372 P.3d 582
Or. Ct. App.2016Background
- Shilo Management borrowed $4,000,000 from VFS Financing to buy a Cessna corporate jet; the jet was pledged as collateral and Hemstreet provided a partial personal guaranty of up to $1,500,000.
- Shilo defaulted repeatedly (2010–2013); VFS sued in 2013 for breach of the promissory note, guaranty, and sought possession of the airplane (claim and delivery).
- VFS obtained possession of the airplane early in the litigation but did not sell it before moving for summary judgment on the note and guaranty claims.
- Defendants opposed summary judgment and submitted an ORCP 47 E declaration that an unnamed expert would testify VFS acted commercially unreasonably and in bad faith by not promptly selling the collateral, which could have reduced the debt.
- The trial court granted summary judgment for VFS; defendants appealed arguing the expert declaration created a triable issue on commercial reasonableness and good faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether creditor pursuing damages on the note while retaining collateral is commercially unreasonable under NY UCC | NY UCC allows cumulative remedies; creditor may sue on the note while retaining collateral | Creditor’s failure to sell collateral during litigation is commercially unreasonable and shows bad faith | Not commercially unreasonable as a matter of New York law; creditor may litigate debt while holding collateral |
| Whether ORCP 47 E anonymous-expert declaration precludes summary judgment here | Expert testimony is unnecessary because NY law deems the conduct commercially reasonable as a matter of law | The anonymous-expert declaration would create a genuine issue of material fact on commercial reasonableness and bad faith | Expert testimony could not create a triable issue because New York case law resolves the legal standard in favor of the creditor |
| Whether the UCC’s good-faith requirement (subjective honesty and objective commercial standards) was implicated | Creditor’s conduct met both objective and subjective good-faith standards under NY law | Expert could show lack of honesty in fact or commercial standards breached by retaining collateral | Both objective and subjective good-faith challenges fail because NY law permits the conduct; expert evidence immaterial |
| Whether debtor’s remedy remains for challenging an unreasonable sale of collateral | Creditor argued sale-reasonableness issues are premature until a sale occurs | Debtor argued delay itself shows unreasonableness affecting deficiency calculation now | Court noted debtors may challenge commercial reasonableness after an actual sale or in a separate action; delay alone didn’t defeat note claim |
Key Cases Cited
- First International Bank of Israel, Ltd. v. L. Blankstein & Son, Inc., 59 N.Y.2d 436 (N.Y. 1983) (holding bank’s suit on note while retaining collateral was not commercially unreasonable)
- Marine Midland Bank v. Hakim, 247 A.D.2d 345 (N.Y. App. Div. 1998) (creditor may sue on note and retain nonperishable collateral without being required to "play the market")
- Chem. Bank v. Alco Gems Corp., 151 A.D.2d 366 (N.Y. App. Div. 1989) (holding bank’s election to sue on debt while holding secured gems was commercially reasonable)