Ruden v. Citizens Bank and Trust Co. of Maryland
| Decision Date | 01 September 1993 |
| Docket Number | No. 967,967 |
| Citation | 638 A.2d 1225,99 Md.App. 605 |
| Parties | , 23 UCC Rep.Serv.2d 623 Alexander F. RUDEN, et al. v. CITIZENS BANK AND TRUST COMPANY OF MARYLAND. , |
| Court | Court of Special Appeals of Maryland |
L. Dale Burgmeier (Burgmeier and Downer, on the brief), Annapolis, for appellants.
C. Edward Hartman, III (Hartman and Parrott, on the brief), Annapolis, for appellee.
Argued before MOYLAN, ALPERT and HARRELL, JJ.
The primary question confronting us on this appeal was succinctly posed by Note, Creditor's Deficiency Judgment under Article 9 of the Uniform Commercial Code: Effect of Lack of Notice and a Commercially Reasonable Sale, 33 Md.L.Rev. 327 (1973):
Upon default by a debtor in a security agreement, a secured creditor may, pursuant to Part 5 of Article 9 of the Uniform Commercial Code, repossess and dispose of the collateral in order to minimize the existing indebtedness. A problem, however, exists because, while the Code requires the secured creditor to notify the debtor of the disposition and to conduct the disposition in a commercially reasonable manner, it fails to chart explicitly the consequences that befall the secured creditor should he not do so. (footnotes omitted) (emphasis supplied).
Before addressing that question, let us set it in context.
Citizens Bank and Trust Company of Maryland, appellee, filed a Complaint in the Circuit Court for Anne Arundel County against Alexander F. Ruden and Ann V. Ruden, appellants. The complaint alleged that the Rudens defaulted on their Consumer Loan Note and Security Agreement by failing to make monthly payments as promised and that they were liable for the deficiency remaining after the collateral was sold. The Rudens' answer and counterclaim alleged, in part, that the appellee's sale of the collateral was commercially unreasonable. The case was tried before a jury, presided over by Judge Martin A. Wolff. The jury rendered a verdict in favor of the appellee in the amount of $75,753.00.
On this appeal, the Rudens raise the following four issues:
I. Did the circuit court err in failing to instruct the jury that the appellee was barred from recovering a deficiency judgment if the boat was not sold in a commercially reasonable manner?
II. Did the circuit court err in failing to instruct the jury that the appellee was not entitled to a deficiency judgment if it purchased the boat at a private sale?
III. Did the circuit court err in failing to instruct the jury that the appellee was not entitled to a deficiency judgment if it sold the boat at a private sale?
IV. Did the circuit court abuse its discretion in failing to admit an appraisal of the boat as evidence of its value?
We find no error or abuse of discretion on the part of the circuit court, and, thus, we affirm.
The Rudens purchased a 35-foot Cheoy Lee sailboat in 1980 for $85,000. They financed $67,000 of the purchase price with People's Security Bank. In 1982, they leased the boat to James Morris. Morris kept the boat in a marina located on Hilton Head Island, South Carolina.
In 1984, the Rudens refinanced the boat with Citizens Bank and Trust Company of Maryland (Bank). The Rudens executed a Consumer Loan Note and Security Agreement in which they promised to pay to the order of the Bank the principal sum of $58,883.50 plus interest by making monthly payments. Morris was still leasing the boat from the Rudens at that time.
In February, 1985, Morris was two months behind in his payments. Additionally, the Rudens discovered that the boat was no longer located on Hilton Head Island, South Carolina. They became concerned. Subsequently, the boat was found in Miami, Florida. Morris's lease was terminated and the boat was seized by the U.S. Marshal in connection with a civil maritime action instituted by the Rudens in the United States District Court for the Southern District of Florida. Allied Marina, a marina located in Miami, Florida, acted as the substitute custodian for the boat.
The Rudens continued to make monthly payments to the Bank until August, 1986, when they could no longer do so. By a certified letter dated October 10, 1986, the Rudens were notified by the Bank that, because they had failed to make the required monthly payments, the boat would be repossessed on or after October 20, 1986 unless all defaults were cured by that date. In November, 1986, the Bank had the boat appraised, and it was valued at $45,000 by an appraiser.
Subsequently, the Rudens were informed by letter that the boat was repossessed on December 9, 1986 and that it continued to be stored at Allied Marina in Miami, Florida. The letter explained that they may redeem and retake possession of the boat during a 15-day period prior to its sale at public auction. At that time, however, the boat, apparently unbeknown by the Bank, was still in federal custody.
The Rudens were notified of the time, date, and location of the public sale and received copies of advertisements placed in The Washington Post and The Miami Herald. A public sale was held on January 27, 1987. The bidding opened at $35,000, but no bids were made. The Bank "bought" the boat for $35,000, but the sale was never consummated. Because the boat had been in federal custody when the Bank attempted to sell it at a public auction, the repossession and subsequent public sale were invalid.
After learning that the boat had been and was no longer in federal custody, the Bank officially notified the Rudens that the boat was being repossessed and that it intended to dispose of the boat. On March 16, 1987, the Rudens were informed by letter that the boat was being sold at private sale on or after April 1, 1987. The boat was sold to a third party for $12,500.00 and the sale was consummated on July 8, 1987. By a letter dated July 16, 1987, the Bank notified the Rudens that their boat was sold on July 8, 1987 and that they were responsible for the deficiency balance. The sale price, however, was stated as being $35,000.
The Bank filed its Complaint in November, 1987 in the Circuit Court for Anne Arundel County. The case was tried before a jury on September 1, 2, and 3, 1992. The Bank requested that judgment in its favor be entered in the amount of $100,888.01, which included the deficiency, interest, and attorney's fees. The jury returned a verdict in favor of the Bank in the amount of $75,753.00. This appeal resulted.
When the sale is conducted with full compliance with the requirements of § 9-504(3), the sale price will be considered to be the true value of the collateral and any deficiency will be awarded automatically to the creditor. 1 Md.Code Ann., Com.Law § 9-504 (1992). In terms of compliance with § 9-504(3), there was no issue in this case with respect to the giving of adequate notice. The issue in dispute was the commercial reasonableness of the sale. The circuit court instructed the jury, with regard to commercial reasonableness:
In determining whether the sale was held in a commercially reasonable manner, for the purposes of a deficiency judgment, the burden of proof is on the Plaintiff, on the bank, who has brought suit. 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 or if he sells at the price current in such market at the time of the 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.
If you find the sale was held in a commercially reasonable manner and you have found that there is reasonable notification given to the Defendant, then you must return a verdict in favor of the Plaintiff against the Defendant.
Thus far, the judge's instruction was absolutely correct.
At that point, the trial judge went on to instruct the jury as to what it should have done in case it found the sale to have been commercially unreasonable. As to any damages that might have resulted from the failure of the Bank to conduct the sale of the boat in a commercially reasonable manner, the judge advised:
If you find that the sale was not held in a commercially reasonable manner, your job is not finished because you must determine to what extent the Defendant has been damaged by the failure to hold the sale in a commercially reasonable manner.
To determine the effect of a sale which was not held in a commercially reasonable manner, you must determine from the evidence presented what sale price would have resulted from a commercially reasonable sale.... If the price which would have been obtained at a commercially reasonable sale is higher than that which was actually obtained, you must subtract the difference from the Plaintiff's demand and return a verdict in favor of the Plaintiff in the reduced amount. (emphasis added).
Initially, a word is in order as to why the Rudens' contention with respect to this second jury instruction is not moot. No special issues were submitted to the jury for resolution and it is impossible to deduce just how it arrived at its verdict for the Bank in the amount of $75,753. Arithmetically, there is no way to manipulate the figures to come up with that sum (or remainder or product or quotient, as the case may have been). Recognizing that the final verdict may have been the result of compromise, compounded perhaps by a few arithmetic miscalculations, we can only base our possible deductions on rough and rounded figures.
One possibility, of course, is that the jury found as a fact that the Bank's sale of the boat was commercially reasonable...
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