TOPICAL JEWELERS, INC. v. NATIONSBANK, NA

781 So.2d 392

TROPICAL JEWELERS, INC., Saul Waksman, Eve Rose Ozeil, Szmul Waksman and Yuda Ozeil, Appellants, v. NATIONSBANK, N.A. (SOUTH), a national banking association as successor in interest by merger to Intercontinental Bank, N.A., Appellee.

No. 3D99-119.

District Court of Appeal of Florida, Third District.

December 27, 2000.

Geller, Geller, Beskin, Shienvold, Fisher & Garfinkel and Peggy Fisher (Hollywood); Richard J. Burton, Aventura, for appellants.

Liebler, Gonzalez & Portuondo, P.A. and Juan A. Gonzalez, Miami, for appellee.

Before SCHWARTZ, C.J., and JORGENSON, COPE, LEVY, GERSTEN, GODERICH, GREEN, FLETCHER, SHEVIN, SORONDO, and RAMIREZ, JJ.

On Rehearing En Banc

COPE, J.

The main question before us is whether a guarantor is a "debtor" for purposes of Article 9 of the Uniform Commercial Code ("UCC"). We adhere to the overwhelming majority rule that a guarantor is a "debtor" for Article 9 purposes. Under Article 9, a debtor is entitled to insist that the disposition of collateral after a default be made in a commercially reasonable manner, and this UCC protection cannot be waived by a debtor. It follows that the purported waivers of commercial reasonableness in the personal guarantees in this case are a nullity, and this case must be remanded for further proceedings.

I.

Tropical Jewelers, Inc. obtained business loans from Intercontinental Bank, N.A., which has since merged into Nationsbank, N.A. The loans were secured by Tropical's inventory, furniture, fixtures, equipment and accounts receivable. The individual appellants executed personal guarantees of the business loans.

In the guarantees, the guarantors waived any rights they might have under the UCC, including the commercial reasonableness of any sale or disposition of collateral by the bank in the event of a default by Tropical. There was no such waiver in the promissory notes executed by Tropical.

After default by Tropical, the Bank sued Tropical and the guarantors. The Bank obtained Tropical's collateral and liquidated it. By affirmative defense and counterclaim, Tropical and the guarantors asserted that the Bank had failed to dispose of the collateral in a commercially reasonable way.

The Bank moved for summary judgment. Tropical and the guarantors supported their defense of commercial unreasonableness by affidavit. The Bank contended that the affidavit was insufficient and that, in any event, by signing the personal guarantees the guarantors had waived any defense regarding the commercial reasonableness of disposition of collateral.

The trial court entered summary judgment against Tropical and the individual guarantors jointly and severally for $314,718.89, and this appeal follows.

II.

We first consider whether the summary judgment should have been entered with respect to the borrower, Tropical Jewelers.

Under Article 9 of the UCC, upon a debtor's default, a secured creditor is obligated to dispose of the collateral securing the debt in a commercially reasonable manner. See § 679.504(3), Fla.Stat. (1995)¹; see also Sorrels v. Rebecca's Ice Cream, Inc., 696 So.2d 1313, 1314 (Fla. 2d DCA 1997). Indeed, the right to commercially reasonable disposition of repossessed property cannot be waived by the debtor. See § 679.501(3)(b), Fla.Stat. (1995)²; Barnett Bank of Tallahassee v. Campbell, 402 So.2d 12, 13 (Fla. 1st DCA 1981).

The Bank acknowledges these principles, and agrees that the borrower, Tropical, qualifies as a "debtor" for Article 9 purposes. The Bank made no argument that Tropical had waived the right to a commercially reasonable disposition of collateral. With respect to Tropical, therefore, the only question is whether there was a disputed issue of material fact regarding the commercial reasonableness of the disposition of Tropical's collateral. The panel which originally heard this appeal unanimously concluded that Tropical's affidavit showed the existence of disputed factual questions, and reversed the judgment as to Tropical for that reason. We adhere to the panel's position on that point.

III.

We turn now to the individual guarantors. They present a different legal issue because the guarantees in this case contain language waiving the guarantors' "right to object to the commercial reasonableness of any sale or disposition of collateral."³ The guarantors argue that this waiver is invalid under the anti-waiver provision of the UCC, § 679.504(3), Fla.Stat., and we agree.

A.

As already stated, a secured creditor must dispose of collateral in a commercially reasonable manner, and this requirement of the UCC cannot be waived by the debtor. See §§ 679.501(3)(b), 679.504(3), Fla. Stat. (1995). The question is whether a guarantor is a "debtor" for Article 9 purposes. The answer is yes.

Article 9 defines "debtor" in part as "the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral ...." § 679.105(1)(d), Fla. Stat. (1995) (emphasis added).⁴ Certainly a guarantor is a person who owes "payment or other performance," id., and this court has already said that the UCC definition of debtor includes guarantors. See Adler v. Key Fin. Servs., Inc., 553 So.2d 284, 285 (Fla. 3d DCA 1989). The First and Fourth Districts have likewise held that a guarantor is a debtor for purposes of this part of the UCC. See Motorola Communications and Elecs., Inc. v. Nat'l Patient Aids, 427 So.2d 1042, 1044 (Fla. 4th DCA 1983); Barnett Bank v. Campbell, 402 So.2d 12, 14 (Fla. 1st DCA 1981); Barnett v. Barnett Bank, 345 So.2d 804, 805-06 (Fla. 1st DCA 1977); Hepworth v. Orlando Bank & Trust Co., 323 So.2d 41, 42 (Fla. 4th DCA 1975). And on the exact issue before us, the First District has concluded, as we do, that the anti-waiver provision of subsection 679.501(3), Florida Statutes, protects guarantors. See Barnett v. Barnett Bank, 345 So.2d at 805-06; Barnett Bank v. Campbell, 402 So.2d at 14.⁵ It is suggested, however, that this interpretation of Article 9 is defeated by the second sentence of the definition of "debtor," which states:

Where the debtor and the owner of the collateral are not the same person, the term "debtor" means the owner of the collateral in any provision of the chapter dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires[.]

§ 679.105(1)(d), Fla.Stat. (1995) (emphasis added).

It is argued that under this second sentence of the definition, one can only be a "debtor" if he or she is the owner of the collateral. That is not so. The first sentence of the definition states that a "debtor" is "the person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral...." Id. (emphasis added). By the plain words of the first sentence of the definition, a person can be a "debtor" even though he or she does not own the collateral. The second sentence of the definition is aimed at a problem not now before us: where a borrower takes out a loan and a third person puts up the collateral. See § 679.105 comment 2, reprinted in 19C Fla.Stat.Ann. 179 (1990) (UCC § 9-105 comment 2); Gambo v. Bank of Maryland, 102 Md.App. 166, 648 A.2d 1105, 1109 (1994).

In any event, the second sentence of the "debtor" definition provides that a "debtor" includes "the obligor in any provision dealing with the obligation ...." § 679.105(1)(d), Fla. Stat. (1995). For these purposes, a guarantor is properly viewed as a secondary obligor, and qualifies as a debtor under the definition. See American Seaway Foods. Inc. v. Belden S. Assocs. Ltd. Partnership, 72 Ohio St.3d 514, 651 N.E.2d 941, 944 (1995); Gambo v. Bank of Maryland, 648 A.2d at 1109 (Md. App.1994); Shawmut Worcester County Bank, N.A. v. Miller, 398 Mass. 273, 496 N.E.2d 625, 628 (1986); Zions First Nat'l Bank v. Hurst, 570 P.2d 1031, 1033 & n. 5 (Utah 1977); see also Black's Law Dictionary 1103 (7th ed.1999) (defining "secondary obligation").

The Bank argues that this court upheld a guarantor's waiver of commercial reasonableness in Von Dunser v. Southeast First Nat'l Bank of Miami, 367 So.2d 1094 (Fla. 3d DCA 1979). The court there said that "under an absolute and unconditional contract of guaranty ... it is no defense that the creditor has lost security or has been negligent in regard to protection of the collateral. Fegley v. Jennings, 44 Fla. 203, 32 So. 873 (1902) and A & T Motors, Inc. v. Roemelmeyer, 158 So.2d 567 (Fla. 3d DCA 1963)." 367 So.2d at 1096. The Von Dunser case has no application here. It nowhere mentions the UCC and the cases it cites are pre-UCC cases. As there is no indication that any UCC issue was raised, the Von Dunser decision is properly viewed as a common-law, non-UCC case.

B.

Practical considerations likewise lead to the conclusion that a guarantor is a debtor. When a bank refuses to make a loan unless there is a personal guarantee, the bank in reality is looking to the guarantor for repayment, and the guarantor is in a real sense the "debtor."

Nor is it persuasive to say, as the Bank does, that there should be one measure of damages for the borrower and a different measure for the guarantors. Consider the following hypothetical example Parent guarantees car loan for child. The guarantee contains a waiver of the requirement of commercial reasonableness of disposition of collateral.

Child defaults and bank repossesses the car. If disposed of in a commercially reasonable manner, the car is worth $10,000. For simplicity, assume the loan balance is also $10,000.

Bank president decides to sell car to bank president's relative for $1,000.

In the hypothetical example, sale of a $10,000 car for $1,000 is not commercially reasonable. Under the UCC, the bank would not be allowed to sue the borrower child for the $9,000 deficiency.⁶ Since a commercially reasonable disposition of the collateral would have yielded $10,000, and the loan balance was...