Case Name: 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
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 2000-12-27
Citations: 781 So. 2d 392
Docket Number: No. 3D99-119
Parties: 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.
Judges: Before SCHWARTZ, C.J., and JORGENSON, COPE, LEVY, GERSTEN, GODERICH, GREEN, FLETCHER, SHEVIN, SORONDO, and RAMIREZ, JJ.
Reporter: Southern Reporter, Second Series
Volume: 781
Pages: 392–410

Head Matter:
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.
Dec. 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.

Opinion:
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 "debt- or" 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 reason ableness 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 $814,718.89, 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) ; 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) ; 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." The guarantors argue that this waiver is invalid under the anti-waiver provision of the UCC, § 679.504(8), 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(8), 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(l)(d), Fla. Stat. (1995) (emphasis added). 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.
It is suggested, however, that this interpretation of Article 9 is defeated by the second sentence of the definition of "debt- or," 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(l)(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 "debt- or" 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 "debt- or" includes "the obligor in any provision dealing with the obligation . " § 679.105(l)(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. Since a commercially reasonable disposition of the collateral would have yielded $10,000, and the loan balance was $10,000, it follows that the borrower child owes the bank nothing. See § 679.507, Fla. Stat.; Weiner v. American Petrofina Mktg., Inc., 482 So.2d 1362, 1364 (Fla.1986).
Logically the same analysis should apply to the guarantor parent in the hypothetical example. It would make no sense to say that the bank may recover the $9,000 deficiency from the guarantor parent, even though the bank cannot recover the $9,000 deficiency from the borrower child.
Indeed, the present case offers an even more extreme example. Tropical and the guarantors contend that the Bank threw away valuable collateral. The Bank denies that this happened, but explained to the trial court that even if it had, under the waiver in the personal guarantees, the guarantors would be entitled to no relief. The Bank stated, "We throw out the gold and platinum. We dispose of the collateral totally improperly. I'm not saying we did. I am saying [so] just for the sake of argument. . You know what, we left the window open. Thieves came in and stole the collateral. You waived it."
We reject that argument. The Bank itself acknowledges that it must act in a commercially reasonable manner with regard to the borrower, Tropical, and that as a matter of law, Tropical cannot waive the requirement that collateral be disposed of in a commercially reasonable manner. It makes no sense to say that if the Bank breaches its statutory duty, Tropical can complain but the guarantors cannot. Both must be treated equally.
"[I]t would be odd indeed if the Code allowed a creditor to avoid the protections established for debtors merely by taking the readily available step of forcing the debtor's principals to sign personal guarantees." Bank of China v. Chan, 937 F.2d 780, 786 (2d Cir.1991).
Another court has said:
[T]he unconditional guarantor is in a very real sense the debtor. When the probability of deficiency looms after default, the guarantor is the real target of the secured party. It is simply inequitable, therefore, to permit the secured party, who fixes the amount of the guarantor's liability in the first step of the collection effort by repossession and sale, to deny in the face of this economic reality that the guarantor is in fact its debtor. At that point, the guarantor is the only debtor. Furthermore, where the debtor and guarantor are in essence the same entity . it is equally unjust to allow a creditor to evade the Code duties by merely insisting on a guaranty.
Gambo v. Bank or Maryland, 648 A.2d at 1109 (quoting Ford Motor Credit Co. v. Lototsky, 549 F.Supp. 996, 1004 (E.D.Pa.1982)); see also Ford Motor Credit Co. v. Thompson Mach., Inc., 649 A.2d 19, 22-23 (Me.1994); May v. Women's Bank, 807 P.2d 1145, 1157-49, 1151 (Colo.1991).
The policy of the UCC is well put in one of the UCC comments:
In the area of rights after default our legal system has traditionally looked with suspicion on agreements designed to cut down the debtor's rights and free the secured party of his duties: no mortgage clause has ever been allowed to clog the equity of redemption. The default situation offers great scope for overreaching; the suspicious attitude of the courts has been grounded in common sense.
Ford Motor Credit Co. v. Lototsky, 549 F.Supp. at 1001 (quoting UCC § 9-501 comment 4) (citation omitted).
C.
Finally, we rule as we do in order to maintain uniformity with the other states.
One of the purposes of the UCC is "[t]o make uniform the law among the various jurisdictions." § 671.102(2)(c), Fla. Stat. (1995); see Mason v. Avdoyan, 299 So.2d 603, 606-07 (Fla. 4th DCA 1974).
Writing about a predecessor to the UCC, the Florida Supreme Court said, "An act like the Uniform Negotiable Instruments Law . should receive a uniform interpretation and construction in all of the states where it prevails if the beneficial purpose of having a uniform law on the subject is to be subserved." Valentine v. Hayes, 102 Fla. 157, 160, 135 So. 538, 540 (1931).
In the overwhelming majority of states that have considered the issue, the courts have ruled that a guarantor is a "debtor" for Article 9 purposes. Our count of jurisdictions is:
Guarantor is debtor . 36 States
Guarantor is not debtor 3 States
Unclear States (North Carolina, 2 Rhode Island) -
No reported decision 9 States
See Appendix 1; see also Gambo, 648 A.2d at 1108, 1110-13; Thompson Machine, 649 A.2d at 22; May, 807 P.2d at 1148.
It has been argued in this proceeding that the majority of federal courts go the other way. While there was a spate of federal decisions that initially so held, most of those decisions are no longer good law. See Appendix 2.
Interpretation of the UCC is a matter of state law, not federal law. In a number of jurisdictions, the UCC issue arose for the first time in federal court. In the absence of state precedent on the point, a federal court is required to determine how it believes the courts of that state would rule when presented with the issue. See 19 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure: Civil § 4507, at 200 (1996).
Later, when the state courts of those same states finally reached the issue, the state courts held that a guarantor is a debtor. See Appendix 2. Since the UCC issue is a matter of state law, the later state decisions are authoritative-not the earlier federal decisions.
Since the guarantors' waivers of the requirement of commercial reasonableness were invalid, the summary judgment must be reversed with respect to the individual guarantors.
IV.
Tropical and the guarantors argue that the trial court abused its discretion in refusing to grant a continuance of the summary judgment hearing. Since we are reversing the summary judgment on the merits, we need not address the continuance issue.
Tropical and the guarantors argue that the Bank's affidavit setting forth the calculation of the outstanding indebtedness was not stated to be on personal knowledge and did not demonstrate how the calculations were arrived at. We need not reach these claims because the effect of our ruling is to reverse the summary judgment and remand for a trial on damages.
V.
For the reasons stated, the summary judgment is reversed and the cause remanded for a trial on damages.
Reversed and remanded for further proceedings consistent herewith.
JORGENSON, LEVY, GODERICH, FLETCHER, SHEVIN, SORONDO, and RAMIREZ, JJ., concur.
APPENDIX 1
A. Controlling State Court Decisions
State Guarantor is a Debtor and / or Pre-Default Waiver is Invalid. Guarantor is NOT a Debtor and / or Waiver is Valid.
B. Controlling Federal Court Decisions (Because No State Court Decision On Point.)
C. No precedent on the issue.
Alaska
Arizona
Kentucky
Mississippi
Nevada
Oklahoma
West Virginia
Wisconsin
Wyoming
TOTALS
States
Guarantor is debtor (and/or predefault waiver is invalid) 36
By state court decision 30
By federal court decision (where there is no state court decision) 4
By majority of courts of appeals (but there is contrary authority) (Cal. & N.Y.)
Guarantor is not debtor (and/or waiver is valid)
By state court decision
By federal court decision
Unclear (N.C. and Rhode Island)
Have not spoken
APPENDIX 2
Cases Superseded by Later Cases
A. Federal Decisions That Are No Longer Valid After Later State Supreme Court Decisions.
B. Federal Decisions That Are Invalid After Later State Court of Appeal Decision.
C. Federal Decision No Longer Valid After Later Federal Decision
D. Other_
. Subsection 679.504(3) provides in relevant part that:
Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms, but every aspect of the disposition including the method, manner, time, place, and terms must be commercially reasonable.
(Emphasis added).
. Section 679.501 provides in pertinent part that:
(3) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied [with exceptions not applicable here]:
(b) Sections 679.504(3) and 679.505(1) which deal with disposition of collateral!.]
(Emphasis added).
. The guarantees state, in part:
The undersigned specifically waives any notice in connection with the disposition of any collateral securing the obligations of the Debtor including but not limited to notice of date, time or place of sale or any other notice to which the undersigned might be entitled under the Uniform Commercial Code or under any other applicable Statutes and, further, the undersigned waives its right to object to the commercial reasonableness of any sale or disposition of collateral.
(Emphasis added).
. The full definition is:
"Debtor" means the person who owes payment or other performance of the obli-galion secured, whether or not he owns or has rights in the collateral, and includes the seller of accounts or chattel paper. 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(l)(d), Fla. Stat. (1995).
.In Landmark First Nat'l Bank v. Gepetto's Tale O' The Whale, 498 So.2d 920 (Fla.1986), the Florida Supreme Court said that a guarantor is entitled to have a commercially reasonable sale, but there is no indication the waiver issue now before us was raised in that case. See id. at 922.
. $10,000 loan balance minus $1,000 received by bank = $9,000 deficiency.
. In Florida, the quoted language is in comment 4 to section 679.501, Florida Statutes, reprinted in 19C Fla. Stat. Ann. 365 (1990).
. We have counted California and New York as following the majority rule, although each state has contrary authority.
. This likewise renders academic the guarantors' arguments pertaining to a deficiency judgment.
. Unless otherwise indicated, each cited case holds that a guarantor IS a debtor.
. Unless otherwise indicated", each cited case holds that a guarantor is NOT a debtor,
. This table addresses cases cited in the dissent. We have not attempted an independent survey of all federal authority on this issue,