PETER A. DULAN, JR., 

Plainitff and Appellant, 

Defendant and Respondent. 

Appeal from: District Court of the Thirteenth Judicial District, 

In and for che County of Yellowscone, Tile Ifonorabie 

Charles Luedke, Judge presiding. 

Counsel of Record: 

For Appeliant: 

Terry L. Seiffert, Billings, Montana 

For Respondent: 

K. Robert Foster, Lewistown, Montana 

Submitted: January 18, 1983 

Decided : March 24, 1983 

Filed: MAR 2 4 1983 

@ - --- 

-- Clerk 
Mr. Chief Justice Frank I. Haswell delivered the Opinion of 

the Court. 

Appellant bought Shanon Studios, a Billings photography business, in 1964 and in 1966 incorporated under Shanon 

Studios, Inc. On June 2, 1971, he executed a promissory 

note for $7,500 with respondent and as collateral assigned 

the stock of the corporation. 

On May 22, 1972, appellant agreed to sell Shanon 

Studios, Inc., to Gerald L. Wolfe for $18,000. his agreement contained the following paragraph: 

"4. Unless otherwise agreed in writing, 

upon failure of Buyers to make payments 

within 90 days of the dates due hereunder, all amounts paid by Buyers on the 

above purchase price shall be retained by 

Sellers as liquidated damages, and this 

agreement shall thereupon become void, if 

said Buyers receive written notice of the 

failure to make said payment due before -. the said 90th dav. Buvers havina all 

rights and obligations accruing from said 

stock until said event occurs, if at 

all." (Emphasis added.) 

Also, on May 22, 1972, the buyer and seller executed an 

escrow agreement which appointed the respondent as escrow 

agent and included the following provision: 

"Upon receiving notice from Peter A. 

Dulan, Jr., that any other party here 

undersigned has failed to perform its 

part of the agreement mentioned above, as 

set out in Paragraph Number Four, page 

five of said Agreement, the Escrow Agent 

at the expiration of ten (10) days from 

the date of receiving said notice, shall 

transfer all stock certificates and documents held in this escrow ---- to --------- Peter A. 

Dulan, Jr." (Emphasis added.) 

No representative of the respondent signed this escrow 

agreement. 

On July 22, 1972, appellant executed a renewal promissory note for $7,500. The collateral was listed as "Assign. 

of note of Shanon Studios stock payments per schedule 
attached." 

On October 17, 1972, Wolie, the appellant, and the 

vlce president of respondent executed an escrow recelpt on 

the standard form wherein the respondent acknowledged 

receipt of the agreement to sell and the shares of stock. 

The prior escrow agreement was not listed as being part of 

the contents of the escrow. The October 17 escrow also 

contained the following: "Credit payments to: Peter A. 

Uulan note." Thus, the arrangement was that Wolfe made 

payments to respondent to discharge his obligations under 

the agreement to sell the stock and these payments were in 

turn directly applied to plaintiff's obligation under the 

$7,500 renewal promissory note. 

Early in 1973 pursuant to correspondence between the 

parties, appellant signed a financing statement granting 

respondent a security interest in the stock held in escrow. 

Respondent filed this document with the secretary of state 

on March 14, 1973. Originally, assignment of the stock was 

listed on the actual stock certificate. The bank felt that 

the assignment should be made on a separate document. This 

transpired even though on July 22, 1972, appellant executed 

a renewal promissory note in which the collateral was listed 

as the assignment of the note from Wolfe for his purchase of 

the business. The assignment of the stock and the assignment 

of the note evidence two different types of collateral. 

On May 6, 1974, respondent sent appellant a letter 

advising appellant that Wolfe had not made the Pliarch and 

Aprll payments. Consequently, appellant's payments on his 

note to respondent were delinquent in the amount of $558.88. 

The total amount stlll owing on the note was $1,427.44. On 
August 21, 1974, respondent sent another letter to appellant 

by certified mail which stated the following: 

"This letter is to advise you that a 

demand is being placed on you in the 

amount of $1,499.38 whicn is relative to 

your note of May 22nd, 1972, in the 

original. amount of $7,500. GO. This 

includes principal of $1,427.44 and 

interest of $71.94. This pays interest 

through August 31st, 1974, and if not 

received by that ---- date we will then proteed against the stock certificate consisting of 4995 shares of Shanon Studio 

stock which you assigned to the Montana 

National Bank." (Emphasis added.) 

The record indicates that appellant received this 

letter. lie responded with a letter dated September 10, 

1974, suggesting methods by which Wolfe could meet his 

payment obligations. Appellant testified that if these 

suggestions proved ineffective, the respondent should 

contact him. 

On October 3, 1974, respondent sent another letter to 

appellant by certified mail to the address the previous 

letter had been sent to, advising appellant that the stock 

would be advertised and sold on October 17, 1974. The 

proceeds would be applied to appellant's past-due loan. The 

record shows that this letter was returned unclaimed. There 

is con£ 1 icting testimony regarding whether the appellant 

notified the respondent of his change of address. Appellant 

testified that he had notified an attorney with the firm 

that represented the respondent. 

On about November 14, 1974, the stock was sold to 

Wolfe, the same person who was buying the stock under the 

original contract, for the remaining amount due on appellant's note to respondent ($1,590). There was about $8,500 

due on the original contract between Wolfe and appellant. 
Appellant indicated at trial that had he known the stock 

would be sold to satisfy the amount remaining on his note he 

would have paid it in full. 

On December 7, 1977, appellant filed a complaint 

alleging that respondent breached its fiduciary duty to 

appellant by fraudulently foreclosing on the stock without 

notice of such foreclosure. Appellant sought $6,000 in 

actual damages and $15,000 in punitive damages. Respondent 

answered denying any breach of fiduciary relationship and 

alleging that appellant was not entitled to punitive 

damages. 

The District Court dismissed appellant's complaint, 

finding that respondent acted in good faith in notifying 

appellant of the foreclosure and sale. From this dismissal, 

appellant brings this appeal. 

Three issues are presented on appeal: 

1. Did the respondent breach a fiduciary duty when it 

foreclosed on the stock? 

2. Did the respondent give proper notice of the sale 

of the stock? 

3. Was the foreclosure sale conducted in a commercially reasonable manner? 

The appellant contends first that the respondent 

breached its fiduciary duty to the appellant when it foreclosed on the stock held in escrow. An escrow agent is a 

fiduciary and cannot breach this confidence to act for its 

own advantage. Appellant asserts this breach is clear as 

Wolfe bought the stock in the foreclosure sale for the 

amount in default. This was substantially less than the 

amount remaining on the contract between appellant and 
Wolfe. The respondent contends that it acted completely 

within the statutory authority vested in a secured creditor 

when a debtor defaults. 

A security interest is defined as an interest in 

personal property which secures payment or performance of an 

obligation. Section 30-1-201(37), MCA. A security interest 

attaches binding the creditor and the debtor when there is 

an agreement between the parties that it attach, value is 

given to the debtor, and the debtor has rights in the 

collateral. Section 30-9-204(1), MCA. In the present case 

the security interest attached on June 2, 1971, when the 

stock was pledged. There was clearly an agreement between 

the parties that the security interest attach to the stock, 

the appellant was given credit or an extension thereof, and 

the appellant owned the stock when attachment occurred. 

Further, the security interest continued in the collateral 

notwithstanding the sale to Wolfe. Section 30-9-306 (2) 

MCA. 

We also note that the security agreement became binding before the parties entered into the escrow arrangement. 

The security interest attached on June 2, 1971. The parties 

entered into the escrow agreement on October 17, 1972. 

Consequently, the security interest would remain attached to 

the stock in the escrow account. 

Thus, we hold the security interest had attached and 

remained so while the stock was in escrow. Upon default the 

respondent acted within its statutory rights to foreclose on 

the collateral to satisfy appellant's obligation. Section 

30-9-504, MCA. 

The escrow arrangement was a convenient means to have 
payments from Wolfe, for the corporation, credited against 

appellant's original indebtedness to the respondent. It 

should not, however, create an obstacle for a secured party 

in exercising its statutory rights to foreclose on collateral when the debtor defaults. Moreover, the fiduciary 

duties respondent owed to the appellant, as an escrow agent, 

did not conflict with this right. 

The particular instruction that appellant asserts 

would require the respondent to return possession of the 

stock certificate to appellant, if Wolfe defaulted on a 

payment, was in the May 22, 1972, escrow agreement between 

appellant and Wolfe. However, the respondent was merely 

appo~nted as depository. It had not legally accepted the 

escrow. Hence, this instruction did not bind the respondent. 

It was not until October 17, 1972, that respondent legally 

became the escrow depository. This is evidenced by the 

formal escrow receipt executed on that date. It acknowledged receipt of the agreement to sell and the shares of 

stock. The agreement was on a standard form and made no 

reference to the Nay 22, 1972, escrow. 

The appellant further asserts that the respondent did 

not comply with the Uniform Commercial Code in failing to 

give notice of the foreclosure sale. The respondent argues 

that in Montana such notice only needs to be sent and, 

moreover, that the August 21, 1974, letter apprised the 

appellant of respondent's intentions to proceed against the 

stock. 

Section 30-9-504(3), MCA, provides ". . . reasonable 

notification of the time and place of any public sale or 

reasonable notification of the time after which any private 
sale or other intended disposition is to be made shall be 

sent by the secured party to the debtor . . . " (Emphasis 

added.) Section 30-1-201(26), MCA, defines notice as: 

". . . taking such steps as may be reasonably required to inform the other in 

ordinary course whether or not such other 

actually comes to know of it. A person 

'receives' notice or notification when: 

"(b) it is duly delivered . . . at any 

other place held out by him as the place 

for receipt of such communication." 

In James Talcott, Inc. v. Reynolds (1974), 165 Mont. 

404, 529 P.2d 352, we specifically held that according to 

the UCC there is no requirement that the debtor receive 

actual notice. It requires the creditor to take reasonable 

steps to assure that the debtor is notified. 

We hold that notice of the sale of the stock was 

proper. Notice was sent to the appellant. Further, the 

steps taken by the respondent were those reasonably required to notify the appellant of the foreclosure. Also, 

according to the UCC, the appellant received notice of the 

sale when it was delivered to the address the August 21, 

1974, letter was sent. By responding to that letter, the 

appellant held the address of delivery out as a place for 

receiving com~nunications. 

Finaily, the steps taken by the respondent to notify 

the appellant were successful in giving actual notice. The 

August letter informed appellant of the respondent's intentions to dispose of the collateral to satisfy the appellant's obligation. 

Finally, the appellant contends the sale of the 

collateral was not conducted in a commercially reasonable 
manner as mandated by section 30-9-504(3), MCA. The 

respondent merely sold the stock to the original purchaser 

for an amount substantially less than its worth and the sale 

was not advertised. 

The respondent asserts that the price itself does not 

warrant a holding that a particular sale was commercially 

unreasonable. The appellant must prove that the manner of 

the sale was commercially unreasonable. 

Under the UCC, every aspect of the foreclosure proceedings, including method, manner, time, place and terms, 

must be commercially reasonable. Section 30-9-504(3), MCk. 

The fact that a better price could be obtained at a different sale or a different method or manner of disposition 

does not establish that the sale was commercially unreasonable. Section 30-9-507(2), MCA. 

This Court interpreted these two sections of the UCC 

in the Talcott case, supra. We held that the reasonableness 

of the sale is not determined by price but the manner in 

which the sale was conducted. In other words, if the sale 

is considered commercially reasonable, then the price is 

reasonable. 

However, Professors White and Summers in their 

treatise on the UCC place some importance on the price that 

was actually received for the collateral. They state: 

ll. . . Notwithstanding the statement in 

507-(2) that low resale price alone is 

not enough, the crucial issue which one 

gleans from the 'method, manner, time1 

language and from the several cases 

interpreting 9-504(3) is just that--was 

the price sufficient? The debtor who 

asks a court to ignore 9-507 (2) probably 

expects too much, but the cases suggest 

that given an unusually low resale price 

little more is needed for the courts to 

find the sale commercially unreasonable 
... " White and Summers, Uniform Commercial Code 2d Ed., § 26-11 at 1116 

(1980). 

Some recent cases recognize that the resale price 

should be a factor in determining the commercial reasonableness of a sale. In Mercantile Financial Corporation v. 

Miller (E.D. Pa. 1968), 292 F.Supp. 797, 7 UCC 402, the 

court recognized that: 

"Although S 9-507(2) clearly provides 

that a discrepancy between a price 

received by a creditor disposing of 

assets pursuant to 9-504 and an 

isolated price later shown to have been 

obtainable, is not alone sufficient to 

grant a debtor affirmative relief under 

9-507(1), certainly such a discrepancy, 

if substantial, is relevant to a determination of whether a challenged sale was 

'commercially reasonable'. [citing cases] 

The evidence here established that the 

price received for the goods sold by the 

plaintiff [secured party] was substantially less than both the price originally paid for them by G.F.&M. and the price 

which the purchaser of the assets subsequently received for them on resale, 

i.e., approximately $57,000.00. This 

evidence strongly suggested that the 

plaintiff did not obtain the fair market 

value for these goods at the time of the 

sale, and the plaintiff did not rebut 

this inference." 292 F.Supp. at 801. 

Thus, in light of the above authority and the fact 

that "reasonable price" is the objective of a commercially 

reasonable disposition, we hold that a large discrepancy in 

price can be considered within the parameters of section 30- 

9-504(3), MCA. We also conclude that the complaining party 

has the burden of proving the price received was less than 

the fair market value of the collateral. 

In this case, besides the evidence regarding the value 

of the stock, the appellant made little effort to prove the 

actual sale was commercially unreasonable. The record is 

replete with speculations of the value of the stock when it 
was disposed. The appellant asserted that the assets of the 

corporation were valued at $22,279.79 the year before the 

sale of the collateral. However, there was also testimony 

that Wolfe did not do well with the business after the 

appellant sold it to him. Moreover, Wolfe filed corporate 

bankruptcy approximately two and one-half years after it was 

sold. 

Thus, we hold that the appellant did not prove that 

the sale was conducted in a commercially unreasonable manner 

pursuant to section 30-9-504(3), MCA. We further hold that 

there is substantial evidence to support the lower court's 

conclusion that appellant did not meet his burden of establishing that the stock was worth an amount greater than that 

for which it was sold. 

Af f irmed. 

=344nat wcw&@Jp Chief Justice 

We concur: 

.*As --.+," ,-x, 

J Justices