Federal Deposit Ins. Corp. v. Blanton

• Decision Date: 06 December 1990
• Docket Number: No. 89-1902,89-1902
• Citation: 918 F.2d 524
• Parties: 13 UCC Rep.Serv.2d 626 FEDERAL DEPOSIT INSURANCE CORPORATION, In Its Corporate Capacity, Plaintiff-Appellee, v. Henry H. BLANTON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 524

918 F.2d 524

13 UCC Rep.Serv.2d 626

FEDERAL DEPOSIT INSURANCE CORPORATION, In Its Corporate Capacity, Plaintiff-Appellee, v. Henry H. BLANTON, Defendant-Appellant.

No. 89-1902.

United States Court of Appeals Fifth Circuit.

Dec. 6, 1990.

Rehearing Denied Jan. 4, 1991.

Mark H. How, Denton & Guinan, Marcia F. Pennell, Short, Kimbell & How, Dallas, Tex., Wiley F. James, III, Bernard R. Given, II, Grambling & Mounce, El Paso, Tex., for defendant-appellant.

Ann S. DuRoss, Asst. Gen. Counsel, Joan E. Smiley, Sr. Counsel, Christopher L. Hencke, FDIC, Washington, D.C., Robert J Clary, Johnson, Bromberg & Leeds, Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before CLARK, Chief Judge, REAVLEY and KING, Circuit Judges.

REAVLEY, Circuit Judge:

The Federal Deposit Insurance Corporation ("FDIC") sued Henry Blanton to recover the unpaid balance of a $965,000 promissory note (the "Note") executed by co-makers Blanton and Gihls Properties, Inc. ("Gihls"), and secured by liens on securities and real estate upon which the FDIC had foreclosed. Blanton's various defenses concerned the FDIC's disposition of the collateral. The district court credited Blanton with some items pursuant to jury findings, but awarded the FDIC a deficiency judgment of $510,981.20.

Blanton argues on appeal that he should be fully discharged from all liability on the Note because of defects in the FDIC's disposition of the collateral securing the Note and because of an accord and satisfaction between the parties. He also objects to the district court's refusal to abate the proceedings pending disposition of the FDIC's claim against Gihls in a Florida bankruptcy court, and the court's rejection of the jury finding that the FDIC sold one tract of real estate for a grossly inadequate price. Blanton further disputes the district court's calculation of prejudgment interest on the Note. We affirm the district court's judgment.

I. FACTS

Blanton executed the Note both in his individual capacity and as president of Gihls, in which he owned 99 percent of the stock. The $965,000 Note--in renewal, extension, and modification of two promissory notes previously executed by Gihls--was payable to First National Bank of Midland ^B-Midlann, and secured by first liens on certain publicly traded stocks and bonds and tracts of real estate.

The Note matured on September 30, 1983. The Comptroller of the Currency declared FNB-Midland insolvent and closed the bank on October 14, 1983. Gihls, the co-maker of the Note and maker of the original notes, filed a petition in bankruptcy on August 30, 1985. Blanton and the FDIC conducted negotiations to rework the debt, and the parties disputed whether these negotiations ripened into an accord and satisfaction.

Without notifying Blanton, the FDIC sold the securities on the New York Stock Exchange and the New York Bond Exchange between August 25, 1987 and December 1, 1987, although Blanton had first requested that the FDIC sell the securities as early as October 1983. The FDIC realized an aggregate price for the securities equivalent to their value at the time Blanton first instructed the FDIC to sell them. The FDIC applied the proceeds from the sales to the Note in late 1987.

The real properties securing the Note were sold at Substitute Trustee's sales conducted in Midland and Ector counties on September 1, 1987. The FDIC credited proceeds exceeding $372,000 to the Note on that day.

The FDIC filed suit for a deficiency judgment against Blanton on October 7, 1987. The jury found (1) that Blanton effectively communicated to the FDIC an instruction to sell the securities in October 1983, and that the FDIC's failure to sell the securities until 1987 was neither reasonable nor justified; (2) that Blanton, Gihls, and the FDIC had not entered into a settlement contract; (3) that Blanton presented to the FDIC a buyer ready, willing, and able to purchase two of the real properties, but that the FDIC did not consent to the sales; and (4) that there were defects in the foreclosure sales of all five real properties, and that these defects contributed to grossly inadequate sales prices for the properties.

The district court entered a deficiency judgment in the FDIC's favor for $510,981.20 plus interest at the rate of $130.73 a day from May 12, 1988 until June 6, 1988, with interest accruing thereafter at 7.2 percent.

Based on the jury finding of the FDIC's unreasonable delay in selling the securities the court found impairment of the collateral and accordingly credited Blanton with the market value of the securities, minus a two percent commission, on November 18, 1983. The court declined to discharge Blanton from the entire debt, finding no evidence that the FDIC failed to give notice of the sale of securities in a commercially reasonable manner or that the FDIC elected to retain the collateral in full satisfaction of the debt.

Based on the jury findings with respect to the real property foreclosures, the court credited Blanton for the fair market value of four of the properties, as determined by the jury, rather than the amount of the sales proceeds obtained by the FDIC. With respect to one of the five properties, however, the court entered judgment notwithstanding the verdict, disregarding the jury finding of a "grossly inadequate price," because the FDIC realized 62.3 percent of the fair market price. The court credited Blanton for the actual sales price of this property.

Blanton argues primarily that he should be fully discharged from all liability on the Note because the FDIC failed to notify him of the sale of securities, because of other defects in the FDIC's disposition of the collateral, and because of the alleged accord and satisfaction between the parties.

II. DISCUSSION

A. Lack of Notice

While a creditor may dispose of collateral securing a defaulted debt by private or public sale, every aspect of the disposition must be conducted in a commercially reasonable manner. TEX.BUS. & COM.CODE ANN. Sec. 9.504(c) (Tex. UCC) (Vernon Supp.1990). Compliance with section 9.504(c) requires the creditor to provide notice of a sale, subject to certain exceptions. ¹ Blanton contends that the FDIC failed the notice requirement and seeks to bar the FDIC from any recovery under the rule of Tanenbaum v. Economics Lab., Inc., 628 S.W.2d 769, 772 (Tex.1982) (barring deficiency suits of creditors who fail to comply with the notice requirements of section 9.504(c)). This case does not trigger the Tanenbaum rule.

The district court found that there "was no evidence that FDIC failed to give notice in a commercially reasonable manner pursuant to Section 9.504(c)." ² Blanton instructed the FDIC to sell the securities, but apparently did not receive notice of the sales. The FDIC argues that the sales were valid without notice because the securities were collateral "of a type customarily sold on a recognized market," which section 9.504(c) exempts from the notice requirement. We agree.

The notice requirement allows the debtor to bid on the collateral or otherwise insure a commercially reasonable sale. Beltran v. Groos Bank, 755 S.W.2d 944, 947 (Tex.App.--San Antonio 1988, no writ). A recognized market assures a fair price through neutral market forces, and thus obviates the debtor's need for protection through redemption, appraisal, or monitoring the sale. See M.P. Crum Co. v. First Southwest Sav. & Loan Ass'n, 704 S.W.2d 925, 927 (Tex.App.--Tyler 1986, no writ) (indicia of recognized market: nonexistent or immaterial differences of items sold, insignificance of competition as factor in each sale, and availability of quotations for prices paid in actual sales of comparable property).

Section 9.504(c) does not define "recognized market," but the markets at issue here--the New York Stock Exchange and the New York Bond Exchange--comfortably fit the paradigm. Courts treat the term "recognized market" restrictively, but universally agree that securities markets properly fall within the exception. See id. (contrasting clear case of stock or commodity market with home mortgages market at issue); Washburn v. Union Nat. Bank & Trust, 151 Ill.App.3d 21, 104 Ill.Dec. 242, 245-46, 502 N.E.2d 739, 742-43 (1986) (affirming summary judgment for creditor on commercial reasonableness of sale of Ginnie Mae bonds without notice to debtor); Ocean Nat. Bank of Kennebunk v. Odell, 444 A.2d 422, 425-26 (Me.1982) (notice unnecessary for listed securities). Authoritative commentary dispatches the issue directly: "Certainly, the New York Stock Exchange and the bond and commodity markets are 'recognized markets.' " J. White & R. Summers, Uniform Commercial Code Sec. 26-10 at 1111 (2d ed. 1980).

The sale of the securities in a recognized market eliminates the concerns on behalf of the debtor expressed in Tanenbaum. The creditor in Tanenbaum scrapped the collateral without notice to the debtor, and then sued for deficiency minus the scrap value of the collateral. 628 S.W.2d at 770. The court held that by destroying the collateral, thus precluding any possibility of appraising it, the creditor effectively retained the collateral in full satisfaction of the debt pursuant to section 9.505(b), and that a creditor's suit for deficiency after disposition of collateral requires compliance with the notice provisions of section 9.504(c). Id. at 772. The debtor in Tanenbaum asked the creditor to take back the collateral in full satisfaction of the debt. Id. Blanton instructed the FDIC to sell the securities, knowing that the proceeds would nowhere near approach the balance on the Note. He adduces nothing to suggest that the FDIC elected to retain the collateral in full satisfaction of the debt, or that his legitimate interest in the value of the collateral was impaired by failure of actual notice. ³

Blanton argues that even if the recognized market exception applies, at least one of the...