The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Commercial Discount Corporation ("CDC") and Leasematic, Inc.
("Leasematic," a CDC subsidiary) sued William S. King ("King")
and Horace Rainey, Jr. ("Rainey") on their joint and several
personal guaranty of Racran Corporation ("Racran")
indebtedness. King and Rainey have moved for reconsideration of
this Court's August 13, 1982 opinion ("Opinion III,"
545 F. Supp. 455) denying their motion for summary judgment. In
reliance on the principles announced in Opinion III, CDC and
Leasematic have moved for summary judgment against King and
Rainey for $2,020,986.28 plus interest. For the reasons stated
in this memorandum opinion and order, the King-Rainey motion is
denied and the CDC-Leasematic motion is granted.
This Court's September 23, 1980 memorandum opinion and order
("Opinion I") granted summary judgment on the issue of
liability against King. Opinion I at 1 said there was "no
dispute . . . as to King's execution and delivery of the
guaranties nor as to their validity." King himself posed no
issues of fact material to his liability,*fn1 raising
questions only as to the measure of plaintiffs' recovery.
Id. at 2.
King then moved to vacate the summary judgment decision
because of supplemental affirmative defenses arising out of
events occurring after plaintiffs' original motion was fully
briefed. Those new defenses were based on plaintiffs' failure
to provide notice of the sale of certain collateral in which
they had a security interest. This Court's May 14, 1981
memorandum opinion and order ("Opinion II") granted King's
motion to vacate but struck all but one of the new
defenses.*fn2 515 F. Supp. 988 (N.D.Ill. 1981).
King's first defense claimed plaintiffs' failure to give
notice of sale was an absolute bar to their obtaining a
deficiency judgment. This Court ruled, however, it was bound by
the law as announced by the Illinois Appellate Court for the
First District: that such failure to provide notice simply
created a rebuttable presumption that the proceeds from the
collateral sale equaled the value of any outstanding debt. 515
F. Supp. at 990, citing 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 defense was therefore
insufficient as a matter of law. 515 F. Supp. at 990.
King's second defense embraced the rule of National Boulevard
Bank. But that rule could benefit King only if the UCC notice
requirement, Section 9-504(3), were applicable to guarantors
(as "debtors" for statutory purposes) and only if the right to
notice were not effectively waived in the guaranty. Opinion II
held a debtor's pre-default waiver of the right to notice was
void under the UCC. 515 F. Supp. at 990. Citing Commercial
Discount Corp. v. Bayer, 57 Ill. App.3d 295, 14 Ill.Dec. 647,
372 N.E.2d 926 (1st Dist. 1978) ("Bayer"), Opinion II then held
Section 9-504(3) was applicable to guarantors (qua "debtors"),
so that the parties were required to deal with the deficiency
issue in the context of the National Boulevard Bank
presumption.*fn3 515 F. Supp. at 990-92.
Opinion III denied defendants' summary judgment motion and
deferred ruling on plaintiffs' cross-motion for the same
relief. Defendants had contended the National Boulevard Bank
presumption entitled them to an outright discharge if the
collateral were sold below its fair market value, even if
plaintiffs proved the fair market value were in fact less than
Racran's outstanding debt. Opinion III rejected defendants'
"Draconian approach" and held plaintiffs could rebut National
Boulevard Bank's presumption by showing either (1) the sale in
fact realized the collateral's fair market value or (2) the
collateral's fair market value, even though greater than the
sale proceeds, was less than the amount owed. 545 F. Supp. at
456-57. Defendants' summary judgment motion was denied because
plaintiffs posed factual issues as to the collateral's fair
market value. Id. at 457. And because plaintiffs had not
themselves identified which of several possible amounts they
sought to recover, Opinion III deferred ruling on their motion
for summary judgment. 545 F. Supp. at 458.
In sum Opinions I-III placed CDC and Leasematic within reach
of winning summary judgment on their deficiency claim against
King and Rainey. CDC-Leasematic had only to show beyond genuine
factual dispute what deficiency existed after properly
crediting King and Rainey for the sold collateral and Racran's
seized inventory. Opinion III, 545 F. Supp. at 458. Defendants
now urge the key support for that result is itself undermined.
Defendants' Motion for Reconsideration
Defendants rely for their new contention on a decision by a
division of the Illinois Appellate Court for the First District
handed down just before Opinion III (but not then known to the
parties or this Court), State National Bank of Evanston v.
Northwest Dodge, Inc., 108 Ill. App.3d 376, 64 Ill.Dec. 26,
438 N.E.2d 1345 (1st Dist. 1982). Defendants argue (Mem. ¶ 7)
Northwest Dodge shows "the First District no longer follows the
rebuttable presumption rule enunciated in National Boulevard
Bank of Chicago v. Jackson." They say the First District has
now adopted the rule barring a deficiency judgment when a
secured creditor fails to give notice before disposing of
repossessed collateral. In effect defendants argue King's first
supplemental affirmative defense, destroyed in the fire of
Opinion II, has risen like a Phoenix from the ashes.
Northwest Dodge involved an agreement between a bank and an
automobile dealer under which:
1. The bank purchased at a discount the dealer's
retail installment contracts on sales of
2. The dealer was given a 3% participation in
the finance income from the installment contracts,
one-third of which was credited to the dealer's
reserve account at the bank.
108 Ill. App.3d at 378, 64 Ill.Dec. at 28, 438 N.E.2d at 1347.
In 1976 the bank sued, claiming the dealer had failed to pay
its proportionate share of refunds on prepaid accounts, as
required by another provision of the agreement. In turn the
dealer counterclaimed for damages allegedly caused by the
bank's debiting its reserve account for "deficiencies" arising
from the bank's sale, without notice, of certain repossessed
vehicles. Id. See also 86 Ill. App.3d 90, 91-92, 41 Ill.Dec.
655, 656, 408 N.E.2d 1, 2 (1st Dist. 1980).
In affirming a trial court judgment for the dealer on its
counterclaim, the court emphasized the special contractual
circumstances present (108 Ill. App.3d at 379, 64 Ill.Dec. at
29, 438 N.E.2d at 1348, footnotes omitted):
The Bank had the contractual right to debit the
reserve account or to demand payment from Dodge
for the full amount of any balance due on accounts
as to which two or more installments were past due
or which were uncollectible for any reason. Had it
pursued this contractual right of recourse the
question of its right to a deficiency after
selling the vehicles would not have arisen. By
exercising its right to dispose of collateral
under Article 9, however, the Bank was obligated
to comply with the notice provision of section
9-504(3). . . .
That deliberate emphasis tends to suggest Northwest Dodge may
be limited to circumstances in which a non-notifying creditor
has deliberately opted to be bound by the strictures of Section
9-504(3) rather than pursuing its alternative contractual
remedy. That possible construction of Northwest Dodge, and its
impact on this case, have not been addressed by the parties.
Perhaps a more significant limitation of Northwest Dodge
derives from the court's rationale for choosing the "absolute
bar" rule for creditors' failure to provide Section 9-504(3)
notice. It was led to its choice by a solicitous concern for
debtors (108 Ill. App.3d at 383, 64 Ill.Dec. at 31, 438 N.E.2d
The debtor's right to redeem the collateral or to
be present at its disposition is too important to
be neutralized by construing the notice
requirement as anything less than a condition
precedent to the ...