On May 14, 1985,- Draper Renovation Associates, Inc. (Draper), bought a large mill property (the Draper mill) in Hopedale from the trustees of the Hopedale Realty Trust (the Trust). Draper paid the major portion of the purchase price by giving to the sellers a note for $2,000,000, secured by a first mortgage. 2 As to the obligations of Draper under that note and mortgage, Edward S. Stimpson, III, the president and treasurer of Draper and its major stockholder, gave his unconditional guaranty. In an action on the guaranty brought in Superior Court, Stimpson resisted on the grounds that the Trust, as mortgagee, had impaired the underlying collateral by making a foreclosure sale that was not commercially reasonable. Although a jury returned a verdict, upon special questions, that the Trust had not conducted the foreclosure sale in a commercially reasonable manner, the trial judge reasoned that the standards of art. 9 of the Uniform Commercial Code (G. L. c. 106, § 9-504) had not been imported to land foreclosure in Massachusetts or to the contract of guaranty and, therefore, Stimpson was liable. A judgment in the amount of $3,430,587.90 on the guaranty was entered in favor of the Trust, and from that judgment Stimpson appeals. We affirm.
As might be inferred from the core question of the controversy, i.e., whether Stimpson is liable on his guaranty, Draper’s venture turned out ill-timed and ill-fated. In 1987,
By September, 1988, the Trust was importuning the bankruptcy judge to lift the automatic stay, lest the mill further deteriorate. The Bankruptcy Court did suspend the stay, allowing the Trust to foreclose, but on condition that it conform to the requirements of
In re Gen. Indus., Inc.,
When a public foreclosure sale took place on September 29, 1989, the requirements of Massachusetts law pertaining to the foreclosure of real property were faithfully observed. As to that, there is no dispute. The results were disappointing. Ultimately the only bidder was the Trust, which bought the property for $500,000, subject to liens for unpaid public charges (e.g., real estate taxes) and public utilities. Confronting a substantial deficiency on the bankrupt Draper’s note, the Trust turned to Stimpson as guarantor. In the contract action on the guaranty that followed, Stimpson
Now the judge turned to the pertinence of those findings as matter of law. He concluded that criteria of commercial reasonableness developed under § 9-504 of the Uniform Commercial Code were not applicable to a real estate foreclosure and that the language of Stimpson’s guaranty had waived a defense based on impairment of the collateral by the Trust. In his appeal, Stimpson attacks the determination of his liability and makes two arguments directed to the amount of the judgment.
1. Availability to guarantor of defense based on impairment of the collateral.
(a)
Foreclosure norms.
If the statutory norms found in G. L. c. 244, §§ 11-17B, governing foreclosure of real estate mortgages, have been adhered to, Massachusetts cases have generally regarded that as satisfying the fiduciary duty of a mortgagee to deal fairly with the mortgaged property, unless the mortgagee’s conduct manifested fraud, bad faith, or the absence of reasonable diligence in the foreclosure sale pro
On those occasions when the court held a sale invalid, the bad faith or failure of diligence has been of an active and conspicuous character. See, e.g.,
Clark
v.
Simmons,
In the instant case the mortgagee, prior to the foreclosure sale, placed prominent advertisements repetitively in The Boston Globe, Banker and Tradesman, The Worcester Telegram, New England Real Estate Journal (inside cover), and The Wall Street Journal (wherein the mill was pitched as a “Fantastic Investment Opportunity”). The mortgagee’s representative also alerted real estate brokers and sent out several hundred promotional fliers. A better marketing campaign might have been mounted, as the jury obviously found, but the Trust’s efforts satisfied the criteria for fair dealing
(b) Language of the guaranty. In its first paragraph, the language of the guaranty executed by Stimpson provides that he “does . . . guarantee to said Trust . . . unconditionally the full and prompt payment . . . of . . . the Promissory Note from [Draper] to the Trust dated this date.” In the second paragraph he “waives any and all defenses of a guarantor.” Two paragraphs later, the instrument of guaranty speaks more precisely to the subject at hand. It provides that
“the Trust shall be under no liability or responsibility to the undersigned guarantor to proceed to collect or realize upon any other security . . . an[d] any failure or delay by Trust ... to collect or proceed to collect and enforce its rights under or in any other security or endorsements furnished to the Trust in connection with any of said obligations or to proceed to enforce its rights against [Draper] or otherwise, shall not affect the liability of the undersigned guarantor hereunder, which is direct and unconditional, and the Trust may proceed to enforce any and all rights which it may have against [Draper] ... at such time or times and in such manner as it, in its sole discretion, may determine, and in any event the undersigned guarantor and each of them shall be and remain liable under the within guaraní [y] for all of said obligations until all of said obligations are paid and performed in full.”
Subject always to the limitations of fraud and bad faith, the language of the guaranty allows the Trust to choose the sequence, manner, and means of applying the collateral to Draper’s debt and looking to the guarantor for any deficiency. As in
Federal Deposit Ins. Corp.
v.
Hill,
(c) Application of the Uniform Commercial Code. There are two sections of the Uniform Commercial Code (the Code) on which Stimpson relies, § 3-601 (1)(¿>) 4 *and § 9-504(3). 5
Section 3-606(l)(6), as inserted by St. 1957, c. 765, § 1, provides:
“The holder discharges any party to the instrument to the extent that without such party’s consent the holder . . . unjustifiably impairs any collateral for the instrument given by or on behalf of the party or any person against whom he has a right of recourse” (emphasis supplied).
Prescinding from the question as to what constitutes unjustifiable impairment,
6
Stimpson’s guaranty is not an “instrument” within the meaning of art. 3. An instrument under G. L. c. 106, § 3-102(e), is a negotiable instrument, but a separate contract of guaranty, i.e., one that is not part of the note, is not a negotiable instrument because it does not contain an unconditional promise to pay a sum certain. G. L. c. 106, § 3-104.
Federal Deposit Ins. Corp.
v.
Hardt,
Section 9-504(3) of the Code, as appearing in St. 1979, c. 512, § 7, is significant,
if applicable,
because it provides that the sale or disposition of collateral “including the method, manner, time, place and terms must be commercially reasonable.” By necessary application of G. L. c. 106, § 9-501 (3)(6), the rights given to a debtor and the duties imposed on the secured party under § 9-504(3) may not be waived. Those provisions were considered in
Shawmut Worcester County Bank, N.A.
v.
Miller,
Stimpson argues that the condition of a commercially reasonable sale imposed by the bankruptcy judge when he allowed the Trust to hold a foreclosure sale of the Draper real estate made applicable to him the jury’s answers to the special questions and clothed him with all the rights of a debtor under art. 9 of the Code. Such rights, under
Shawmut Worcester County Bank, N.A.
v.
Miller, supra,
would include absolution from those provisions of the guaranty which allowed the Trust to dispose of the collateral in whatever manner it chose. While the Chapter 11 proceedings gave the bankruptcy judge power over the bankrupt estate, and he could, therefore, impose art. 9 standards on a real estate
That art. 9 is not applicable to real estate given as security is stated explicitly in G. L. c. 106, § 9-104(/), as appearing in St. 1979, c. 512, § 7, which provides that “[t]his Article does not apply ...(/) [except as to fixtures] to the creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder.” See also illustration in comment 4 to § 9-102(3),. 3 U.L.A. (Master ed. 1992), in which the reporter says, “This Article is not applicable to the creation of the real estate mortgage.” To the extent this aspect of the statute requires judicial explication, see
Chrysler First Bus. Credit Corp.
v.
Feuer,
(d) Pertinence of 11 U.S.C. § 362(h). Stimson advances the argument that as the jury found the foreclosure sale had not been conducted in a commercially reasonable manner, the terms of the Bankruptcy Court’s dispensation from the automatic stay had been violated, and that he, Stimson, was entitled to relief under 11 U.S.C. § 362(h) (1988). That section provides, “An individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”
Aside from how Stimpson may claim damages after having given up all his counterclaims, he faces the additional difficulty that relief under §
362(h)
is confined to debtors and their creditors.
In re Globe Inv. & Loan Co.,
2.
Valuation date for purposes of establishing the deficiency.
When the Trust asked the Bankruptcy Court judge for relief from the automatic stay to enable it to foreclose on the mill, it pressed the necessity of selling the property by December, 1988, so that the property might be spared the
Not the least of Stimpson’s difficulties with this proposition is that it was not, so far as we can see, called to the attention of the trial judge. It may not, therefore, be raised on appeal.
Madan
v.
Royal Indem. Co.,
3.
Liability for interest and costs after bankruptcy petition.
Stimpson argues that his guaranty cannot encompass any amounts which the primary debtor does not owe. As interest and costs on the debtor’s debts were frozen as of the filing of the chapter 11 petition, Stimpson reasons that he, as guarantor, is also relieved of post-petition interest and costs. A chapter 11 petition and the automatic stay that follows operate only in favor of the debtor.
Pitts
v.
Unarco Indus., Inc.,
Judgment affirmed.
Notes
From a certificate made by the clerk of Draper as to the authority of Draper to mortgage the property, one learns that the total price of the property was $2,500,000.
Stimpson’s answer and counterclaims are not in the record appendix. We do know from the docket that he claimed a jury trial and that, at a later stage, the parties stipulated to a dismissal of the counterclaims.
GeneraI Laws c. 106, § 3-606(l)(6).
General Laws c. 106, § 9-504(3).
The Reporter’s comment to G. L. c. 106, § 3-606(l)(¿>), suggests importation of the art. 9 standard. Uniform Commercial Code § 3-606, comment 5, 2A U.L.A. (Master ed. 1991).
There has never been a suggestion of fraud or bad faith on the part of the Trust in disposing of the collateral.