DeLay First Nat. Bank & Trust Co. v. Jacobson Appliance Co.

• Decision Date: 30 June 1976
• Docket Number: No. 40341,40341
• Citation: 196 Neb. 398,19 UCC Rep. 994,243 N.W.2d 745
• Parties: , 19 UCC Rep.Serv. 994 The DeLAY FIRST NATIONAL BANK AND TRUST COMPANY, Appellee, v. JACOBSON APPLIANCE COMPANY, a/k/a Jacobson Appliance Co., et al., Appellants.
• Court: Nebraska Supreme Court

Page 745

243 N.W.2d 745

196 Neb. 398, 19 UCC Rep.Serv. 994

The DeLAY FIRST NATIONAL BANK AND TRUST COMPANY, Appellee, v. JACOBSON APPLIANCE COMPANY, a/k/a Jacobson Appliance Co., et al., Appellants.

No. 40341.

Supreme Court of Nebraska.

June 30, 1976.

Syllabus by the Court

1. Compliance with the Uniform Commercial Code for notification as to the disposition of collateral is a condition precedent to a secured creditor's right to recover a deficiency.

2. An oral communication of notice of either public or private sale is not the method provided by the Uniform Commercial Code.

3. The requirement of a written notice eliminates all possibility of dispute as to whether notice was actually given and establishes what notice was given.

4. To constitute reasonable notice of a private sale, the notice should be sent in such time that the debtor would have a minimum of 3 business days to arrange to protect his interests.

5. A creditor who uses a private sale form for public sales violates section 9--504(3), U.C.C.

6. Under the Uniform Commercial Code the adequacy or insufficiency of the price for which collateral is sold at private sale after default and repossession is one of the 'terms' of the sale, and is relevant, along with other issues, in determining whether the sale was commercially reasonable.

7. Where a creditor disposes of collateral in several transactions, if he wishes a deficiency judgment he must comply with the law in each transaction.

8. Section 9--502(2), U.C.C., requires the creditor to proceed in a commercially reasonable manner to liquidate accounts receivable.

Jerrold L. Strasheim, of Venteicher & Strasheim, Omaha, Lyle C. Winkle, of Winkle & Allphin, Columbus, for appellants.

Deutsch & Hagen, Norfolk, for appellee.

Heard before WHITE, C.J., SPENCER, McCOWN, NEWTON, CLINTON and BRODKEY, JJ., and KUNS, Retired District Judge.

SPENCER, Justice.

The DeLay First National Bank & Trust Company, plaintiff and appellee, hereinafter referred to as bank, recovered a deficiency judgment against defendant-appellant, Jacobson Appliance Company, a corporation, hereinafter referred to as defendant, and the guarantor of its obligation to the bank, Victor Jacobson, who will be referred to as Jacobson. We discuss only three of the many issues raised. (1) Was proper notice of sale given to defendants? (2) Did bank's procedures meet the test of commercial reasonableness? (3) Was there sufficient evidence to submit defendants' counterclaim to the jury? We reverse.

Defendant, which was in the retail appliance trade, was organized in 1948 by Victor Jacobson, who was its sole stockholder and chief executive officer. Prior to 1969, bank and defendant entered a floor-plan financing scheme. Bank would advance funds directly to the appliance manufacturer or distributor for appliances shipped to defendant. Defendant would give bank a list by serial number of the items so purchased. Bank noted those on a trust receipt document signed by defendant, giving bank a security interest in the items. When these items were resold, the amount financed was to be remitted to bank.

On occasion, bank would conduct a floor check of defendant's showroom to determine whether remittances had been received for all items sold. A check late in 1972 revealed defendant had not remitted for approximately $6,000 in merchandise. Defendant borrowed $10,000 from the bank, paid the amount due on the floor-plan financing, and used the balance for operating expenses. This loan was evidenced by a document styled 'Installment Note and Security Agreement.' It was secured by giving bank an interest in 'all new & used appliances, parts, accessories, all machinery, equipment, furniture, fixtures, inventory accounts and contracts receivable now owed or hereafter acquired and proceeds.' This all-inclusive language gave bank an interest in all the defendant's inventory not covered by the floor plan.

After this loan, bank began monthly floor checks of defendant's showroom. At each check the list would be turned over to the defendant for reconciliation. On some occasions bank had posted a remittance against the wrong item. On others, the floor check had missed items in the store or in the warehouse or building annex. When the reconciliation was complete, defendant would write a check to bank for any items not located or for which remittance had not been made.

In April of 1973, because of a contemplated trip to Ireland, Jacobson added the name of an employee, Lori Grosbeck, to the signature card for defendant's checking account. Before leaving, Jacobson left with Mrs. Grosbeck a list of instructions leaving her in charge of the store during his absence. She was also given specific instructions concerning what checks she could write while he was in Ireland.

Jacobson returned from Ireland early in May 1973. The latter part of May, Jacobson met with a General Electric representative and bank personnel to discuss current problems. Because the service work for the store was behind and because things were generally in confusion, Jacobson closed the store for a short period to straighten things out and to allow the employees a vacation.

The store was reopened June 4, 1973. Bank requested a floor check and one was made. Seventy items were discovered missing. Bank records indicated $14,942.59 had been loaned against these items. Representatives of bank were unable to reconcile the list with defendant.

On June 13, Jacobson was hospitalized in a psychiatric ward in Council Bluffs, Iowa, after an incident of alleged misconduct. Before leaving for the hospital, Jacobson told Lori Grosbeck, 'Take care of it just like you have for me before.'

After learning of Jacobson's hospitalization, bank made another floor check and confirmed the earlier shortage. A bank representative conferred with Mrs. Grosbeck and demanded payment. After allowing Mrs. Grosbeck to write the weekly payroll checks, defendant's bank account was closed out by applying the balance on defendant's loan. Over $5,000 was credited on the $10,000 operating loan. Bank took possession of the records on defendant's accounts receivable. It had a local transportation company pick up all property covered by its security instruments. By June 22, the store was empty except for certain items claimed by another creditor.

Bank then proceeded to liquidate the inventory and accounts receivable of defendant. It contacted General Electric with whom defendant had an agreement to take back all crated merchandise at 90 percent of invoice price, less freight. The General Electric items were returned and bank was paid $6,066 for them. Bank made arrangements with a local appliance store to handle the new, uncrated, unfloor-planned appliances at 20 percent of retail and the floorplanned items at 80 percent of the floor-planned amount. Most of the appliances had retail tags on them. Where there were none, the retail price was determined and marked on the appliance.

This is an action to recover a deficiency judgment, after the sale or disposition of the property taken by bank under its security instruments. It is controlled by the rule enunciated in Bank of Gering v. Glover (1974), 192 Neb. 575, 223 N.W.2d 56. We there said: 'Compliance with the Uniform Commercial Code for notification as to the disposition of collaterial is a condition precedent to a secured creditor's right to recover a deficiency.'

Section 9--504(3), U.C.C., 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 put every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. 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, and except in the case of consumer goods to any other person who has a security interest in the collateral and who has duly filed a financing statement indexed in the name of the debtor in this state or who is known by the secured party to have a security interest in the collateral. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations he may buy at private sale.' (Emphasis added.)

Both defendant and Jacobson, its guarantor, are debtors within the meaning of section 9--504(3), U.C.C. Our first consideration in construing section 9--504 is to consider the reason for the notice provision. Obviously, it is intended for the benefit and protection of the debtor. If he is given notice, he will have at least an opportunity to protect his interests by redemption, finding prospective purchasers for the property, or otherwise. Even if it might be determined he could not have protected his interest, the law requires he be given the opportunity.

What we said in Bank of Gering v. Glover, supra, is pertinent herein: 'The language of subsection (3) of section 9--504, U.C.C.: '* * * 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,' (italics added) would presume a mandatory obligation. We have heretofore held that unless the context indicates otherwise, the use of the word 'shall' purports a mandatory obligation. See Anderson v. Carlson (1961), 171 Neb. 741, 107 N.W.2d 535, in which we pointed out section 49--802, R.R.S.1943, provides: 'Unless such construction would be inconsistent with the manifest intent of the Legislature, rules for construction...