Court Opinion

ID: 9773250
Source: CourtListenerOpinion
Date Created: 2023-08-29 17:40:42.727731+00
Date Added: 2024-06-11T07:31:51.315481
License: Public Domain

Tom Glaze, Justice, concurring. This case falls casualty to this court’s holding in First State Bank of Morrilton v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987), where, in a 4-3 decision, it held that a secured creditor is not entitled to a deficiency judgment under the Uniform Commercial Code (UCC) when the creditor failed to comply with the Code’s procedures for disposition of collateral. Until Hallett, the court followed the well-settled rule in Norton v. National Bank of Commerce, 240 Ark. 143, 398 S.W.2d 538 (1966), which provided that, if a secured creditor fails to comply with UCC notice requirements when disposing of a debtor’s collateral, the presumption is that the collateral is worth at least the amount of the debt, and the creditor has the burden of proving the amount that should reasonably have been obtained through a sale conducted according to law. Hallett, 291 Ark. at 42, 722 S.W.2d at 555; see also Glaze, J., dissenting, 291 Ark. at 42, 722 S.W.2d at 557. The present case is another Code case where the secured creditor, the Bank of Bearden, failed to comply with Code requirements. Thus, if this court followed the new “no notice-no deficiency” rule adopted in Hallett, it would conclude this case by affirming the trial court’s holding that the Bank of Bearden is entitled to no relief. In fact, the majority cites United States v. Kennedy, 256 Ga. 345, 348 S.E.2d 636 (1986), where the Georgia Supreme Court precluded a creditor’s foreclosure action to foreclose on a mortgage securing the debtors’ loans because the creditor had previously failed to meet Code requirements when selling personalty that secured the same loans. Instead of following the rationale and holding in Kennedy, the majority court here attempts to distinguish Hallett solely on the basis that the debtors’ real property was also used to secure the indebtedness owed the Bank of Bearden. In other words, the court suggests that, while the Bank is absolutely barred from obtaining a deficiency judgment under the UCC because it violated Code requirements, it may still obtain a deficiency judgment if the Bank is shown to have actually received the fair market value from its “Code-violated” sale of the debtors’ personalty. If the Bank offers such proof and the amount received remains less than the debtors’ obligation, the Bank, the majority court says, can collect the remaining deficiency by foreclosing on the debtors’ real property. In my view, this court has gone full circle, adopting the same type rationale the court had previously followed for twenty years in Norton. In fact, the majority cites and relies on the case of Bank of Hawaii v. Davis Radio Sales & Service, Inc., 727 P.2d 419 (Haw. Ct. App. 1986), where that court, quoting from Liberty Bank v. Honolulu Providoring, Inc., 650 P.2d 576 (Haw. 1982), said the following: We therefore adopt the “rebuttable presumption” rule in this jurisdiction. If the secured creditor fails to comply with notification requirements or disposes of a collateral other than in a commercially reasonable manner, the secured creditor will have the burden of rebutting the presumption that the fair market value of the collateral equals the unpaid balance of the outstanding debt. In proving the fair market value of the collateral, the secured creditor who fails to comply with the requirements of the Code may not rely solely on the value received on resale, but must prove the value of the collateral by other evidence. Moreover, to the extent that the debtor is harmed by the secured creditor’s failure to comply with proper notification and commercial reasonableness requirements, the debtor will be entitled under HRS § 490:9-507(1) to have the amount of damages sustained set-off against any deficiency the secured creditor would otherwise recover. As can be readily seen, Hawaii, like many other states, follows the “rebuttable presumption” rule which is the same rule (the Norton rule) our court rejected in Hallett. This court made a mistake in Hallett, and it should now reinstate the Norton rule. Certainly, it would make the present case much easier to understand and to resolve. Under the rebuttable presumption rule, the debtors here were entitled to the presumption that the amount due on their debt had been received by the Bank. However, if the Bank of Bearden can show that it had sold the debtors’ personalty for its fair market value and that the sale amount was still less than the debt owed, the Bank would be entitled to a deficiency judgment. The Bank would then be entitled to foreclose against the debtors’ real property in order to satisfy deficiency still owed on the original debt. Of course, if the Bank of Bearden failed in its proof, it would be barred from proceeding against the debtors’ real property since no deficiency amount would be shown to exist. Instead of readopting the “rebuttable presumption” rule and being done with it, the majority opinion retains the “no notice-no deficiency” rule in Code cases involving only personalty, but adopts the “rebuttable presumption” rule when dealing with secured transactions involving both personal property and real property. In doing so, I believe that the underlying rationale for its decision is extremely confusing.1 For the sake of clarity, I believe the court should either adhere to its decision in Hallett and uphold the trial court’s decision finding that the Bank is not entitled to any further relief, or reinstate the Norton or rebuttable presumption rule in personalty or both personalty and realty secured transactions, thus, requiring remand of this cause for the trial court to determine if the Bank’s sale of the debtors’ property was for its fair market value. Instead, the majority adopts another or third position which adopts the “rebuttable presumption” rule but such rule is operative only in cases where both personalty and real property secure a borrower’s loan and the lender first proceeds against the personalty when a default occurs. I simply fail to understand why the majority chose to retain the “no notice-no deficiency” rule in one circumstance (where personalty only is involved) but apply the “rebuttable presumption” rule in another (where both personalty and realty are involved). Nevertheless, because the majority’s new rule sounds and looks much like Arkansas’s earlier “rebuttable presumption” or Norton rule, which this court overruled with me dissenting, I find myself joining in the result reached by the court.   The practical result, I suspect, will be that, hereafter, lenders will avoid all this confusion and possible pitfalls by first foreclosing on real property before exercising their rights against personalty under the Code.