agreement. In October 1991, 

Blaine Bank sold the Shanty Motel, including the personal property 

located inside it, to Narayan and Vibhuti Joshi (the Joshis). 

The case presently before us results from the Haugens' second 

attempt to preclude Blaine Bank from obtaining a deficiency 

judgment. The District Court previously had granted the Haugens' 

motion for relief from judgment on the basis that Blaine Bank's 

recording of the quit claim deed given with the Haugensg assignment 

of their purchasersg interest in the contract for deed eliminated 
the bank's right to a deficiency judgment under the terms of the 

assignment. Blaine Bank appealed and we reversed and remanded for 

further proceedings, concluding that the recording of the quit 

claim deed had no legal effect because the Haugens had forfeited 

all their rights in the motel property with the prior cancellation 

of the contract for deed with the Ericksons. Thus, at the time of 

the decree of foreclosure of the Haugens' interest in the contract 

for deed, the Haugens had no interest to be foreclosed. Blaine 

Bank of Montana (1991), 249 Mont. 381, 816 P.2d 447 (Haugen I). 

On remand, the Haugens again moved the District Court to 

preclude deficiency judgment, arguingthatthe sale of the vehicles 

and equipment violated 5 25-13-704(2), MCA, and was not 

commercially reasonable under 5 30-9-504(3), MCA. They also 

asserted that the deficiency judgment should be precluded because 

Blaine Bank sold their personal property, consisting of motel 

furniture and bedding, located inside the Shanty Motel. The 

District Court denied the motion to preclude deficiency judgment, 

but fashioned an alternative remedy for the unlawful sale of the 

vehicles and equipment. The Haugens appeal. 

Did the District Court err by allowing the Haugens to file an 

action to recover damages, if any, resulting from a judicial 

foreclosure sale which violated 5 25-13-704(2), MCA, instead of 

precluding deficiency judgment? 

The District Court determined that the sale of vehicles and 

equipment violated 5 25-13-704 (2) , MCA, because the property was 

capable of manual delivery but was not within the view of those 
attending the sale. In fashioning a remedy, the court determined 

that setting aside the sale was impractical here due to the sale of 

the property to various purchasers in various locations and that 

precluding the deficiency judgment altogether was too severe a 

penalty for Blaine Bank's wrongdoing. The court allowed the 

Haugens to file an action for any damages they suffered by reason 

of the unlawful sale. 

The Haugens assert that a judicial foreclosure sale conducted 

under Montana's execution statutes, §§ 25-13-101, et sea., MCA, is 

analogous to a secured creditor's sale of collateral under 

5 30-9-504 (3) , MCA, of Montana's Uniform Commercial Code (Ucc) . On 

that basis, they contend that the UCC remedy for commercially 

unreasonable sales should apply to preclude Blaine Bank from 

obtaining a deficiency judgment. They rely on Wippert v. Blackfeet 

Tribe (1985), 215 Mont. 85, 695 P.2d 461, Westmont Tractor Co. v. 

Continental I, Inc. (1986), 224 Mont. 516, 731 P.2d 327, and Bank 

of Sheridan v. Devers (1985), 217 Mont. 173, 702 P.2d 1388, which 

are all UCC cases. 

Initially, we observe that the District Court did not 

determine whether the sale of the vehicles and equipment was 

commercially reasonable under the UCC. The court determined only 

that the sale violated 5 25-13-704(2), MCA, and fashioned its 

remedy accordingly. The Haugens do not contend that the District 

Court erred in declining to address the applicability of the UCC's 

commercially reasonable standard to the sale. Indeed, they concede 
that the sale of the vehicles and equipment was governed by the 

execution statutes and not the UCC. 

Despite their concession that the UCC did not govern the sale, 

the Haugens urge this Court to require the District Court to apply 

the UCC remedy barring deficiency judgment to a violation of 

§ 25-13-704(2), MCA. They cite no authority requiring preclusion 

of deficiency judgment when it is impractical to set aside a sale 

of collateral that violates 5 25-13-704(2), MCA, however, and we 

find no basis for limiting the District Court to the UCC remedy of 

precluding deficiency judgment in non-UCC cases. 

Furthermore, Blaine Bankwould not be precluded from obtaining 

a deficiency judgment even if the UCC were applied. It is true 

that on the facts presented in Wi~~ert, Westmont Tractor, and Bank 

of Sheridan, we concluded that a secured party is precluded from 

obtaining a deficiency judgment for failing to give adequate notice 

of the sale as required by § 30-9-504(3), MCA. However, we have 

also recognized that a total bar to a deficiency judgment is 

unwarranted in some cases. 

In Ottersen v. Rubick (l99O), 246 Mont. 93, 98, 803 P.2d 1066, 

1069, for example, we observed that barring a deficiency judgment 

sometimes suggests that the creditor proceeded in bad faith or with 

unclean hands. When that factor is absent and only a minor portion 

of the collateral is sold improperly, 5 30-9-507(1), MCA, provides 

an adequate remedy. Ottersen, 803 P.2d at 1069. 

Here, Blaine Bank has been in litigation over its claims 

against the Haugens for five and one-half years. It has proceeded 
diligently in attempting to enforce its rights and the record 

contains no suggestion that any of its actions were taken in bad 

faith or with unclean hands. Furthermore, the judgment and decree 

of foreclosure entered against the Haugens amounted to $132,427 

(plus costs and attorney fees). The vehicles and equipment 

improperly sold were sold for $18,000--only 15 percent of the total 

amount of the judgment. Under these circumstances, we hold that 

the District Court was not required to preclude Blaine Bank from 

obtaining a deficiency judgment. 

The question remains as to the propriety of the remedy 

fashioned by the District Court. Initially, we observe that 

foreclosure proceedings, including the entry of a deficiency 

judgment, are equitable in nature. see Wash.-Ida.-Mont. Retirement 

v. Galleria (1989), 239 Mont. 250, 265, 780 P.2d 608, 617. Courts 

sitting in equity are empowered to determine all the questions 

involved in the case and to do complete justice; this includes the 

power to fashion an equitable result. Galleria, 780 P.2d at 617. 

The Haugens contend that the remedy imposed by the District 

Court is inequitable because they bear the burden of proving 

damages in the supplemental action. They argue that because Blaine 

Bank improperly sold the collateral, it should be required to prove 

that the property's fair market value was obtained at the sale. To 

support this argument, they assert that a secured creditor seeking 

deficiency judgment has the burden of proving the commercial 

reasonableness of the disposition of collateral under the UCC, 

relying on Farmers State Bank v. Mobile Homes Unlimited (1979) , 181 
Mont. 342, 593 P.2d 734. This contention is flawed for the same 

reason articulated above. This is not a UCC case, and the Haugens 

have cited no authority requiring application of UCC remedies or 

standards to a judicial foreclosure sale that violates 

25-13-704 (2), MCA. 

There is nothing inequitable in requiring the Haugens to prove 

the damages, if any, they have sustained. Nor is there anything 

equitable in requiring the District Court to preclude Blaine Bank 

from its deficiency judgment now worth in excess of $150,000 due to 

a violation in the sale of vehicles and equipment worth 

approximately $18,000. 

The remedy fashioned by the District Court is much like the 

limited UCC remedy set forth in 3 30-9-507(1), MCA. Under that 

provision, a debtor has the right to recover from a secured party 

any loss caused by a failure to dispose of the collateral in 

accordance with the UCC. Here, the District Court's remedy allows 

the Haugens to recover any damages incurred by the unlawful sale of 

the vehicles and equipment. 

Under these facts and circumstances, we conclude that the 

District Court did not err in allowing a supplemental proceeding to 

determine the amount of damages, if any, sustained by the Haugens 

as a result of the unlawful sale. 

Did the District Court err by declining to preclude deficiency 

judgment based on its determination that the Haugens did not own 

personal property located in the Shanty Motel when it was sold by 

Blaine Bank? 
The District Court determined that the Haugens relinquished 

possession of the personal property located inside the Shanty Motel 

to the Ericksons when they abandoned the motel property in January 

of 1990. The Haugens contend that they remained the owners of the 

personal property when Blaine Bank sold the motel to the Joshis. 

They first argue that the 1981 contract for deed conveyed only the 

real property comprising the Shanty Motel, and therefore, that the 

Ericksons became the owners of the realty, but not the personal 

property, when the contract for deed was terminated. 

While it is true that the 1981 contract for deed for the 

Shanty Motel did not expressly convey the personal property along 

with the motel realty, it is clear that the Haugens gained their 

interest in the property by virtue of entering into the contract 

for deed. At the hearing on the motion to preclude deficiency 

judgment, the Haugens' attorney conceded that the property in 

dispute had always been in the motel. Thus, when the Haugens 

defaulted on the contract and relinquished possession of the motel 

to the Ericksons, they forfeited not only their interest in the 

motel realty but also in the personal property. 

The Haugens' forfeiture of their interest in the personal 

property is in accord with our holding in Hauaen I. There, we 

determined that the Haugens did not possess any interest in the 

motel property after failing to cure their default on the contract 

for deed and relinquishing possession of the motel prior to the 

court's judgment of foreclosure in favor of Blaine Bank. Hauaen, 

816 P.2d at 448-49. 
The Haugens also argue that the certificate of sale relating 

to the judicial foreclosure of their purchasers1 interest in the 

contract for deed purported to sell only the motel1s realty, and 

therefore, that they remained the owners of the personal property. 

This argument is without merit. As discussed above, the Haugens 

forfeited all their interest in the motel property to the Ericksons 

prior to the judicial foreclosure sale of their purchasers1 

interest in the contract for deed. As a result, Blaine Bank gained 

no interest in the motel at the sale. Blaine Bank's interest in 

the Shanty Motel is derived solely from its pre-foreclosure sale 

agreement to purchase the motel--including, according to the sales 

agreement, both the "real and personal property comprising the 

Shanty M~tel~~--frorn the Ericksons on April 16, 1990. Thus, Blaine 

Bank owned the personal property when it sold the Shanty Motel to 

the Joshis. 

We conclude that the District Court did not err in determining 

that the Haugens did not own any personal property located in the 

Shanty Motel when it was sold to the Joshis. Thus, the sale 

provides no basis for precluding Blaine Bank from obtaining a 

deficiency judgment. 

Aff inned. 
We concur: 
August 17, 1993 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the following 

named: 

Chris R. Young, Esq. 

Morrison, Young, Brown & Richardson 

P.O. Box 1070 

Havre, MT 59501 

Ward E. Taleff, Esq. 

Alexander, Baucus & Linnell 

P.O. Box 2629 

Great Falls, MT 59403 

ED SMITH 

CLERK OF THE SUPREME COURT 

STAq OF,MONTANA 

BY: 

Depu