Hepworth v. Orlando Bank & Trust Co., 74--1793

• Decision Date: 14 November 1975
• Docket Number: No. 74--1793,74--1793
• Citation: 323 So.2d 41
• Parties: 18 UCC Rep.Serv. 542 Jack HEPWORTH and Marilyn Hepworth, Appellants, v. The ORLANDO BANK & TRUST COMPANY, Appellee.
• Court: Florida District Court of Appeals

Page 41

323 So.2d 41

18 UCC Rep.Serv. 542

Jack HEPWORTH and Marilyn Hepworth, Appellants, v. The ORLANDO BANK & TRUST COMPANY, Appellee.

No. 74--1793.

District Court of Appeal of Florida, Fourth District.

Nov. 14, 1975.

Rehearing Denied Dec. 29, 1975.

Lionel H. Silberman, Orlando, for appellants.

J. William Stefan, of Andrews, Smathers, Tepper & Kemp, P.A., Orlando, for appellee.

MAGER, Judge.

The issue presented in this appeal is whether a guarantor for the payment of a promissory note secured by collateral is a 'debtor' ¹ under the terms and provisions of the Uniform Commercial Code so as to be entitled upon default of the note to notice prior to the sale or disposition of the collateral; and, if so, whether failure by the secured party to give notice precludes the entry of a deficiency judgment against the guarantor.

The Jewell Citrus Company, Inc., of which defendant Jack Hepworth was vice-president, signed an installment note through its president, one Herman, covering a loan in the amount of $28,000. Separate guarantees for the payment of the note were executed by the Hepworths and the Hermans. Simultaneous with the execution of the note, Jewell, acting through Herman, signed a chattel mortgage covering certain trucks owned by Jewell, apparently to serve as security for the note.

Jewell failed to pay an installment payment due on the note resulting in a default pursuant to which the collateral under the chattel mortgage was sold by the plaintiff-bank to satisfy the outstanding indebtedness. The amount was insufficient and a demand was made upon the defendants, as guarantors, for the deficiency resulting in the action below and a judgment in favor of plaintiff bank. At trial the court struck defendants' affirmative defenses which sought to assert the failure of the bank (the secured party) to give the Hepworths notice of the sale of the collateral which failure defendants contended precluded the entry of the deficiency judgment. ²

Upon a review of the Uniform Commercial Code, in particular sections 679.9--105(1)(d) and 679.9--504(3), F.S., cf. 679.9--504(5), F.S., we are of the opinion that defendants, as guarantors of a promissory note, were 'debtors' within the meaning of the cited sections and entitled to reasonable notification prior to the disposition of the collateral; and that the failure to provide such notice precluded the entry of a deficiency judgment against defendants. Turk v. St. Petersburg Bank and Trust Company, Fla.App.1973, 281 So.2d 534; T & W Ice Cream, Inc. v. Carriage Barn, Inc., 107 N.J.Super. 328, 258 A.2d 162 (Bergen Co. Ct.1969).

Although the Turk and T & W Ice Cream cases are factually distinguishable (the closest being the T & W Ice Cream case involving an accommodation endorser), the rationale of these decisions and the analysis of the pertinent provisions of the Uniform Commercial Code lend persuasive support for the proposition that a 'guarantor' is a 'debtor' entitled to notice prior to sale of collateral. As the court pointed out in Turk, at p. 536,

'. . . (T)he language is clear that before a secured party (in this instance the bank) can obtain a deficiency against a debtor (in this instance Turk) the debtor must be given notice of what is about to occur. This is as it should be because the debtor in this instance, Turk, could have done many things. He could have purchased the automobiles himself; he could have paid the extent of the liability, i.e., $20,000; he could have secured purchasers for the automobiles. He was not afforded the opportunity to do anything. If the bank in this instance wanted to dispose of the collateral without judicial...