Tropical Jewelers, Inc. v. NATIONSBANK, NA

• Citation: 781 So.2d 381
• Decision Date: 21 January 2000
• Docket Number: No. 3D99-119.,3D99-119.
• Parties: TROPICAL JEWELERS, INC., Saul Waksman, Eve Rose Ozeil, Szmul Waksman and Yuda Ozeil, Appellants, v. NationsBANK, N.A. (South), a national banking association as successor in interest by merger to Intercontinental Bank, N.A., Appellee.
• Court: Florida District Court of Appeals

781 So.2d 381

TROPICAL JEWELERS, INC., Saul Waksman, Eve Rose Ozeil, Szmul Waksman and Yuda Ozeil, Appellants, v. NationsBANK, N.A. (South), a national banking association as successor in interest by merger to Intercontinental Bank, N.A., Appellee.

No. 3D99-119.

District Court of Appeal of Florida, Third District.

January 21, 2000.

Geller, Geller, Beskin, Shienvold, Fisher & Garfinkel and Peggy Fisher (Hollywood); Richard J. Burton, Aventura, for appellants.

Liebler, Gonzalez & Portuondo, P.A. and Juan A. Gonzalez, Miami, for appellee.

Before COPE, LEVY, and GREEN, JJ.

PER CURIAM.

This is an appeal from a final summary judgment entered on the issue of damages against the maker and individual guarantors of two promissory notes. We reverse.

I.

Appellant, Tropical Jewelers, Inc. ("Tropical"), was the maker of two promissory notes totaling $840,000 to Intercontinental Bank, N.A., the predecessor in interest to appellee, NationsBank, N.A. ("bank"). These notes were secured by all inventory, supplies, furniture, fixtures, equipment, and accounts receivable then owned or thereafter acquired by Tropical. Appellants, Saul Waksman, Eve Rose Oziel, Szmul Waksman and Uyda Oziel, executed personal guarantees of Tropical's promissory notes. In the guarantees, the individual guarantors specifically waived, among other things, any rights that they might otherwise have under the Uniform Commercial Code ("UCC"), including the commercial reasonableness of any sale or disposition of collateral by the bank in the event of a default by Tropical. There was no such waiver in the promissory notes executed by Tropical.

Tropical defaulted under the terms of both promissory notes and the bank filed this suit against Tropical and the individual guarantors to collect the unpaid amounts due on the notes. During the pendency of this action, the bank obtained a pre-judgment writ of replevin pursuant to chapter 78, Florida Statutes which allowed it to replevy and liquidate the collateral securing the notes. The bank liquidated the collateral through an independent auction company. The proceeds of the sale were then applied to Tropical's outstanding indebtedness owed on the notes and the bank sought to recover the deficiency amount in this action.

Tropical and the individual guarantors respectively answered this suit and asserted, as affirmative defenses, that the bank had (1) wrongfully repossessed Tropical's assets; (2) failed to handle the liquidation of Tropical's assets in a commercially reasonable fashion; and (3) grossly mishandled Tropical's property, resulting in its unnecessary loss or destruction. Thereafter, Tropical and the individual guarantors collectively filed a counterclaim against the bank based upon the same factual allegations contained in their affirmative defenses. The bank moved for final summary judgment against Tropical and the individual guarantors on the grounds that there were no genuine issues of material fact as to Tropical's default under the promissory notes, and that the affirmative defenses regarding the commercial reasonableness of its disposition of the collateral had been waived by the appellants and was thus unavailable as a matter of law. The motion was granted and this appeal followed.

II.

The appellants first argue that the trial court erred in denying their motion for continuance of the hearing on the motion for summary judgment. A motion for continuance, however, is addressed to the sound judicial discretion of the trial court and absent an abuse of that discretion, that court's decision will not be reversed on appeal. See Fleming v. Fleming, 710 So.2d 601, 603 (Fla. 4th DCA 1998); Talley v. Fain, 692 So.2d 279, 280 (Fla. 5th DCA 1997); Crespo v. Florida Entertainment Direct Support Org., Inc., 674 So.2d 154, 155 (Fla. 3d DCA 1996). The trial court's order denying the continuance reflects that the bank's motion for summary judgment was not heard until five months after its filing; after appellants' former counsel's motion for withdrawal was rescheduled for hearing numerous times; after the appellants were afforded an adequate period of time within which to secure new counsel; and approximately one month after appellants' new counsel filed his notice of appearance. Under these circumstances, we cannot conclude that the denial of appellants' motion for continuance of the summary judgment hearing constituted an abuse of discretion.

III.

We now turn to the merits of this appeal. Tropical and the individual guarantors urge that the trial court erred in entering summary judgment against them on their affirmative defenses that the collateral securing the debt was not disposed of in a commercially reasonable manner by the bank. We agree that summary judgment was improvidently entered.

Under Article 9 of the UCC, upon a debtor's default, a secured creditor is obligated to dispose of the collateral securing the debt in a commercially reasonable manner. See § 679.504(3), Fla. Stat. (1995)¹; see also Sorrels v. Rebecca's Ice Cream, Inc., 696 So.2d 1313, 1314 (Fla. 2d DCA 1997). Indeed, the right to commercially reasonable disposition of repossessed property cannot be waived by the debtor. See § 679.501(3)(b), Fla. Stat. (1995)²; Barnett Bank of Tallahassee v. Campbell, 402 So.2d 12, 13 (Fla. 1st DCA 1981). Tropical did not, and indeed could not, waive the requirement of commercial reasonableness of disposition of collateral.

The summary judgment record reflects that there exists a genuine issue of disputed fact between Tropical and the bank as to whether the collateral was disposed of in a commercially reasonable manner. We thus conclude that the summary judgment entered as to Tropical was error. See Holl v. Talcott, 191 So.2d 40 (Fla.1966).

IV.

In addition to Tropical, the guarantors also challenge the commercial reasonableness of the bank's disposition of collateral. The guarantors present a different legal issue, however, because the guarantees in this case contain language waiving the guarantors' "right to object to the commercial reasonableness of any sale or disposition of collateral."³ The guarantors argue that this waiver is invalid under the anti-waiver provision of the UCC, § 679.504(3), Fla. Stat., and we agree.

As already stated, a secured creditor must dispose of collateral in a commercially reasonable manner, and this requirement of the UCC cannot be waived by the debtor. See §§ 679.501(3)(b), 679.504(3), Fla. Stat. (1995). The question is whether a guarantor is a "debtor" for Article 9 purposes. The answer is yes.

Article 9 defines "debtor" in part as "the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral ...." § 679.105(1)(d), Fla. Stat. (1995) (emphasis added).⁴ Certainly a guarantor is a person who owes "payment or other performance," id., and this court has already said that the UCC definition of debtor includes guarantors. See Adler v. Key Fin. Servs., Inc., 553 So.2d 284, 285 (Fla. 3d DCA 1989) (stating "definition of `debtor' under UCC includes guarantors"). The First and Fourth Districts have likewise held that a guarantor is a debtor for purposes of this part of the UCC. See Motorola Communications and Elecs., Inc. v. Nat'l Patient Aids, 427 So.2d 1042, 1044 (Fla. 4th DCA 1983); Barnett Bank v. Campbell, 402 So.2d 12, 14 (Fla. 1st DCA 1981); Barnett v. Barnett Bank, 345 So.2d 804, 805-06 (Fla. 1st DCA 1977); Hepworth v. Orlando Bank & Trust Co., 323 So.2d 41, 42 (Fla. 4th DCA 1975). And on the exact issue before us, the First District has concluded, as we do, that the anti-waiver provision of subsection 679.501(3), Florida Statutes, protects guarantors. See Barnett v. Barnett Bank, 345 So.2d at 805-06; Barnett Bank v. Campbell, 402 So.2d at 14.⁵

The practical logic may be illustrated by the following hypothetical example:

Parent guarantees car loan for child. The guarantee contains a waiver of the requirement of commercial reasonableness of disposition of collateral.

Child defaults and bank repossesses the car. If disposed of in a commercially reasonable manner, the car is worth $10,000. For simplicity, assume the loan balance is also $10,000.

Bank president decides to sell car to bank president's relative for $1,000.

In the hypothetical example, sale of a $10,000 car for $1,000 is not commercially reasonable. Under the UCC, the bank would not be allowed to sue the borrower child for the $9,000 deficiency.⁶ Since a commercially reasonable disposition of the collateral would have yielded $10,000, and the loan balance was $10,000, it follows that the borrower child owes the bank nothing. See § 679.507, Fla. Stat.; Weiner v. American Petrofina Mktg., Inc., 482 So.2d 1362, 1364 (Fla.1986).

Logically the same analysis should apply to the guarantor parent in the hypothetical example. It would make no sense to say that the bank may recover the $9,000 deficiency from the guarantor parent, even though the bank cannot recover the $9,000 deficiency from the borrower child.

The UCC expresses sound public policy in requiring commercial reasonableness and in prohibiting waiver of that protection. The better view is that these UCC provisions protect the guarantor as well as the borrower. "[I]t would be odd indeed if the Code allowed a creditor to avoid the protections established for debtors merely by taking the readily available step of forcing the debtor's principals to sign personal guarantees." Bank of China v. Chan, 937 F.2d 780, 786 (2d Cir.1991).

Another court has said:

[T]he unconditional guarantor is in a very real sense the debtor. When the probability of deficiency looms after default, the guarantor is the real target of the secured party. It is simply inequitable, therefore, to permit the secured party, who fixes the amount of the guarantor's liability in the first step of the collection effort by repossession and sale, to deny in the face of this economic reality that the

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