United States District Court, Northern District of Illinois, E. D
August 13, 1982
COMMERCIAL DISCOUNT CORPORATION, ET AL., PLAINTIFFS,
WILLIAM S. KING, ET AL., DEFENDANTS.
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) sue defendants William S.
King ("King") and Horace Rainey, Jr. ("Rainey") on their joint
and several personal guaranty of certain indebtedness of Racran
Corporation ("Racran"). Both sides have now moved for summary
judgment. For the reasons stated in this memorandum opinion and
order defendants' motion is denied and plaintiffs' motion is
not ruled on.
This Court's September 23, 1980 opinion ("Opinion I") granted
plaintiffs' motion for partial summary judgment on the issue of
liability. Thereafter plaintiffs sold much of the collateral
covered by the Racran loan agreement but failed to notify King
and Rainey of that sale.
Although the King-Rainey guaranty agreement had waived any
right to such notice, this Court's May 14, 1981 memorandum
opinion and order, 515 F. Supp. 988 (N.D.Ill. 1981) ("Opinion
II"), held a post-default waiver of notice was necessary
under Illinois Uniform Commercial Code ("UCC") §
9-504(3).*fn1 Accordingly Opinion II vacated the summary
judgment order solely to determine the effect of plaintiffs'
failure to provide notice of the sale of collateral.
On that score, in Opinion II this Court held controlling
several Illinois cases such as National Boulevard Bank of
Chicago v. Jackson, 92 Ill. App.3d 928, 48 Ill.Dec. 327,
416 N.E.2d 358 (1st Dist. 1981):
Failure to provide adequate notice does not, however,
absolutely bar a deficiency judgment, but raises a presumption
that the value of the secured collateral is equal to the amount
of the debt. In order to obtain a deficiency judgment, the
creditor has the burden of rebutting the presumption and of
proving that the amount collected from the sale was
Defendants now argue for an impermissible windfall: They
contend that the presumption entitled them to an outright
discharge if the amount realized from the sale was not
even if it is demonstrated
that the collateral's value was not in fact equal to the
amount of the
debt — if the presumption is in fact rebutted.*fn3
That thesis may be both illustrated and tested by a
1. Assume a $100,000 debt, the subject of an unconditional
guaranty, is in default.
2. Assume collateral is sold by the creditor without notice
to the guarantor, realizing proceeds of $5,000.
3. Assume the sale was not commercially reasonable (so that
the $5,000 also was not, in the sense employed in National
Boulevard Bank), but the creditor proves that a commercially
reasonable sale would have brought $20,000 (or proves in some
other way that the fair market value of the collateral at the
time of sale was $20,000).
Defendants would have it that they would be relieved from any
liability as guarantors under that set of facts, even though
the maximum harm to them from the lack of commercial
reasonableness of the sale was $15,000. This Court will not
have it so, and nothing in the "remedial" view of UCC Article
IX that controls here*fn4
(as contrasted with the "punitive"
view) requires that result. In the hypothetical example this
Court would impose an $80,000 liability on the unconditional
In other words the presumption referred to in National
Boulevard Bank may be rebutted by a creditor's meeting any of
several burdens, at least including:
1. proof that the sale itself was commercially reasonable
(with nothing to show that the amount realized was less than
fair market value); or
2. even though the price obtained at the sale was not
"commercially reasonable" in the National Boulevard Bank
sense, proof of what a "commercially reasonable" price (that
is, fair market value) would have been.
That second alternative is effectively confirmed by UCC §
9-507(1), under which a debtor (here a guarantor) may recover
damages caused by failure of notice — a provision whose thrust
is that a creditor may recover only the difference between the
amount owed and the fair market value of the collateral. It is
also buttressed by defendants' waiver of commercial
reasonableness of the manner of dealing (see n.1), so that the
only issue open to contest is what price could reasonably
have been obtained (fair market value under the circumstances).
To adopt defendants' contrary contention would create the
bizarre situation in which a presumption (that the value of the
secured collateral equals the debt) is rebuttable only by facts
that lead to an opposite inference (proof that the amount
realized from the sale was "commercially reasonable") but not
by facts directly contradicting the presumption (proof of
what the fair value of the secured collateral really was).
Thus the proper test on the parties' cross-motions is whether
there are material issues of fact as to the fair market value
of the collateral. Once defendants' Draconian approach is
rejected as unsupported by the law, there is no question that
plaintiffs have posed such issues. Defendants cannot then
prevail on their summary judgment motion.
On the other side of the coin, there are indeed material issues
of fact as to the precise values involved, but at most the
values (even taking all reasonable inferences in favor of
defendants) are these:
1. $544,225 was the price ultimately obtained for the
equipment upon resale.*fn5 Defendants' argument that the
price is "suspect" because CDC released a co-guarantor from
liability under his guaranty is a non sequitur-that argument
could only reduce, not enhance, the fair market value
allocable to the equipment. All other evidence points to
values well below the $544,225 figure, so that defendants
could not complain of a summary judgment based on a credit in
2. $150,000 (60,000 tons at $2.50 per ton) is, under the
evidence, the highest amount rationally attributable to
Racran's "inventory" — a 60,000 ton mountain of material
("dust," "goop" or what you will) arguably capable of being
reworked to recover some value. All higher speculative
figures fail, even with all reasonable inferences drawn in
(a) $6.00 a ton, the amount that Racran received when it was
selling the dust, has no probative force. It is a gross
receipt figure that does not take into account the cost of
moving the mountain, a cost that would have had to be borne
either by the seller (thus reducing that value) or by the
purchaser (thus reducing the price). Taking transportation
into account generates at most the $150,000 figure already
(b) All figures proffered by defendants did not take into
account either the cost of processing or the cost of
In fact under the circumstances faced by CDC at the time of
sale — obligated as it was to vacate the premises within a very
short time — even the $6 per ton or the $2 to $2.50 per ton
figures were unrealizable. CDC bought the mountain for $7,000,
having been unable to find a purchaser. It ultimately had to
abandon the property (a reasonable reflection of the absence of
fair market value, for any rational creditor will of course act
to maximize its current cash realization rather than creating a
larger and likely-to-be-disputed claim against a guarantor).
Thus the $150,000 represents the maximum credit allowable to
defendants for the "inventory."*fn6
Defendants' motion for summary judgment is denied. On the other
hand, plaintiffs' argument has essentially been that they are
entitled to recover one of several possible amounts, so it is
unclear to the Court whether they are prepared to accept
summary judgment for the amount indicated in this opinion,
waiving any larger claim (in the technical sense, the existence
of material fact disputes affecting the amount to which
plaintiffs are entitled would preclude summary judgment as to
any specific amount). Accordingly final ruling on plaintiffs'
motion is deferred pending advice from plaintiffs in that