No. 82-88 INTHE SUPREPI COURT OF THE STATE OF MONTANA 1982

AVCO FINANCIAL SERVICES OF BILLINGS ONE, INC.

## , Plaintiff 

### and Appellant,

DANIEL L. CHRISTIAENS, BEVERLY A. CHRISTIAENS

## , 1,ELVIN R. CEIRISTIAENS

# , LINDA K. CMRISTIAENS, ROBERT M. RODMAN AND SUSAN A. RODMAN, Defendants 

### and Respondents.

Appeal from: DistrictCourt

### of the 

### Second 

### Judicial District, 

### In and for the County 

### of 

### Silver Bow Honorable Arnold Olsen, 

### Judge presiding. Counsel

### of Record: For Plaintiff: John LeslieHanmer

## , Butte, Montana 

### For Defendants: MauriceA. Maf

### fei, Butte, 

### Ilontana

Submitted

### on briefs: August 19, 1982 Decided-: October 14, 1982

Filed

## OCT&qSZMr. JusticeFred J. Weber delivered the Opinion of the Court. Following the defaultby Daniel and Beverly Christiaens (~hristiaens) on a loan +e AVCO Financial Services (AVCO),

fix 0m AVCO obtained a judgment against Christiaens for $8,575.19. AVCO brought a declaratory judgment action to determine if thejudgment constituted a lien on certain SilverBow County property. The DistrictCourt of the Second Judicial District for SilverBow County entered a judgment finding there was

no effective lien. Wevacate thatjudgment. The following issues

### willbe considered on review: (1) Is a secured party firstrequired to dispose of collateral given for securityof a debt inorder toreduce the amount of the judgment before seeking an alternative remedy. (2) If a junior encumbrancer purchases a senior encumbrancer

## 's interestunder a trust indenture and thereafter 

### sells the property, does this constitute a foreclosure under Title71, MCA, and 

### is the secured party thereby precluded from pursuing further remedies. AVCO loaned Christiaens a sum of money on June 8, 1978. As security for the loan Christiaens executed a promissory note and a security agreement infavor 

### of AVCO which gave AVCO a lien on various household goods and on two older automobiles. AVCO alsoreceived a second trust indenture lienon realproperty on Excelsior Avenue inButte owned by Christiaens. The firstlienwas held on thisproperty by Nationwide Finance Company (Nationwide)

# . On September 28, 1979, the loan with AVCO was indefault. AVCO filed an action againstChristiaens and judgment was entered on November 1, 1979, by default against Christiaens for $8,575.19 plus costs and interest.

### The obligation due Nationwide was also

### indefault and Nationwide noticed foreclosure on 

### its trust indenture on the Excelsior Avenue property. The salewas conducted on November 8, 1979, and AVCO, 

### the second trust indenture lienholder, purchased the property atthe trustee's sale. AVCO 

### has subsequently sold the property on Excelsior Avenue ata loss.On November 1, 

### 1979, the date of entry of judgment against Christiaens, they alsoowned interests of record in land described asplat 170-B located in SilverBow County. On March 28, 1980, Christiaens sold their tract 170-B land todefendants Rodman for $70,000--of which $8,611.19 was held back by Summit Valley TitleCompany pending final determination of AVCO 

### by way of their judgment lien. The firstissue iswhether a secured party is 

### first required todispose of collateral given for security of a debt inorder toreduce the amount of the judgment before seeking an alternativeremedy. In order to secure the loan with AVCO, 

### Christiaens gave AVCO 

### a lienon a 1969 Oldsmobile, a 1972 Chevrolet pickup, and household goods and furniture. After default AVCO 

### did not attempt to take possession of any of the security. Christiaens testified thathe drove the Oldsmobile "until the frontend balljoints 

### wererealbad" and thathe "parked the car and eventually itwas junked out." Christiaens also testified that the transmission went outon the Chevrolet pickup and thathe "finally sold it 

### forparts." Most of the 

### household goods and furnishings were leftinthe house on ExcelsiorAvenue, but the Christiaens still 

### had the washer and drier. Mark Ayers, manager of the Butte AVCO 

### office, testified thatAVCO 

### does notrepossess a security if they feel that there was no way they would get their principal back bydoing so. Christiaens contend thatAVCO 

### is firstrequired to take possession of the collateral and firstdispose of 

### it ina reasonably commercial manner before attempting to acquire any deficiency and that sinceAVCO did notrepossess any of the collateral 

### it should be precluded from attempting to enforce 

### itsjudgment on the saleof the tract 170-B land. Section 30-9-504(1), MCA, provides: "A secured party after defaultmay 

### sell, leaseor otherwise dispose of 

### any or - of the collateral in

### its then condition. 

# . ." (Emphasis added.) In addition, section 30-9-501(1), MCA, provides: "When a debtor 

### is indefaultunder a security agreement, a secured party. 

# . .may reduce his claim tojudgment, foreclosure

or otherwise enforce the security interestby any available judicial procedure." The Utah Supreme Court, inconsidering the same Uniform Commercial Code section allowed a secured party to "at

### its option, ignore that security [personal property] and satisfy 

### itsjudgment from other property [real property] in the hands of the judgment debtor." Kennedy v. Banlc of Ephraim (Utah 1979), 594 P.2d 881, 884. "[Tlhecreditor can ignore his security interest and obtain a judgment on the underlying obligation and proceed by execution and levy." J. White & R. Summers, Uniform Commercial Code, at962-963 (1972). Itmay not always be practical for the secured party to firsttake possession of the collateral and attempt to 

### sell it if the value of the collateral has so diminished that the proceeds from resale would clearly be insufficient to satisfy the debt. Itmay then be to the secured party's advantage toproceed by judgment and execution because in thatway he can reach assets inaddition to the collateral and can eliminate the two-step process of first selling the collateral and thensuing for a deficiency. Wehold that a secured creditor 

### is notrequired to firsttake possession and dispose of collateral before obtaining a judgment and execution upon other property owned by the debtor. The second issue 

### is if a junior encumbrancer purchases

a senior encumbrancer's interest under a trust indenture and thereafter sells the property, does this constitute a foreclosure under 

### ~itle 71, MCA, and 

### is the secured party thereby precluded from pursuing further remedies. As partof the collateral, AVCO received a second lien in the form of a trust indenture on property thatChristiaens owned on Excelsior Avenue. Nationwide had the first lien also in the form of a trust indenture. On November 8, 1979, Nationwide foreclosed and the property was sold by bid in conformance with Title 71, MCA, regarding trust indentures. AVCO was the solebidder for $7,856.61--the amount due on Nationwide's balance. AVCO then sold theproperty through a Butte realtor. AVCO received a gross saleprice of $8,200 and afterpaying the taxes and selling expenses, AVCO netted approximately $6,711. Christiaens contend thatwhen AVCO bought and sold the Excelsior Avenue property, AVCO proceeded under Title 71, MCA, and 

### isprevented from any further recovery because of a deficiency under section 71-1-317, MCA, which provides: "When a trust indenture executed inconformity with this part is foreclosed by advertisement and sale, no other or further action, suit, orproceedings shallbe taken or judgment entered for any deficiency against the grantor. 

# .

I' The contention on the part of Christiaens and the holding of the 

### ~istrict Court suggests confusion as totheparty 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 FinancingAct." 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 $1,145when 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 thatAVCO 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