In re Estate of Sagmiller

• Court: North Dakota Supreme Court
• Writing for the Court: VANDE WALLE, Chief Justice.
• Citation: In re Estate of Sagmiller, 2000 ND 151, 615 N.W.2d 567 (N.D. 2000)
• Decision Date: 18 August 2000
• Docket Number: No. 20000055.,20000055.
• Parties: In the Matter of the ESTATE OF Greg SAGMILLER, Deceased. Ford Motor Credit Company, Claimant and Appellant, v. Jeanette Sagmiller, Personal Representative of the Estate of Greg Sagmiller, deceased, Respondent and Appellee.

615 N.W.2d 567

2000 ND 151

In the Matter of the ESTATE OF Greg SAGMILLER, Deceased.

Ford Motor Credit Company, Claimant and Appellant, v. Jeanette Sagmiller, Personal Representative of the Estate of Greg Sagmiller, deceased, Respondent and Appellee.

No. 20000055.

Supreme Court of North Dakota.

August 18, 2000.

Dennis W. Lindquist, Mandan, N.D., for claimant and appellant.

Thomas B. Bair, Bair, Bair & Garrity, LLP, Mandan, N.D., for respondent and appellee.

VANDE WALLE, Chief Justice.

[¶ 1] Ford Motor Credit Company ("FMCC") appealed from an order denying FMCC's claim against the Estate of Greg Sagmiller. We reverse and remand with directions to enter an order allowing the claim.

[¶ 2] In November 1998, Greg Sagmiller bought a 1999 Ford Ranger pickup from Bill Barth Ford/Mercury Motors of Mandan for $19,740.48. FMCC financed the sale in the amount of $18,595.45. Sagmiller died on April 12, 1999. On April 22, 1999, FMCC repossessed the vehicle. It sent a Notice of Repossession and Right to Redeem to Greg Sagmiller's last known address on April 23, 1999. Nineteen days later, on May 12, Ford sold the vehicle at a dealers-only auction, the Minneapolis Auto Auction, for $15,500. After applying the proceeds of the sale to the outstanding balance, FMCC petitioned the Estate to allow its claim and the claim was denied. Ford petitioned the court to allow the claim and asked for a hearing. After the hearing, the district court denied the claim because the pickup was not sold in a commercially reasonable manner.

[¶ 3] The district court cites two reasons for concluding FMCC did not meet its burden to demonstrate it acted in a commercially reasonable manner: 1) the manner of sale was a private, dealers-only auction; and 2) the price obtained at the auction. Regarding the manner of sale, the district court said:

FMCC explained it took all its repossessed vehicles to the auction. It said it could not do otherwise because it did not have a motor vehicle dealer[']s license. This does not explain why it could not have one of its customer dealers sell vehicles on consignment at retail. Presumably a better price could be realized than at a dealers-only auction when the buyers are motivated to buy at the lowest price possible in order to be able to resell the vehicle for a profit.

[¶ 4] Regarding the price obtained for the pickup, the district court said:

Here, the balance owed on the truck at the time of the sale was $18,506.70. FMCC's own internal document says the wholesale value of the truck was $22,150. No evidence of retail value was submitted at trial, but it is reasonable to assume the retail value would exceed the wholesale value. Interestingly, FMCC presented no evidence of value. The truck was sold at auction for $15,500. The evidence viewed most favorably to FMCC is that the auction price and the fair market value of the truck differed by more than $2,000.

I

[¶ 5] Section 41-09-50(3), N.D.C.C., requires every aspect of a disposition, "including the method, manner, time, place, and terms" to be commercially reasonable. The secured creditor has the burden of proof to show the commercial reasonableness of the disposition of collateral where commercial reasonableness is challenged and the secured party seeks a deficiency judgment. Am. State Bank of Killdeer v. Hewson, 411 N.W.2d 57, 61 (N.D.1987). Once the secured party makes a prima facie case indicating the collateral was sold in a commercially reasonable manner, the burden of persuasion, not the burden of proof, shifts to the debtor to elicit specific evidence of commercial unreasonableness. Id.

[¶ 6] Whether or not a sale of collateral was conducted in a commercially reasonable manner is essentially a factual question. Id. at 60. A finding of fact will not be set aside unless it is clearly erroneous. N.D.R.Civ.P. 52(a). A finding of fact is clearly erroneous if it is induced by an erroneous conception of the law, if there is no evidence to support it, or if, although there is some evidence to support it, on the entire record, a reviewing court is left with a definite and firm conviction a mistake has been made. Kaler v. Kraemer, 1999 ND 237, ¶ 18, 603 N.W.2d 698.

[¶ 7] A primary reason the district court found the sale was not commercially reasonable was the price the automobile garnered at auction. Sagmiller cites, as did the district court, the fact one of FMCC's documents states the wholesale value of the pickup was $22,150. The document was provided to FMCC by the Minneapolis Auto Auction, but there was no testimony as to how this number was calculated. A different FMCC document suggests wholesale value was $16,509.

[¶ 8] We have stated before the disparity between price received at auction and the estimated value of the collateral is an important factor, but is not dispositive in determining whether collateral was sold in a commercially reasonable manner. Hewson, 411 N.W.2d at 64-65. Section 41-09-53(2), N.D.C.C., states:

The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner.

[¶ 9] The price obtained here is not enough to demonstrate the sale was not commercially reasonable. Thus, we turn to the other reason the district court gave for finding the sale to be commercially unreasonable. [¶ 10] Another reason the district court cited in finding the sale commercially unreasonable was the fact the collateral was sold at a dealers-only auction in Minneapolis. A witness from FMCC testified it is FMCC's practice to take all repossessed vehicles to the Minneapolis Auto Auction. Courts in several jurisdictions, under many contexts, have held dealers-only auctions may constitute commercially reasonable sales. See Chrysler Credit Corp. v. B.J.M., Jr., Inc., 834 F.Supp. 813, 837 (E.D.Penn.1993) (holding sale of dealer's inventory at dealers-only auction was commercially reasonable and did not prevent floor plan financier from seeking deficiency judgment); Ford Motor Credit Co. v. Mathis, 660 So.2d 1273, 1277 (Miss.1995) (holding disposition of debtor's automobile at dealers-only auction was not per se commercially unreasonable and reversing and remanding for evaluation based on factors such as manner, method, time, place and terms of sale); Garden Nat'l Bank of Garden City v. Cada, 241 Kan. 494, 738 P.2d 429, 432 (1987) (concluding sale of collateral at automobile auction in which participation was limited to dealers was a private sale and commercially reasonable); Ford Motor Credit Co. v. Russell, 519 N.W.2d 460, 465-66 (Minn.App. 1994) (holding sale of collateral at auction for wholesale dealers was presumed to be commercially reasonable); Beard v. Ford Motor Credit Co., 41 Ark.App. 174, 850 S.W.2d 23, 28-29 (1993) (concluding dealers-only auction was "private sale" within Uniform Commercial Code and such sale was commercially reasonable); Union Nat'l Bank of Wichita v. Schmitz, 18 Kan. App.2d 403, 853 P.2d 1180, 1187 (1993) (reversing the trial court and concluding a dealers-only auction was a commercially reasonable manner of disposing of automobile in this case); Calcote v. Citizens & Southern Nat'l Bank, 179 Ga.App. 132, 345 S.E.2d 616, 619 (1986) (holding evidence supported finding sale of automobile at auction held for dealers only was commercially reasonable).¹

[¶ 11] The Estate of Sagmiller criticizes the wholesale disposition of the collateral here because, it argues, the pickup could have garnered a higher price at a retail sale.² A dealers-only auction is considered a private sale, see, e.g., Beard, 850 S.W.2d at 28-29, and private sales are approved under the Uniform Commercial Code. See N.D.C.C. § 41-09-50(3) (stating "[d]isposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts").

[¶ 12] Moreover, retail dispositions are not necessarily superior to wholesale dispositions. The Kansas Supreme Court stated in discussing the question of wholesale versus retail disposition of goods:

In many cases, a retail sale of the goods will command a much higher price; however, a retail sale may involve more expenses and usually will take much longer to conclude. This in turn may not be reasonably feasible in view of higher storage expense and higher interest accumulation on the obligation. In some cases, a sale to a dealer on the wholesale market may be the more reasonable approach. Sales to a dealer seem to be suggested under § 9-504 and the official comments under that section and also in the official comment to § 9-507(2) which suggests that sale of repossessed collateral through a dealer may be the better method in the long run since the secured party does not usually maintain his own facilities for making such sales. The answer to the question whether a sale on the retail or wholesale market is commercially reasonable must generally depend upon the circumstances of each particular case and, therefore, is a question of fact for the factfinder to determine.

Westgate State Bank v. Clark, 231 Kan. 81, 642 P.2d 961, 970 (1982).

[¶ 13] Schmitz, 853 P.2d 1180, a case out of Kansas, is particularly persuasive because of its similarity to the case at bar. Schmitz purchased a used automobile for $4,662.40, borrowing the money from Union National Bank of Wichita. He defaulted on the loan and voluntarily surrendered the vehicle to the Bank. The Bank sold the vehicle at a dealers-only auction for $920, minus a $75 sale fee. The Bank sought recovery of the...