Mushitz v. First Bank of South Dakota , 1990 S.D. LEXIS 83 ( 1990 )

MORGAN, Justice

(specially concurring).

I concur generally with the majority disposition of the issues on wrongful prejudgment taking, conversion, and dismissal of compulsory counterclaims. However, I write to concur specially on the issue of the commercial reasonableness of Bank’s sale of the Mushitz livestock and machinery.

First, we are reminded that summary judgment is a proper remedy only when there are no material factual disputes. Klatt v. Continental Ins. Co., 409 N.W.2d 366, 368 (S.D.1987); SDCL 15-6-56(c). The burden is on the moving party to clearly show that there are no genuine issues of material fact, and the evidence must be viewed most favorably to the nonmoving party, resolving all reasonable doubts against the moving party. Id. Assuming a prima facie showing has been made, the nonmoving party must respond by presenting specific facts which demonstrate a genuine, material issue for trial. Laber v. Koch, 383 N.W.2d 490, 492 (S.D.1986).

The substantive issues revolve around the question of compliance with the provisions of the Uniform Commercial Code (U.C.C.), particularly with SDCL 57A-9-504(3) and 57A-9-507(l). As pertinent to the collateral herein involved, two parts of the U.C.C. are applicable. 57A-9-504(3) provides:

Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral 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 if he has not signed after default a statement renouncing or modifying his right to notification of sale.

97A-9-507(l) also provides, in pertinent part:

If the disposition has occurred the debtor or any person entitled to notification ... has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this part.

As we pointed out in First Bank of South Dakota v. VonEye, 425 N.W.2d 630, 636 (S.D.1988), “[cjommercial reasonableness of the sale of collateral is a question of fact.” Citing from First Bank v. Haberer Dairy & Farm Equip., 412 N.W.2d 866, 871 (S.D.1987), we reiterated:

"... 'it is the aggregate of the circumstances in each case — rather than specific details of the sale taken in isolation— that should be emphasized in a review of the sale. The facets of manner, method, time, place, and terms cited by the Code are to be viewed as necessary, and interrelated parts of the whole transaction.’ ” (Citations omitted.)

With these admonitions in mind, I will proceed to examine the dispositions with respect to the two categories of collateral: livestock and farm machinery.

First, with respect to the sale of the livestock, the trial court made the following pertinent findings and conclusions in its memorandum opinion which it incorporated in its order for summary judgment:

The cattle and hogs were sold almost immediately by the Bank at recognized local livestock auction markets.

No notice was given to Plaintiffs prior to the livestock sales.

Plaintiffs were not entitled to notice pri- or to the sale of the livestock on recognized livestock auction markets. First Nat’l Bank v. Kehn Ranch, Inc., 394 N.W.2d 709 (S.D.1986); SDCL 57A-9-504(3).

The parties differ on the exact number of cattle seized by the sheriff.

[Plaintiffs] assert that the property was not well cared for, and was allowed to deteriorate....

Plaintiffs fail to establish specific facts supporting these contentions.

Bank has presented evidence that the livestock were kept at recognized livestock exchange barns and pens, were fed and were treated by veterinarians prior to sale. Plaintiffs offer no substantial evidence suggesting this is not appropriate care. Failure to do so is a failure of Plaintiffs to carry their burden of demonstrating a genuine material fact dispute on this issue. Laber v. Koch, supra.

With respect to the trial court's finding that plaintiffs failed to raise an issue of fact on the care afforded the cattle, I disagree. As I review the record, I find therein an affidavit of Ed Mushitz, in response to Bank’s motion for summary judgment, wherein it is specifically set out, in pertinent part:

At that time [the August 19, 1985 taking by the sheriff] the livestock was in top condition, some of the best in the county. The cows had and (sic) average weight of about 1150 lbs., the calves averaged about 300 lbs., the hogs and weiners (sic) weighed an average of about 125 lbs., and the sows weighted (sic) about 250 lbs. on the average_ I am further personally aware that the cows were left without water for an extended period and were in a very poor condition when they reached the sale barn and that both the cattle and the hogs had lost weight since they were taken from me, and that they were sold in the poor condition. I am also personally aware that the hogs prior to the sale were kept in a place contaminated with bullnose, an affliction that we have not had and that the hogs did not have when they were taken from me, and that they developed bullnose and were sold in that condition.... Bullnose will cause a $100-150 drop in the price of anything but butcher hogs and a drop in value of about 10 to 15 percent in butcher hogs. It is my opinion that the cows had lost about 100 to 150 lbs each between the time of taking and the time of sale and that the calves had lost between 50 and 75 lbs each during that period....

It is difficult for me to conceive what more Mushitz could have done to raise the material issue of fact that the cattle were not properly handled between the time of taking and the sale. Indeed, the 153 head discrepancy in the number of cattle noted by the trial court (Mushitz’ claim of 535 head as opposed to Bank’s accounting for 382 head) creates a dispute of fact. On that basis alone, I would suggest that the grant of summary judgment was improper.

Further, the trial court found that Mush-itz received no notice of the sale of the livestock, but concluded that such notice was not necessary because the livestock was sold on recognized livestock auction markets, relying on this court’s decision in Kehn Ranch. The U.C.C., at 57A-9-504(3) as set out above, mandates notice to the debtor of the time and place of sale of the collateral unless it falls within certain categories including, as pertinent to this case, goods customarily sold on a recognized market. In Kehn Ranch, the majority extended the definition of collateral “of a type customarily sold on a recognized market” to include cattle sold at livestock auction sales. This monumental leap of logic came about thusly:

Admittedly, the cattle market is not identical to the New York Stock Exchange or the bond markets. But like the stock exchange, prices paid for cattle are available by quotation on a daily basis, as are prices paid for shares on the NYSE. Furthermore, when the Bank took possession of the security, cattle were being traded daily on the commodity futures markets, similar to grain and other commodities. Under such a marketing system there is no room for bidding on individual cattle, and “[t]he forces of supply and demand determine price and the valuation of goods_” (Citation omitted.) To claim otherwise would seemingly deny the obvious. We accordingly conclude that commercial cattle herds raised for sale at public livestock markets are collateral ‘of a type customarily sold on a recognized market’ for purposes of SDCL 57A-9-504(3).

394 N.W.2d at 715 (footnote omitted).

The purpose of adoption of any uniform code is to have some uniformity of law among the various “code” states. The Kehn Ranch decision puts South Dakota in a class by itself. Admittedly there was not a lot of authority on the issue. At the time, there were two clear cut decisions contra to Kehn Ranch which the majority rejected: Wippert v. Blackfeet Tribe, 215 Mont. 85, 695 P.2d 461, 464 (1985), and State Bank of Towner v. Hansen, 302 N.W.2d 760, 765 (N.D.1981). The majority chose to follow a federal district court opinion which likewise had rejected the Montana and North Dakota cases, but for a reason totally unrelated to the issue in Kehn Ranch. Arcoren v. Peters, 627 F.Supp. 1513 (D.S.D.1986), rev’d, 811 F.2d 392 (8th Cir.), aff'd on rehearing en banc, 829 F.2d 671 (8th Cir.1987), cert. denied, 485 U.S. 987, 108 S.Ct. 1290, 99 L.Ed.2d 500 (1988), concerned whether two FmHA officials enjoyed qualified immunity from suit for damages for selling cattle repossessed under a security agreement without complying with the notice requirements of 57A-9-504(3). The issue was whether the officials had violated plaintiffs “clearly established” statutory rights so as to deprive them of immunity.

The reason that the federal district court judge gave for rejecting Wippert and Hansen was that they had been decided after the sale in Arcoren and thus did not clearly establish applicable law at the time of the sale. 627 F.Supp. at 1519. Arcoren was totally devoid of any discussion on the merits of the issue on what constitutes collateral customarily sold on a recognized market. See Kehn Ranch, 394 N.W.2d at 721 (Morgan, J., dissenting) for further discussion of this issue.

Second, in regard to the sale of the farm machinery, the trial court found that the farm machinery was sold pursuant to a court order dated November 4, 1985. The record discloses that the court order provides that the machinery described therein should be sold in a commercially reasonable manner under the U.C.C. The memorandum opinion then found that some of the machinery was sold the following month and the balance in the following spring. Further, the trial court also found that the sale was advertised in a local trade journal with wide circulation and was accomplished by the taking of bids. The only notice to Mushitz acknowledged in the memorandum was that provided by the court’s November order.

Mushitz’ affidavit alleges the value of certain items of the machinery at the time of the taking:

Case tractor — $16,000

Farmall M tractor — $1,500

Farmall H tractor — $800

16 foot grain drill — $3,500

18 foot tandem disc — $700

The affidavit goes on to conclude that the value that Bank received for the sale of the equipment was not commercially reasonable and did not reflect the value of the property at the time that it was taken. While this record does include some reports of the livestock sale, there is no showing of the report of sale of the machinery. We are unable therefore to compare the returns. The trial court’s memorandum went on to conclude that the commercial reasonableness of the sales was established in tune with our decisions in Haberer, supra, and VonEye, supra.

I do not agree with that conclusion. There was no issue in VonEye as to notice of sale. In Haberer, we discussed the requirement for notice of private sale:

[A] creditor intending to sell collateral at private sale must send “reasonable notification [to the debtor] of the time after which any private sale ... is to be made_” (Citation omitted.) The term “reasonable notification” is not defined in the Code, but “courts have consistently treated the uniform commercial code requirement of reasonable notification as a question of fact to be determined only after considering all the facts and circumstances of the individual case.” (Citations omitted.)

412 N.W.2d at 873 (emphasis in original).

In this case, Mushitz received no notification from Bank as to the time at which the private sale was to be held except, perhaps, if he happened to pick up the trade journal wherein there was an advertisement. There was nothing in the order for sale that gave him any notice of the time or place or manner of sale, except that it was to be commercially reasonable. Again, as we said in Haberer, “the real issue in these cases is not whether a debtor received notice, but if a creditor, in view of all the facts and circumstances of each case, took reasonable steps to give notice to the debtor.” Id. at 872. It does not appear to me that this has been done, but at the least it is a question of material fact that is in dispute.

I would therefore reverse and remand the issue of commercial reasonableness of the sale of both livestock and machinery for jury trial.