U.S. on Behalf of Farmers Home Admin. v. Kennedy

• Decision Date: 08 October 1986
• Docket Number: No. 43396,43396
• Citation: U.S. on Behalf of Farmers Home Admin. v. Kennedy, 348 S.E.2d 636, 256 Ga. 345 (Ga. 1986)
• Parties: , 2 UCC Rep.Serv.2d 750 UNITED STATES of America, on Behalf of FARMERS HOME ADMINISTRATION v. KENNEDY et al.
• Court: Georgia Supreme Court

Page 636

348 S.E.2d 636

256 Ga. 345, 2 UCC Rep.Serv.2d 750

UNITED STATES of America, on Behalf of FARMERS HOME ADMINISTRATION v. KENNEDY et al.

No. 43396.

Supreme Court of Georgia.

Oct. 8, 1986.

As Amended on Denial of Reconsideration Oct. 28, 1986.

Joe D. Whitley, Lillian H. Lockary, Macon, for U.S. on Behalf of Farmers Home Admin.

Richard A. Childs, Swearingen, Childs & Phillips, P.C., Columbus, for Millard Kennedy et al.

HUNT, Justice.

This case comes before this court on a certified question from the United States Court of Appeals for the Eleventh Circuit, 785 F.2d 1553. The facts as set out by that court, and the question, follow:

"FmHA made three emergency loans to Daniel S. Kennedy ('Daniel') on April 25, 1979, in the principal sums of $65,000, $23,600 and $10,850, ¹ evidenced by separate promissory notes. Daniel also executed a security agreement covering chattels and crops. ² On that same date, Daniel's parents, appellees Millard and Glenwodyne B. Kennedy ('the Kennedys'), endorsed Daniel's promissory notes, gave FmHA a second deed to secure debt covering their real property in Webster County, Georgia, and executed a document expressing the voluntariness of this conveyance and their intention to induce FmHA to make the loans to Daniel. ³

"Daniel subsequently defaulted on his loans and filed for liquidation under Chapter 7 of the Bankruptcy Code. During the creditors' meeting, both Daniel and the Chapter 7 trustee relinquished Daniel's collateral, all personalty, to FmHA. FmHA subsequently sold the collateral without notice to either Daniel or the Kennedys and sought to proceed against the Kennedys' real property for the balance remaining on Daniel's notes. The Kennedys filed for reorganization under Chapter 11 of the Bankruptcy Code and the proceeds of the sale of a portion of their real property subject to FmHA liens were placed in escrow pending resolution of this dispute. The bankruptcy court ruled that FmHA could not recover any deficiency on Daniel's notes and voided the Kennedys' second security deed because FmHA did not give notice to Daniel and the Kennedys of the sale of Daniel's personalty as required by OCGA § 11-9-504(3). The district court affirmed the bankruptcy court's rulings.

"FmHA appealed, contending that Daniel and the Kennedys were not entitled to notice for three reasons: OCGA § 11-9-504(3) does not apply to real estate liens, Daniel and the Kennedys had waived notice and, in any case, federal law preempts Georgia notice requirements."

After determining that federal law does not preempt Georgia notice requirements and that the Kennedys did not waive their right to notice under OCGA § 11-9-504(3), the court addressed the applicability of OCGA § 11-9-504(3) to this case, as follows:

"The primary focus of FmHA's argument is that Georgia real property law, not OCGA § 11-9-504(3), should control this case because it is not seeking a personal judgment against the Kennedys but is instead proceeding under the deed to secure debt. The Georgia Supreme Court recently held that section 11-9-504(3) draws no distinction between a deficiency judgment and recovery against other collateral: 'The Georgia rule concerning the recovery of a deficiency after a foreclosure sale of collateral is that, if the creditor does not comply with the requirements of OCGA § 11-9-504(3), he loses his right to recover a deficiency, not merely his right to recover a personal judgment against the debtor. This rule is not predicated on the method of the recovery of the deficiency, and we decline to make such a distinction now.' Reeves v. Habersham Bank, 331 S.E.2d 589 at 593 (citations omitted). In Reeves, however, the creditor sought to proceed against a guarantor's personal property collateral after a commercially unreasonable disposition of the principal debtor's collateral. Id. at 592-93. FmHA argues a different result is required here because the guarantors' collateral is real property not governed by OCGA § 11-9-504(3). The Georgia courts have not addressed this issue."

The court then certified the following question to this court: "Whether the bar against collection of any deficiency if a sale of collateral occurs without notice, in violation of OCGA § 11-9-504(3), prevents a creditor holding a claim secured by both personal property and real property from proceeding against the real estate to collect the balance remaining after a commercially unreasonable sale of the personalty."

1. In Reeves v. Habersham Bank, supra, 254 Ga. 615, 621, 331 S.E.2d 589 (1985), we recognized the reasons that underly the requirements of OCGA § 11-9-504(3) that a debtor be given reasonable notification of the time and place of the sale of collateral. While those reasons are obvious, they bear reiterating because they lie at the heart of the controversy. First, if the debtor feels the collateral is not bringing a reasonable price he can buy it (or in appropriate cases exercise his right of redemption). OCGA § 11-9-506. Second, he can challenge any aspects of the disposition before it is made. Finally, he can seek out other purchasers in an effort...