First Nat. Bank of Omaha v. Kizzier, 41816

Decision Date20 February 1979
Docket NumberNo. 41816,41816
Parties, 26 UCC Rep.Serv. 840 FIRST NATIONAL BANK OF OMAHA, Appellee, v. Richard G. KIZZIER and Yvonne A. Kizzier, also known as Yvonne Kizzier, et al., Appellants.
CourtNebraska Supreme Court

Syllabus by the Court

1. No consideration is necessary for an instrument given as security for a debt already owed by the party giving it or by a third person.

2. Where a secured party in a mortgage foreclosure action seeks only to sell the real estate and to apply the sale proceeds against the debt of the mortgagors, the action is a proceeding against collateral pledged by the mortgagor and is not an action for a deficiency judgment.

3. Under the Uniform Commercial Code, the adequacy of the price and the reasonableness of the expense for which collateral is sold at private sale after default and repossession are relevant along with other issues in determining whether the sale was commercially reasonable.

4. The Uniform Commercial Code requires the creditor to proceed in a commercially reasonable manner to liquidate accounts receivable.

Ross, Schroeder & Fritzler, Kearney, for appellants.

Donald J. Buresh, of Swarr, May, Smith & Andersen, Omaha, for appellee.

Heard before KRIVOSHA, C. J., BOSLAUGH and BRODKEY, JJ., and RONIN and NORTON, District Judges.

RONIN, District Judge.

This is an action brought by the First National Bank of Omaha, plaintiff-appellee, to foreclose a mortgage given by Richard G. Kizzier and Yvonne A. Kizzier, defendants-appellants, on real estate in Kearney, Nebraska. In addition to the real estate mortgage, certain promissory notes from the Kizziers to the plaintiff were also secured with personal property in the form of warehouse receipts on foreign bicycles. After the Kizziers had defaulted in payment of the notes, plaintiff sold the bicycles at private sales and thereafter filed this foreclosure action. Kizziers filed an answer and counterclaim to plaintiff's amended petition. After trial, the District Court found generally for the plaintiff and against the defendants and dismissed their counterclaim. The Kizziers appeal. Other named defendants did not appeal. We affirm the judgment of the District Court.

The factual background of this case is this: In September 1972, one Barbara Werdehoff, with the backing of Richard G. Kizzier, applied to the plaintiff for a loan to finance the importation of foreign bicycles through her corporation, Wheel Imports, Inc. Kizzier had a written agreement with Werdehoff and her corporation that he would lend his credit to this venture in exchange for a commission of $4 for each bicycle imported. Kizzier lent his credit to the bank by signing promissory notes to plaintiff, which generally backed advances made by plaintiff on behalf of Wheel Imports, Inc. to bicycle importers for the purchase of the bicycles. As the notes came due, they were replaced by renewal notes in amounts disbursed by plaintiff plus any unpaid accrued interest.

In April 1973, all of the notes were past due, and the plaintiff gave notice to Kizzier and Werdehoff that it would require additional collateral to renew the line of credit. Kizzier agreed to give a mortgage on real estate, the subject of this action. On April 13, 1973, the evidence shows that plaintiff took two separate notes each for the amount of $153,054.38, the balance due on all the remaining unpaid notes. One note was designated a "collateral note", and the other a "First Mortgage Note". The collateral note was secured by "warehouse receipts on bicycles and real estate note and mortgage signed by Richard G. Kizzier and Yvonne A. Kizzier", husband and wife. The collateral note was actually signed by Wheel Imports, Inc., Werdehoff, and Richard Kizzier and was later extended by an extension agreement by which it became due February 15, 1974.

The second note taken by plaintiff was designated "First Mortgage Note" in the identical amount of $153,054.38, and secured the same indebtedness to plaintiff. This note was signed by both the Kizziers and was secured by the subject real estate mortgage, which is the same mortgage securing the collateral note. This note was extended later to become due on February 15, 1974.

Later, on October 15, 1973, plaintiff took another note in the sum of $15,000, which was signed by both Kizziers, Werdehoff, and Wheel Imports, Inc., the collateral being the real estate mortgage signed by the Kizziers. The due date on this note was also February 15, 1974. The trial court held in its decree that this note had been paid by credits from the sales of the bicycles and terminated the mortgage lien securing this note.

Late in 1973, Kizzier and Werdehoff negotiated a sale of about 1,200 bicycles with a Chicago firm. The bicycles were shipped to Chicago by rail, but the sale was not effected and the bicycles remained in the railroad car. On February 15, 1974, plaintiff took an unsecured note for $13,923.38 from Richard Kizzier, Werdehoff, and Wheel Imports, Inc., which sum represented expenses in connection with the bicycles and accrued interest on the notes.

On February 25, 1974, plaintiff gave written notice by mail to the defendants Kizziers, Wheel Imports, Inc., and Werdehoff advising them that plaintiff intended to sell the bicycles held as collateral at some private sale after February 28, 1974. Plaintiff shipped the bicycles to Omaha from Chicago. After various conferences with Kizzier, plaintiff sold the bicycles at various private sales from a warehouse from July 18, 1974, through December 1974, receiving the gross amount of $71,277. From this sum, plaintiff paid expenses for the bicycle storage and sales in the sum of $18,581.26, and then the principal and interest on the unsecured note of $13,923.98 of February 15, 1974, and the $15,000 note which became due on February 15, 1974, with the remaining balance of the sales money being applied on the "mortgage note" of $153,054.38, leaving a balance of $151,312.88. On April 15, 1975, plaintiff filed its petition to foreclose the mortgage securing the unpaid "mortgage note."

The defendants Kizzier, in their answer, plead a lack or failure of consideration of their notes and mortgages, and that there was commercial unreasonableness on behalf of the plaintiff under the Nebraska Uniform Commercial Code. The Kizziers also filed a counterclaim for a judicial release of their mortgage given plaintiff and for their loss for the reason plaintiff did not act in good faith. The trial court decided generally in favor of the plaintiff and against the defendants Kizziers on all issues.

The first contention of the defendants was that the District Court erred in determining the notes and mortgages signed by the Kizziers were supported by adequate consideration.

Comment 2 of the Uniform Commercial Code, section 3-408, explains that: no consideration is necessary for an instrument given as security "for a debt already owed by the party giving it, or by a third person."

Our court has held that consideration is any benefit to the promisor or any detriment to the promisee. Leach v. Treber, 164 Neb. 419, 82 N.W.2d 544 (1957).

The Kizziers gave their personal note and mortgage on their real estate to secure the collateral note given by Wheel Imports, Inc., and cosigned by Kizzier in order to establish a necessary line of credit with the plaintiff bank for the purchase of foreign bicycles, in which transaction Kizzier had a financial investment. This benefit to Kizzier was consideration for the notes and mortgages sued on in their action.

The District Court properly found in its decree that the "First Mortgage Note" sued on in this action was "evidence of the same indebtedness represented by a certain promissory note, (hereinafter referred to as " collateral note") to plaintiff * * *." We find that all credits which the Kizziers were entitled to were applied on their "First Mortgage Note," and the fact that two notes were executed on April 13, 1973, in the principal amount of $153,054.38 for the same indebtedness does not render the "First Mortgage Note" invalid by reason of any failure of consideration. No action is pending on the "collateral note."

The second error assigned by the defendants is the finding of the District Court that the plaintiff had given adequate notice of the sale of the personal property collateral, which was the foreign bicycles. The Kizziers contend this foreclosure action is really a suit for a deficiency, that the plaintiff failed to give adequate notice of the private sales of the bicycles and that by reason thereof the foreclosure of the mortgage on their real estate is banned by reason of this court's decisions in DeLay First Nat. Bank & Trust Co. v. Jacobson Appliance Co., 196 Neb. 398, 243 N.W.2d 745 (1976); and First Nat. Bank of Bellevue v. Rose, 197 Neb. 392, 249 N.W.2d 723 (1977). DeLay, supra, and Rose, supra, involved suits for deficiency judgment against a debtor. The District Court correctly found that the foreclosure action in this case was "not an action for a deficiency judgment against the debtors but a proceeding against collateral pledged by the mortgagor." The only judgment sought by plaintiff in this case was that the mortgage debt be determined and that the real estate be sold and the sale proceeds applied to the debt. No personal judgment against the mortgagors is sought in this foreclosure action after resort to the collateral. Phillips v. Union Central Life Ins. Co., 88...

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