Security Trust Co. of Rochester v. Thomas

CourtNew York Supreme Court Appellate Division
Writing for the CourtWITMER
Citation399 N.Y.S.2d 511,59 A.D.2d 242
Parties, 22 UCC Rep.Serv. 1305 SECURITY TRUST COMPANY OF ROCHESTER, Respondent, v. Earl E. THOMAS and Rosemary A. Thomas, Appellants.
Decision Date04 November 1977

Page 511

399 N.Y.S.2d 511
59 A.D.2d 242, 22 UCC Rep.Serv. 1305
Earl E. THOMAS and Rosemary A. Thomas, Appellants.
Supreme Court, Appellate Division, Fourth Department.
Nov. 4, 1977.

Martin S. Handelman, Rochester, for appellants.

Harris, Beach, Wilcox, Rubin & Levey, Rochester, for respondent (Paul Yesawich, Rochester, of counsel).



WITMER, Justice.

This appeal requires us to determine whether a secured lender who repossesses the security from the defaulting debtor and sells it at public or private sale may recover a deficiency judgment against the debtor without proving that its notice to the debtor of the sale was reasonable and that the sale was conducted in a commercially reasonable manner. We hold that it cannot; that questions of fact were presented on

Page 512

the pleadings herein at Special Term; and that Special Term erred in granting the plaintiff-lender's motion for summary judgment for the amount of the alleged deficiency on its loan to defendants.

In 1971 defendant Earl E. Thomas of Rochester, New York bought a tractor for hauling shippers' trailers, and borrowed $25,000 from plaintiff, the Security Trust Company of Rochester (the Bank), to finance it. He signed an installment payment note therefor and his wife, defendant Rosemary Thomas, signed an instrument guaranteeing payment of the principal and interest thereof. In addition, the Bank received a security interest in defendant's new tractor. Defendant defaulted in his payments on the tractor, and plaintiff contacted him about repossessing it. Defendant advised plaintiff that the tractor was at his employer's yard in Rochester, New York, giving the address, and plaintiff repossessed it. It is disputed as to whether defendant advised plaintiff that in the late summer of 1975 he had changed his residence address to 22 Malvern Street, Rochester.

Plaintiff delivered the repossessed tractor to a motor vehicle dealer in the Village of Honeoye Falls, New York, about 25 miles south of the City of Rochester, and offered it for public sale on April 21, 1976. It mailed a notice of the sale to defendant at 22 Melville Street, Rochester, New York, but the notice was returned to the plaintiff because of incorrect address. Plaintiff also posted notices of the proposed sale on "three public buildings", presumably in the Village of Honeoye Falls. At the sale it rejected the only bid of $2,000; and two or three weeks later, without notice to defendant, it sold the tractor at private sale for $4,000.

In July, 1976 plaintiff instituted this action against defendants to recover the deficiency alleged to be due on the note, and under CPLR 3213 it moved for summary judgment. Defendants interposed objections, contending that the tractor was worth substantially more than the amount received and that the plaintiff failed to give them proper notice of the sale and failed to conduct the sale in a commercially reasonable manner. Despite such objections, Special Term found that there was no question of fact for trial and granted the motion. Without determining the question, Special Term assumed that plaintiff's notice to the defendants of the sale was defective.

In the event of default by a buyer, subdivision 1 of section 9-504 of the Uniform Commercial Code authorizes a secured creditor to liquidate the security and apply the proceeds to the unpaid balance of the debt. Subdivision 2 thereof provides that the debtor shall be liable for any remaining deficiency. Subdivision 3 imposes upon the creditor the obligation to conduct a "commercially reasonable" sale of the collateral and, in a case such as this, to send reasonable notice of the sale to the debtor. In the event of compliance by the creditor with the foregoing, the creditor is protected against claims by the debtor concerning the manner of the sale and the price obtained (UCC, § 9-507(2)). If the secured party has failed to give reasonable notice or to sell in a commercially reasonable manner, the debtor may recover from the creditor any loss caused by the...

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