Opinion ID: 1426976
Heading Depth: 2
Heading Rank: 1

Heading: dismissal of uba's counterclaims

Text: On August 26, 1977, UBA issued a loan of $121,327.06 to NAR-PC for the purpose of buying a Cessna airplane. NAR-PC put up the Cessna as collateral for the loan. On August 10, 1978, UBA issued a loan of $53,309 to NAR-PC for the purpose of extinguishing NAR-PC's prior indebtedness to UBA on two earlier loans: the remaining balance owed on the S-2 loan and the revolving working capital loan. There is no indication in the record that NAR-PC expressly provided any collateral for the second loan. NAR-PC fell behind and then ceased to make payments on both loans. On March 10, 1980, UBA notified NAR-PC that both loans were in default and demanded either payment in full or delivery of the Cessna by April 1, 1980. NAR-PC gave up possession of the Cessna to UBA. On April 28, 1980, a third party offered to buy the Cessna from UBA for $105,000. UBA apparently sent Risley notice of the offer and solicited Risley's opinion on the Cessna's fair market value. The letter, however, was never received by Risley. Although UBA recognized that it did not need NAR-PC's or Risley's consent, UBA took no further actions with regard to the Cessna's sale, and the Cessna was not sold. On April 18, 1980, UBA filed two counterclaims to collect the debt owed by NAR-PC on the two loans. Trial began on July 10, 1980. The court, in its February 17, 1981 memorandum of decision, dismissed the two counterclaims without prejudice. It found that the claims were premature since the Cessna had not been sold and there was not yet a deficiency. The court subsequently modified its decision so that the counterclaims were instead dismissed with prejudice. This action was based upon the court's finding that UBA acted commercially unreasonably by failing to contact NAR-PC's attorney regarding the value of the Cessna, failing to get an appraisal, and failing to make any attempts to sell the plane. The court took the position that the burden devolved upon UBA to show the value of the Cessna by clear and convincing evidence. Finding a failure of such proof, the court concluded that the Cessna entirely satisfied the debt owed on the two notes. It then dismissed the counterclaim with prejudice. UBA on cross-appeal asserts that the trial court committed error by dismissing both claims with prejudice. The first issue this court must resolve is whether the lower court erred in finding that the Cessna was held as security on the 1910 Note. [8] While no bank document states that the Cessna in particular was collateral on Note 1910 loan, language contained in the note does so generally. The note states: Any deposit or sums of any kind credited by or due from the Holder to the Maker and any securities or other property of the Maker in the possession of the Holder may at all times be held and treated as collateral for the payment of this Note... . The Cessna was in UBA's possession as a result of NAR-PC's default on Note 1190 and UBA clearly evidenced its intent to treat the Cessna as collateral on that note as well. Both in a letter to NAR-PC and in an internal memorandum, UBA expressly stated that it would not release its security interest in the Cessna until both notes were paid in full. Further, the two constituent loans which were re-financed to create the second loan appeared to expressly state that the Cessna was collateral. The S-2 loan listed the Cessna as the second item of collateral underneath the first item listing six S-2 planes. The revolving working capital loan as originally written listed collateral having a value of $149,000 but did not describe the collateral. However, Note 1190 lists the Cessna 402 and receivables under a state contract as collateral and sets their value at $149,000. So it is likely that the working capital loan had the same collateral as Note 1190. The test under which a document is determined to be a security agreement is one of intent to create a security interest in the collateral. Queen of the North, Inc. v. LeGrue, 582 P.2d 144, 148 (Alaska 1978). UBA's letter and memorandum clearly evidence such intent. The trial court did not err in considering Note 1910 to be secured by the Cessna 402. However, the trial court did erroneously apply the Uniform Commercial Code in other respects. The trial court apparently believed that UBA was obligated to sell the Cessna as soon as it was commercially reasonable to do so. A creditor's remedies under AS 45.09.501(a) are cumulative. Under this section, a creditor may seek the remedies provided for in AS 45.09.501  .507 and those provided for in the security agreement. In addition, the creditor may reduce his claim to judgment, foreclose, or otherwise enforce the security interest by any available judicial procedure. AS 45.09.501(a). It is clear that under the case law, a creditor may enforce a debt in a judicial proceeding even though the creditor has the collateral in his possession. There is no requirement under the UCC that the creditor must first exhaust the collateral. Keller v. La Rissa, Inc., 60 Hawaii 1, 586 P.2d 1017, 1020 (1978). Cf. Kennedy v. Bank of Ephraim, 594 P.2d 881, 883 (Utah 1979). The trial court, therefore, erred in finding that UBA acted commercially unreasonably by its failure to take steps to sell the Cessna as soon as was reasonably possible. On remand, the trial court should determine whether or not UBA's failure to sell the Cessna was a manifestation of its intent to retain the goods pursuant to AS 45.09.505(b). If it was, both debts were satisfied. Under Moran v. Holman, 514 P.2d 817 (Alaska 1973), UBA's failure to give NAR-PC notice of its intent to retain the plane would not prevent NAR-PC from proving that UBA in fact intended to retain the plane. If the court concludes that UBA did not intend to retain the Cessna, it should also consider the trial testimony concerning the deterioration of the plane's condition while in UBA's possession, as a claim by NAR-PC against UBA for breach of UBA's duty to exercise reasonable care of the collateral in its possession. AS 45.09.207. While such a claim would not destroy UBA's security interest in the Cessna, it would result in UBA being found liable to NAR-PC for any reduction in value of the Cessna caused by UBA's unreasonable care. AFFIRMED in part, REVERSED and REMANDED in part. MATTHEWS and MOORE, JJ., not participating.