Stensvad v. Miners & Merchants Bank , 163 Mont. 409 ( 1973 )

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: September 1 2 , 1973
Decided :
DEC 2 8 1973
F i l e d : DEC 2 d ,:y j3
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 Agri-
S 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. Stensvad
C a t t l e Company. 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 opera-
t 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 Stens-
v 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
II
purported 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 liqui-
dation 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. The Bank then
advertised a sale of all corporate assets. 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
eliminate --
the debtor's right of redemption which the
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, 9-505:3, p. 631; Tops Cleaners, Inc., 20 Pa. D. & C. Reports
2d 264. 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. Coogan, Hogan & Vaghts, Secured Trans-
a c t i o n s Under t h e U.C.C., V. 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 by
means of a s a l e of t h e pledged c o l l a t e r a l . 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. 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
87A-9-505(2), 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
i n r e s p e c t .-h e-r e t o , i n anywise impaired o r susy' -
pended ." t
(Emphasis supplied) .
Respondent Otto Stensvad contends t h a t t h e r i g h t of redemp-
t 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 . Second, under
s e c t i o n 30-208, R.C.M. 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 prin-
cipal 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 in-
consistent with this opinion.
Justice