Opinion ID: 2308695
Heading Depth: 1
Heading Rank: 1

Heading: Strict foreclosure

Text: When a debtor defaults under a security agreement governed by Article 9 of the Uniform Commercial Code, the secured party has the right to satisfy the debt by seizing and disposing of the collateral. 11 M.R.S.A. § 9-503 (1964). Sections 9-504 and 9-505 specifically provide, however, that the disposition of the property must be in compliance with strict notification and commercial reasonableness standards. Id. §§ 9-504, 9-505 (1964 & Supp.1992). The failure to comply with the notification requirement precludes a secured party from collecting a deficiency judgment. Camden Nat. Bank v. St. Clair, 309 A.2d 329, 333 (Me.1973); see also 11 M.R.S.A. § 9-507 (1964). In order for any of the rules regarding the disposition of collateral to come into effect, however, the creditor must actually take possession of the collateral. Leighton argues that Fleet took constructive possession of the restaurant equipment through three acts: (1) Fleet directed Leighton to leave the collateral in the possession of Dinex Two; (2) Fleet attempted to proceed against the collateral through the forcible entry and detainer action; and (3) Fleet reached an understanding with Deering that the equipment would remain in place in the restaurant. When reviewing the entry of a summary judgment, we view the evidence in the light most favorable to the party against whom judgment was entered and determine if the trial court committed an error of law. Estate of Althenn v. Althenn, 609 A.2d 711, 714 (Me.1992). On the undisputed facts in this record there is simply nothing to demonstrate that Fleet ever had possessioneither actual or constructiveof the restaurant equipment. Despite its earlier efforts to recover and sell the equipment, at no time did Fleet take the equipment into its possession. Nor can it be said that Fleet exercised such dominion or control of the equipment as would constitute constructive possession. See State v. Durgan, 467 A.2d 165, 167 (Me. 1983) (dominion, authority, or control of goods constitutes constructive possession where there has not been physical possession). The equipment has at all times remained in the Sizzler restaurant under the direction of the restaurant operator and debtor, Dinex Two. Moreover, Fleet's transfer of the mortgage to Deering did not prevent Leighton from foreclosing on the restaurant equipment. Fleet was within its rights as the senior lienholder on the property to prevent the junior creditor, Leighton, from liquidating the collateral. See 11 M.R.S.A. § 9-306(2) (Supp.1992) (a secured party who authorizes disposition of collateral loses the security interest). Furthermore, and perhaps most importantly, Leighton had signed an unconditional guarantee of the Fleet loan in which he waived his rights to proceed against the collateral until the obligation to Fleet was satisfied. [1] It cannot be said that Fleet's actions prevented Leighton from foreclosing on the collateral when Leighton had already agreed not to pursue any remedy until Fleet's debt was satisfied. We decline to adopt an implied standard of good faith and fair dealing, that Leighton argues should be read into the guarantee agreement to prevent Fleet from choosing to pursue the guarantee, thereby abandoning its right to proceed against the collateral, while at the same time preventing the guarantor from proceeding against the collateral. Although we recognize a duty of good faith on the part of banks, requiring honesty in fact, we have specifically declined to adopt a more general common law duty of good faith under the U.C.C. Diversified Foods, Inc. v. First Nat. Bank of Boston, 605 A.2d 609, 613-14 (Me.1992). There is no evidence that Fleet acted dishonestly or in bad faith with respect to Leighton's rights in the collateral. In fact, it is not unusual for a creditor to pursue a guarantor rather than attempting to recover on the secured collateral. Leighton could have bargained with Fleet to modify the waiver provision of the guarantee to give him better rights against the collateral. In the absence of any language to support Leighton's contention, we decline to read into the guarantee agreement Leighton's expectation that Fleet would allow him to foreclose on the restaurant equipment. Without a showing of some kind of possession of the collateral by Fleet, the default provisions pursuant to Article 9 requiring disposal of the collateral are not applicable. The Superior Court was not in error to rule as a matter of law that there had been no strict foreclosure under Article 9. [2]