STENSVAD v MINERS MERCHANTS BANK

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No. 12332 I N THE SUPREME COURT O THE STATE OF M N A A F OTN 1973 OTTO STENSVAD , P l a i n t i f f and Respondent, MINEKS AND MERCHANTS BANK O ROUNDUP, MONTANA, F Defendant and A p p e l l a n t . Appeal from: D i s t r i c t Court of t h e F o u r t e e n t h J u d i c i a l D i s t r i c t , Honorable Nat A l l e n , Judge p r e s i d i n g . Counsel of Record: For Appellant: Towe, Neely and B a l l , B i l l i n g s , Montana Thomas Towe a r g u e d , B i l l i n g s , Montana F o r Respondent: S a n d a l l , Moses and Cavan, B i l l i n g s , Montana C h a r l e s F. Moses a r g u e d , B i l l i n g s , Montana Submitted: Decided : F i l e d : DEC 2 d ,:y j3 September 1 2 , 1973 DEC 2 8 1973 M. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e Court. r Defendant The Miners and Merchants Bank of Roundup, Montana, b r i n g s t h i s a p p e a l from a summary judgment e n t e r e d by t h e d i s t r i c t c o u r t of M u s s e l s h e l l County which e x o n e r a t e d t h e o b l i g a t i o n of p l a i n t i f f O t t o Stensvad a s g u a r a n t o r on c e r t a i n c r e d i t transactions. The c r e d i t t r a n s a c t i o n s involved took p l a c e between Larry D. Stensvad and c o r p o r a t i o n s he c o n t r o l l e d a s borrowers; O t t o Stensvad, h i s f a t h e r , a s g u a r a n t o r ; and t h e Bank a s l e n d e r . The borrawed funds were used i n e s t a b l i s h i n g and o p e r a t i n g a c a t t l e f e e d i n g b u s i n e s s begun i n t h e l a t t e r p a r t of 1969. Four s e p a r a t e c o r p o r a t i o n s were involved i n t h e o p e r a t i o n of t h e b u s i n e s s : ( I ) an e l e v a t o r and f e e d p l a n t i n Roundup, i n c o r p o r a t e d a s AgriS e r v i c e s , I n c . ; ( 2 ) a f e e d l o t n e a r Roundup i n c o r p o r a t e d a s 14-V E n t e r p r i s e s , I n c . ; ( 3 ) a second feedlar n e a r 1-4elstone, Montana, i n c o r p ~ r a t e da s M & S C a t t l e F e e d e r s ; and (4) t h e L.D. C a t t l e Company. Stensvad The l a s t named company was i n c o r p o r a t e d t o buy c a t t l e and r e s e l l them t o i n v e s t o r s under a c o n t r a c t arrangement which provided t h a t t h e c a t t l e would be f e d on one ~ f t h e two f e e d l o t s w i t h f e e d s u p p l i e d by t h e e l e v a t o r . The m a j o r i t y of t h e s t o c k i n t h e s e f o u r c o r p o r a t i o n s was owned by L a r r y Stensvad and h i s w i f e p f a j o r i e . O t t o Stensvad had a m i n o r i t y i n f - e r e s t i n two of t h e c o r p o r a t i o n s . O January n 2 , 1970, O t t o Stensvad executed a g u a r a n t y of c r e d i t i n f a v o r of t h e Bank f o r t h e b e n e f i t of Agri-Services i n t h e amount of $200,000. During t h e summer of 1971, t h e e n t i r e c a t t l e f e e d i n g operat i o n r a n i n t o f i n a n c i a l d i f f i c u l t i e s and a d i s p u t e a r o s e between t h e l i t i g a n t s concerning c r e d i t advances r e q u e s t e d of and made by t h e Bank. I t a p p e a r s t h e Bank took over t h e a c t u a l o p e r a t i o n of t h e f e e d l o t s and e l e v a t o r a t t h e w r i t t e n r e q u e s t of L a r r y Stensv a d ' s a t t o r n e y and o b t a i n e d a pledge on v i r t u a l l y a l l p r o p e r t i e s owned by t h e f o u r c o r p o r a t i o n s . O J u l y 1 4 , 1971, t h e Bank took n a voluntary assignment of all the stock owned by Larry Stensvad and his wife in three of the corporations: Agri-Services, M-V Enterprises and M & S Cattle Feeders. On September 16, 1971, Otto Stensvad executed another guaranty of credit in the amount of $200,000 in favor of the Bank for the benefit of M-V Enterprises, M & S Cattle Feeders, L. D. Stensvad Cattle Company, and L. D. Stensvad as an individual. By November 1971, it appears that the outstanding balance of all loans from the Bank was in excess of one million dollars. On or about November 15, 1971, Otto Stensvad sent the Bank a purported II notice of termination of guaranty contracts" and filed the present action in district court. On December 31, 1971, the Bank sent notice to Larry Stensvad and his wife that the assigned stock certificates would be sold at private sale. The Bank was unable to sell the stock of Agri- Services, M-V Enterprises and M & S Feeders, apparently due to the high indebtedness of those corporations. On January 17, 1972, the Bank demanded a meeting of the officers of Agri-Services, M-V Enterprises and M & S Cattle Feeders for the purpose of passing a resolution authorizing liquidation of assets to be applied against debts, After refusal of the officers to assent to a sale, the Bank sought and obtained a writ of mandate compelling transfer of the corporate offices and registered ownership of the stock to the Bank. advertised a sale of all corporate assets. The Bank then Larry Stensvad filed a lawsuit for wrongful conversion against the Bank, causing lis pendens to be filed on all real estate to be sold. Only bid-ins by the Bank were received on the real property; all other property was sold at public auction sale held on June 10, 1972. The Bank claims a deficiency after application of sale proceeds of $484,077.09, plus interest. Other litigation is pending concerning this series of transactions and events. Plaintiff Stensvad's motion for summary judgment urged (1) the Bank has asserted ownership and control over three of the c o r p o r a t i o n s , A g r i - S e r v i c e s , M-V Enterprises and M & S Feeders; that as a matter of law this is full satisfaction of all claims and releases the guarantor, and (2) this control alters the original obligations between the parties and impairs the remedies or rights of the parties in respect thereto. The court granted plaintiff's motion as a matter of law on these grounds: "IT IS ORDERED that Plaintiff's motion for summary judgment is hereby granted and allowed. The whole purpose of the bank s actions in this case was to the debtor's right of redemption which the eliminate -bank admits on page 8 of its brief. Laudable as their purpose may be in doing this, this Court does not believe it-can be done-without freeing the guarantor. 11 (Emphasis supplied). The issues on appeal are: (1) Did any action by the Bank with respect to the cor- porate stock or assets exonerate Otto Stensvad as guarantor? (2) Was summary judgment proper upon the facts before the district court? Issue (I), Section 87A-9-505, R.C.M. 1947, (identical to the official version of the Uniform Commercial Code 59-505), is cited by respondent Stensvad as applicable to the facts here. Section 87A-9-505(1), R.C.M. 1947, is applicable only to a security interest in consumer goods. Anderson, Uniform Commercial Code, V.4, 2d 264. 9-505:3, p. 631; Tops Cleaners, Inc., 20 Pa. D. & C. Reports The present case involves debts secured by pledged stock certificates and partially guaranteed by two separate contracts existing between the litigants. Section 87A-9-505( ) R.C.M. 1947, is applicable to security 2, interest in consumer goods and to other types of collateral. The scope and purpose of this section is to insure that a debtor in default will lose as little as possible when the secured creditor . elects to enforce his security interest. Hence, the instances in which the collateral may be retained in satisfaction of the debt are limited in two ways: (1) requiring notice by the secured creditor to the debtor; and (2) providing the debtor opportunity t o o b j e c t t o r e t e n t i o n of c o l l a t e r a l i n s a t i s f a c t i o n of t h e debt i f i t appears t o t h e debtor t h a t a s a l e of t h e c o l l a t e r a l might be more favorable t o him. a c t i o n s Under t h e U.C.C., Coogan, Hogan & Vaghts, Secured TransV. 1, § 8.04; Willier and H a r t , U.C.C. Reporter-Digest, V. 6D, 5 9-505. Here i t appears t h e d e f a u l t i n g debtors were never given n o t i c e ' b y t h e secured c r e d i t o r of an i n t e n t t o r e t a i n t h e c o l l a t e r a l i n s a t i s f a c t i o n of t h e debt. Rather, t h e d e f a u l t i n g debtors were given n o t i c e of an i n t e n t t o enforce t h e s e c u r i t y i n t e r e s t means of a s a l e of t h e pledged c o l l a t e r a l . by I t appears t h e de- f a u l t i n g debtors then r e s i s t e d t h e ~ a n k ' se x e r c i s e of t h a t r i g h t , causing t h e Bank t o seek a w r i t of mandate which u l t i m a t e l y e f fectuated a sale. 87A-9-505(2), The d e f a u l t i n g debtors cannot r e l y on s e c t i o n R.C.M. 1947, t o contend t h e Bank's a c t i o n s i n achieving a s a l e somehow c o n s t i t u t e d a r e c i s i o n and s a t i s f a c t i o n of t h e debt s o a s t o b a r f u r t h e r recovery thereon. Section 30-208, R.C.M. 1947, i s a p p l i c a b l e and provides: II A guarantor i s exonerated, except so f a r a s he may be indemnified by t h e p r i n c i p a l , i f by any a c t of t h e c r e d i t o r . without t h e consent of t h e guarantor, 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 i s a l t e r e d i n any r e s p e c t , o r t h e remedies o r 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 t i n r e s p e c t .-h e-r e t o , i n anywise impaired o r susy' pended (Emphasis supplied) ." . Respondent Otto Stensvad contends t h a t t h e r i g h t of redempt i o n by t h e debtor corporations owning t h e r e a l property was a l t e r e d by t h e ~ a n k ' sa c t i o n with r e s p e c t t o t h e pledged s t o c k c e r t i f i c a t e s . This point i s not w e l l taken. F i r s t , i t i s questionable whether, a s a matter of law, t h e r i g h t s of redemption e x i s t i n g i n t h e debtor corporations were eliminated by t h e Bank's a c t i o n s . s e c t i o n 30-208, R.C.M. Second, under 1947, an a l t e r a t i o n o r e l i m i n a t i o n o f d e b t o r ' s remedies does n o t r e s u l t i n exoneration of t h e guarantor. Issue 2.Under Rule 5 6 ( c ) , M.R.Civ.P., t h e moving p a r t y f o r summary judgment must bear t h e burden of proving t h e absence of any genuine i s s u e a s t o a l l m a t e r i a l f a c t s which would, a s a matter of law, entitle him t o judgment. Kober & Kyriss v. B i l l i n g s Deaconess Hospital, 148 Mont, 117, 417 P.2d 476. From our examination of the record, we do not find it to be an undisputed fact that the original obligations of the principal debtors were altered by any action taken by the creditor. Nor do we find it to be an undisputed fact that the actions taken by the creditor against the debtors impaired or suspended the creditor's rights, so as to invoke the exoneration provisions of section 30-208, R.C.M. 1947. Several disputed but relevant factual issues are apparent from the record, e.g.: whether the Bank acted in a commercially reasonable manner in making the disposition of collateral; whether the actions of the creditor Bank caused any actual prejudice to the guarantor's obligation under the guaranty contracts; whether the actions of the creditor relied upon by respondent completely exonerate the guarantor of all obligations or apply equally to each of the debtor entities covered in the guaranty contracts; whether the express terms of the guaranty contracts contained a waiver; and, whether the fact the second guaranty contract was executed after pledge of stock by debtor implies a waiver or ratification by guarantor of possible prejudice to his position. Accordingly, the judgment is reversed and the cause remanded to the district court for further proceedings not inconsistent with this opinion. Justice

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