MEMORANDUM OPINION
Plaintiff Bank of America, N.A. moves for summary judgment on its claim that Defendants Sea-Ya Enterprises, LLC, Craig H. Wheeler, and Dani D. Wheeler owe the deficiency on a breached loan agreement to finance a Gulfstream Aircraft (the “Aircraft”). (D.I. 29). Defendants move to amend their answer to the complaint. (D.I. 27). Craig Wheeler executed a Commercial Aircraft Note on behalf of Sea-Ya Enterprises in favor of MBNA America, N.A. for the principal amount оf $6,148,666.01 on June 5, 2004. (D.I. 31, A55-59). Craig and Dani Wheeler co-signed the Note in their personal capacities. Id. Craig Wheeler also executed a Security Agreement that gave the Bank a security interest in the Aircraft. Id. at A60-66. Upon default, the Note provides that MBNA America has the right to repossess and sell the Aircraft and hold Defendants liable for any deficiency balance. Id. at A58 § 22. An event of default includes the “failure to make any payment when due.” Id. at A57 § 21(b). The Notе also requires Defendants to pay reasonable attorney’s fees incurred by the Bank for collection. Id. at A57 § 22. The Security Agreement further provides that Sea-Ya would be liable for costs associated with repossessing, repairing, and reselling the Aircraft. Id. at A65 § 13(e). On January 1, 2006, MBNA was acquired by Bank of America, and Bank of America assumed MBNA’s rights under the loan documents. (D.I. 1 ¶ 19).
Defendants decided to put the Aircraft on the market in either late 2007 or early 2008. (D.I. 31, A12). Defendants hired Wyatt Stedman, an aviation consultant, to assist them in marketing the Aircraft for sale. Id. at A12. In 2008, Mr. Stedman received two offers to purchase the Aircraft, one for $8.5 million and one for $7.8 million. Id. at A20. Both were rejected by Craig Wheeler. Id. The market for jets over twenty years old apparently then underwent a serious decline. Id. at A43. Defendants stopped making payments on the Note in October 2010 (id. at Al), and informed the Bank that they lacked the financial ability to make the account current via a letter dated December 29, 2010. Id. at Al-4. The letter also indicated that Defendants received one tentative offer for the Aircraft in November 2010 for $650,000, which was withdrawn after the discovery of a problem with the right wing plank. Id. at A2. The Aircraft was not airworthy at that time. Id. A plane that is not airworthy cannot legally be flown within the United States. Id. at A36. The letter listed six other maintenance and repair issues that would require a total cost of $1,779,000 to fix in the near future. Id. at Al-2. Defendants sent two further letters indicating a willingness to facilitate the Bank’s repossession of the Aircraft and to resolve the debt on favorable terms. Id. at A73-74, A82-84.
Bank of America moves for summary judgment on its claim that Defendants are in default of the Note
Until October 2010, the payments on the note were timely made ... As we advised you over the telephone, neither Sea-Ya Enterprises nor the Wheеlers are able to continue making the monthly payments on the above-referenced loan. Based on the current financial circumstances of both entities, neither Sea-Ya nor the Wheelers have the ability to repay the note secured by the Gulf Stream Aircraft.
Id. Defendants did not contest they were in default of their obligations. Nothing in this letter properly falls within the ambit of Rule 408.
The second letter is dated January 20, 2011. Id. at A82. This letter reiterated the Defendants’ inability to pay, addressed third party liens placed against the aircraft, provided information of the Defendants’ assets, and detailed the Defendants’ unsuccessful attempts to sell the Aircraft. Id. at A82-84. At no point does it suggest any facts inconsistent with Defendants being in default of the loan obligations or the Bank’s rights to a complete satisfaction of
The third letter is dated February 4, 2011. Although Defendants now contest the legitimacy of the repossession, this letter suggests complete acknowledgment of the Bank’s right to retake the Aircraft. This letter also recognized a “likely substantial shortfall between the current market value of the aircraft and the amount of the loan.” Id. at A73. Defendants then offered two properties to the bank. Id. at A74. Defendants expressed the hope that, in exchange for these properties, the Bank would consider the debt satisfied. Id. This third letter, unlike the first two, explicitly labels itself as an “offer in good faith as a compromise and settlement of the loan,” (id.), apparently in an attempt to invoke the protection of Rule 408. The inclusion of this sentence, however, does not transform the substance of the letter into something expressing actual dispute or disagreement over the underlying claim; the letter is more of a plea for mercy than a protest of the Bank’s right to satisfaction. For these reasons, the Court holds that the letters do not fall under the protection of Rule 408 and the Bank may use factual admissions contained within them to establish its claim.
The three letters prove that Defendants are in default. The first admit that no payments were made after October 2010; the third offers to facilitate the Bank’s repossession. Defendants offer no contradictory evidence that they have met then-loan obligations. Therefore, it is undisputed that Defendants are in default under both the Note and the Security Agreement. Id. at A57 § 21; A64 § 12. This default triggered the Bank’s right to repossess and sell the Aircraft. Id. at A58 § 22; A64 § 12.
Defendants argue that, even if they are in default, the Bank failed to provide them with proper notice of the sale of the Aircraft under the loan documents, and they are thus excused from the obligation to pay the loan deficiency. California law controls the legality of the Bank’s repossession and resale of the Aircraft. Id. at A65 § 14(c). The Security Agreement has a notice paragraph, providing, “Bank will advise Debtor in its Notice of Resale how Bank plans to advertise the resale and what kind of repair, maintenance or make ready service it will perform prior to offering the Aircraft for resale.” Id. at A64, § 13(b)(x). Defendants argue that the Bank’s “Notice of our Plan to sell Property” did not contain information regarding the repair, maintenance, or make ready service, thus breaching the Security Agreement and excusing them from liability on the deficiency. Id. at A75-76. The Bank, however, did not contend that any such work was done to the Aircraft, nor does it request recompense for any work performed. Id. at A76; (D.I. 1). There was nothing to notify Defendants about. Assuming for the sake of argument that the Bank should have explicitly notified Defendants of the lack of work it would do on the Aircraft, the Bank’s failure to do so cannot be said to have harmed or prejudiced Defendants in any way. At most, it
Defendants further argue that the Bank failed to notice Dani Wheeler, thus rendering the notice ineffective and excusing all Defendants from their obligation to pay the deficiency. California law requires thе secured party to send an authenticated notification of disposition to the debtor and any secondary obligors. Cal. Com.Code § 9611. A secured creditor is barred from obtaining a deficiency judgment in the event it fails to give notice of sale of collateral. In re Parsons,
The Bank sent its “Notice of our Plan to Sell Property” to the Wheelers’ home address, which also serves as the principal place of business for Sea-Ya Enterprises. Id. at A75. The Notice itself, however, was only addressed to Sea-Ya Enterprises and Craig Wheeler; Dani Wheeler’s name was omitted. Defendants’ position is that Dani Wheeler’s exclusion excuses all Defendants from obligations on the deficiency. Considering that Dani Wheeler is married to and lives with Craig Wheeler, it is exceedingly unlikely that she did not have actual notice of the Bank’s plan to resell the Aircraft. Nevertheless, California law takes a very strict approach to the notice requirements of § 9611(c). The Bank’s failure to explicitly notice Dani Wheeler frees her from personal liability on the deficiency. It does not follow, however, that the other Defendants are therefore also excused. Seа-Ya Enterprises and Craig Wheeler were in fact properly noticed. Notice being flawed to one Defendant should not excuse the properly noticed Defendants from their contractual obligations. Defendants Sea-Ya Enterprises and Craig Wheeler may not avoid summary judgment on the deficiency on this basis.
Defendants further contend that they are excused from paying the deficiency because the Bank failed to notify the Defendаnts how and where it planned to conduct the resale of the Aircraft. The Bank, however, included within the Notice that it intended to sell the Aircraft at a “private sale sometime after 3/1/2011.” Id. at A75. This complied with California Commercial Code § 9613, which required the Bank to notify the Defendants of the type of sale, i.e., public or private.
Defendants next argue that the Bank failed tо adequately mitigate its damages by selling the Aircraft for less than its fair market value. California Commercial Code § 9610 states that a secured creditor must sell the collateral in a commercially reasonable matter. Whether a sale is conducted in a commercially reasonable manner is a question of fact, and the answer depends on all of the circumstances existing at the time of the sale. Ford & Vlahos v. ITT Commercial Finance Corp.,
The record shows that the Bank employed Principal Aviation Group to sell the Aircraft. (D.I. 31, A79-81; D.I. 33, p. 16). The Bank states that Principal Aviation Group performed an inspection and evaluation of the Aircraft, determining that it would require $520,000 in repairs to return it to flyable condition through August 31, 2011, at which point another $325,000 tо $625,000 in engine repairs would be required. (D.I. 30, p. 13; D.I. 31, A77-78). Principal Aviation Group then marketed the Aircraft over four months (D.I. 33, p. 16) and received three offers in the amounts of $315,000, $360,000 and $400,000. (D.I. 31, A79-81). The Bank accepted the $400,000 offer. (D.I. 33, p. 16). Although the Bank provided little further evidence detailing its efforts in marketing the Aircraft, Defendants’ own failed efforts to attract buyers provide the necessary context to judge the commercial reasonableness of the sale. Defendants had employed Wyatt Stedman to broker the Aircraft in 2008. Mr. Stedman received offers in excess of the principal loan amount in early 2008, both of which were rejected by Defendant Craig Wheeler. Id. at A20. After 2008, the market for jets over 20-25 years old suffered a severe decline. Id. at A43. Subsequently, the Wheelers only received one tentative offer for $650,000. Id. at Al. This offer was apparently withdrawn after the discovery of the right wing plank corrosion on the Aircraft. Id. It wаs determined that the Aircraft required repairs in the amount of $1,779,000.00 as of March 2011, apparently further hampering the marketability of the Aircraft. (D.I. 7, ¶ 22). Mr. Stedman continued marketing the Aircraft without success, even after it was repossessed and sold by the Bank, through November 2011. Id. at A43.
These facts are sufficient to show that the Bank’s sale was commercially reasonable. The Bank used the Principal Aviation Group, a company apparently dedicated to the Aircraft trade, to market the
Defendants’ final argument is that they are excused from paying the deficiency because an unidentified agent of the Bank told Craig Wheeler that if he made the July 2010 payment, the Bank would defer three monthly payments and work with Defendants to informally resolve the matter. According to the Defendants, the Bank cannot now claim that the Defendants breached the loan documents after excusing performance. Defendants ignore California Civil Code § 1698, which excludes oral modification of a written contract when the contract contains an express provision requiring modification to be in writing. Both the Note and the Security Agreement have such provisions. The Note states, “[n]o modification, change, waiver or amendment to this Note shall be deemed made by Bank unless in writing signed by Bank, and each such waiver, if any, shall apply only to the specific instance involved.” Id. at A58 § 27. The Security Agreement’s equivalent subsection states, “Neither this Agreement nor any of its provisions may be сhanged, waived or discharged orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver or discharge is sought.” Id. at A66 § 19. These subsections make any oral modification ineffective. Further, the evidence shows that the Bank did not repossess the Aircraft until February 2011, meaning that even if the modification was valid, the Bank did not take adverse action against the Defendants until long after the supposed three month grace period ended. Finally, Defendants can make no arguments of waiver, estoppel, or reliance, as Defendants’ letters show that they were in frequent communication with the Bank, knew that the Bank intended on exercising its rights under the agreement, and wished to facilitate the Bank’s repossession of the Aircraft. For these reasons, the Court rules that the Defendants are not excused from performance based on any oral representations.
The Bank hаs proven that Defendants defaulted on their loan obligations. The repossession and sale of the Aircraft was
The Court must also address Defendants’ Second Motion for Leave to Amend Answer to Complaint. (D.I. 27). Defendants’ proposed amended answer includes a counterclaim for “breach of implied duty оf good faith and fair dealings” and a claim for “breach of contract.”
The Court denies leave to amend the claim for breach of the implied duty of good faith and fair dealing. Defendants allege that the Bank stated that if the July 2010 payment was made, the Bank would defer three monthly payments and “work with” Defendants to informally resolve the dispute. The allegation is contradicted by the record showing that the Defendants made the monthly payments until Octоber 2010. (D.I. 31, p. Al). If the Defendants thought that the monthly payments were deferred, they would not have made them. Thus, allowing this claim would be futile.
The proposed breach of contract claim is premised on allegations that the Court has rejected in granting summary judgment, with one exception. Dani Wheeler claims breach of contract in that the Bank failed to provide her with notice of the resale. (Proposed Counterclaim ¶ 23(a)). While the damages she claims appear fanciful, the breach might provide her with a defense to the deficiency judgment.
Thus, leave for Dani Wheeler to amend the answer to allege breach of contract will be allowed. In all other respects, the Defendants are denied leave to amend the answer.
An appropriate order will follow.
ORDER
Before the Court is Plaintiff Bank of America’s Motion for Summary Judgment (D.I. 29) and Defendants’ Second Motion for Leave to Amend Answer to Complaint. (D.I. 27). For the reasons set forth in the accompanying Memorandum Opinion, it is HEREBY ORDERED that Plaintiff Bank of America’s Motion for Summary Judgment is GRANTED as to Defendant Sea-Ya Enterprises and Defendant Craig H. Wheeler, but DENIED as to Defendant Dani D. Wheeler. Bank of America should, after notice to defendants, submit a form of order with the appropriate financial amounts.
It is also HEREBY ORDERED that Defendants’ Second Motion for Leave to Amend Answer to Complaint is DENIED as to Sea-Ya Enterprises and Craig H. Wheeler. As to Dani Wheeler, the Motion for Leave to Amend the Answer to add a counterclaim of breach of the implied duty of good faith and fair dealing is DENIED, but the request to add a counterclaim of breach of contract is GRANTED.
Notes
. That the defendants were in default has never really been at issue. In the Defendants’ Answer, they admitted that they had made no payments since September 2010. (D.I. 7, ¶¶ 25 & 39). In Affidavits submitted with the Answer, each defendant admitted that the defendant does "not deny that [the defendant] has defaulted under the Note.” (D.I. 7-1, ¶ 2; 7-2, ¶ 2; 7-3, ¶ 2).
. The Bank argues that two other independent grounds for default occurred. First, Defendants were required to maintain the Aircraft so that it was "airworthy,” i.e., comply with governmental requirements so that it may legally fly in the United States. Id. at A62 § 9(J)(i). Second, any material change in the Defendants’ financial condition triggered default. Id. at 57 § 21. The first letter from Defendants’ counsel admitted that the Aircraft was not "airworthy” and admitted thаt Defendants had suffered serious financial setbacks since entering into the loan agreement. Id. at A1-A3. Thus, the Bank’s argument is correct.
. California Commercial Code § 9613 states: Except in a consumer-goods transaction, the following rules apply:
(1) The contents of a notification of disposition are sufficient if the notification does all of the following:
(A) It describes the debtor and the secured party.
(B) It describes the collateral that is the subject of the intended disposition.
(C) It states the method of intended disposition.
(D) It states that the debtor is entitled to an accounting оf the unpaid indebtedness and states the charge, if any, for an accounting.
(E) It states the time and place of a public disposition or the time after which any other disposition is to be made.
. "The fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.” Cal. Com.Code § 9627(a).
. Defendant Craig Wheeler offers an affidavit that states, "The Defendants had maintenance performed prior to the repossession and the Aircraft was airworthy at that time, minus an issue with the wing plank that could have been resolved.” (D.I. 35, p. 1).