Title: RUDIO v YELLOWSTONE MERCHANDISING
Citation: N/A
Docket Number: 82-067
State: Montana
Issuer: Montana Supreme Court
Date: October 4, 1982

No. 82-67 I N THE SUPREME COURT OF THE STATE OF MONTANA MORRIS RUDIO, d/b/a R U D I O ' S , P l a i n t i f f , R e s p o n d e n t and C r o s s - P l a i n t i f f , YELLOWSTONE MERCHANDISING CORP., e t a l . , D e f e n d a n t s and A p p e l l a 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 T h i r t e e n t h 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 Y e l l o w s t o n e , T h e H o n o r a b l e R o b e r t 13. Wilson, Judge presiding. C o u n s e l of R e c o r d : For A p p e l l a n t ; A l e x a n d e r & B a u c u s , G r e a t F a l l s , M o n t a n a D z i v i , C o n k l i n & N y b o , G r e a t F a l l s , M o n t a n a For R e s p o n d e n t : M o u a t & M a r t i n s o n , B i l l i n g s , M o n t a n a F i l e d : S u b m i t t e d on B r i e f s : June 3, 1 9 8 2 D e c i d e d : O c t o b e r 4 , 1 9 8 2 M r . J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion of t h e C o u r t . Morris Rudio i n i t i a t e d t h i s a c t i o n f o l l o w i n g t h e d e f a u l t of Yellowstone Merchandising on t h e i r c o n t r a c t to buy R u d i o ' s b u s i n e s s . Defendant, Yellowstone Merchandising C o r p o r a t i o n , w a s t h e o r i g i n a l buyer on t h e sale c o n t r a c t . Defendant, I n t e r m o u n t a i n Merchandising C o r p o r a t i o n , was a s s i g n e d t h e c o n t r a c t by Yellowstone. Defendants, Eugene B. Thayer , Penelope Thayer, Robert G. Hicks, and Barbara J. Hicks, signed a n agreement g u a r a n t y i n g t h e o r i g i n a l o b l i g a t i o n . Defendant, Montana Merchandising , I n c . , is t h e p a r e n t c o r p o r a t i o n and s e c u r e d c r e d i t o r of I n t e r m o u n t a i n Merchandising, I n c . The District Court found Yellowstone p r i m a r i l y l i a b l e to Rudio f o r t h e amount owing on t h e c o n t r a c t . The District Court found I n t e r m o u n t a i n Montana Merchandising , Eugene Thayer , and Robert Hicks s e c o n d a r i l y l i a b l e . From t h i s judgment t h e d e f e n d a n t s a p p e a l . Respondent ( h e r e i n a f t e r also r e f e r r e d to as Rudio) e n t e r e d i n t o a n agreement w i t h a p p e l l a n t , Yellowstone Merchandising C o r p o r a t i o n (Yellowstone ) t o s e l l p r o p e r t y which f o r m e r l y c o n s t i t u t e d r e s p o n d e n t ' s b u s i n e s s known as Rudio's. The p r o p e r t y c o n s i s t e d of i n v e n t o r y , g o o d w i l l , f i x t u r e s and o t h e r assets. The p u r c h a s e p r i c e f o r t h e i n v e n t o r y was $84,963 and f o r t h e o t h e r assets $5,500. The c o n t r a c t provided f o r a down payment of $12,500, w i t h t h e b a l a n c e t o be paid i n monthly i n s t a l l m e n t s of $750 each commencing September 1, 1976, w i t h i n t e r e s t computed a t 9 p e r c e n t p e r annum. The agreement w a s executed on or about J u l y 31, 1976, by Rudio and by Yellowstone through Rex Marguardt, v i c e p r e s i d e n t , and Robert Hicks, s e c r e t a r y . Under t h e terms of t h e agreement, Rudio was g r a n t e d a s e c u r i t y i n t e r e s t i n t h e p r o p e r t y which was t h e s u b j e c t matter o f t h e agreement. Rudio p r o p e r l y p e r f e c t e d h i s i n t e r e s t by f i l i n g a f i n a n c i n g s t a t e m e n t i n t h e o f f i c e of t h e Yellowstone county c l e r k and r e c o r d e r on O c t o b e r 21, 1976, and i n t h e o f f i c e of t h e s e c r e t a r y of state of t h e S t a t e of Montana on November 4 , 1976. The f i n a n c i n g s t a t e m e n t covered a l l of t h e p e r s o n a l p r o p e r t y involved i n t h e t r a n s a c t i o n as w e l l as t h e pro- c e e d s of any s a l e of t h e c o l l a t e r a l . S h o r t l y a f t e r t h e agreement w a s e n t e r e d i n t o , on or a b o u t September 30, 1976, Yellowstone was merged w i t h a p p e l l a n t , I n t e r m o u n t a i n Merchandising Corp . ( IMCO) . P u r s u a n t to t h e merger, IMCO assumed a l l l i a b i l i t i e s , c o n t r a c t s and o b l i g a t i o n s of Yellowstone i n c u r r e d p r i o r to September 30, 1976. IMCO c o n t i n u e d to o p e r a t e t h e wholesale and retail b u s i n e s s purchased from Rudio much as it had been o p e r a t e d by Yellowstone. Rudio remained as an employee of Yellowstone, and t h e n of IMCO, as a c o n s u l t a n t and salesman. Sometime p r i o r to t h e end of 1976 one c a t e g o r y of i n v e n t o r y w a s c o m p l e t e l y removed from R u d i o ' s warehouse. An i n v e n t o r y on J a n u a r y 21, 1977, showed t h e r e was less i n v e n t o r y remaining i n t h e warehouse t h a n t h e amount owed on t h e c o n t r a c t . The buy and s e l l agreement between Rudio and Yellowstone c o n t a i n e d a c l a u s e which s t a t e d : "Unless o t h e r w i s e agreed t o by seller, i n v e n t o r y s h a l l n o t be reduced i n v a l u e to less t h a n t h e amount still owing on t h e p r i n - c i p a l under t h e terms of t h e agreement ." S h o r t l y a f t e r J a n u a r y 21, 1977, Rudio informed t h e manager of R u d i o ' s , M r . Dallon Thomas, t h a t he was n o t to remove any more i n v e n t o r y from t h e warehouse u n l e s s Rudio gave him p e r m i s s i o n . Late i n J a n u a r y 1977, t h e o f f i c e r s of IMCO d e c i d e d to t r a n s f e r t h e assets l o c a t e d i n t h e i r B i l l i n g s o p e r a t i o n s to G r e a t F a l l s . Rudio informed t h e manager t h a t he would not allow t h e i n v e n t o r y to be removed from t h e B i l l i n g s warehouse u n l e s s he had a d d i t i o n a l s e c u r i t y . On February 1 0 , 1977, Eugene Thayer and R o b e r t Hicks, t h e owners of IMCO, and t h e i r wives, s i g n e d a g u a r a n t y agreement whereby t h e y g u a r a n t e e d t h e payments of Yellowstone, now a s s i g n e d t o IMCO, to Rudio i n c o n s i d e r a t i o n of R u d i o ' s p e r m i s s i o n to allow t h e t r a n s f e r of t h e i n v e n t o r y from B i l l i n g s to Great F a l l s . The i n v e n t o r y was moved to Great F a l l s where it was s t o r e d w i t h o t h e r i n v e n t o r y owned by IMCO. IMCO c o n t i n u e d to o p e r a t e its w h o l e s a l e and r e t a i l b u s i n e s s i n Great F a l l s . I n May 1977, Thayer agreed t o buy a l l of H i c k ' s IMCO s t o c k which t e r m i n a t e d H i c k ' s ownership i n IMCO. Sometime a f t e r t h e f i r s t of J a n u a r y 1978, IMCO o b t a i n e d a l o a n from t h e Northwestern N a t i o n a l Bank of G r e a t F a l l s i n t h e p r i n c i p a l amount of $450,000. Northwestern took a s e c u r i t y i n t e r e s t i n IMCO' s i n v e n t o r y which was secondary to Rudio I s s e c u r i t y i n t e r e s t . The l o a n was also guaranteed by Montana Merchandising I n c . , ( M M I ) , a c o r p o r a t i o n owned by Eugene Thayer. I M C O t s l o a n from Northwestern went i n d e f a u l t and t h e bank r e q u e s t e d M M I t o honor its g u a r a n t y . M M I p a i d t h e n o t e and took a n assignment from Northwestern of t h e bank's s e c u r i t y i n t e r e s t i n IMCO' s i n v e n t o r y . Thus, one c o r p o r a t i o n o b t a i n e d a s e c u r i t y i n t e r e s t i n t h e o t h e r c o r p o r a t i o n ' s assets, w h i l e b o t h cor- p o r a t i o n s were owned by t h e same p e r s o n , Eugene Thayer. On March 6, 1978, IMCO made its l a s t payment to Rudio. On August 9 , 1978, Rudio f i l e d a c o m p l a i n t i n Yellowstone County a g a i n s t Yellowstone and IMCO, f o r t h e amount owed on t h e c o n t r a c t up to t h e d a t e of t h e f i l i n g of t h e c o m p l a i n t . I n t h e w i n t e r of 1979, IMCO d e c i d e d to l i q u i d a t e its e n t i r e s t o c k of i n v e n t o r y . On or about March 22, 1979, Rudio became aware of t h e l i q u i d a t i o n sale v i a a memorandum s e n t by IMCO to v a r i o u s d e a l e r s . IMCO d i d n o t send Rudio any n o t i c e of t h e l i q u i d a t i o n sale. The p r o c e e d s of t h e l i q u i d a t i o n sale amounted t o a p p r o x i m a t e l y $280,000. The p r o c e e d s w e r e a l l d e p o s i t e d i n t o t h e a c c o u n t of M M I , Rudio r e c e i v e d n o t h i n g . Rudio took no l e g a l a c t i o n to e x e c u t e upon t h e p r o c e e d s of t h e l i q u i d a t i o n sale. On December 22, 1978, Rudio n o t i f i e d a p p e l l a n t s , Hicks and Thayer, of t h e d e f a u l t of Yellowstone and h i s i n t e n t i o n to e n f o r c e t h e terms of t h e g u a r a n t y agreement. On J u n e 1 7 , 1982, a t r i a l was h e l d i n D i s t r i c t Court i n Yellowstone County. The District Court found t h e a p p e l l a n t s to be l i a b l e to Rudio i n t h e amount of $60,098.55 w i t h i n t e r e s t a t t h e r a t e of 9 p e r c e n t f o r t h e balance of t h e c o n t r a c t . A s between t h e d e f e n d a n t s t h e c o u r t ordered l i a b i l i t y to be i n t h e following o r d e r : F i r s t - Yellowstone Merchandising Second - I n t e r m o u n t a i n Merchandising (IMCO) Third - Montana Merchandising ( M M I ) Fourth - Eugene Thayer and Robert Hicks, j o i n t g u a r a n t o r s The c o u r t also awarded Rudio a t t o r n e y ' s f e e s i n t h e amount of $13,189.15. The c o u r t f u r t h e r h e l d t h a t t h e r e was no con- s i d e r a t i o n f o r t h e wives, Penelope Thayer and Barbara Hicks, to be bound by t h e g u a r a n t y t h e y signed and t h u s Rudio is l i a b l e to them for t h e i r a t t o r n e y ' s f e e s and costs. From t h a t judgment, a p p e l l a n t s a p p e a l . Numerous i s s u e s a r e r a i s e d by t h e v a r i o u s p a r t i e s on a p p e a l . The s u b s t a n c e of t h e i s s u e s is a s f o l l o w s : 1. Whether t h e appeal by a p p e l l a n t , Robert Hicks, was t i m e l y f i l e d . 2. Whether t h e g u a r a n t y agreement signed by Eugene Thayer, Penelope Thayer, Robert Hicks and Barbara Hicks was void f o r l a c k of c o n s i d e r a t i o n . 3 . Whether t h e r e s p o n d e n t , Morris Rudio , r e l e a s e d h i s s e c u r i t y i n t e r e s t i n I M C O 1 s i n v e n t o r y by an implied w a i v e r , and t h u s exonerated t h e g u a r a n t o r s . 4 . Whether t h e t r i a l c o u r t e r r e d i n its c a l c u l a t i o n of t h e amount of t h e judgment. 5. Whether t h e t r i a l c o u r t e r r e d i n its c a l c u l a t i o n of t h e awards of a t t o r n e y ' s f e e s . Respondent moved t o d i s m i s s t h e appeal of Robert Hicks and Barbara Hicks on t h e grounds t h a t it w a s not t i m e l y f i l e d under Rule 5 , M.R.App.Civ.P. Rule 5 , M.R.App.Civ.P., r e q u i r e s a n a p p e a l be taken w i t h i n t h i r t y days of t h e e n t r y of judgment, e x c e p t where s e r v i c e of n o t i c e of e n t r y of judgment is r e q u i r e d by Rule 7 7 ( d ) , M.R.Civ.P., t h e t i m e s h a l l be t h i r t y days from t h e s e r v i c e of n o t i c e of e n t r y of judgment. T h i s case is one i n which n o t i c e of e n t r y of judgment is r e q u i r e d under Rule 77 ( d ) , M.R.Civ.P. A s t h e o r i g i n a l judgment of t h e District Court was amended w e hold t h a t t h e t h i r t y day p e r i o d d i d not commence to r u n u n t i l t h e f i n a l n o t i c e of e n t r y of judgment was m a i l e d . Here, t h e f i n a l n o t i c e of e n t r y of judgment w a s mailed on November 5 , 1981. A p p e l l a n t s Robert and Barbara Hicks f i l e d t h e i r n o t i c e of a p p e a l on December 7 , 1981. However, a l l o w i n g t h r e e days f o r m a i l i n g t h e n o t i c e of a p p e a l w a s f i l e d w i t h i n t h e t h i r t y day r e q u i r e m e n t . A p p e l l a n t s , Thayer and H i c k s , argue t h e g u a r a n t y which they and t h e i r wives s i g n e d on February 1 0 , 1977, w a s void f o r l a c k of c o n s i d e r a t i o n . W e d i s a g r e e . It is t r u e t h a t a g u a r a n t y must be based upon a c o n s i d e r a t i o n . Doorly v. Goodman ( 1 9 2 4 ) t 7 1 Mont. 529, 230 P. 779. What c o n s t i t u t e s c o n s i d e r a t i o n h a s been d e f i n e d i n v a r i o u s ways. S e c t i o n 28-2-801, MCA, states : "Any b e n e f i t c o n f e r r e d o r agreed to be con- f e r r e d upon t h e promisor by any o t h e r p e r s o n , t o which t h e promisor is n o t l e g a l l y e n t i t l e d , or any o t h e r p r e j u d i c e s u f f e r e d o r agreed t o b e s u f f e r e d by such p e r s o n , o t h e r t h a n such a s h e is a t t h e t i m e of c o n s e n t l a w f u l l y bound to s u f f e r , as an inducement t o t h e promisor is a good c o n s i d e r a t i o n f o r a promise ." Forebearance t o e n f o r c e a l e g a l r i g h t is a s u f f i c i e n t con- s i d e r a t i o n to s u p p o r t a c o n t r a c t i f t h e r e is an agreement to f o r e b e a r . - - Doorly, s u p r a . It is hornbook l a w t h a t a promise to p e r f o r m an e x i s t i n g l e g a l o b l i g a t i o n does n o t c o n s t i t u t e con- s i d e r a t i o n f o r a c o n t r a c t . 17 Am. J u r .2d. C o n t r a c t s , S e c t i o n 119 a t 465. I t is e q u a l l y w e l l - e s t a b l i s h e d t h a t t h e r e l i n q u i s h m e n t of a l e g a l o r c o n t r a c t r i g h t is s u f f i c i e n t c o n s i d e r a t i o n to sup- p o r t a c o n t r a c t . 17 Am.Jur.2d C o n t r a c t s , S e c t i o n 109 a t 455. R i c k e t t v. Doze ( 1 9 7 9 ) , - - - - Mont . - - - - , 603 P.2d 679, 36 St.Rep. 2170. Mutual promises a l o n e are enough to c o n s t i t u t e v a l i d c o n s i d e r a t i o n . 1 7 C.J.S. C o n t r a c t s , S e c t i o n s 97, 98. Miller v. T i t e c a ( 1 9 8 1 ) , ---- Mont . 628 P.2d 670, 38 St.Rep. 853. Here, w e f i n d t h e c o n s i d e r a t i o n could meet any of t h e above- mentioned tests. The f a c t s i n d i c a t e Rudio was becoming i n c r e a s i n g l y concerned a b o u t t h e s i z e of t h e i n v e n t o r y . An i n v e n t o r y t a k e n i n J a n u a r y 1977 appeared to show t h e amount of i n v e n t o r y remaining i n t h e warehouse was less t h a n t h e amount owed on t h e c o n t r a c t a t t h a t t i m e . The c o n t r a c t d i d have a c l a u s e which r e q u i r e d t h a t t h e i n v e n t o r y should n o t be reduced i n v a l u e t o less t h a n t h e amount still owing on t h e p r i n c i p a l . The c o n t r a c t a l s o c o n t a i n e d a c l a u s e which s t a t e d any l i n e of i n v e n t o r y s o u g h t t o be " e l i m i n a t e d " would be s u b j e c t t o t h e a p p r o v a l of Rudio. A t t h e t i m e a p p e l l a n t s sought t o t r a n s f e r t h e i n v e n t o r y from B i l l i n g s to Great F a l l s , Rudio could have t a k e n s t e p s to p r e v e n t t h e t r a n s f e r a l t h o u g h t h e c o n t r a c t d i d n o t spe- c i f i c a l l y state t h a t t h e i n v e n t o r y could n o t be moved w i t h o u t R u d i o ' s c o n s e n t . C e r t a i n l y , Rudio could have brought an a c t i o n f o r breach of c o n t r a c t when t h e i n v e n t o r y v a l u e became less t h a n t h e v a l u e of t h e remaining p r i n c i p a l . Rudio could also have s o u g h t t o e n j o i n t h e removal of t h e i n v e n t o r y r e l y i n g on t h e c l a u s e which p r o h i b i t e d " e l i m i n a t i o n " of i n v e n t o r y w i t h o u t Rudio 's c o n s e n t . W e are n o t s p e c u l a t i n g a s to t h e outcome of R u d i o l s prospec- t i v e a c t i o n s . W e m e r e l y p o i n t o u t t h a t Rudio d i d have l e g a l r i g h t s and could have attempted to b l o c k t h e t a n s f e r of t h e i n v e n t o r y . Rudio d i d r e l i n q u i s h t h e s e r i g h t s i n exchange f o r t h e promise of Thayer and Hicks to g u a r a n t y Y e l l o w s t o n e ' s o b l i g a t i o n . The g u a r a n t y agreement was made , " [ i ] n c o n s i d e r a t i o n of per- m i s s i o n b e i n g g r a n t e d by Morris Rudio," f o r t h e t r a n s f e r of t h e i n v e n t o r y from B i l l i n g s to Great F a l l s , "and f o r o t h e r v a l u a b l e c o n s i d e r a t i o n ." A p p a r e n t l y Thayer and Hicks thought a t t h e t i m e t h e y s i g n e d t h e g u a r a n t y t h a t Rudio could p r e v e n t t h e t r a n s f e r of t h e i n v e n t o r y . A s t h e owners of Yellowstone C o r p o r a t i o n , they had a p e r s o n a l i n t e r e s t i n t h e move from B i l l i n g s t o Great F a l l s . Consequently, we hold t h e r e was c o n s i d e r a t i o n f o r t h e i r s i g n i n g as g u a r a n t o r s f o r Yellowstone. I n its c o n c l u s i o n s of law, p a r a g r a p h 7 , t h e District Court r u l e d : "7. P l a i n t i f f is e n t i t l e d to judgement f o r s a i d amount a g a i n s t Montana Merchandising as p u r c h a s e r of t h e secured c o l l a t e r a l . . .I1 Although w e a g r e e w i t h t h e D i s t r i c t C o u r t ' s r u l i n g t h a t Rudio is e n t i t l e d to a judgment a g a i n s t M M I , we do n o t a g r e e w i t h t h e c o u r t ' s r e a s o n . The District Court h e l d t h a t M M I purchased t h e i n v e n t o r y from IMCO. T h i s is wholly unsupported by t h e r e c o r d . The r e c o r d shows t h a t M M I , w h i l e remaining a s e p a r a t e e n t i t y , g u a r a n t e e d a l o a n IMCO o b t a i n e d from Northwestern N a t i o n a l Bank. When Northwestern asked M M I t o honor its g u a r a n t y , M M I r e p a i d t h e l o a n and took t h e b a n k ' s s e c u r i t y i n t e r e s t i n IMCO's i n v e n t o r y . M M I d i d n o t a c t u a l l y purchase t h e i n v e n t o r y b u t m e r e l y had a s e c u r i t y i n t e r e s t which w a s i n f e r i o r to R u d i o l s . S e c t i o n 30-9-312(3), MCA, s t a t e s : " ( 3 ) A purchase money s e c u r i t y i n t e r e s t i n i n v e n t o r y collateral h a s p r i o r i t y o v e r a c o n f l i c t i n g s e c u r i t y i n t e r e s t i n t h e same collateral i f : - " ( a ) t h e p u r c h a s e money s e c u r i t y i n t e r e s t is p e r f e c t e d -- a t t h e -- time -- t h e - d e b t o r r e c e i v e d -- p o s s e s s i o n ; and- - - - " ( b ) any s e c u r e d p a r t y whose s e c u r i t y i n t e r e s t is known to t h e h o l d e r of t h e p u r c h a s e money s e c u r i t y i n t e r e s t or who, p r i o r t o t h e d a t e of t h e f i l i n g made by t h e h o l d e r o f t h e purchase money s e c u r i t y i n t e r e s t , had f i l e d a f i n a n c i n g s t a t e m e n t covering t h e same items o r t y p e of i n v e n t o r y , h a s r e c e i v e d n o t i - f i c a t i o n of t h e purchase money s e c u r i t y i n t e r e s t b e f o r e t h e d e b t o r r e c e i v e s p o s s e s s i o n o f t h e collateral covered by t h e purchase money s e c u r i t y i n t e r e s t ; and " ( c ) such n o t i f i c a t i o n states t h a t t h e person g i v i n g t h e n o t i c e h a s o r e x p e c t s to a c q u i r e a p u r c h a s e money s e c u r i t y i n t e r e s t i n t h e inven- t o r y of t h e d e b t o r , d e s c r i b i n g such i n v e n t o r y by i t e m or type ." (Emphasis s u p p l i e d . ) A p p e l l a n t s r e l y h e a v i l y on s e c t i o n 30-9-306 ( 2 ) , MCA, which states: " ( 2 ) Except where t h i s c h a p t e r o t h e r w i s e pro- v i d e s , a s e c u r i t y i n t e r e s t c o n t i n u e s i n colla- t e r a l n o t w i t h s t a n d i n g sale, exchange or o t h e r d i s p o s i t i o n t h e r e o f by t h e d e b t o r u n l e s s - - h i s a c t i o n was a u t h o r i z e d -- by -- t h e s e c u r e d p a r t y i n t h e s e c u r i t y agreement or o t h e r w i s e , and also - c o n t i n u e s i n any i d e n t i f i a b l e p r o c e e d s i n c l u d i n g c o l l e c t i o n s r e c e i v e d by t h e d e b t o r . " ( Emphasis s u p p l i e d . ) A p p e l l a n t s argue t h a t Rudio waived h i s s e c u r i t y i n t e r e s t by implied c o n s e n t . A p p e l l a n t s claim t h a t Rudio had n o t i c e of t h e l i q u i d a t i o n sale and a u t h o r i z e d it by n o t t a k i n g a c t i o n to pre- v e n t it. They cite C l o v i s N a t i o n a l Bank v Thomas ( 1 9 6 7 ) , 77 N.M. 554, 425 P.2d 726, and a s t r i n g of f o l l o w i n g cases which h o l d t h a t a p l a i n t i f f who a c q u i e s c e s i n t h e sale of c o l l a t e r a l h a s t h e r e b y consented to t h e sale and waives h i s s e c u r i t y i n t e r e s t a g a i n s t a s u b s e q u e n t p u r c h a s e r . However, - - C l o v i s is d i s t i n g u i s h a b l e from t h e case a t hand. - - C l o v i s involved a p l a i n - t i f f who loaned money t o t h e d e b t o r to purchase c a t t l e . When t h e d e b t o r s o l d t h e cattle to t h e d e f e n d a n t , p l a i n t i f f sued f o r c o n v e r s i o n . The N e w Mexico Supreme Court r u l e d t h a t t h e p l a i n - t i f f had consented to t h e sale of t h e collateral, waived h i s s e c u r i t y i n t e r e s t , and t h u s was unable to hold t h e d e f e n d a n t l i a b l e f o r c o n v e r s i o n . The Court f u r t h e r h e l d t h a t t h e p l a i n t i f f was unable to trace t h e p r o c e e d s because t h e f i n a n c i n g s t a t e m e n t d i d n o t c o v e r proceeds. Here a p p e l l a n t s are n o t p u r c h a s e r s as t h e d e f e n d a n t was i n t h e C l o v i s case. A p p e l l a n t s were s i m p l y secured c r e d i t o r s w i t h a s e c u r i t y i n t e r e s t i n f e r i o r to R u d i o ' s . Whether or n o t Rudio waived h i s s e c u r i t y i n t e r e s t h a s no b e a r i n g on h i s r i g h t to t h e p r o c e e d s of t h e sale as a g a i n s t competing c r e d i t o r s such as M M I . I n , I n R e Mid S t a t e Wood P r o d u c t s Company ( D . 1 1 1 . 1 9 5 7 ) r 323 F.Supp. 853, t h e F e d e r a l District Court held: " S e c t i o n 9-306(2) of t h e code e x p r e s s l y r e s e r - v e s t h e r i g h t to p r o c e e d s n o t w i t h s t a n d i n g a u t h o r i z a t i o n to s e l l t h e primary collateral. Whether t h e sale was a u t h o r i z e d is made d e t e r - m i n a t i v e o n l y of t h e secured p a r t y ' s r i g h t to f o l l o w t h e collateral a f t e r sale a f f e c t i n s h i s ~ r i o r i t i e s as a a a i n s t t h e ~ u r c h a s e r . b u t i n no A - - - 2 .. -- - - manner a f f e c t s h i s i n t e r e s t i n t h e r e t a i n e d -- procegds as a g a i n s t competing c r e d i t o r s . T h i s 7 - - 7 construction of t h e s t a t u t o r y provision is emphasized i n t h e O f f i c i a l code Comment upon t h a t p r o v i s i o n . See UCC, O f f i c i a l Code Comment, s e c t i o n 9-306(2) a t p a r . 2 . . . "As p r e v i o u s l y d i s c u s s e d , t h e Uniform Commercial Code is e x p l i c i t i n p r e s e r v i n g t h e p r i o r i t y of t h e s e c u r e d p a r t y to t h e proceeds n o t w i t h s t a n d i n g h i s c o n s e n t to t h e sale of t h e p r i m a r y c o l l a t e r a l and f u r t h e r n o t w i t h s t a n d i n g h i s c o n s e n t to t h e d e b t o r I s u n r e s t r i c t e d use and d i s p o s i t i o n of t h e s e p r o c e e d s so long a s t h e y remain i d e n t i f i a b l e . See UCC s e c t i o n s 9-306, 9-205 and t h e O f f i c i a l Code Comments upon t h e s e s e c t i o n s . " A u t h o r i z a t i o n to s e l l collateral a t b e s t a f f e c t s t h e secured p a r t y ' s r i g h t s a g a i n s t t h e s u b s e q u e n t p u r c h a s e r but n o t as a g a i n s t t h e c r e d i t o r . " (Emphasis added ) 323 F.Supp. a t 857. W e a g r e e w i t h t h e F e d e r a l District C o u r t ' s i n t e r p r e t a t i o n of 9-306(2) , c o d i f i e d as 30-9-306(2), MCA. It a p p e a r s t h a t t h e d r a f t e r s of t h e UCC o n l y intended waiver to a p p l y to a s u b s e q u e n t p u r c h a s e r of t h e collateral. Thus, t h e p u r c h a s e r is p r o t e c t e d from any a t t e m p t by t h e secured c r e d i t o r to o b t a i n p o s s e s s i o n of t h e collateral, a f t e r t h e c r e d i t o r a u t h o r i z e d its sale. However, t h e c r e d i t o r does n o t waive h i s s e c u r i t y i n t e r e s t as a g a i n s t o t h e r s e c u r e d o r unsecured c r e d i t o r s . I n t h i s case M M I , t h e p a r e n t c o r p o r a t i o n , v i r t u a l l y conducted IMCO' s l i q u i d a t i o n and s i m p l y d e p o s i t e d a l l p r o c e e d s i n t o M M I ' s a c c o u n t . Considering b o t h c o r p o r a t i o n s were owned by t h e same p e r s o n , t h e t r a n s a c t i o n comes v e r y close to being a f r a u d u l e n t conveyance r e g a r d l e s s of whether t h e r e w a s a waiver or n o t . M M I had no r i g h t to s i m p l y d e p o s i t t h e l i q u i d a t i o n proceeds i n t o its own a c c o u n t i n v i o l a t i o n of Rudio's s e c u r i t y i n t e r e s t . T h e r e f o r e , w e hold t h a t M M I is s e c o n d a r i l y liable to Rudio f o r t h e amount of t h e judgment. A p p e l l a n t s , Thayer and Hicks argue t h a t i f t h e r e w a s a w a i v e r o f R u d i o g s s e c u r i t y i n t e r e s t , t h e n t h e y should be exonerated as g u a r a n t o r s . They cite s e c t i o n 28-11-211, MCA, which p r o v i d e s : " ( 1 ) A g u a r a n t o r is e x o n e r a t e d , e x c e p t so f a r as he may be idemnified by t h e p r i n c i p a l , i f by any act of t h e c r e d i t o r w i t h o u t t h e c o n s e n t o f t h e g u a r a n t o r t h e o r i g i n a l o b l i g a t i o n of t h e p r i n c i p a l is a l t e r e d i n any r e s p e c t o r t h e remedies or r i g h t s of t h e c r e d i t o r a g a i n s t t h e p r i n c i p a l i n r e s p e c t t h e r e are i n any way impaired o r suspended." I f we were t o a p p l y t h i s s t a t u t e to a p p e l l a n t , Thayer, we would be h o l d i n g t h a t Rudio should have stopped t h e sale of I M C O ' s i n v e n t o r y , owned by Thayer, so t h a t M M I , also owned by T h a y e r , would be p r o t e c t e d from IMCO's i r r e s p o n s i b l e acts. W e do n o t choose t o do so. A p p e l l a n t , Hicks, also a r g u e s t h a t i f Rudio waived h i s s e c u r i t y i n t e r e s t i n t h e i n v e n t o r y , t h e n Hicks should be ex- o n e r a t e d as g u a r a n t o r . A s we d i d n o t f i n d t h a t Rudio had waived h i s s e c u r i t y i n t e r e s t we do n o t need to comment upon t h i s argu- ment f u r t h e r . Both Thayer and Hicks a g r e e t h a t w i t h o u t a w a i v e r , t h e r e is no e x o n e r a t i o n . A p p e l l a n t s argue t h e t r i a l c o u r t e r r e d i n t h e c a l c u l a t i o n of t h e amount due on t h e c o n t r a c t . They base t h i s claim on t h e pro- v i s i o n of t h e c o n t r a c t which allowed e l i m i n a t i o n of i n v e n t o r y i f t h e p r o c e e d s were a p p l i e d to t h e p r i n c i p a l amount due on t h e c o n t r a c t . A p p e l l a n t s claim t h a t Rudio o n l y c r e d i t e d an amount of $15,644.96 f o r e l i m i n a t i o n of i n v e n t o r y which had a n e t cost of $20,186.32. The f u n c t i o n of t h i s Court on a p p e a l is to d e t e r m i n e i f t h e r e is s u b s t a n t i a l e v i d e n c e to s u p p o r t t h e f i n d i n g s of t h e District C o u r t . W e w i l l n o t r e v e r s e t h e f i n d i n g s of t h e D i s t r i c t Court u n l e s s t h e r e is a clear preponderance of t h e e v i - dence a g a i n s t such f i n d i n g s . S c h u l z v. Peake (1978) , 178 Mont. 261, 583 P.2d 425. Here, we are n o t p r e s e n t e d w i t h enough docu- m e n t a t i o n to r e v e r s e t h e D i s t r i c t Court. Without such documen- t a t i o n t h e r e is n o t a clear preponderance of t h e e v i d e n c e a g a i n s t t h e t r i a l c o u r t ' s f i n d i n g . The t r i a l c o u r t s a t through days of t e s t i m o n y and e x h i b i t s . It based its f i n d i n g upon t h a t e v i d e n c e . I t is n o t o u r f u n c t i o n to o v e r t u r n t h e t r i a l c o u r t ' s f i n d i n g based on two f i g u r e s n o t supported by examination. W e h o l d t h e t r i a l c o u r t ' s c a l c u l a t i o n of t h e amount due on t h e c o n t r a c t to be correct. The t r i a l c o u r t awarded a t t o r n e y ' s f e e s to t w o of t h e g u a r a n t o r s , Penelope Thayer and B a r b a r a H i c k s , when it r u l e d t h a t t h e r e w a s no c o n s i d e r a t i o n to bind them to t h e g u a r a n t y agreement. The o r i g i n a l buy-sell agreement be tween Rudio and Y e l l o w s t o n e c o n t a i n e d t h e f o l l o w i n g c l a u s e : " I n t h e e v e n t s u i t o r a c t i o n is b r o u g h t by any p a r t y under t h i s agreement to e n f o r c e any of its terms, it is agreed t h a t t h e p r e v a i l i n g p a r t y s h a l l be e n t i t l e d to a r e a s o n a b l e a t t o r n e y ' s f e e to be f i x e d by t h e t r i a l and a p p e l l a t e c o u r t s . " I n F i r s t Westside N a t i o n a l Bank of Great F a l l s v. Llera ( 1 9 7 8 ) , 176 Mont. 481, 580 P.2d 100, we r u l e d t h a t o n l y p a r t i e s t o t h e o r i g i n a l c o n t r a c t have r e c i p r o c a l r i g h t s t o a t t o r n e y ' s f e e s . P a r t i e s which are n o t p a r t i e s to t h e o r i g i n a l c o n t r a c t can i n no e v e n t become e n t i t l e d to a t t o r n e y f e e s e i t h e r under t h e c o n t r a c t or t h e s t a t u t o r y p r o v i s i o n . Here, Barbara Hicks and Penelope Thayer were n o t p a r t i e s t o t h e o r i g i n a l c o n t r a c t , they s i m p l y signed a g u a r a n t y agreement which they had no i n t e n t i o n to honor. S i n c e t h e y were n o t p a r t i e s to t h e o r i g i n a l c o n t r a c t , t h e t r i a l c o u r t e r r e d i n awarding them a t t o r n e y f e e s . Affirmed i n p a r t , r e v e r s e d i n p a r t and remanded to t h e D i s t r i c t Court f o r judgment d a n c e w i t h t h i s o p i n i o n . J u s t i c e W e concur: 3 4 w E & , ~~&..&p Chief J u s t i c e