Standard Bank & Trust Co. v. Callaghan

• Decision Date: 29 December 1988
• Docket Number: No. 2-88-0232,2-88-0232
• Citation: 532 N.E.2d 1015,177 Ill.App.3d 973,127 Ill.Dec. 186
• Court: United States Appellate Court of Illinois
• Parties: , 127 Ill.Dec. 186, 8 UCC Rep.Serv.2d 281 STANDARD BANK & TRUST COMPANY, Plaintiff-Appellant, v. David G. CALLAGHAN, et al., Defendants-Appellees.

Page 1015

532 N.E.2d 1015

177 Ill.App.3d 973, 127 Ill.Dec. 186,

8 UCC Rep.Serv.2d 281

STANDARD BANK & TRUST COMPANY, Plaintiff-Appellant, v. David G. CALLAGHAN, et al., Defendants-Appellees.

No. 2-88-0232.

Appellate Court of Illinois,

Second District.

Dec. 29, 1988.

Eugene G. Callahan, Matthew W. La Koma, Callahan, Fitzpatrick & La Koma, Oak Brook, Rathje, Woodward, Dyer & Burt, Wheaton, Francis D. Morrissey (argued), Thomas F. Bridgman, Michael A. Pollard, Kathleen F. MacLennan, Baker & McKenzie, Chicago, for Standard Bank & Trust Co.

Jay L. Statland (argued), Mark R. Valley, Robert D. Boyle, Murphy & Boyle, Chtd., Chicago, Liston & Mauter, P.C., Wheaton, for David G. Callaghan and Mary M. Callaghan.

Harvey B. Stephens, Emmet A. Fairfield, Brown, Hay & Stephens, Springfield, for Illinois Bankers Ass'n.

Justice INGLIS delivered the opinion of the court:

Plaintiff, Standard Bank & Trust Company (formerly Heritage Standard Bank & Trust Company), appeals from the trial court's order finding plaintiff's bid at a court-ordered property foreclosure sale to be commercially unreasonable and barring plaintiff from recovering a deficiency judgment entered against defendants, David G. Callaghan, Mary M. Callaghan, and other owners and non-record claimants. This is plaintiff's second appeal. In the first appeal, we reversed the trial court's order barring plaintiff from recovering a deficiency judgment for failing to properly specify such relief in its complaint and remanded the cause to the trial court "for an evidentiary hearing on the propriety of the amount bid by [plaintiff] at the foreclosure sale." (See Heritage Standard Bank & Trust Co. v. Heritage Standard Bank & Trust Co. (1986), 149 Ill.App.3d 563, 571, 102 Ill.Dec. 438, 500 N.E.2d 60.) The instant appeal challenges the trial court's order following the evidentiary hearing conducted pursuant to our mandate. Plaintiff now contends that the trial court erred in concluding that its bid was not commercially reasonable and, in any event, barring plaintiff from recovering a deficiency judgment on that basis. We affirm in part, reverse in part, and remand.

On June 8, 1983, plaintiff filed a complaint to foreclose on a security interest in a land trust consisting of six lots in a residential subdivision. Plaintiff's complaint alleged that (1) defendants, David and Mary Callaghan, were indebted to plaintiff for approximately $700,000; (2) the note was secured by defendants' beneficial interest in the land trust; (3) defendants failed to satisfy the note; and (4) there remained due to plaintiff a principal balance of $567,698.95 together with accrued interest of $215,691.49. Defendants filed an answer and counterclaim. Thereafter, plaintiff moved for summary judgment on its complaint and defendants' counterclaim. The trial court granted plaintiff's motion for summary judgment on the complaint, but denied its motion for summary judgment on the counterclaim. The trial court subsequently reconsidered its ruling and entered summary judgment in favor of plaintiff on defendants' counterclaim.

On September 27, 1984, the trial court entered a decree of foreclosure and sale. The decree ordered that defendants pay plaintiff the judgment amount, at that time determined to be $721,073.16, within three days, or the property securing the debt would be sold. The decree further stated that if the sale failed to satisfy the debt, the deficiency would stand as a lien. Defendants did not satisfy the judgment, and plaintiff sought enforcement of the decree of foreclosure and sale.

On March 14, 1985, the sheriff of Du Page County conducted a judicial sale of the property and received a bid of $221,000 from plaintiff. The sheriff's report of sale and distribution, filed with the court on March 27, 1985, noted plaintiff's bid and reported a deficiency of $292,404.70. The report recommended that a deficiency judgment in that amount be entered in plaintiff's favor. Defendants filed a response to the sheriff's report asserting that plaintiff was not entitled to the deficiency judgment on the basis that plaintiff's complaint did not request such relief and plaintiff's bid did not represent the fair market value of the property. On June 3, 1985, the trial court approved the report of sale and distribution, but denied plaintiff a deficiency judgment against defendants on the basis that plaintiff failed to request such a remedy in its prayer for relief.

On October 28, 1986, this court reversed the trial court's order barring the deficiency judgment on the basis of an inadequate prayer for relief and remanded the cause for an evidentiary hearing on the propriety of plaintiff's bid. Heritage Standard Bank & Trust Co. v. Heritage Standard Bank & Trust Co. (1986), 149 Ill.App.3d 563, 571, 102 Ill.Dec. 438, 500 N.E.2d 60.

At the subsequent hearing conducted pursuant to our mandate, David Callaghan testified that he and his attorney were present at the judicial sale and objected to plaintiff's bid. The evidence established that plaintiff's bid was based on presale appraisals conducted on January 25, 1985, by Robert Gorman. To prepare the appraisals, Gorman testified that he went out and "looked at the property," drew conclusions as to the value, discussed his conclusions with an associate, Timothy Rice, and asked Rice to "gather data" for the purpose of determining the accuracy of his conclusions. Gorman's appraisals valued the property at $221,000. On cross-examination, Gorman indicated that he had previously conducted appraisals for plaintiff on the same lots in 1983. According to Gorman, the value of the property stated in the 1985 appraisals was identical to the value of the property stated in the 1983 appraisals. Gorman further testified that Rice prepared the actual appraisals, and while Gorman's signature appeared on them, he could not remember reading them.

Defendants did not obtain a written appraisal prior to the judicial sale. Rather, Callaghan testified that the value of the property was $291,600 based on a price list and sales of lots in the subdivision encompassing the property. Defendants did order a formal appraisal by Charles Bruckner after the judicial sale. Bruckner stated that he appraised the property at $271,000. Bruckner testified that his appraisal was based on (1) personal inspection of the property; (2) review of available maps and plats; (3) review of the county records of the planned unit development encompassing the property; (4) use of market comparable sales; (5) verification that the comparable sales were arm's-length transactions; (6) inspection of each of the comparable sales used; and (7) review of defendants' price list. Bruckner further testified that his appraisal stated the value of the property as of April 1, 1985, approximately two weeks after the judicial sale.

On February 29, 1988, the trial court entered a written order denying plaintiff a deficiency judgment. The court expressly found defendants' appraiser more credible than plaintiff's appraiser and concluded that plaintiff did not conduct a thorough investigation for making its bid and that plaintiff's appraiser was just "going through the motions without any real substance behind his opinion." The court found that plaintiff's bid was $50,000 less than the fair market value of the property based on defendants' post-sale appraisal of $271,000, and stated:

"[T]he price as bid was not commercially reasonable, and * * * the [plaintiff] in making such a bid engaged in a 'mistaken practice,' i.e. relied upon an appraiser's report that it knew, or ought to have known was too low."

Plaintiff filed this timely appeal.

Plaintiff first contends that the trial court erred in finding that plaintiff's bid was not commercially reasonable. While plaintiff correctly contends that failure to bid an amount equal to or greater than fair market value does not by itself render a judicial sale commercially unreasonable, we believe that the trial court's decision that plaintiff's bid rendered the judicial sale commercially unreasonable was proper in light of its finding that plaintiff engaged in a "mistaken practice" in submitting its bid.

Article 9 of the Uniform Commercial Code (Code) (Ill.Rev.Stat.1983, ch. 26, par. 9-101 et seq.) governs the foreclosure of security interests and is applicable to the instant action. (See Heritage Standard Bank & Trust Co. v. Heritage Standard Bank & Trust Co. (1986), 149 Ill.App.3d 563, 567, 102 Ill.Dec. 438, 500 N.E.2d 60.) In the case of defaults, section 9-504(1)(b) of the Code provides that a secured party may sell the collateral securing a debt in order to satisfy the indebtedness. (Ill.Rev.Stat.1983, ch. 26, par. 9-504(1)(b).) Unless there is an agreement to the contrary, the debtor is liable for any deficiency that results from the sale. (Ill.Rev.Stat.1983, ch. 26, par. 9-504(2).) Absent such an agreement, the only defenses available to a debtor against a deficiency judgment are lack of reasonable notice of the sale and commercial unreasonableness of the sale. Ill.Rev.Stat.1983, ch. 26, par. 9-504(3); Heritage Standard Bank & Trust Co., 149 Ill.App.3d at 567, 102 Ill.Dec. 438, 500 N.E.2d 60.

Section 9-504(3) of the Code provides that "every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable." (Emphasis added.) (Ill.Rev.Stat.1983, ch. 26, par. 9-504(3).) While price alone does not establish commercial reasonableness (see Chicago City Bank & Trust Co. v. Wilson (1980), 86 Ill.App.3d 452, 456, 41 Ill.Dec. 466, 407 N.E.2d 964), this court has recently stated that price is the key component in assessing commercial reasonableness (Heritage Standard Bank & Trust Co., 149 Ill.App.3d at 571, 102 Ill.Dec. 438, 500 N.E.2d 60). In determining whether price is commercially reasonable, Illinois courts have long recognized that property does not bring its full value at forced sales. (Horney v. Hayes (1957), 11...