Ford Motor Credit Co. v. Solway
| Decision Date | 09 October 1987 |
| Docket Number | No. 86-2995,86-2995 |
| Citation | 825 F.2d 1213 |
| Parties | 4 UCC Rep.Serv.2d 630 FORD MOTOR CREDIT COMPANY, Plaintiff-Appellee, v. James P. SOLWAY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Fred Mattelin, Siemon, Larson, Mattlin & Purdy, Boca Raton, Fla., for defendant-appellant.
Aaron J. Kramer, Schiff Hardin & Waite, Chicago, Ill., for plaintiff-appellee.
Before POSNER and COFFEY, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
The appeal in this diversity case concerns issues of Illinois law relating to the sale of collateral by a secured party. Ill.Rev.Stat., Ch. 26, par. 9-504(3). Ford Motor Credit Company took possession of the inventory of a retail automobile dealership that was in default under a secured financing agreement. The inventory was sold at wholesale auctions to other dealers. Ford Motor Credit Company next filed this suit against the guarantor of the debt for the deficiency in the amount owed by the dealership. The district judge granted Ford Motor Credit Company's motion for summary judgment. The guarantor contends on appeal that Ford Motor Credit Company violated the Uniform Commercial Code by failing to give him reasonable notification of the sales and by failing to make a commercially reasonable disposition of the collateral. We will affirm.
James P. Solway ("Solway") was the president of Shoreland Ford, Inc. ("Shoreland"), a Ford dealership in Highland Park, Illinois. In his capacity as Shoreland's president, Solway signed a wholesale financing agreement ("Financing Agreement") with Ford Motor Credit Company ("FMCC") dated May 24, 1979. 1 The Financing Agreement, entitled "Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement," permitted Shoreland to draw on a secured line of credit with FMCC. The collateral for the credit was Shoreland's inventory and the proceeds from sales of that inventory. The Financing Agreement provided that, should Shoreland fail to pay promptly any sum due, FMCC could immediately take possession of the collateral and sell it at a private or public sale.
Section 9-504(3) of the Uniform Commercial Code, which Illinois has adopted, requires that when a secured creditor sells collateral he do so in a "commercially reasonable" manner. In view of this, the Financing Agreement provided:
Dealer further agrees that if Ford Credit shall solicit bids from three or more other dealers in the type of property repossessed by Ford Credit hereunder, any sale by Ford Credit of such property in bulk or in parcels to the bidder submitting the highest cash bid therefor also shall be deemed to be a commercially reasonable means of disposing of the same.
Solway also signed a separate agreement to personally guaranty payment of Shoreland's debt to FMCC. In this "Continuing Guaranty" ("Guaranty"), dated June 19, 1979, Solway agreed to pay on demand all sums due to FMCC from Shoreland without FMCC being required first to proceed against Shoreland; Solway also agreed more specifically "to pay any deficiency established by a sale of ... security held with or without notice [to Solway]."
Shoreland failed to make payments due to FMCC. FMCC declared Shoreland in default on March 21, 1980. On April 3, 1980, FMCC took possession of Shoreland's inventory, which consisted of new and one-year-old untitled automobiles, vans, and trucks. Solway proposed to FMCC that he sell the inventory to consumers at a "tent sale," arguing that this would realize the most income from the collateral. FMCC declined Solway's proposal.
FMCC sent notice by certified mail to Solway and Shoreland that the vehicles would be sold "at a private sale, on or after" April 12, 1980. FMCC sent Shoreland's notice to the Shoreland address and Solway's notice to the address he listed on the Guaranty, 2050 Post Road in Northbrook, Illinois. By the time of mailing, however, Solway was employed at another dealership and no longer resided at the Post Road address. Employees of FMCC had been aware that Solway was employed at another dealership and had reached him there by telephone on other matters. Mail for the Shoreland dealership was forwarded to Solway's new place of employment.
FMCC sold the vehicles at the Arena Auto Auction, a private auction open only to retail dealers. At least fifty dealers attended each of the auctions at which the Shoreland inventory was sold. Since 1979, all vehicles repossessed from Ford dealers have been resold at the Arena Auto Auction. Other companies such as General Motors, Chrysler Corporation, Citicorp, Nissan Motors and various banks sell new and used vehicles through the Arena Auto Auction.
Dealers from the Chicago area and from other parts of the country attend the Arena Auto Auction. FMCC sold its vehicles at a weekly auction. Each week, FMCC sent advertisements with sales information concerning the upcoming auction to Ford dealers in the Chicago area. FMCC also telephoned about three hundred Ford and Lincoln-Mercury dealers in Illinois, Wisconsin, Iowa, Michigan, and Ohio in regard to the sale each week. Dealers are able to inspect and test drive the cars before they are auctioned.
FMCC's sales at the auction were supervised by one Larry M. Steiner, an FMCC Vehicle Merchandising Coordinator. Steiner testified in his deposition as to the way the auction was run and produced records as to the price each vehicle fetched, but he was unable to testify about other details of individual sales. Thus, he could not testify as to each vehicle sold how many bids were received, exactly how many dealers were present, what the upset price was, or the condition of the vehicle.
The proceeds from the auction sales did not cover the entire amount that Shoreland owed FMCC. FMCC filed this suit against Solway for the deficiency. The trial court granted summary judgment in favor of FMCC in the amount of $758,598.93, together with interest from September 30, 1985. Solway argues on appeal that FMCC's disposition of the collateral was not commercially reasonable and that the notice to Solway of the sales did not meet the requirements of the UCC.
Under the Uniform Commercial Code, when a secured party sells collateral after default, "every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable." Ill.Rev.Stat., Ch. 26, par. 9-504(3). "Commercially reasonable" is not an exact standard. The UCC permits the parties to set more precise standards: "[T]he parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable: [including] subsection (3) of section 9-504 ... which deal[s] with disposition of collateral." Ill.Rev.Stat., Ch. 26, par. 9-501(3).
The parties to the Financing Agreement in this case did set such a contractual standard. The contract provided that, if FMCC should solicit bids from three or more other dealers, any sale of collateral to the highest bidder would be deemed a commercially reasonable means of disposing of the collateral. The vehicles were offered for sale to the highest bidder at auctions attended by numerous retail automobile dealers, so FMCC met this contractual standard.
Solway does not argue that the contractual standard is invalid. He argues instead that it does not apply here because he was not a party to the Financing Agreement in his personal capacity; he signed it as president of Shoreland. Thus he was not personally bound as a party to that contract by the contractual standard for what would constitute a commercially reasonable disposition.
Solway did, however, sign the Guaranty in his personal capacity, about two months after signing the Financing Agreement as president of Shoreland. In the Guaranty, he promised to pay on demand all sums due to FMCC from Shoreland. He also agreed "to be bound by and on demand to pay any deficiency established by a sale of paper or security."
A guaranty is to be interpreted according to the standards that govern the interpretation of contracts in general; the court's task is to effectuate the intent of the parties. Blackhawk Hotel Associates v. Kaufman, 85 Ill.2d 59, 51 Ill.Dec. 658, 421 N.E.2d 166 (1981).
The Guaranty clearly contemplates reference to other sources to determine the obligations of Solway as guarantor. To determine if he was bound by the Guaranty to pay FMCC one would have to refer to the other agreements and to the accounts between Shoreland and FMCC. The Financing Agreement, which provided financing for the inventory of Shoreland and which Solway had signed as president of Shoreland, was certainly contemplated by the Guaranty. Determining whether a deficiency existed regarding the debt secured under the Financing Agreement would require reference to the Financing Agreement. For instance, no deficiency could exist until Shoreland was in default under the Financing Agreement. National Bank of Austin v. First Wisconsin National Bank of Milwaukee, 53 Ill.App.3d 482, 10 Ill.Dec. 633, 368 N.E.2d 119 (2nd Dist.1977). The Financing Agreement defined the events that would amount to default. The Financing Agreement also explicitly provided steps that FMCC could take to take possession of the collateral and sell it. It also set a standard for what would constitute a commercially reasonable disposition of the collateral, thus providing a means for FMCC to preserve its right to a deficiency. By agreeing "to be bound by and on demand to pay any deficiency," Solway thus agreed to be bound by the contractual standard for a commercially reasonable disposition, just as he agreed to be bound by the contractual standard for determining default.
In a nutshell, the Financing Agreement defined a standard for a commercially reasonable disposition, which is a prerequisite for a deficiency. FMCC met the...
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