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Ford Motor Credit Co. v. Solway

decided: August 11, 1987.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 84 C 6081, James B. Moran, Judge.

Posner and Coffey, Circuit Judges, and Eschbach, Senior Circuit Judge.

Author: Eschbach

ESCHBACH, Senior Circuit Judge.

The appeal in this diversity case concerns issues of Illinois law relating to the sale of collateral by a secured party. Ill. Rev. Stat., Ch. 26, par. 9-504(3). Ford Motor Credit Company took possession of the inventory of a retail automobile dealership that was in default under a secured financing agreement. The inventory was sold at wholesale auctions to other dealers. Ford Motor Credit Company next filed this suit against the guarantor of the debt for the deficiency in the amount owed by the dealership. The district judge granted Ford Motor Credit Company's motion for summary judgment. The guarantor contends on appeal that Ford Motor Credit Company violated the Uniform Commercial Code by failing to give him reasonable notification of the sales and by failing to make a commercially reasonable disposition of the collateral. We will affirm.


James P. Solway ("Solway") was the president of Shoreland Ford, Inc. ("Shoreland"), a Ford dealership in Highland Park, Illinois. In his capacity as Shoreland's president, Solway signed a wholesale financing agreement ("Financing Agreement") with Ford Motor Credit Company ("FMCC") dated May 24, 1979.*fn1 The Financing Agreement, entitled "Automotive Wholesale Plan Application for Wholesale Financing and Security Agreement," permitted Shoreland to draw on a secured line of credit with FMCC. The collateral for the credit was Shoreland's inventory and the proceeds from sales of that inventory. The Financing Agreement provided that, should Shoreland fail to pay promptly any sum due, FMCC could immediately take possession of the collateral and sell it at a private or public sale.

Section 9-504(3) of the Uniform Commercial Code, which Illinois has adopted, requires that when a secured creditor sells collateral he do so in a "commercially reasonable" manner. In view of this, the Financing Agreement provided:

Dealer further agrees that if Ford Credit shall solicit bids from three or more other dealers in the type of property repossessed by Ford Credit hereunder, any sale by Ford Credit of such property in bulk or in parcels to the bidder submitting the highest cash bid therefor also shall be deemed to be a commercially reasonable means of disposing of the same.

Solway also signed a separate agreement to personally guaranty payment of Shoreland's debt to FMCC. In this "Continuing Guaranty" ("Guaranty"), dated June 19, 1979, Solway agreed to pay on demand all sums due to FMCC from Shoreland without FMCC being required first to proceed against Shoreland; Solway also agreed more specifically "to pay any deficiency established by a sale of . . . security held with or without notice [to Solway]."

Shoreland failed to make payments due to FMCC. FMCC declared Shoreland in default on March 21, 1980. On April 3, 1980, FMCC took possession of Shoreland's inventory, which consisted of new and one-year-old untitled automobiles, vans, and trucks. Solway proposed to FMCC that he sell the inventory to consumers at a "tent sale," arguing that this would realize the most income from the collateral. FMCC declined Solway's proposal.

FMCC sent notice by certified mail to Solway and Shoreland that the vehicles would be sold "at a private sale, on or after" April 12, 1980. FMCC sent Shoreland's notice to the Shoreland address and Solway's notice to the address he listed on the Guaranty, 2050 Post Road in Northbrook, Illinois. By the time of mailing, however, Solway was employed at another dealership and no longer resided at the Post Road address. Employees of FMCC had been aware that Solway was employed at another dealership and had reached him there by telephone on other matters. Mail for the Shoreland dealership was forwarded to Solway's new place of employment.

FMCC sold the vehicles at the Arena Auto Auction, a private auction open only to retail dealers. At least fifty dealers attended each of the auctions at which the Shoreland inventory was sold. Since 1979, all vehicles repossessed from Ford dealers have been resold at the Arena Auto Auction. Other companies such as General Motors, Chrysler Corporation, Citicorp, Nissan Motors and various banks sell new and used vehicles through the Arena Auto Auction.

Dealers from the Chicago area and from other parts of the country attend the Arena Auto Auction. FMCC sold its vehicles at a weekly auction. Each week, FMCC sent advertisements with sales information concerning the upcoming auction to Ford dealers in the Chicago area. FMCC also telephoned about three hundred Ford and Lincoln-Mercury dealers in Illinois, Wisconsin, Iowa, Michigan, and Ohio in regard to the sale each week. Dealers are able to inspect and test drive the cars before they are auctioned.

FMCC's sales at the auction were supervised by one Larry M. Steiner, an FMCC Vehicle Merchandising Coordinator. Steiner testified in his deposition as to the way the auction was run and produced records as to the price each vehicle fetched, but he was unable to testify about other details of individual sales. Thus, he could not testify as to each vehicle sold how many bids were ...

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