532 S.W.3d 330
Tenn.2017Background
- LGT Aviation borrowed >$2.3M from Regions’ predecessor using a 1981 Hawker 700-A as collateral; Thomas guarantors jointly and severally guaranteed the loan.
- Debtor defaulted by failing to maintain insurance; Regions repossessed, refurbished, and sold the aircraft privately on Dec 2, 2008 for $875,000.
- Trial court found sale commercially reasonable and entered a deficiency judgment for Regions; Court of Appeals reversed on notice grounds and remanded under Tenn. Code Ann. §47-9-626 (the UCC rebuttable presumption rule).
- On remand the trial court found Regions had rebutted the statutory presumption by proving fair market value and awarded a deficiency; the Court of Appeals reversed, holding Regions needed evidence negating guarantors’ ability or intent to redeem.
- Tennessee Supreme Court granted review to decide what proof suffices to rebut §47-9-626 when a secured party failed to give required notice, and whether Regions met that burden.
Issues
| Issue | Plaintiff's Argument (Regions) | Defendant's Argument (Thomas) | Held |
|---|---|---|---|
| Proper operation of UCC §47-9-626 (rebuttable presumption) | Creditor may rebut presumption by proving sale produced fair market value; that alone can create a fact question | Creditor must prove guarantors could not have redeemed or bid (i.e., negate ability/intent) | A creditor need not negate debtor/guarantor ability or intent; proving sale at or above fair market value can rebut and create a fact question, but evidence of ability/intent is relevant and admissible as countervailing proof. Burden ultimately remains on creditor. |
| Burden of proof on remand (what creditor must prove) | Show fair market value and that sale proceeds would still be less than debt+expenses+fees | Court of Appeals: creditor must prove that proper notice would not have led to full satisfaction (i.e., prove debtor couldn’t/m wouldn’t redeem) | Creditor bears the ultimate burden to prove that proceeds would still be less than debt+expenses+fees if proper notice given; fair market value evidence may be sufficient to rebut presumption and shift to weighing all relevant evidence. |
| Relevance/admissibility of evidence about guarantors’ ability/motivation to redeem | Such evidence is irrelevant; focus should be on fair market value | Such evidence is relevant and necessary to show notice would have mattered | Evidence of guarantors’ ability and motivation to redeem/purchase is relevant and admissible as countervailing evidence; trial court must consider totality of evidence. |
| Standing to claim surplus under §47-9-625 | N/A (Regions) | Guarantors asserted right to surplus if sale produced more than debt | Guarantors lack standing to recover a surplus under §47-9-625 (Court of Appeals’ analysis affirmed). |
Key Cases Cited
- Auto Credit of Nashville v. Wimmer, 231 S.W.3d 896 (Tenn. 2007) (explaining Article 9 commercial reasonableness and notice framework)
- Key Equip. Fin., Inc. v. Hawkins, 985 A.2d 1139 (Me. 2009) (creditor rebuts codified presumption by producing some evidence that proceeds would still be less than debt even with notice)
- Midstate Educators Credit Union v. Werner, 886 N.E.2d 893 (Ohio Ct. App. 2008) (creditor entitled to deficiency where trial evidence showed proceeds that would have resulted with notice equaled actual proceeds)
- R & J of Tennessee, Inc. v. Blankenship-Melton Real Estate, Inc., 166 S.W.3d 195 (Tenn. Ct. App. 2004) (purpose of notice is to allow debtor to redeem or ensure fair price and supports the presumption analysis)
- Hill v. Hairston, 1 N.W.2d 34 (Mich. 1941) (discussing nature of rebuttable presumptions and their evidentiary effect)