Haggis Management, Inc. v. Turtle Management, Inc. , 1985 Utah LEXIS 924 ( 1985 )

HALL, Chief Justice:

Plaintiff Haggis Management, Inc. (Haggis), challenges an adverse summary judgment in an action for a deficiency judgment against guarantors of a secured promissory note. Based on undisputed facts set forth below, the trial court concluded Haggis had failed to make a commercially reasonable disposition of the collateral, contrary to the requirement of U.C.A., 1953, § 70A-9-504(3) (1980 ed.), and was therefore barred from recovering a deficiency judgment. We affirm.

In 1978, plaintiff sold a restaurant and private liquor club in Salt Lake City, Utah, known as “The Haggis,” to Turtle Management, Inc. (Turtle), for $350,000, with $100,-000 down and a promissory note for $250,-000. As part of the purchase agreement and to secure the note, Turtle granted Haggis a security interest in the club’s “furniture, fixtures, equipment, inventory, accounts receivable and proceeds therefrom.” In addition to the purchase agreement, Turtle executed a separate security agreement, granting Haggis a security interest in certain itemized furniture and equipment. Defendants Jeoffrey Meacham, Stephen McCaughey and Dan Lee Briggs (guarantors) guaranteed the note.

In July 1980, Turtle defaulted on the note, leaving a principal balance of over $167,000, and closed the club. Haggis brought this action, obtained a default judgment against Turtle, and took possession of the club premises and property. Turtle filed a petition for liquidation in bankruptcy; however, the trustee in bankruptcy abandoned the collateral to Haggis. The collateral had been appraised at a value of about $30,000.

After being restored, the club was then reopened for business and operated for several months. Ultimately, it was sold in a private transaction to Chianti Management, Inc. (Chianti), for $110,000. No notice was given to guarantors before this sale and there was no prior advertising or bidding although a few inquiries to potential buyers were made.

Neither the parties’ briefs nor the record clearly discloses the events occurring after Haggis repossessed the collateral and before the sale to Chianti. It appears, however, that, before the sale to Chianti, the club and collateral were privately transferred on two occasions to organizations formed by some of the principals of Haggis. Again, no notice of the transfers was given to guarantors and there was no advertising or bidding before the transfers.

Of course, summary judgment is proper only where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.¹ Viewing the above facts and all inferences that may be reasonably drawn from them in the light most favorable to plaintiff,² there is no genuine issue of material fact and guarantors are entitled to judgment as a matter of law.

U.C.A., 1953, § 70A-9-504 (1980 ed.) authorizes a secured party, after default, to “sell, lease or otherwise dispose of any or all of the collateral,”³ to apply the proceeds to satisfaction of the debt⁴ and to recover the deficiency from the debtor.⁵ The statute also requires, however, that “every aspect of the disposition including

the method, manner, time, place and terms must be commercially reasonable.”⁶

Not every transfer of collateral by a secured party is a disposition for purposes of section 9-504.⁷ Thus, in this case, the threshold issue presented is whether either of the transfers of the collateral that occurred before the sale to Chianti was a disposition under section 9-504. Conceding that there was a disposition, Haggis does not address this issue in its briefs. Guarantors contend that each of the transfers, alternatively, was a disposition within the contemplation of section 9-504. The circumstances and terms of the transfers of the collateral before the sale to Chianti are not adequately disclosed in the record to enable us to determine whether either of those transfers was a resale or disposition of the collateral which discharged the security interest.⁸ For reasons set forth below, however, we conclude that none of the transfers, if assumed to be a disposition under section 9-504, was commercially reasonable. Thus, we need not decide which of the transfers was a disposition under section 9-504.⁹

Subsection (3) of section 9-504 provides: Disposition of the collateral may be by public or private proceedings and may be made by way of one or more con-tracts_ 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, if he has not signed after default a statement renouncing or modifying his right to notification of sale.

All of the transfers of the collateral in this case were “private proceedings.” Haggis concedes that under the above subsection guarantors were entitled to notification of the time after which a sale of the collateral would be made¹⁰ and that no such notification was given. Haggis argues guarantors nevertheless had actual notice of a disposition because they were aware the collateral had been repossessed by Haggis and abandoned by the trustee in bankruptcy. The latter assertion is without support in the record. Further, even assuming that a debtor’s actual knowledge of the disposition would relieve a secured party of the specific notice requirement of section 9-504(3), which we do not decide, guarantors' knowledge of Haggis’ repossession of the collateral gave them no notice of which of the many available creditors’ remedies Haggis would elect to pursue. Thus, formal notice was required.

Whether proper notice of the disposition was sent to the debtor is but one factor to be considered in determining whether the disposition was commercially reasonable under section 9-504(3). In addition, we must consider whether “every aspect of the disposition including the method, manner, time, place and terms” ¹¹ was commercially reasonable. Of prime importance, are the secured party’s attempts to obtain a fair price for the collateral by advertising the collateral or otherwise notifying potential buyers that the collateral is for sale.¹² Haggis asserts that, before the sale to Chianti, potential buyers were solicited. The record shows that there was no advertisement or public notice of sale and that, at most, only a few potential buyers were contacted and no firm bids were received before the sale to Chianti. Such minimal efforts are insufficient as a matter of law to establish that the collateral was sold in a commercially reasonable manner.¹³

Generally, a secured party who fails to dispose of collateral in a commercially reasonable manner is barred from recovering a deficiency judgment.¹⁴ Inasmuch as the disposition of the collateral in .this case was not commercially reasonable, Haggis is barred from recovering a deficiency judgment against guarantors.

Relying on U.C.A., 1953, § 70A-9-507(1) (1980 ed.) and our decision in Zions First National Bank v. Hurst,¹⁵ Haggis argues that guarantors’ exclusive remedy is in damages. Haggis asserts the fair market value of the collateral has been established by appraisal to be $30,000 and offers to credit guarantors with that amount in determining a deficiency.

Section 507(1) states:

If it is established that the secured party is not proceeding in accordance with the provisions of this part disposition may be ordered or restrained on appropriate terms and conditions. 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.

In Hurst, noting the above section, we did not bar the secured party from recovering a deficiency judgment although proper notice of the resale of the collateral had not been given to the debtor.

This Court previously held in FMA Financial Corp. v. Pro-Printers,¹⁶ that the remedy in damages provided by section 507(1) is not exclusive. We noted in Pro-Printers that the issue of whether failure to give notice barred recovery of a deficiency was not properly raised in Hurst. Moreover, in Hurst neither the Court nor the parties addressed whether, aside from the failure to give notice, the disposition of the collateral was not commercially reasonable. Although we are generally reluctant to bar recovery of deficiency judgments, our conclusion in this case that the disposition of the collateral was not commercially reasonable warrants such a result.

Finally, Haggis contends certain deposition testimony is not properly included in the record on appeal and thus may not be relied on by this Court in determining the propriety of the decision below. We find it unnecessary to rely on any of the challenged portions of the record in reaching our decision; thus we need not address this contention.

Affirmed.

HOWE, J., and HYDE, District Judge, concur.

1 . See Utah R.Civ.P. 56(c); Haslem v. Ottosen, Utah, 689 P.2d 27, 28 (1984).

2 . Haslem, 698 P.2d at 28.

3 . U.C.A., 1953, § 70A-9-504(l) (1980 ed.).

4 . Id. at -504(l)(b).

5 . Id. at -504(2).

6 . Id. at -504(3).

7 . See id. at -504(5); See also Weast v. Arnold, 299 Md. 540, 474 A.2d 904, 912 (1984); Reeves v. Associates Fin. Servs. Co., 197 Neb. 107, 115-16, 247 N.W.2d 434, 439 (1976); Rhoten v. United Virginia Bank, 221 Va. 222, 229-30, 269 S.E.2d 781, 785-86 (1980).

8 . Cf. Reeves, 197 Neb. at 115-16, 247 N.W.2d at 439.

9 . Assuming the transfers before the sale to Chianti were not resales or dispositions under section 9-504, Haggis could nevertheless properly continue the action on behalf of the transferee, the real party in interest. See Utah R.Civ.P. 25(c).

10 . We have previously held that section 9-504(3) requires that notification of disposition of the collateral be given to a guarantor. Zions First Nat'l Bank v. Hurst, Utah, 570 P.2d 1031, 1033 (1977); See also U.C.A., 1953, § 70A-9-105(l)(d) (1980 ed.) (definition of "debt- or").

11 . U.C.A., 1953, § 70A-9-504(3) (1980 ed.).

12 . Compare Scharf v. BMG Corp., Utah, 700 P.2d 1068 (1985) (secured party who diligently sought out potential buyers and sold to highest bidder in private sale disposed of collateral in commercially reasonable manner.), with Pioneer Dodge Center, Inc. v. Glaubensklee, Utah, 649 P.2d 28,31 (1982) (failure to give reasonable notice to that part of public likely to be interested in sale rendered public sale not commercially reasonable).

13 . Id.

14 . See Glaubensklee, 649 P.2d at 31; FMA Fin. Corp. v. Pro-Printers, Utah, 590 P.2d 803, 807-08 (1979).

15 . 570 P.2d 1031.

16 . 590 P.2d 803.