Cottam v. Heppner

• Decision Date: 07 July 1989
• Docket Number: No. 20382,20382
• Citation: 777 P.2d 468
• Parties: 9 UCC Rep.Serv.2d 805 Doyle V. COTTAM, Plaintiff, v. Glenn W. HEPPNER and Bank of Iron County, Defendants. Glenn W. HEPPNER, Irvin Heppner, Riverdale Water Company, a corporation, Plaintiffs and Appellants, v. BANK OF IRON COUNTY, a Utah corporation, and Doyle Cottam, individually, Defendants and Appellees.
• Court: Utah Supreme Court

Page 468

777 P.2d 468

9 UCC Rep.Serv.2d 805

Doyle V. COTTAM, Plaintiff, v. Glenn W. HEPPNER and Bank of Iron County, Defendants.

Glenn W. HEPPNER, Irvin Heppner, Riverdale Water Company, a corporation, Plaintiffs and Appellants, v. BANK OF IRON COUNTY, a Utah corporation, and Doyle Cottam, individually, Defendants and Appellees.

No. 20382.

Supreme Court of Utah.

July 7, 1989.

Willard R. Bishop, D. Williams Ronnow, Cedar City, for plaintiffs and appellants.

Ken Chamberlain, Richard K. Chamberlain, Richfield, for defendants and appellees.

ZIMMERMAN, Justice:

Plaintiffs Glenn W. Heppner, Irvin Heppner, and the Riverdale Water Company (hereinafter collectively referred to as "the Heppners") appeal from a judgment entered after a jury trial that awarded the bank a deficiency judgment for the difference between the amount due on a note executed by the Heppners and the amount realized from the sale of the collateral securing the note--a herd of cattle. The Heppners contend that in selling the cattle, the bank did not give the required notice and did not dispose of the collateral in a commercially reasonable manner, all as required by section 70A-9-504(3) of the Utah Code ("Utah UCC"). Therefore, the Heppners argue, the bank was not entitled to a deficiency judgment. The Heppners also claim that in repossessing the cattle, the bank, assisted by Cottam, committed a breach of the peace that entitled the Heppners to damages and that the trial court improperly instructed the jury on this issue. They contend that, applying the proper standard, the jury would have to have found for them. We reject these arguments, find no occasion to reach the remaining contentions, and affirm the judgment entered below.

The Heppners engaged in a cattle operation in Garfield County, Utah. In February of 1981, Glenn Heppner purchased cattle from Cottam for $105,000. Cottam took back a note for $38,000 of the purchase price. This note was secured by 153 head of cattle, any calves born to those cattle while in the Heppners' possession, and the funds in two escrow accounts. The $67,000 balance of the purchase price was paid to Cottam in cash out of the proceeds of a $180,000 loan the Heppners secured from the bank in March of 1981. The remaining $113,000 from the bank loan went to pay other existing obligations of the Heppners and to purchase additional cattle. The bank loan was secured by 364 head of cattle (including those securing the Cottam loan), Bureau of Land Management ("BLM") grazing rights permits, and certain properties and real estate located in California, including the assets of the Riverdale Water Company.

In August and September of 1981, the Heppners sold 112 head of cattle from the herd securing the notes. These cattle were sold at public auctions in Cedar City and Delta, Utah, without the knowledge of the secured parties and in violation of the security agreements. Although the Heppners made several relatively small payments on the note to the bank, that note went into default on November 15, 1981. Between then and the time the bank repossessed the cattle in 1983, the Heppners were never able to bring the interest current, much less pay on the outstanding principal. Also during this period, the Heppners made no principal or interest payments on the $38,000 note they had given to Cottam.

In January of 1982, the bank approached the Heppners and threatened to repossess the cattle pursuant to the terms of its security agreement; however, the bank was instead persuaded to continue to work with the Heppners. In fact, the bank advanced the Heppners additional funds in the fall of 1982 to pay for the BLM grazing permits necessary to feed the cattle during the coming year. The bank cooperated with the Heppners because it was told that the sale of certain properties owned by the Heppners in California, including the Riverdale Water Company, was imminent and that the proceeds would be applied to the loan balance.

In April of 1983, Glenn Heppner, the bank, Cottam, and an additional interested party agreed to several steps designed to restructure and pay down the outstanding loan. The Heppners' herd was to be gathered from the winter range and culled. Apparently, the culled cattle were to be sold and the proceeds applied to the Heppners' loan and to balances due certain other creditors. The bank would then rewrite the original loan, rolling into the new principal amount of that loan all principal and interest still unpaid. The rewritten loan would carry a reduced rate of interest reflecting the decline in the prime rate since 1981. The cattle not sold would be the base upon which the Heppners would rebuild their herd. Pursuant to this discussion, the Heppner cattle began to be gathered into corrals owned by Cottam. Cottam allowed the cattle to be held in his corrals in accordance with a loose arrangement with the Heppners under which they agreed to buy Cottam three corral gates in exchange for the use of the corrals; the Heppners never provided the gates.

On the 12th and 13th of May, when most of the cattle had been brought in from their winter range, an officer of the bank traveled to California to check on the progress of the sale of the California properties, the proceeds of which were expected to reduce the amount outstanding on the loan. The officer discovered that one of the key properties, the Riverdale Water Company, was in receivership and near bankruptcy. He also found that the for-sale sign had been removed from another important piece of real estate. These discoveries were inconsistent with what the bank had been told by the Heppners and prompted the bank to inform the Heppners that it was immediately calling the loan and taking possession of the cattle as collateral. With Cottam's permission, the bank took immediate possession of the Heppner cattle in Cottam's corrals and gathered the remaining cattle from the range. All were put in pens and sold by the bank through the Cedar City Livestock Auction at five separate sales held during the period from May 19th to July 21st of 1983. The bank realized a total of $92,359.44 from the five sales.

Cottam brought an action against the Heppners and the bank for the amounts due on the Heppners' $38,000 note that was in default. Cottam's claim against the bank was based on the assertion that he had a secured position superior to the bank's in some of the cattle seized and sold at the auction.

In response, the Heppners brought suit against the bank and Cottam, alleging breach of the peace, wrongful conversion of their property, and failure to conduct the disposition of the collateral in the manner required by section 9-504(3) of the Utah UCC. Utah Code Ann. § 70A-9-504(3) (1980). Specifically, section 70A-9-504(3) requires that "every aspect" of the disposition of collateral, "including method, manner, time, place and terms must be commercially reasonable." It also requires Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor.

Id. The Heppners claimed that the bank neither gave the required notice nor handled the disposition in a commercially reasonable manner. As a result, the Heppners claimed that they were entitled to damages from the bank. ¹

The bank counterclaimed, seeking a deficiency judgment for the difference between the amount due under its note from the Heppners and the proceeds of the sale of the cattle. The bank based this claim on section 9-504(2) of the Utah UCC. Section 70A-9-504(2) provides: "If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency." Utah Code Ann. § 70A-9-504(2) (1980).

All of the above actions were consolidated. After consolidation, the bank and Cottam settled their priority dispute. Under the terms of the settlement, Cottam dismissed his claim against the bank and assigned to the bank all his claims against the Heppners.

At trial, the Heppners relied upon the alleged violation of section 70A-9-504(3) not only to support their claim for damages, but also as a basis for a defense to the bank's claim, contending that the failure to comply with the statute absolutely barred any deficiency judgment. The matter was submitted to the jury on special verdicts. The jury found that the Heppners were in default on their loan to the bank (including the Heppners' note to Cottam that had been assigned to the bank) and that the cattle had been repossessed without breaching the peace. The jury rejected the Heppners' claim that the bank violated the Utah UCC. It found that the bank was excused from giving the Heppners notice of the sale by the provisions in section 70A-9-504(3) that waive notice if the collateral is of a type apt to decline speedily in value or is customarily sold on a recognized market. The jury found that both terms applied to the cattle disposed of at the auction. The jury also found that the disposition of the cattle was handled in a commercially reasonable manner. On the basis of these special verdicts, the trial court concluded that the bank was entitled to a deficiency judgment and awarded it $264,260.17, which included attorney fees provided for in the loan agreement. The court also authorized the bank to move against all remaining secured collateral.

On appeal, the Heppners do not contest the finding that they had defaulted on their obligations to the bank. However, they do challenge both the factual findings of the jury and the legal conclusions of the trial court. In the latter category are challenges to certain jury instructions and to determinations of the legal consequences of the jury's factual...