Wang v. Wang

• Decision Date: 09 June 1989
• Citation: 8 UCCRep.Serv.2d 1262,440 N.W.2d 740
• Parties: 8 UCC Rep.Serv.2d 1262 Robert L. WANG, Plaintiff and Appellee, v. Victor J. WANG and Albert Schramm, Defendants and Appellants. 16058.
• Court: South Dakota Supreme Court

Page 740

440 N.W.2d 740

8 UCC Rep.Serv.2d 1262

Robert L. WANG, Plaintiff and Appellee, v. Victor J. WANG and Albert Schramm, Defendants and Appellants.

16058.

Supreme Court of South Dakota.

Submitted on Briefs Nov. 30, 1988.

Decided May 3, 1989.

Rehearing Denied June 9, 1989.

Bryce A. Flint of Jackley & Flint, Sturgis, for plaintiff and appellee.

Donald E. Covey of Covey Law Office, Winner, for defendant and appellant Schramm.

MORGAN, Justice.

Albert Schramm (Schramm), who co-signed a promissory note with Victor Wang (Victor) in favor of the Rosebud Credit Union, appeals from a judgment entered on a jury verdict in favor of Robert Wang (Robert), assignee of the note, in Robert's suit to recover a deficiency judgment. We reverse and remand.

This appeal comes before this court after reversal of an earlier decision in Schramm's favor and the retrial thereof. The initial decision and background information may be found at Wang v. Wang, 393 N.W.2d 771 (S.D.1986) (Wang I). The substance of the decision was that Schramm was not a signer in a representative capacity and thus could be held liable to the assignee.

In July 1980, when Robert received the promissory note and security agreement by assignment from the Rosebud Credit Union, he promptly notified Victor and took exclusive possession of the collateral that secured the note, which was stored on his property in Meade County. He told Victor that he was to stay away from the collateral. Robert maintained control over the collateral by keeping it on his private property, draining radiators, and protecting it from vandals.

In September 1981, while retaining exclusive possession of the collateral, Robert commenced the lawsuit on the note, which culminated in Wang I. In December 1984, after the first trial and while the appeal therefrom was in process, Robert undertook the sale of the collateral. A notice of sale was published in the Mellette County News, White River, South Dakota, the county where the vehicles were titled but not where the collateral was located. No other notices were published. No sale bills were prepared or distributed. No notice was sent to Schramm. The notice of sale stated that the property would be sold on January 18, 1985, "at 1915 Junction, Sturgis, South Dakota. The sale shall be held in Sturgis as the property is not in working condition and also too bulky to be transported." The address given was Robert's residence and the notice did not state whether the property was available for inspection.

The sale was conducted at Robert's kitchen table on the day and time set. Only Robert and his attorney were present. The collateral was not present at the place where the sale was to be conducted and was in fact located approximately five miles away. Robert, who conducted the sale, bid $100 for the property.

After the foreclosure sale, Robert brought suit to recover a deficiency judgment, the genesis of this appeal. The jury returned a verdict in favor of Robert in the amount of $42,900.00. On appeal, Schramm raises several claims of alleged error. Among others, he contends that the trial court erred by denying his motions for directed verdict and judgment notwithstanding the verdict (n.o.v.) on the grounds that:

(1) Robert had failed to give Schramm notice of the dispositional sale of the collateral;

(2) The sale of the collateral was not a commercially reasonable sale; and

(3) Robert had elected a remedy of strict foreclosure thereby barring a deficiency judgment.

We agree with Schramm that Robert is barred from recovering a deficiency judgment under issue three.

We first determine that, as to the issues under review, there is no dispute as to the facts. Thus, the appeal hinges entirely on the application of the law to those facts. The applicable law is found entirely within the Uniform Commercial Code (U.C.C.) and more particularly in SDCL ch. 57A-9, Secured Transactions. To simplify matters, further references to the Code will be made by referring to its corresponding U.C.C. citation, 9-504(3) for example.

We first choose to review the issue of failure to give Schramm notice of the public sale. There is no question that Robert did not send any notice of sale to Schramm. It is Robert's position that he was not required to do so because, while both Victor and Schramm were debtors on the note, only Victor was a debtor with regard to the collateral. In support of this position, he cites us to 9-105(1)(d) which provides, in pertinent part: "Where the debtor and the owner of the collateral are not the same person, the term 'debtor' means the owner of the collateral in any provision of the chapter dealing with the collateral[.]" He cites us to no case authority after the enactment of the U.C.C., in support of his position.

9-504(3) requires that, absent certain conditions not relevant here, "reasonable notification of the time and place of any public sale ... shall be sent by the secured party to the debtor if he has not signed after default a statement renouncing or modifying his right to notification of sale." A debtor is defined at 9-105(1)(d) as:

'Debtor' means the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, and includes the seller or accounts or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term 'debtor' means the owner of the collateral in any provision of the chapter dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires[.]

The majority of jurisdictions interpreting this provision have held that "guarantors, accommodation parties, and other obligors who owe a collateral duty to pay deficiencies are debtors within the meaning of Article 9 of the Code." Ford Motor Credit Co. v. Lototsky, 549 F.Supp. 996, 1002 (E.D.Pa.1982).

We agree with the majority view. In Wang I, supra, we determined that Schramm was personally liable to Robert as a comaker of the note but made no determination as to his accommodation character. In view of the fact that Robert earnestly seeks to hold Schramm liable for any deficiency, we deem the exact nature of his liability to be unimportant, for he would nevertheless be included among the class of "other obligors who owe a collateral duty to pay deficiencies."

We then consider what is the effect of Robert's failure to give Schramm the requisite notice. Schramm urges that it amounts to a bar against any deficiency, but this is an issue that this court has yet to decide. The provision governing failure to comply with the U.C.C. notice requirements is found at 9-507(1) wherein it states, in pertinent part: "If the disposition has occurred the debtor ... has a right to recover from the secured party any loss caused by the failure to comply with the provisions of this part." There are three divergent views on the effect of this provision on deficiencies.

One view is that since it does not mention deficiencies, they are not precluded. Some courts have held that 9-507(1) prescribes the sole penalty for the creditor's failure to give notice and does not shield the debtor from a deficiency judgment. See Lincoln Rochester Trust Co. v. Howard, 75 Misc.2d 181, 347 N.Y.S.2d 306 (N.Y. City Ct.1973); Commercial Credit Corp. v. Wollgast, 11 Wash.App. 117, 521 P.2d 1191 (1974).

The other extreme, the anti-deficiency view, decries recovery of a deficiency where the notice requirement was not met for the reason that it would permit a continuation of the evil which the U.C.C. sought to correct. This view stresses the loss of the owner's right of redemption through his loss of the opportunity to bid at the sale. Skeels v. Universal C.I.T. Credit Corp., 222 F.Supp. 696 (W.D.Pa.1963) (vacated on other grounds, 335 F.2d 846 (3rd Cir.1964)). Another line of anti-deficiency cases holds that strict compliance with the notice requirement is a condition precedent to a claim for a deficiency. Bank of Gering v. Glover, 192 Neb. 575, 223 N.W.2d 56 (1974).

Lastly, there is an intermediate view, termed the Arkansas Rule, holding that 9-507(1) is not an exclusive remedy, but that SDCL 57A-1-103 incorporates prior principles of law and equity which remain effective. This rule indulges a rebuttable presumption that the collateral was worth at least the amount of the debt, thereby shifting to the creditor the burden of proving the amount that would reasonably have been obtained through a sale conducted according to law. Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538 (1966).

Our decision in First Nat. Bank of Minneapolis v. Kehn Ranch, 394 N.W.2d 709 (S.D.1986), discussed the effect of failure to give notice of the sale of the collateral cattle at sale barns. ¹ First, the majority noted that Kehns had waived their right to receive prior notice of sale of collateral, because notice became an issue at trial and the jury found by special interrogatory that bank had failed to give reasonable notice. Next, the majority responded that 9-504(3) authorizes sale without notice of collateral of a type customarily sold on a recognized market, and that auction sale barns are a recognized market, thereby eliminating the requirement for notice. Obviously, Kehn Ranch is not authority for this case inasmuch as the collateral was not cattle, nor was it sold on a public market that would be recognized, even under the Kehn Ranch definition. It is, however, illustrative of a situation where the deficiency was not and could not have been created by the manner of sale. As noted in the dissent, "it is strikingly obvious that the large deficiency was created by the disappearance of approximately two-thirds of the collateral prior to Bank's repossession and not due to the sale of the remaining collateral." 394 N.W.2d at 724. Similarly, in this case, undisputed testimony in the record would place the 1980 value of the...