The opinion of the court was delivered by: Getzendanner, District Judge.
MEMORANDUM OPINION AND ORDER
This motion for summary judgment stems from an action
brought in December, 1978, by National Acceptance Company
(NAC) to recover money due on loans made to Medlin Coal
Company, Inc. (Medlin Coal) and guaranteed by defendants John
D. Medlin, Thomas E. Rodgers and Dom E. Meffe.*fn1 After
extensive discovery by all parties, a final pretrial order was
submitted. Thereafter, Medlin and Rodgers filed a motion for
summary judgment and Meffe filed a separate motion for summary
judgment. Each relies on one legal ground to support the
motion: that NAC's failure to provide defendants with proper
notice of the sale of the collateral securing the loan is an
absolute bar to any deficiency judgment against defendants
under Section 9-504(3) of the Illinois Uniform Commercial Code
(UCC), Ill.Rev.Stat., ch. 26, ¶ 9-504(3).*fn2 For
reasons hereinafter stated, both motions are denied.
The pertinent facts are as follows. In April, 1977, NAC
agreed to make a loan to Medlin Coal. An installment note was
executed by Medlin as President of Medlin Coal and was signed
by Medlin, Rodgers, and Meffe as individual guarantors. In
connection with this loan, Medlin also executed a security
agreement on behalf of Medlin Coal whereby certain of Medlin
Coal's assets, including its coal mining equipment, were
pledged as collateral.
In September, 1978, NAC filed an action in the United States
District Court for the Eastern District of Kentucky against
Medlin Coal, alleging that it had defaulted on the loan and
seeking possession of the collateral. In November, 1978,
Medlin Coal filed a petition under Chapter 11 of the United
States Bankruptcy Act. In February, 1980, NAC successfully
petitioned the bankruptcy court for an order allowing it to
sell the secured collateral.
Prior to the sale, NAC did not send notice of the proposed
sale to Medlin, Rodgers or Meffe, individually, but did send
notice to Medlin Coal pursuant to the pleadings filed with the
bankruptcy court. Medlin Coal, through its attorney, filed
objections to the sale on the ground that it was not a
"commercially reasonable" sale of the collateral. The court
allowed the sale subject to the objection and "expressly
reserved for subsequent adjudication" the issue of commercial
reasonableness. The amount realized by the sale was
insufficient to cover the debt and NAC instituted an action
for a deficiency judgment against the defendants.
The issues to be resolved are whether notice was given
within the meaning of Section 9-504(3), and whether, if no
notice was given, such lack of notice absolutely bars a
deficiency judgment for NAC.
In resolving whether NAC complied with Section 9-504(3)'s
notice requirement, the court must first determine whether
defendants, as guarantors, are debtors within the meaning of
Section 9-105(1)(d) of the UCC and thus entitled to notice.
Under Illinois law, as stated in Commercial Discount
Corporation v. Bayer, 57 Ill. App.3d 295, 299-300, 14 Ill.Dec.
647, 372 N.E.2d 926 (1978), Medlin, Rodgers, and Meffe, as
guarantors, would be considered debtors and entitled to the
rights guaranteed by Section 9-504(3). Accord, NAC v. Wechsler,
489 F. Supp. 642 (N.D.Ill. 1980).
The court must further determine whether NAC gave notice to
the defendants of the intended sale of the collateral. It is
undisputed that NAC did not give notice to any of the
defendants individually. Medlin and Rodgers, however, were and
are principals of Medlin Coal — Medlin as President and
Rodgers as Secretary. They filed affidavits stating that they
had received no notice, but the attorney for Medlin Coal in the
bankruptcy proceedings testified in a deposition that she
forwarded copies of the notice of sale to Medlin and Rodgers
and orally discussed the sale with them before it
occurred.*fn3 Thus there is a material factual dispute whether
Medlin and Rodgers received notice.
Summary judgment is only appropriate where there is no
genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. Furthermore, in
ruling on a motion for summary judgment, all evidence and
inferences drawn therefrom must be construed in the light most
favorable to the party opposing the motion. See, e.g., Baldini
v. Local Union No. 1095, 581 F.2d 145, 151 (7th Cir. 1978). The
factual dispute on the question of notice to Medlin and Rodgers
precludes summary judgment and their motion is denied.*fn4
Meffe's motion for summary judgment presents a different
problem. Meffe filed an affidavit accompanying his motion
stating that he was no longer a principal of Medlin Coal at
the time notice of the sale was given, and that he received no
notice from any other source. This is undisputed and for the
purposes of this motion it is presumed that Meffe was not sent
any notice of the sale and did not receive any notice from any
There is a split of authority among the Illinois courts on
the effect of a creditor's failure to give notice of the sale
of collateral on his ability to recover any deficiency from
the debtor.*fn5 Some Illinois courts apply the "no notice, no
deficiency" rule, which holds that failure of a secured party
to comply with the notice requirements of Section 9-504(3)
flatly bars him from recovering any deficiency, Morris Plan Co.
v. Johnson, 133 Ill. App.2d 717, 271 N.E.2d 404 (3d Dist. 1971).
Others follow the "rebuttable presumption" rule, which holds
that failure to provide the statutory notice merely raises the
presumption that the value of the collateral sold was equal to
the amount of the debt, thereby placing the burden on the
creditor to rebut that presumption and prove that the sale was
commercially reasonable, Tauber v. Johnson, 8 Ill. App.3d 789,
291 N.E.2d 180 (1st Dist. 1972).
The Illinois Supreme Court has not decided the issue, and
while this court ought to attribute some weight to the
appellate court decisions, they are not controlling.
Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct.
1776, 1782, 18 L.Ed.2d 886 (1967). As the Seventh Circuit has
recognized, intermediate appellate court decisions provide this
court with data for ascertaining relevant Illinois law, but may
be disregarded if this court is convinced by other persuasive
data that the Illinois Supreme Court would decide otherwise.
Gates Rubber Co. v. U.S.M. Corp., 508 F.2d 603, 607 (7th Cir.,
1975). This court must therefore determine how the Illinois
Supreme Court would decide this issue by considering the
Illinois appellate court decisions as well as other persuasive
After reviewing the relevant authority, the "rebuttable
presumption" rule as advocated by the Illinois appellate court
for the First District appears the more logical approach.
Section 9-507(1) provides a remedy for failure to comply with
Section 9-504(3) by granting the debtor the right "to recover
from the secured party any loss caused by a failure to comply
with the provisions" of the Code, but makes no mention of a
denial of a deficiency judgment. This section indicates that
the Code's drafters did not intend that failure to give notice
would bar the creditor's right to a deficiency judgment.
U.S. v. Whitehouse Plastics, 501 F.2d 692, 696 (5th Cir.
1974). The right to recover any loss stemming from the lack of
notice necessarily includes any prejudice to the debtor from
loss of his right of redemption under Section 9-506 or from
loss of the opportunity to take steps to drive up the sale
price and eliminate or reduce any deficiency. Id., at 696.
Because of the specific provision for a penalty in the event of
a defective sale, the sensible approach is to apply the Code
penalty and no more. Hogan, Pitfalls in Default Procedure, 2
U.C.C.L.J. 244, 257 (1969).
Moreover, the default is separable from the lack of notice
and it seems reasonable that recovery on the basic debt be in
the usual way and in accordance with the terms of the note.
Barbour v. U.S., 562 F.2d 19, 21 (10th Cir. 1977). This view
recognizes the respective positions of the borrower and the
lender and their remedies provided in the UCC. Preference for
the "rebuttable presumption" rule is further reinforced by the
UCC's avoidance ...