Hutzenbiler v. RJC Inv., Inc.
439 P.3d 378, 395 Mont. 250, 2019 MT 80 (2019)
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Rule of Law:
Under U.C.C. Article 9, a debtor cannot waive or vary a secured party's duty to account for and pay any surplus proceeds from the resale of collateral, and a general release of rights does not constitute an acceptance of collateral in full satisfaction of the debt unless the creditor explicitly waives its right to pursue a deficiency.
Facts:
- In March 2010, Charlene Hutzenbiler entered into an Installment Sale Contract and Security Agreement with Cherry Creek Development, Inc. to purchase a mobile home for $47,500.
- Hutzenbiler made a $3,800 down payment and agreed to pay $483 per month for fifteen years, with payments due on the 19th of each month, and late fees for payments five days past due.
- Cherry Creek assigned the Contract, which included a security interest in the mobile home, to its parent company, RJC Investment, Inc. (RJC).
- On December 10, 2015, Hutzenbiler vacated the mobile home and allowed RJC to take possession.
- Hutzenbiler signed a 'Full Release of Contract' (the Release) stating she released all rights to the home, would not be entitled to any rights of the home, or any refund of money applied to the home.
- When the Release was executed, Hutzenbiler owed $34,499.01 under the Contract.
- In February 2016, RJC resold the mobile home for $45,500 without providing notice to Hutzenbiler.
- RJC failed to provide Hutzenbiler with an accounting of the sale or refund any surplus proceeds.
Procedural Posture:
- Charlene Hutzenbiler entered into an Installment Sale Contract and Security Agreement with Cherry Creek Development, Inc., which was assigned to RJC Investment, Inc.
- Hutzenbiler vacated the mobile home and signed a Full Release of Contract, allowing RJC to take possession.
- After RJC resold the mobile home without providing an accounting or surplus proceeds, Hutzenbiler sued RJC in the Thirteenth Judicial District Court, Yellowstone County, for violations of U.C.C. Article 9 and the Retail Installment Sales Act.
- RJC moved for summary judgment, arguing the Release terminated U.C.C. application or constituted an acceptance of collateral in full satisfaction.
- The District Court granted RJC's motion for summary judgment, determining that Hutzenbiler did not state a claim, citing `Kapor v. RJC Investment, Inc.` (which was later reversed by the Montana Supreme Court).
- Hutzenbiler appealed the District Court's summary judgment order to the Montana Supreme Court.
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Issue:
Does a debtor's signing of a 'Full Release of Contract,' which relinquishes rights to collateral, terminate the application of U.C.C. Article 9 provisions requiring a secured party to provide an accounting and pay surplus proceeds after the resale of the collateral, or does such a release constitute an acceptance of collateral in full satisfaction of the debt?
Opinions:
Majority - Justice Beth Baker
No, the Release did not terminate the application of U.C.C. Article 9 requirements for an accounting and surplus, nor did it constitute an acceptance of the collateral in full satisfaction of the secured obligation. Relying on `Kapor v. RJC Investment, Inc.`, a case with similar facts and an almost identical release, the Court reiterated that U.C.C. sections 30-9A-608(1)(d) and -615(4)(a), MCA, mandate that a secured party account for and pay a debtor any surplus from the sale of collateral. Furthermore, U.C.C. section 30-9A-602(5), MCA, expressly prohibits a debtor from waiving these protections. The Release's terms did not, therefore, negate these statutory duties. Regarding the argument for strict foreclosure, the Court affirmed that an agreement to accept collateral in full satisfaction of a debt under section 30-9A-620(1), MCA, requires the creditor to indicate it is giving up its right to seek a deficiency from the debtor. The Release signed by Hutzenbiler contained no such language from RJC. The Court also rejected RJC's claims that Hutzenbiler was an 'unknown debtor' or that equitable estoppel applied, again citing `Kapor`. The Court explicitly stated that the statutory requirements for surplus and accounting are triggered when the debtor defaults, but declined to rule on whether Hutzenbiler was in default because that issue was not litigated, developed, or decided by the District Court, and therefore was not ripe for appellate review. The case was reversed and remanded for further proceedings consistent with this opinion.
Dissenting - Justice Laurie McKinnon
Yes, Hutzenbiler was not in default when she signed the Release, so she is not entitled to any surplus under U.C.C. Article 9, or alternatively, the Release constituted a valid strict foreclosure. While agreeing that the District Court erred by not first determining default, the dissent argued that the existing record, including Hutzenbiler's payment history, clearly shows she was not in default when she executed the Release. U.C.C. Article 9, Part 6 protections concerning surplus and accounting only apply after a debtor defaults, as indicated by sections 30-9A-601(1) and (4), MCA. The security agreement defined default as failure to perform covenants, with a 30-day cure period. Hutzenbiler made all payments within this cure period, making her account current before the Release was signed, meaning she was not in default. In non-default situations, parties should be free to mutually agree to terminate their security agreement without triggering these default-specific provisions. Alternatively, the dissent argued that even if Hutzenbiler was in default, the Release (referred to as the '2015 Agreement') constituted a strict foreclosure under section 30-9A-620, MCA, following similar reasoning from `Kapor` dissent. The language 'releasing myself and removing my name off the contract currently in place with RJC' clearly indicated a mutual agreement to terminate obligations, effectively an acceptance of collateral in full satisfaction, and the majority's holding elevates form over substance. The dissent would have affirmed the District Court's summary judgment in favor of RJC.
Analysis:
This case significantly reinforces the non-waivable nature of certain debtor protections under U.C.C. Article 9 in Montana, even when a debtor signs a broad release. It clarifies that for a secured party to claim acceptance of collateral in full satisfaction of debt (strict foreclosure), the agreement must explicitly waive the creditor's right to pursue a deficiency judgment. The Court's decision to remand for a determination of default underscores the critical importance of a debtor's status in triggering U.C.C. Article 9 protections, leaving open the possibility that these protections might not apply in non-default scenarios. This ruling guides creditors in drafting unambiguous agreements and ensures debtors are afforded their statutory rights regarding collateral disposition.
