If you are chasing a deficiency owed under a personal guaranty, and if the guarantor is contesting collection efforts based upon either a failure to conduct a UCC sale in a commercially reasonable fashion and/or a failure to provide adequate notice of the sale, then the Indiana Court of Appeals’ recent decision in Moore v. Wells Fargo Construction, 2009 Ind. App. LEXIS 732 (.pdf) may help tackle the issue. In Moore, the Court affirmed the trial court’s judgment against a personal guarantor and ruled favorably for the creditor/secured lender on the UCC-related issues.
Backdrop. In 2000, a mining corporation received financing for an excavator through plaintiff lender for about $550,000. In return for the financing, the principals of the mining corporation, including defendant Moore, personally guaranteed the indebtedness. The written guaranty included the following waiver language:
Each of us waives . . . the failure to notify any of us of the disposition of any property securing the obligations of [mining corporation] the commercial reasonableness of such disposition or the impairment, however caused, of the value of such property. . . .
Mining corporation defaulted on the loan in 2003, and lender took possession of the excavator. The lender ultimately disposed of the excavator through a sale, which left a balance (deficiency) of about $250,000. The lawsuit surrounded the lender’s collection of the deficiency from Moore. The parties tried the case to the judge, who ruled in favor of the lender. The guarantor appealed.
Commercial reasonableness of sale. Moore’s first contention on appeal was that the sale of the excavator was not conducted in a commercially reasonable fashion, as required by Indiana Code § 26-1-9.1-1-610(b). The lender, in response, pointed to the above-quoted waiver language in the guaranty. Without ever addressing whether the sale actually met the commercially reasonable standard, the Court concluded:
We agree with Moore that § 26-1-9.1-610 requires sales such as the instant one to be commercially reasonable. But the plain language of the Guaranty shows that Moore intended to waive any claim regarding the commercial reasonableness of the sale of the Excavator. Thus, under the Guaranty, Moore has waived that claim.
In this case, the written instrument trumped the statutory requirement.
Notice of sale. Moore’s second contention on appeal was that the lender failed to provide the appropriate notice. The Court’s analysis concerned I.C. §§ 26-1-9.1-611 and 613, which govern the notification required before a secured creditor may sell certain loan collateral. In Moore, the lender sold the excavator through an internet auction website, and Moore’s legal attacks focused on notice technicalities about the “location for the sale.” Indeed, the operative statutes require that notices state the “time and place of a public disposition.” The lender’s notification identified its intent to sell the excavator in a public auction over the internet, which notice listed the date and web address for the auction and the physical address of the auction company. While the Court conceded that “an internet auction has no physical location and is not a situs in the traditional sense,” the notice in question “adequately apprised Moore where the auction would be held, allowing him to monitor or even participate in the auction.” The Court concluded that the lender satisfied the location requirements of I.C. § 26-1-9.1-613(1)(E).
The Moore case reminds us that clear and unambiguous waiver language in written contracts (in this case, a guaranty) can help control the outcome a secured lender seeks. Moore offers nothing terribly new in that regard. Moore is, however, fairly unique in its analysis of the notice issues surrounding internet-based disposition of the loan collateral. The Indiana Court of Appeals took what appears to be a practical and appropriate approach to applying Indiana’s UCC to the realities of today’s world.