Aspen Enterprises, Inc. v. Bodge

• Decision Date: 05 September 1995
• Docket Number: No. D018819,D018819
• Citation: 37 Cal.App.4th 1811,44 Cal.Rptr.2d 763
• Court: California Court of Appeals Court of Appeals
• Parties: , 27 UCC Rep.Serv.2d 681, 95 Cal. Daily Op. Serv. 7060, 95 Daily Journal D.A.R. 12,029 ASPEN ENTERPRISES, INC., Plaintiff and Appellant, v. Gerald BODGE et al., Defendants and Appellants.

Page 763

44 Cal.Rptr.2d 763

37 Cal.App.4th 1811, 27 UCC Rep.Serv.2d 681,

95 Cal. Daily Op. Serv. 7060,

95 Daily Journal D.A.R. 12,029

ASPEN ENTERPRISES, INC., Plaintiff and Appellant, v. Gerald BODGE et al., Defendants and Appellants.

No. D018819

Court of Appeal, Fourth District, Division 1, California.

Sept. 5, 1995.

Rehearing Denied Sept. 27, 1995.

Review Denied Dec. 21, 1995.

Luce, Forward, Hamilton & Scripps, Scott W. Sonne and Roger C. Haerr, San Diego, for Plaintiff and Appellant.

Pain, Cluff, Olson & Burns, Pain, Cluff & Burns and Jerry D. Cluff, San Diego, for defendants and appellants.

HUFFMAN, Associate Justice.

Plaintiff Aspen Enterprises, Inc. (Aspen) sued defendants Gerald and Karen Bodge (collectively Bodge) on a promissory note secured by both real property and personal property. At the outset of the action Aspen repossessed personal property collateral consisting of an inventory of new tires. At trial, the court granted Bodge's motion for nonsuit based on what was stipulated to be Aspen's opening statement, concluding Aspen was barred under the California Uniform Commercial Code from seeking a deficiency judgment.

Aspen appeals the grant of nonsuit, contending: (1) its cause of action for judicial foreclosure was not an action for a deficiency judgment because CALIFORNIA UNIFORM COMMERCIAL CODE SECTION 9501¹ authorizes a creditor whose security is mixed real and personal property to proceed in any sequence against the collateral without triggering an anti-deficiency bar; (2) it was not required to give notice of sale of the repossessed collateral under section 9504 because there is a recognized market for the collateral; (3) it was not required to give notice of sale of the repossessed collateral because, at the time of the initial hearing on the motion for nonsuit, the collateral had not been sold, but merely repossessed; (4) it gave notice of sale of the collateral before the court's final decision on the motion for nonsuit, and whether it acted in a commercially reasonable manner by waiting until then to notice the sale is a question of fact for the jury; and (5) the court erred in ruling it elected to retain the inventory in satisfaction of the judgment.

Bodge cross-appeals, contending the trial court abused its discretion in denying Bodge's post-trial motion for attorney fees under Civil Code section 1717.

For the reasons explained below, we agree with Aspen that the court erred in granting nonsuit.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts are set forth in Aspen's opening statement, on which the court granted nonsuit.

Aspen, a tire wholesaler, took a promissory note from Bodge in a transaction whereby After Bodge defaulted on the note, Aspen filed an action for breach of the note, obtained an ex parte writ of possession and temporary restraining order prohibiting Bodge from selling or concealing the tire inventory, and repossessed a quantity of the tires. Subsequently, Aspen amended its complaint to include a cause of action for judicial foreclosure against the real property security.

Bodge purchased a retail tire outlet from Aspen. The note was secured in part by the tire store's inventory, which Aspen had sold to Bodge at wholesale prices. The note was additionally secured by residential real property owned by Bodge.

Aspen inventoried the repossessed tires and generated computer invoices giving Bodge credit for the tires at the same published wholesale prices Bodge originally paid for them. Aspen's attorney sent the invoices to Bodge's attorney and issued a credit to Bodge in the amount of $7,432.23, the wholesale market value of the tires. Although Aspen kept the repossessed tires segregated in its warehouse pending resolution of Bodge's challenges to its writ of possession, the tires were eventually returned to and commingled with Aspen's inventory.

The court treated its resolution of this case as a grant of nonsuit on Aspen's opening statement, although a jury was never impaneled. Bodge moved for nonsuit on the first day of trial, contending for the first time that Aspen's action for judicial foreclosure against the real property collateral was an action for a deficiency judgment which was barred either by Aspen's failure to conduct a sale or failure to give notice of sale of the repossessed tires as required by section 9504. To save time and the inconvenience of impaneling a jury, the parties stipulated that Aspen's oral argument against the motion for nonsuit and supplemental opposition brief to be filed later would constitute its opening statement.

The court granted Bodge's motion for nonsuit, ruling that Aspen's "retention of collateral after its ... non-judicial repossession without either publication of sale or conduct of actual sale of the collateral so repossessed barred the instant action which was for a deficiency judgment."

DISCUSSION

I Standard of Review

In reviewing a grant of nonsuit, the appellate court must evaluate the evidence in the light most favorable to the plaintiff. All presumptions, inferences and doubts must be resolved in plaintiff's favor and against the defendant. Only if the evidence, viewed in this light, requires judgment for defendant as a matter of law should a judgment of nonsuit be affirmed. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291, 253 Cal.Rptr. 97, 763 P.2d 948.)

In ruling on a motion for nonsuit based on plaintiff's opening statement, the trial court must assume the plaintiff will be able to prove all favorable facts alleged. (Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, 272, 219 Cal.Rptr. 836.) In the present case, the parties stipulated that Aspen's oral argument and supplemental brief in opposition to the motion for nonsuit would serve as its opening statement. We must therefore assume Aspen could prove the facts asserted in its opposition brief.

II

Are the Provisions of the California Uniform Commercial Code Inapplicable to Aspen's Proceedings against Its Personal Property Collateral because Aspen's Lawsuit is a Unified Foreclosure Action under Section 9501, Subdivision (4)(a)(ii)?

Section 9501, as amended in 1985, is an attempt by the Legislature to clarify the rights of a secured creditor in foreclosing on mixed property collateral (i.e., realty and personalty). ² Section 9501, subdivision (4)(a) essentially provides that a secured creditor Aspen contends it elected the second option by amending its complaint to include a cause of action for judicial foreclosure of real property, i.e., that its action against Bodge is a "unified foreclosure" action against both its real and personal property collateral. Therefore, Aspen argues, pursuant to subparagraph (ii) of section 9501, subdivision (4)(a), its proceedings against the personal property collateral are governed by real property law and not the California Uniform Commercial Code. ³

with mixed collateral may either (1) proceed against the personal property collateral in accordance with the California Uniform Commercial Code and the real property collateral in accordance with real property law (§ 9501, subd. (4)(a)(i)); (2) proceed in any sequence against some or all of real and personal property collateral in accordance with the procedures applicable to real property (§ 9501, subd. (4)(a)(ii)) or (3) follow the first option as to part of the personal property collateral and the second option as to other personal property collateral (§ 9501, subd. (4)(a)(iii)).

This contention is without merit. Although there are apparently no published cases interpreting the 1985 amendment to section 9501, the overall statutory scheme suggests the "unified foreclosure" option of section 9501, subdivision (4)(a)(ii) was intended to apply only where a debt is secured by collateral which consists of closely related elements of real property and personal property, such as business premises plus the fixtures and inventory of the business located on the premises. The following commentary regarding amended section 9501 is instructive as to the type of situation subdivision (4)(a)(ii) was designed to address:

"A hotel is perhaps the paradigm of a type of collateral which is comprised of very closely related elements of realty and personalty. Taken together, the real property, the fixtures and the tangible and intangible types of personal property which comprise a typical hotel property constitute an integrated operating business. When combined as a single functional unit, these mixed collateral elements usually have substantial added value as a going concern.... [p] ... A unified sale of the intertwined portions of the hotel collateral package ... might enhance the likelihood of realizing more of the 'going concern' value. Moreover, ... such a sale should result in the personalty included in a unified judicial foreclosure being counted in any computation of 'fair value' under [Code of Civil Procedure] section 726." (Hirsch, Arnold, Rabin & Sigman, The U.C.C. Mixed Collateral Statute--Has Paradise Really Been Lost?, supra, 36 UCLA L.Rev. 1, 36, fns. omitted.)

Aspen's mixed collateral, consisting of tires and residential real property unrelated to the Bodge's tire business, is not the sort of closely-related mixed collateral contemplated by section 9501, subdivision (4)(a)(ii).

Moreover, because a secured creditor's sale of repossessed collateral must be conducted in a commercially reasonable manner (§ 9504, subd. (3); Crocker Nat. Bank v That the unified foreclosure option of section 9501, subdivision (4)(a)(ii) necessarily involves an actual unified sale of mixed collateral, as opposed to merely a "unified" complaint encompassing both real and personal property collateral as Aspen suggests, is indicated by the provision in section 9501, subdivision (4)(a)(ii) stating, "The secured party shall not be deemed to have elected irrevocably to proceed as to both real property and personal property ... unless and until that particular property has...