UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT
decided: June 2, 1989.
USX CREDIT CORPORATION, PLAINTIFF-APPELLEE,
HAROLD W. LICHTERMAN AND SEYMOUR KESSLER, DEFENDANTS-APPELLANTS
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 86 C 2831, William T. Hart, Judge.
Coffey, Ripple, and Kanne, Circuit Judges.
KANNE, Circuit Judge
Harold W. Lichterman and Seymour Kessler, as two shareholders in Titan Marine, Inc., signed promissory notes as evidence of a debt owed by Titan to USX Credit Corporation.*fn1 When Titan defaulted upon the debt, USX sued Lichterman and Kessler. The district court entered summary judgment in favor of USX. We Arm.
In January of 1982, Titan Marine, Inc., a Subchapter S corporation, borrowed over $2 million from USX to purchase an oil vessel. Titan signed a promissory note as evidence of its debt and USX took a security interest in the vessel as collateral. In addition, USX required each of Titan's nine shareholders to execute documents entitled "Direct Loan Obligations." As two of the nine shareholders in Titan, Lichterman and Kessler each signed a Direct Loan Obligation consistent with the percentage of their shareholder interest.
Each Direct Loan Obligation provided that in "consideration of giving by [USX] . . . credit to Titan Marine . . . and of the benefits to accrue to the undersigned arising out of such transaction, . . . the undersigned hereby . . . promises on demand (1) to pay [USX] when due [a percentage] of all amounts to be paid by [Titan] under all notes now or at any time hereafter entered into between [USX] and [Titan]." The agreement also stated that "this instrument is a primary obligation of the undersigned as if the Note and any of the Other Agreements had been contracted and was due and owing personally by the undersigned." Furthermore, the Direct Loan Obligation was made "continuing, absolute, unconditional and irrevocable." Finally, the shareholders expressly waived any requirement that USX proceed against Titan or the security, or pursue any other available remedy.
Until early 1983, Titan satisfied the monthly payments owed upon the promissory note. When Titan subsequently fell behind in its payments, Titan and USX entered into negotiations to restructure the loan. In December of 1983, Titan and USX executed a restructured promissory note ("1983 note"). The 1983 note required each of Titan's shareholders to execute a "Confirmatory Direct Loan Obligation." By signing the new agreement, each shareholder "confirmed and reaffirmed" the terms and covenants of the original Direct Loan Obligation. All of Titan's shareholders, including Lichterman and Kessler, signed a Confirmatory Direct Loan Obligation pursuant to the 1983 note.
In late 1984, Titan again fell behind in its payments. Titan approached USX, requesting a second restructuring of the note. On January 25, 1985, Titan and USX negotiated a third note ("1985 note").*fn2 As with the 1983 note, USX again requested Titan's shareholders to sign binding agreements, called "Second Confirmatory Direct Loan Obligations." The terms of the 1985 note expressly stated that USX would not accept the restructuring pursuant to the 1985 note unless all of Titan's shareholder executed the agreements. Although most of the shareholders executed the agreements, Lichterman and Kessler did not.
Thereafter, Titan made a few payments. However, Titan subsequently defaulted again and USX filed this action against Titan's shareholders, including Lichterman and Kessler. The district court entered summary judgment in favor of USX.
Lichterman and Kessler basically raise two issues upon appeal. First, they argue that summary judgment was unproper because a question of fact existed as to whether USX had waived Lichterman and Kessler's liability. Second, they argue that summary judgment was improper because a question of fact existed as to whether USX acted in a commercially reasonable manner with respect to the collateral after Titan defaulted. We will address each of these issues separately.
A. Alleged Waiver of Lichterman and Kessler's Liability
The district court entered summary judgment in favor of USX, finding that no material factual issues existed as to Lichterman and Kessler's liability for Titan's debt owed to USX. The court found that the terms of the 1985 note required all of Titan's shareholders to execute Second Confirmatory Direct Loan Obligations before the 1985 note could take effect. Because Lichterman and Kessler, among others, failed to execute the requisite documents, the 1985 note failed to take effect as a matter of law. Consequently, the court determined the appellants' liability under the governing 1983 note and found that the appellants were primary obligors who were absolutely liable for the debt owed by Titan to USX.
Lichterman and Kessler disagree with the court's conclusions. They believe that the district court should have looked past the language of the 1985 note to determine if the note actually took effect notwithstanding the note's explicit requirements. They contend that because USX may have treated the 1985 note as if it took effect immediately after it was negotiated,*fn3 and because they never signed the Second Confirmatory Direct Loan Obligations, they were not bound by the terms of the 1985 note. Furthermore, they argue that the USX's actions in executing and accepting the 1985 note relieved them of their liability under the 1983 note because of they did not formally agree to the "material changes" made in the terms of their obligations upon Titan's debt. Consequently, Lichterman and Kessler conclude that they in fact generated sufficient evidence below which should have precluded the district court from entering summary judgment in favor of USX.
Initially, we agree with the district court that under the plain language of the 1985 note it never took effect as a matter of law. However, contrary to their assertions, the appellants remain liable for Titan's debt regardless of USX's actions. Even if USX had changed the terms of the original loan agreement significantly, which USX obviously did not propose to do when one compares the terms of the 1983 note and the proposed 1985 note, Lichterman and Kessler's liability under the Loan Obligations continued.
The original Direct Loan Obligations specifically state:
[The] undersigned hereby gives this instrument to [USX] and promises on demand (1) to pay [USX] when due . . . all amounts to be by [Titan] under all notes now or at any time entered into between [USX] and [Titan] . . . .
3. The undersigned hereby assent to all of the provisions of the Note and Other Agreements and authorize Lender, at any time and from time to time without the consent of, or notice or demand to, the undersigned, without impairing or releasing the obligations of the undersigned hereunder and without incurring responsibility to the undersigned, to: (a) change the amount of, place, terms, time or manner of payment of amounts to be paid by Borrower under the Note and Other Agreements; (b) change any of the terms, covenants, conditions, obligations or provisions of the Note and Other Agreements; (c) renew, amend, modify, change or supplement the Note and Other Agreements; . . . . . . . .
The obligations of the undersigned hereunder are joint and several, and are independent of the obligations of [Titan].
Direct Loan Obligation (emphasis added).
Under the agreements, including the 1983 note and the Confirmatory Direct Loan Obligations, the appellants clearly were "primary obligors." Thus, they cannot avail themselves to an argument that Titan and USX "materially altered" the terms of the obligation for which they had agreed to act only as guarantors or sureties.*fn4 Further, Lichterman and Kessler agreed that their obligations were absolute, continuing, and unconditional. They waived any right to notice of modification of the terms of their obligation, agreed that USX could not waive any of their obligations unless in writing, and agreed to pay to USX "all amounts to be paid by [Titan] under all notes now or at any time hereafter entered into between [USX] and [Titan]." Thus, because Lichterman and Kessler cannot point to any written waiver of their obligations under the 1983 note as required by the terms of the note, and can at best only offer extrinsic circumstantial evidence which does not affect the nature of their obligations under the plain language of the executed documents, the appellants remain liable for Titan's debts, no matter when or how incurred.*fn5 We therefore conclude that the district court properly entered summary judgment in favor of USX.
B. The Collateral
Kessler and Lichterman also argue that the district court erroneously granted summary judgment in favor of USX by finding that USX had not violated any obligation to dispose of any collateral in a commercially reasonable manner.*fn6 They contend that the district court's ruling is error as a matter of law because Pennsylvania law requires creditors to act in a commercially reasonable manner with respect to all dispositions of collateral and that this requirement cannot be waived. We believe that Lichterman and Kessler have misread Pennsylvania law or at least have interpreted it much too broadly.
The Pennsylvania Commercial Code governs "any transaction (regardless of form) which is intended to create a security interest. . . ." 13 Pa.Cons.Stat. Ann. § 9102(a). The Code grants both secured parties and debtors various rights, duties, and remedies. Lichterman and Kessler, as debtors,*fn7 argue that they have a right to have the collateral seized by USX disposed of in a commercially reasonable manner and that this right cannot be waived. To a limited extent, we do not disagree. Section 9503 of the Code states that "[unless] otherwise agreed a secured party has on default the right to take possession of the collateral." 13 Pa. Cons. Stat. Ann. § 9503. Section 9504 then provides that "[a] secured party may ... dispose of any or all collateral in its then condition," id. § 9504(a), "but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable," id. § 9504(c). Finally, the Code states that "[to] the extent that [the provisions] give rights to the debtor and impose duties on the secured party, the rules ... may not be waived or varied ." Id. § 9501(c); see also Ford Motor Credit Co. v. Lototsky, 549 F. Supp . 996 (END.Pa. 1982).*fn8
Under these statutes, USX clearly has a duty to dispose of the collateral in a "commercially reasonable manner" once it decides to dispose of it at all. However, the Code does not state under what circumstances a secured party is required to dispose of the collateral. Therein lies the problem.
Lichterman and Kessler assume that a secured party is required to dispose of any collateral in a commercially reasonable manner, i.e., USX cannot hold the collateral until such time as it decides to dispose of it and recoup its losses. However, the Pennsylvania Code only states that "[a] secured party after default may . . . dispose of any or all of the collateral. . . ." 13 Pa.Cons.Stat.Ann. § 9504(a) (emphasis added). This language indicates that, absent an explicit duty in the security agreement, a secured creditor is never required to dispose of the collateral.
Our reading of the Pennsylvania Commercial Code is supported by section 9505 of the Code which deals with the compulsory disposition of collateral, but which is confined only to dispositions of consumer goods under certain circumstances. Id. § 9505. Furthermore, the official comment to section 9506 states, "Except in the case stated in Section 9-505(1) (consumer goods) the secured party is not required to dispose of collateral within any stated period of time." Consequently, the appellants' waiver arguments, largely based upon the Lototsky court's holding, are misplaced. We therefore conclude that the district court correctly entered summary judgment in favor of USX.*fn9
The record clearly establishes that no material factual dispute existed to preclude a grant of summary judgment by the district court. Because the appellants' obligations were clearly defined in this case, the district court had no reason to go beyond the clear and unambiguous language and intent of the relevant documents to determine the appellants' liability. These documents established that Lichterman and Kessler were absolutely liable for the debts owed by Titan to USX.
We also hold that Lichterman and Kessler had no right to have USX dispose of the collateral seized after Titan defaulted. If USX had attempted to dispose of the collateral and had failed to do so in a commercially reasonable manner, then perhaps the appellants could argue that an issue of fact exists concerning whether the actions taken were reasonable or unreasonable under the circumstances. However, we are not presented with such a case and conclude that, because the appellants failed to negotiate the right to have USX dispose of the collateral immediately, the district court correctly entered summary judgment in favor of USX.
The district court's decision therefore is AFFIRMED.