The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Commercial Discount Corporation ("CDC") and Leaseamatic,
Inc. ("Leaseamatic," a CDC subsidiary) sued defendants William
S. King ("King") and Horace Rainey, Jr. ("Rainey") on their
joint and several personal guaranties of certain indebtedness
of Racran Corp. ("Racran"). CDC and Leaseamatic moved for
partial summary judgment against King on the issue of
liability. This Court's September 23, 1980 memorandum opinion
and order (the "Opinion") granted that motion. King has now
moved to vacate the summary judgment on the basis of
supplemental affirmative defenses arising out of events
occurring after the original motion was fully briefed. For the
reasons stated in this memorandum opinion and order King's
motion is granted, but part of his affirmative defenses are
Although summary judgment was not entered as to Rainey,
Rainey has filed a set of nearly identical supplemental
affirmative defenses, in addition to previously-filed
affirmative defenses. Rainey's affirmative defenses are
stricken in part for reasons also stated in this opinion.
First Supplemental Defense
King's first and second supplemental defenses involve
identical facts but different legal theories. Both are based
on plaintiffs' failure to provide notice of the sale of
collateral. Defense No. 1 states that such failure is an
absolute bar to plaintiffs seeking a deficiency judgment.
Defense No. 2 states that such failure creates a presumption
that the proceeds from the sale of the collateral equal the
value of the outstanding debt, forcing plaintiff to prove that
a fair price was received for the collateral. Dual defenses
are asserted because the Illinois
Appellate Courts are split as to the legal ramifications of a
failure to provide notice of the sale of collateral.
Under Illinois law a trial court is bound by the decisions
of all Appellate Courts, but is bound by the Appellate Court
in its own district when the Appellate Courts differ.
People v. Thorpe, 52 Ill. App.3d 576, 579, 10 Ill.Dec. 351,
354, 367 N.E.2d 960, 963 (2d Dist. 1977). That principle also
applies to federal courts sitting in diversity cases.
Instrumentalist Co. v. Marine Corps League, No. 80 C 5195
(N.D.Ill. Mar. 31, 1981). This Court is therefore bound by
decisions of the Illinois Appellate Court for the First
District. That court holds that a failure to provide notice
simply creates a presumption that the proceeds from the sale of
the collateral equal in value any outstanding debt. National
Boulevard Bank of Chicago v. Jackson, 92 Ill. App.3d 928, 48
Ill.Dec. 327, 416 N.E.2d 358 (1st Dist. 1981). King's First
Supplemental Defense, which relies on a theory different from
the one this Court must apply, is therefore insufficient as a
matter of law.
Second Supplemental Defense
As part of its loan and security agreement, Racran gave
plaintiffs a security interest in all of its equipment. King's
Second Supplemental Defense concerns plaintiffs' sale of some
of that equipment. Plaintiffs disposed of the collateral under
the power granted a secured party under the Illinois Uniform
Commercial Code (the "UCC," cited "Section —"), Ill.Rev.Stat.
ch. 26, § 9-504(1). Under a related provision, Section
Unless collateral is perishable or threatens to
decline steadily in value or is of a type
customarily sold on a recognized market,
reasonable notification of the time and place of
any public sale or reasonable notification of the
time after which any private sale or other
intended disposition is to be made 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.
King asserts, and apparently plaintiffs do not contest the
fact, that no notice was sent. Plaintiffs contend that
defendants waived any right to notice in the following
provision of the guaranty agreement:
The liability hereunder shall in no wise be
affected or impaired by (and said CDC is hereby
expressly authorized to make from time to time,
without notice to anyone), any sale . . . of any
security or collateral therefor.
Provisions of the UCC, like any other contract term, can be
waived.*fn1 But UCC Article 9 may present an exception to
that general rule. Section 9-504(3) provides that notice of a
sale is required unless the debtor has, after default, waived
this right. Section 9-501(3) provides that various rules
favoring debtors, including those in Section 9-504(3), may not
be waived. Those two sections in combination clearly render a
debtor's pre-default waiver of the right to notice void.
While the quoted provision of the guaranty agreement was
plainly intended to waive any right to notice of the sale of
collateral, it was of course signed before Racran's default.
Neither King nor Rainey waived his right to notice after Racran
This Court must therefore decide whether Section 9-504's
waiver restriction, which by its terms applies solely to
debtors, encompasses guarantors within that term. One recent
Illinois opinion offers guidance. In Commercial Discount Corp.
v. Bayer, 57 Ill. App.3d 295, 14 Ill.Dec. 647, 372 N.E.2d 926
(1st Dist. 1978) the court was confronted with the problem
whether, absent waiver, a guarantor is entitled to notice under
Section 9-504. As indicated by the case name, CDC was the
plaintiff there as it is here. In all relevant respects (the
provisions referred to in the Opinion) the guaranty form