North Carolina Nat. Bank v. Burnette, 28

Decision Date12 July 1979
Docket NumberNo. 28,28
Citation256 S.E.2d 388,297 N.C. 524
CourtNorth Carolina Supreme Court
Parties, 27 UCC Rep.Serv. 867 NORTH CAROLINA NATIONAL BANK, v. Ted R. BURNETTE and Wife, Irma M. Burnette.

Smith, Moore, Smith, Schell & Hunter by Larry B. Sitton and Robert A. Wicker, Greensboro, and Watson & Dobbin by Richard B. Dobbin, Spruce Pine, for plaintiff.

McLean, Leake, Talman & Stevenson by Wesley F. Talman, Jr. and Joel B. Stevenson, Asheville, for defendants.

HUSKINS, Justice:

The trial court entered judgment for plaintiff notwithstanding the verdict (JNOV) on the ground that plaintiff, as a matter of law, had substantially complied with the procedures provided by G.S. 25-9-601, et seq. (Cum.Supp.1977), for the disposition of collateral by public sale and therefore the public sale of the grading equipment was conclusively deemed "to be commercially reasonable in all aspects." G.S. 25-9-601. The first question presented by this appeal is whether the Court of Appeals erred in reversing JNOV for plaintiff on the issue of commercial reasonableness of plaintiff's disposition by public sale of the road grading equipment pledged as collateral to secure the $190,000.00 note executed by defendants on 28 January 1974.

Resolution of this question requires us to consider the rights and duties of an Article 9 secured party with respect to disposition of repossessed collateral.

The procedures outlined in G.S. 25-9-601, et seq., for the disposition of collateral by public sale are unique to North Carolina and supplement the provisions of G.S. 25-9-504 (Cum.Supp.1977). Section 9-504 gives the secured party a wide latitude with respect to disposition of repossessed collateral. See J. White and R. Summers, Uniform Commercial Code, § 26-9 (1972). "A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing." G.S. 25-9-504(1). "Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms . . . ." G.S. 9-504(3). However, the secured party has a duty to provide reasonable notice of any impending disposition and to insure that "every aspect of the disposition" is "commercially reasonable." G.S. 25-9-504(3). A secured party seeking a deficiency judgment under G.S. 25-9-502 (Cum.Supp.1977) has the burden of establishing compliance with the twin duties of reasonable notification and commercially reasonable disposition. Accord, Credit Co. v. Concrete Co., 31 N.C.App. 450, 229 S.E.2d 814 (1976), and cases cited therein; Annot., 59 A.L.R.3d 369 (1974). Placing the burden of persuasion on the secured party tends to insure that the deficiency sought has not been unnecessarily enhanced by abuses of the broad discretion accorded the secured party with respect to the disposition of collateral.

The concept of commercial reasonableness has been notoriously difficult to define and has therefore been unevenly applied by courts and juries. See generally, J. White & R. Summers, supra, § 26-11; Comment 15 Wake Forest L.Rev., 71, 72-79 (1979). To minimize the uncertain results fostered by the flexible standard of commercial reasonableness contained in section 9-504(3), the General Assembly of North Carolina enacted the "Public Sale Procedures" set out in Part 6 of Article 9. Credit Co. v. Concrete Co., supra, 31 N.C.App. at 456, 229 S.E.2d 814; Comment, supra, 15 Wake Forest L.Rev. at 80. Part 6 establishes a conclusive presumption of commercial reasonableness when a secured party gives notice of a disposition of collateral by public sale in substantial compliance with its provisions:

"Disposition of collateral by public proceedings as permitted by G.S. 25-9-504 may be made in accordance with the provisions of this part. The provisions of this part are not mandatory for disposition by public proceedings, but any disposition of the collateral by public sale wherein the secured party has substantially complied with the procedures provided in this part Shall conclusively be deemed to be commercially reasonable in all aspects." (Emphasis added.) G.S. 25-9-601.

The notice requirements for the disposition of collateral by public sale are contained in G.S. 25-9-602, which specifies the contents of the notice of sale, and in G.S. 25-9-603, which prescribes the manner in which notice of sale is to be posted and mailed. Thus, if the secured party who seeks a deficiency judgment can establish that he gave notice of a public sale of collateral in a manner which substantially complies with the procedures of Part 6, he is not required to further establish that the sale was commercially reasonable.

The Court of Appeals reversed JNOV for plaintiff on the ground that plaintiff had failed to establish its compliance with the procedures for mailing of notice prescribed by G.S. 25-9-603 and therefore was not entitled to the conclusive presumption of commercial reasonableness. We now examine the soundness of that holding.

G.S. 25-9-603 deals with the posting and mailing of notice of sale and provides in pertinent part as follows:

"(1) In each public sale conducted hereunder, the notice of sale shall be posted on a bulletin board provided for the posting of such legal notices, in the courthouse, in the county in which the sale is to be held, for at least five days immediately preceding the sale.

(2) In addition to the posting of notice required by subsection (1), the secured party or other party holding such public sale shall, at least five days before the date of sale, mail by registered or certified mail a copy of the notice of sale to each debtor obligated under the security agreement:

(a) at the actual address of the debtors, if known to the secured party, or

(b) at the address, if any, furnished the secured party, in writing, by the debtors, or otherwise at the last known address."

Specifically, the Court of Appeals reasoned that on the evidence presented by plaintiff a question of fact existed as to whether plaintiff had sent the notice of the public sale to an "actual address" of defendants. Thus, the precise question is whether plaintiff's evidence establishes as a matter of law that notice of sale was sent to an "actual address" of the debtors.

We first note that G.S. 25-9-603 does not require the secured party to insure that the notice of sale is Actually received by the debtor. Rather, the secured party is required to "Mail by registered or certified mail a copy of the notice of sale to each debtor . . . (a) at the actual address of the debtors, if known to the secured party, or (b) at the address, if any, furnished the secured party, in writing, by the debtors, or otherwise at the last known address." G.S. 25-9-603(2) (Emphasis added.) We further note that G.S. 25-1-201(26) reads in pertinent part as follows: "A person 'notifies' or 'gives' a notice or notification to another by taking such steps as may be reasonably required to inform the other in ordinary course whether or not such other actually comes to know of it." Additionally, we note that Substantial compliance is the prescribed standard in determining whether the procedures outlined in G.S. 25-9-603 have been followed. See G.S. 25-9-601. Substantial compliance means a compliance which substantially, essentially, in the main, or for the most part, satisfies the procedures. See Black's Law Dictionary, p. 1597, defining "substantially" (4th Ed. 1968); Cf. Douglas v. Rhodes, 188 N.C. 580, 125 S.E. 261 (1924), defining "substantially" under former G.S. 45-25.

Guided by the standard of substantial compliance mandated by G.S. 25-9-601 and by the definition of notice quoted from G.S. 25-1-201(26), we conclude that an "actual address" of a debtor is an address where a notice of sale could reasonably be expected to be received by the addressee in the ordinary course of the mails. Whether an address utilized by a creditor is an " actual address" of a debtor is a determination which must be made on the basis of circumstances known to, or which should have been known to, the creditor at the time the notice of sale was mailed.

Plaintiff's evidence on this question tends to show that the address listed on the promissory note and security agreement executed by defendants on 28 January 1974 was Route 1, Box 271, Spruce Pine, North Carolina. Defendants, however, did not live in Spruce Pine. They actually lived in a home located in Chestnut Grove, which is approximately one and one-half miles from Little Switzerland. On 29 July 1974, letters demanding payment were sent to defendants by certified mail, return receipt requested, addressed to "Route 1, Little Switzerland, North Carolina." The return receipt indicates that these demand letters were delivered to defendants three days later on 1 August 1974. The receipt was purportedly signed by the male defendant and reflects that the delivery address was "P. O. Box 121, Little Switzerland, North Carolina." When defendants thereafter failed to make any payment on the promissory note, plaintiff mailed to defendants a notice of sale of the road grading equipment. The notice of sale was dated 24 October 1974 and was sent by certified mail, return receipt requested, to "Route 1, Little Switzerland, North Carolina." The male defendant testified that he had previously received mail at the post office in Little Switzerland, and that he received the demand letters addressed to Route 1, Little Switzerland.

The above evidence so clearly establishes the fact in issue that no reasonable inferences to the contrary may be drawn. Accordingly, we conclude that the evidence establishes as a matter of law that the 24 October 1974 notice of sale was sent to an "actual address" of debtor in substantial compliance with G.S. 25-9-603. The documentary evidence from which plaintiff's...

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