Victory Hills Ltd. Partnership v. Nationsbank, N.A.

• Decision Date: 01 August 2000
• Citation: 28 S.W.3d 322
• Parties: (Mo.App. W.D. 2000) . Victory Hills Limited Partnership I, et al., Appellants, v. Nationsbank, N.A. (Midwest), Respondent. WD57483 Missouri Court of Appeals Western District Handdown Date: 0
• Court: Missouri Court of Appeals

28 S.W.3d 322 (Mo.App. W.D. 2000)

This slip opinion is subject to revision and may not reflect the final opinion adopted by the Court.

Victory Hills Limited Partnership I, et al., Appellants, v. Nationsbank, N.A. (Midwest), Respondent.

WD57483

Missouri Court of Appeals Western District

Handdown Date: 08/01/2000

Appeal From: Circuit Court of Jackson County, Hon. Charles E. Atwell

Counsel for Appellant: Don A. Peterson

Counsel for Respondent: Irvin V. Belzer and Daniel R. Young

Opinion Summary: Judith B. Brougham, Thomas L. Brougham, and Victory Hills Limited Partnership I appeal the circuit court's summary judgment for the respondent, NationsBank, N.A., on their claim for damages in the amount they paid to the bank for the remaining balance due on a note held by the bank after it sold a portion of the collateral for the note, without giving them notice of the sale, as they contend was required by section 400.9-504(3). They alleged in their petition that the bank's failure to give them notice of the partial sale of collateral securing the note, the proceeds from which were credited against the debt on the note, extinguished the debt, barring the bank from not only seeking a deficiency judgment, but from disposing of any additional collateral to satisfy the debt, prior to seeking a deficiency judgment.

AFFIRMED.

Division Four holds:

Section 400.9-504(3) requires a secured party to give reasonable notice to the debtor of its sale of collateral securing a note. Under the "no notice-no deficiency rule," a secured party's failure to give reasonable notice of the sale of collateral precludes it from obtaining a deficiency judgment. The appellants base their claim for damages on their contention that the "no notice-no deficiency" rule not only applies to deny a creditor a deficiency judgment against the debtor after the collateral has been exhausted, but also to block a creditor from disposing of any of the remaining collateral, even if done in accordance with the notice provision of section 400.9-504 and no deficiency judgment is being sought. From this, they allege that because the bank failed to give the requisite notice of section 400.9-504(3) in selling some of the collateral on the note, under the rule, the bank was not entitled to collect on the remaining balance due on the note, despite the fact that there remained collateral to satisfy the same, in whole or part, such that it was impossible to predict whether the bank would, if ever, be forced to bring an action against on the note for a deficiency judgment.

In this Court's review of the state's appellate decisions that have applied the "no notice-no deficiency" rule, none have applied it to allow a debtor to extinguish a debt where collateral remains to satisfy the debt and the creditor has not filed an action seeking a deficiency judgment, and this Court sees no logic in doing so. The rule has been limited to denying the creditor a deficiency judgment for failure to comply with section 400.9-504(3). Logically, there is no "deficiency" until the collateral is sold and a balance remains on the debt after giving credit against the same for the proceeds of the sale of collateral. As such, although a creditor could ignore the collateral and simply sue on the note, a "deficiency" judgment could not lie until the collateral is sold, at which time the "no notice-no deficiency" rule could be invoked to deny the creditor such judgment. Here, there is no dispute that after the sale of the collateral in question, there remained other collateral to satisfy the debt. In addition, it is undisputed that the bank had not filed suit on the note seeking a deficiency judgment but had only "threatened" possible legal action. Thus, the "no notice-no deficiency" rule had no application so as to support the claim for damages on any theory relying on the application of the rule. The trial court was correct in granting summary judgment to the bank.

Opinion Author: Edwin H. Smith, Judge

Opinion Vote: Breckenridge, P.J., and Stith, J., concur.

Opinion:

Judith B. Brougham (JBB), Thomas L. Brougham (TLB), and Victory Hills Limited Partnership I (VHLP) appeal the circuit court's summary judgment for the respondent, NationsBank, N.A., on their "Petition for Damages," wherein they claimed that they were entitled to damages of $279,458.31, the amount they paid to the respondent in payment of the remaining balance due on a note held by the respondent, after it had previously sold a portion of the collateral for the note, without giving them notice of the sale, as the appellants contend was required by section 400.9-504(3).¹ As to their claim for damages, the appellants alleged in their petition, inter alia, that the respondent's failure to give them notice of the partial sale of collateral securing the note, the proceeds from which were credited against the debt on the note, extinguished the debt, barring the respondent from not only seeking a deficiency judgment, but from disposing of any additional collateral to satisfy the debt, prior to seeking a deficiency judgment.

The appellants raise two points on appeal. In Point I, they claim that the trial court erred in sustaining the respondent's motion for summary judgment based on the court's conclusion that, under the undisputed facts, Article 3 of the Uniform Commercial Code (the UCC) applied to the exclusion of Article 9 such that the respondent was not required to give to the appellants notice, in accordance with section 400.9-504(3), as to the respondent's partial sale of collateral. In Point II, assuming that we find in Point I that Article 9 did apply, such that the respondent was required to give the appellants notice of its partial sale of collateral securing the note, they claim that the trial court erred in sustaining the respondent's motion for summary judgment because it was not entitled to judgment as a matter of law, in that, under the undisputed facts, the remaining balance due on the note, after receiving credit for the proceeds of the respondent's partial sale of collateral, was a "deficiency," which invoked the "no notice-no deficiency" rule, a judicially crafted rule that grew out of the notice requirement of section 400.9-504(3), so as to have barred the respondent from collecting the debt on the note.

We affirm.

Facts

At the relevant times in question, appellant JBB and her deceased husband, Leo T. Brougham, were partners with appellant TLB in appellant VHLP, which owned the Victory Hills Townhomes Development (the VHT Development). JBB, JBB's husband, and TLB were also shareholders of Parkway, Inc., which owned the Victory Hills Golf Course (the golf course), located in Wyandotte County, Kansas. The respondent, NationsBank, N.A. (Midwest), as the successor by merger of Boatmen's First National Bank of Kansas City, N.A. (BFNB), became the holder of several notes related to the separate sales of the golf course and the VHT Development, out of which this dispute between the parties arises.

Sale of Golf Course

The respondent was the holder of two promissory notes originally made by Parkway to Merchants Bank, one for $500,000, dated November 1, 1983 (Parkway Note 1); and one for $600,000, dated January 8, 1990 (Parkway Note 2). These notes were secured by a first and second mortgage against the golf course, as well as a security interest in the personal property used in its operation, and were personally guaranteed by JBB and TLB.Although not explained in the record, at some point, BFNB apparently became the holder of the Parkway notes. In any event, it is undisputed that in March 1994, Parkway sold the golf course to Victory Hills Golf Course, Inc. (VHGC), pursuant to the "Assumption, Extension and Modification Agreement," dated March 25, 1994, entered into between Parkway, VHGC, and BFNB, as the holder of the notes. Pursuant to the agreement, the Parkway notes were amended and restated in the amount of their then current balances due: Parkway Note 1, $391,504.01; and Parkway Note 2, $557,781.35. As amended and restated, Parkway and VHGC were liable to BFNB on the notes, which continued to be secured by the first and second mortgages on the golf course and a lien on the golf course personal property. However, JBB and TLB were no longer personally liable on the notes.

For its equity in the golf course, Parkway received from VHGC a carry-back note (the VHGC note) for $391,500, which was secured by a third mortgage on the golf course and a security interest in the golf course personal property. In addition to the mortgages to BFNB, securing the Parkway notes, and mortgage securing the VHGC note, a fourth mortgage was placed on the golf course to secure a $300,000 loan from BFNB to VHGC.

Sale of VHT Development

On the same date the golf course was sold, BFNB and the appellants entered into an agreement whereby BFNB agreed to consent to a proposed sale and conveyance of the VHT Development to Leisure Centers Development Corporation. The consent of BFNB was necessary in that it was the holder of the housing revenue bonds that were issued by the City of Kansas City, Kansas, to Merchants Bank to fund the development and the payment of which was secured by the same. The bond indebtedness was also secured by the Westport Apartments and personal property consisting of two certificates of deposit and two notes from Brougham Estates, Ltd., which owned the Brougham Estates apartment complex. One of the notes was payable to JBB and her husband, and the other was payable to Brougham Construction owned by JBB's husband. JBB, JBB's husband, and TLB also personally guaranteed the bonds.

The sale of the development was completed on August 12, 1994, pursuant to the "Settlement and Modification Agreement" entered into between the appellants, Parkway and BFNB. After crediting the proceeds from the sale, the cash received from the two certificates of deposit that had been pledged to secure the payment of the bonds, and...