Wе granted certiorari in this case to determine whether the Court • of Appeals correctly concluded that the appellee creditor, who had sold a small portion of the debtor’s collateral without the notice required by OCGA § 11-9-504 (3), was not barred from obtaining an in personam judgment against or selling the other collateral of the debtor.
Emmons v. Burkett,
The facts of this case are well-stated in the Court of Appeals’ opinion, see
Emmons v. Burkett,
supra,
1. In
Gurwitch v. Luxurest Furniture Mfg. Co.,
In the instant case, relying on Gurwitch, Reeves, and Kennedy, Emmons, the debtor, argues that Burkett, the creditor, should be barred from proceeding against his remaining collateral or from obtaining a personal judgment against him, to satisfy the deficiency remaining on his note following the sale of the collateral.
The Court of Appeals concluded that, because Burkett filed a suit for recovery on the note before selling the collateral in question, 1 this was not a deficiency action and the effect of Burkett’s noncompliance with OCGA § 11-9-504 (3) was not the same as if he had first sold the collateral and then sued to recover a deficiency. We disagree with this conclusion.
We do so because we see no reason to distinguish between a situation where the creditor first sues on the note and then sells collateral, and a situation where the creditor first proceeds against collateral and then sues on the note. In both situations, thе creditor must obtain a judgment on the note and must attempt to recover the deficiency between the amount obtained on the sale of the collateral and the amount determined to be due on thе note.
Moreover, the fact that a creditor may have proceeded to judgment on a note before selling collateral without notice does not in any manner satisfy the ultimate purposes of OCGA § 11-9-504 (3), which are to enable the debtor to exercise his right of redemption under OCGA § 11-9-506, if he or she so chooses, and, if not, to minimize any possible deficiencies remaining after the sale.
Reeves,
supra,
2. Having determined that the effect of a creditor’s noncompliance with the notice provision of OCGA § 11-9-504 (3) should be the
As previously noted, in Gurwitch v. Luxurest Furniture Mfg. Co., supra, 233 Ga., this court adopted the “absolute-bar” rule, holding that the failure of the creditor to сomply with the notice requirements of OCGA § 11-9-504 (3) when selling collateral operates as an absolute bar to the recovery of a deficiency. This rule has been followed since its inception without reanalysis of its merits. See, for example, Reeves v. Habersham Bank, supra, 254 Ga., and United States v. Kennedy, supra, 256 Ga., in which the primary issues involved the application of the rule rather than the wisdom of it. We are now convinced, however, that the harshness of the absolute-bar rule of Gurwitch should be reevaluated.
An alternative rule which, we find merits our consideration has been termed the “rebuttable-presumption” rule. See White & Summers, Uniform Commercial Code, § 26-15 (2nd ed. 1980); Vol. 1A, Bender’s Uniform Commercial Code Service, § 8.06 [2]. In fact, in
Farmers Bank v. Hubbard,
Under the rebuttable-presumption rule, if a creditor fails to give notice or conducts an unreasonable sale, the presumption is raised that the value of the collateral is equal to the indebtedness. To overcome this presumption, the creditor must present evidence of the fair and reasonable value of the collateral and the evidence must show that such value was less than the debt. See
Farmers Bank v. Hubbard,
supra,
In examining the merits of the absolute-bar rule of Gurwitch and of the rebuttable-presumption rule outlined above, we conclude that the fairer rule and the rule most consistent with the intent of the Uniform Commercial Code is thе rebuttable-presumption rule. First, we note that OCGA § 11-9-504 (2) expressly states that the creditor has a right to recover any deficiency from the debtor. Significantly, the code provisions concerning a debtor’s default nowhere provide that a lack of notice bars a deficiency judgment or that proper notice is a condition precedent to the bringing of a deficiency action. Moreover, OCGA § 11-9-507 explicitly provides a remedy for a creditor’s noncompliance with the requirements of OCGA § 11-9-504 (3). Under § 11-9-507 (1), “[i]f the [creditor’s] disposition has occurred the debtor or any person entitled to notification or whose security interest has been made known to the secured party prior to the disposition has a right to recover from the secured party any loss caused by a failure to comply with the provisions of this part.” OCGA § 11-9-507 does not рrovide that a failure to comply with § 11-9-504 bars the creditor from bringing an action to recover any deficiency. Based on the foregoing we conclude that the code provisions themselves do not require the imposition of an absolute-bar rule.
In addition, and most importantly, we find that the absolute-bar rule is contrary to the intent of the Uniform Commercial Code. OCGA § 11-1-106 expressly prohibits penal damages, and provides that the remedies provided by the UCC should be liberally administered so that the aggrieved party “may be put in as good a position as if the other party had fully performed.” Yet, by absolutely barring a deficiency action, even if the debtor has suffered no damage from a lack of notice or a commercially unreasonable sale, the debtor receives a windfall and the creditor is arbitrarily penalized. This is so despite the fact that it is the debtor’s default on his obligation which necessitated the sale of the collateral.
We conclude that the rebuttable-presumption rule, by placing
3. Because of our adoption of the rebuttable-presumption rule, this case must be remanded for further consideration consistent with this rule. In this regard, we note that, pursuant to Reeves v. Haber-sham Bank, supra, 254 Ga., and United States v. Kennedy, the rebuttablе-presumption rule should be applied to this creditor’s efforts to collect a deficiency either from the debtor’s collateral or by way of a personal judgment.
Judgment reversed and remanded.
Notes
When we refer to the sale of collateral in this opinion, we refer to a sale carried out pursuant to the creditor’s rights under the security agreement and the UCC, and not to a sale carried out by judicial process following a judgment on thе note.
In
Spillers v. First Nat. Bank,
supra, 400 NE2d, the creditor first obtained a judgment on the note and subsequently exercised its rights under the UCC and sold some of the debtor’s collateral. The creditor sold the collateral without giving the required notice to the debtor. Despite the fact that the creditor had first obtained a judgment on the note, the court concluded that its rule barring the collection of a deficiency was applicable. Id. at 1061.
We also note that if the debtor can show that he or she intended to redeem the collat-