REGIONS BANK v. Thomas D. THOMAS, et al.
Supreme Court of Tennessee, AT JACKSON.
Filed October 16, 2017
532 S.W.3d 330
April 5, 2017 Session
For the reasons stated herein, I concur in part and dissent in part.
Richard E. Charlton, Memphis, Tennessee, and Kirk L. Clements, Goodlettsville, Tennessee, for the appellees, Thomas D. Thomas, Helen L. Thomas, and The Thomas Family Living Trust.
OPINION
Jeffrey S. Bivins, C.J., delivered the opinion of the court, in which Cornelia A. Clark, Sharon G. Lee, Holly Kirby, and Roger A. Page, JJ., joined.
We granted this appeal to determine whether the Court of Appeals correctly applied the statutory “rebuttable presumption rule” under Article 9 of the Uniform Commercial Code, as codified at
I. Factual and Procedural History
This is the second appeal in this case, which arises out of a secured transaction between LGT Aviation, Inc. (“Debtor“), and the predecessor to the Plaintiff, Regions Bank (“Regions“). The pertinent facts are adequately set out in the two prior opinions of the Court of Appeals and are only briefly restated here. See Regions Bank v. Thomas, 422 S.W.3d 550 (Tenn. Ct. App. 2013), perm. app. denied (Tenn. Sept. 11, 2013) (“Regions I“); Regions Bank v. Thomas, No. W2015-00798-COA-R3-CV, 2016 WL 1719325, at *1 (Tenn. Ct. App. Apr. 27, 2016), perm. app. granted (Tenn. Oct. 21, 2016) (“Regions II“).
Debtor borrowed in excess of $2,300,000 from Regions’ predecessor for the purchase of a 1981 Hawker 700-A aircraft (“Aircraft“), which secured the loan. Defendants Thomas D. Thomas, Helen L. Thomas, and The Thomas Family Living Trust (collectively, “Guarantors“) jointly and severally guaranteed the loan. Following Debtor‘s default by failure to maintain insurance on the Aircraft, Regions accelerated Debtor‘s payment obligations. Debtor did not repay the accelerated loan, and in October 2007, Regions filed suit against
The trial court held a hearing over several days in May 2011, after which it entered judgment in favor of Regions. The trial court found that Debtor had breached the loan agreement and that the breach constituted a default, that Regions had disposed of the Aircraft in a commercially reasonable manner, and that Regions was entitled to recover a judgment for a deficiency in the amount of $1,642,771.91, plus pre-judgment interest in the amount of $945.15 per day for 859 days. Guarantors appealed.
The Court of Appeals affirmed in part and reversed in part. Regions I, 422 S.W.3d at 567. The Court of Appeals affirmed the trial court‘s conclusion that Debtor had breached the loan agreement and had defaulted by failing to maintain insurance on the Aircraft, that Regions had not waived the breach and default, and that Regions had not acted in bad faith. Id. The Court of Appeals, however, reversed the trial court‘s finding that Regions had sufficiently complied with the notice requirements of
On remand, no additional discovery was conducted and the trial court indicated that it would decide the case based upon the evidence previously introduced at trial, together with any additional evidence and deposition testimony already obtained but that the parties now wished to introduce. The parties were permitted to and did file proposed findings of fact and conclusions of law. On March 27, 2015, the trial court entered its “Findings of Fact, Conclusions of Law, and Judgment.”1 The trial court concluded that Regions had met its burden to rebut the presumption under
The Court of Appeals reversed. Id. at *1, *11. The Court of Appeals determined that, in order to rebut the presumption under
Regions filed an application for permission to appeal pursuant to Rule 11 of the Tennessee Rules of Appellate Procedure. We granted the application.
II. Analysis
A. Standard of Review
This case involves the interpretation of a statute, which is a question of law subject to de novo review with no presumption of correctness. See Hardy v. Tournament Players Club at Southwind, 513 S.W.3d 427, 433 (Tenn. 2017). More particularly, it involves the application of a statutory presumption, which is a question of law, which we review de novo with no presumption of correctness. See Borner v. Autry, 284 S.W.3d 216, 219 (Tenn. 2009). We review the trial court‘s findings of fact following a bench trial de novo upon the record with a presumption of correctness, “unless the preponderance of the evidence is otherwise.” Tenn. R. App. P. 13(d); Cross v. City of Memphis, 20 S.W.3d 642, 644-45 (Tenn. 2000). We review issues related to the admission or exclusion of evidence at trial, including the admission or exclusion of expert testimony, for an abuse of discretion. See Otis v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 442 (Tenn. 1992), on reh‘g (Mar. 29, 1993).
B. The Rebuttable Presumption Rule
This case involves a secured transaction governed by Article 9 of the Uniform Commercial Code (“UCC“), as adopted in Tennessee in its revised form effective July 1, 2001.
Article 9 provides a comprehensive statutory framework governing the secured transaction process, from how a creditor perfects its security interest to how it forecloses on that interest. After default, a secured party may take possession of the collateral and may sell or otherwise dispose of it.
Tenn. Code Ann. § 47-9-610(a) (2001). In so doing, “[e]very aspect of [the] disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable.”Tenn. Code Ann. § 47-9-610(b) (2001).
Auto Credit of Nashville v. Wimmer, 231 S.W.3d 896, 899-900 (Tenn. 2007). In addition to this requirement of commercial reasonableness in the disposition of the collateral, UCC Article 9 sets forth mandatory requirements regarding the provision of notice.
In an action arising from a transaction in which the amount of a deficiency or surplus is in issue, the following rules apply:
(1) A secured party need not prove compliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance unless the debtor or a secondary obligor places the secured party‘s compliance in issue.
(2) If the secured party‘s compliance is placed in issue, the secured party has the burden of establishing that the collection, enforcement, disposition, or acceptance was conducted in accordance with this part.
(3) Except as otherwise provided in
§ 47-9-628 , if a secured party fails to prove that the collection, enforcement, disposition, or acceptance was conducted in accordance with this part relating to collection, enforcement, disposition, or acceptance, the liability of a debtor or a secondary obligor for a deficiency is limited to an amount by which the sum of the secured obligation, expenses, and attorney‘s fees exceeds the greater of:(A) the proceeds of the collection, enforcement, disposition, or acceptance; or
(B) the amount of proceeds that would have been realized had the noncomplying secured party proceeded in accordance with this part relating to collection, enforcement, disposition, or acceptance.
(4) For purposes of paragraph (3)(B), the amount of proceeds that would have been realized is equal to the sum of the secured obligation, expenses, and attorney‘s fees unless the secured party proves that the amount is less than that sum.
(5) If a deficiency or surplus is calculated under
§ 47-9-615(f) , the debtor or obligor has the burden of establishing that the amount of proceeds of the disposition is significantly below the range of prices that a complying disposition to a person other than the secured party, a person related to the secured party, or a secondary obligor would have brought.
[Section 47-9-626] establishes the rebuttable presumption rule for transactions other than consumer transactions. Under paragraph (1), the secured party need not prove compliance with the relevant provisions of this Part as part of its prima facie case. If, however, the debtor or a secondary obligor raises the issue (in accordance with the forum‘s rules of pleading and practice), then the secured
party bears the burden of proving that the collection, enforcement, disposition, or acceptance complied. In the event the secured party is unable to meet this burden, then paragraph (3) explains how to calculate the deficiency. Under this rebuttable presumption rule, the debtor or obligor is to be credited with the greater of the actual proceeds of the disposition or the proceeds that would have been realized had the secured party complied with the relevant provisions. If a deficiency remains, then the secured party is entitled to recover it. The references to “the secured obligation, expenses, and attorney‘s fees” in paragraphs (3) and (4) embrace the application rules in Sections 9-608(a) and 9-615(a).
One leading treatise has explained the operation of the rebuttable presumption rule as follows:
On a first reading of section 9-626, one may have trouble finding the rebuttable presumption rule; it is buried in 9-626(a)(4). The drafters’ plan for the application of 9-626 seems to be as follows. Under subsection (a)(1), the secured party does not need to prove compliance with Part 6 unless its compliance is “placed in issue.” Presumably, one needs only to prove the amount received on the sale of the collateral and the amount the debtor owes. The difference between these numbers equals the “deficiency.” If the secured party‘s compliance is put in issue, the creditor then has the burden of showing that the “collection, enforcement, disposition, or acceptance was conducted in accordance with this part.” If the secured creditor fails to prove its compliance with Part 6, it suffers the consequence stated in 9-626(a)(4), namely, a presumption that “the amount of proceeds that would have been realized [if the secured creditor had complied] is equal to the sum of the secured obligation, expenses, and attorney‘s fees....” Of course, if the amount that would have been realized equals the amount owed, there is no deficiency.
How does the secured creditor rebut the presumption arising from the rule by that name? The last clause in subsection 9-626(a)(4) (“unless the secured party proves that the amount received on compliance would be less than that sum“) offers redemption to the misbehaving secured creditor. If it proves that a complying sale or other disposition would have brought an amount less than the amount due from the debtor, the secured creditor rebuts the presumption and earns a right to a deficiency judgment measured by the amount that would have been recovered in a complying disposition as the subtrahend in the formula (Owed-Would Have Brought). To understand all this, consider an example. Assume the debtor‘s total obligation (including costs of sale, etc.) to the creditor is $100,000. Assume also that the foreclosure sale produces $10,000 and the debtor attacks creditor‘s notice or conduct of the sale. If the creditor proves it complied with Part 6 of Article 9, it recovers the full $90,000. If the creditor fails to prove it complied, and does not prove what a complying foreclosure sale would have brought, the amount produced by a complying sale is presumed to be $100,000 and the creditor recovers nothing. If the creditor is found to have violated Part 6, but proves, for example, that a complying sale would have produced only $15,000, it recovers the difference between its debt and $15,000, or $85,000.
4 White, Summers, & Hillman, Uniform Commercial Code § 34:41 (6th ed. Dec.
Thus, pursuant to the rebuttable presumption rule, in order to recover a deficiency judgment, Regions was required to rebut the statutory presumption and to prove that, had it given Guarantors the required notice of the sale of the Aircraft, the proceeds from the sale still would have been an amount less than the sum of the secured obligation, expenses, and attorney‘s fees.
Messrs. White, Summers, and Hillman suggest that “the drafters [of the UCC] have done an admirable job making the law clear and, at least in business transactions, uniform,” and that “[s]ection 9-626 provides a clear roadmap for judges and lawyers.” White, Summers & Hillman, supra, § 34:41 (footnotes omitted). This case suggests, however, that the roadmap contains a significant, unmarked turn. This case raises the question of the proper operation of the rebuttable presumption rule and, more particularly, the proof relevant to, and required or sufficient to, rebut the statutory presumption and permit the recovery of a deficiency under
During the trial before the first appeal and remand, the parties introduced evidence relevant to the rebuttable presumption rule. Regions, however, succeeded in precluding Guarantors from introducing evidence regarding what they could and would have done had they received notice of the sale and, particularly, evidence re-garding their ability and motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. Guarantors made no offer of proof for the record, and Regions did not introduce any countervailing evidence. Because the trial court determined that Regions complied with the notice requirements under
In the first appeal, the Court of Appeals determined that Regions, in fact, had failed to provide the statutorily required notice to Guarantors and that this triggered the operation of the rebuttable presumption rule under
On remand, the parties contested this question in the trial court. Guarantors contended that in order to rebut the statutory presumption and recover a deficiency, Regions was required to prove “that the debtor could not have paid off the loan had the debtor received notice, or that the debtor could not have found a buyer or be[en] present at the sale to bid on the property or have others do so, to the end that it not be sacrificed by a sale at less than its true value.” Guarantors further contended that Regions had failed to offer any proof in this regard. In contrast, Regions contended that the only relevant proof was proof with respect to the fair market value of the collateral at the time of the sale and that the determination of fair market value was the only purpose of the remand to the trial court. Regions further contended that proof that the price obtained at the sale was equal to or greater than the fair market value was sufficient to rebut the statutory presumption under
Leading up to its decision on remand, the trial court precluded any additional discovery, with one possible exception that did not materialize. The trial court further indicated that it would “make its findings, based on the record adduced at trial and any additional deposition testimony and/or exhibits already procured by the Parties in the prior proceedings that they wished the Court to consider in connection with its findings and ruling on remand.” The only additional deposition testimony introduced was that of Regions’ witnesses Joseph Duncan and Edd Conn, as designated by the parties and subject to certain objections of Guarantors, which the trial court sustained. The trial court also made clear that it rejected Guarantors’ contention that Regions had the burden to introduce evidence that Guarantors could not have paid off the secured obligation had they received notice or that Guarantors could not have found a buyer or been present at the sale to bid on the property or to have others do so.
The parties submitted proposed findings of fact and conclusions of law. In its proposed findings and conclusions, Regions continued to assert that remand was for the sole purpose of determining the fair market value of the Aircraft. It proposed that the trial court conclude that Regions had met its burden of proof by a preponderance of the evidence under the rebuttable presumption rule,
In their proposed findings and conclusions, Guarantors contended that the inquiry for the trial court on remand was not limited to a determination of the fair market value of the Aircraft. Rather, according to Guarantors, “[t]he burden of proof on Regions [was] broader than simply the fair market value of the collateral at the time of sale.” The burden included, as a preliminary matter, rebuttal of the presumption that Guarantors could and would have redeemed the Aircraft by satisfying the indebtedness. Guarantors proposed that the trial court find that they “were financially capable of preserving their equity in the Aircraft and that they would have redeemed it and Regions would have recovered the full amount of the debt.” Guarantors asserted that there was in the record no proof of their inability to satisfy the debt or to redeem the Aircraft had they received notice of the sale. In their pro-
The trial court concluded that Regions had rebutted the presumption under the rebuttable presumption rule codified in
Regions Bank has met its preponderance of the evidence burden of proof obligation under the “rebuttable presumption rule,” in
Tennessee Code Annotated Section 47-9-626(4) , by presenting evidence that established the fair market value of the Aircraft at the time of sale on December 2, 2008.
The trial court, thus, accepted Regions’ contention regarding the proof relevant and sufficient to rebut the presumption under
The Court of Appeals, however, disagreed with Regions’ position. In so doing, the court relied in the first instance on its construction of the language of the rebuttable presumption rule as codified in the Tennessee statute:
[T]he provisions of the codified rule do not track the rebuttable presumption rule as that rule was often judicially defined. Under the common judicial phrasing of the rule, a noncomplying secured party could still recover a deficiency if it presented evidence that the fair market value of the collateral was less than the outstanding indebtedness. However, a close examination at the relevant provisions of the codified rule reveals that the statute‘s focus is not so limited.... The upshot of this statute is that a secured party cannot recover a deficiency unless it proves that compliance with the commercial code‘s collection, enforcement, disposition, and acceptance requirements would have yielded a sum lesser than the total secured obligation, together with attorney‘s fees and expenses. Thus, Regions cannot obtain a deficiency judgment in this case unless it presented evidence showing that, had it provided proper notice and conducted a commercially reasonable sale, it would not have been fully satisfied.
The rule outlined in section 47-9-626 is slightly different from the previous common judicial articulations of the rebuttable presumption rule because the potential rebutting evidence under the codified rule is not narrowly tied to whether the creditor received fair market value for the collateral. Rather, under the plain language of the statute, a secured party bears the burden of tendering probative evidence that its compliance with the relevant provisions would have yielded a lesser sum than the total outstanding indebtedness, plus expenses, and attorney‘s fees.
Regions II, 2016 WL 1719325, at *8-9 (citations omitted). The court also relied on the purpose of the notice requirements:
The significance of the notice requirements is two-fold. In addition to allowing debtors and secondary obligors the opportunity to avoid a sale altogether by discharging the debt and redeeming the collateral, the notice requirements afford such parties a reasonable opportunity to see that the collateral brings a fair price.
Understanding the function of the notice requirements helps to underscore why secured creditors cannot narrowly focus on the fair market value of collateral when their noncompliance with the applicable notice of sale requirements has been established.... [S]ecured parties cannot ignore the potential effect that notice can have on their ultimate recovery. Indeed, it is entirely possible that secured parties can receive an amount greater than the fair market value of collateral if they adhere to the commercial code‘s requirements regarding notice. A debtor or guarantor may be motivated to redeem the collateral prior to sale, and a debtor or guarantor can always try to “bid up” the price of collateral at a sale held by the creditor. Under the latter scenario, the debtor or guarantor may arrange to have a close friend or associate purchase the collateral at a specified price. Absent proper notice, however, these actions are frustrated. Notice can make a difference, irrespective of what the market may otherwise dictate that the collateral is worth. If secured parties have failed to provide proper notice, it is their burden to show that the amount they would have realized through compliance is less than the “sum of the secured obligation, expenses, and attorney‘s fees.”
Id. at *9-10 (footnotes omitted) (citations omitted). Applying this analysis to the case before it, the Court of Appeals rejected Regions’ contention and adopted that of Guarantors. The court concluded that the burden had been on Regions to produce evidence of Guarantors’ potential response to a notice of sale:
Regions failed to meet its statutory burden in this case because it put on no evidence attempting to show that providing proper notice to the Guarantors would not have resulted in its full satisfaction. Although Regions notes that the trial court did not allow the Guarantors to introduce evidence during the May 2011 hearing as to what they would have done had they been given proper notice and further notes that the Guarantors did not request the opportunity to introduce such evidence on remand, whether the Guarantors properly submitted proof on such issues into the evidentiary record is ultimately of no moment. The Guarantors did not have to rebut a presumption that notice would not have affected Regions’ ultimate recovery. That is not the standard under
Tennessee Code Annotated section 47-9-626 . Rather, having failed to provide sufficient notice of sale, Regions had the burden of showing that it would not have been satisfied had it given the Guarantors proper notice.. . . .
Had the Guarantors been given notice, they potentially could have redeemed the collateral or taken other actions that would have resulted in Regions’ total satisfaction. Despite these possibilities, Regions did not attempt to show that it would not have been fully satisfied had it provided proper notice. In fact, whenever the Guarantors attempted to introduce evidence concerning their financial worth and ability to buy the collateral, Regions objected, with success, that such evidence was irrelevant. As already noted, it does not ultimately matter that the Guarantors failed to present evidence in this case on what they would have done had they
been given notice. Under the statute, Regions was the party initially obligated to show that providing notice would not have mattered. It failed to introduce any evidence on this issue.
Id. at *10-11 (footnotes omitted) (citations omitted).
Thus, the Court of Appeals concluded that evidence of a debtor‘s or a guarantor‘s potential response to a notice of sale, i.e., that the debtor or guarantor could and would have redeemed or purchased the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees, is relevant to the application of the rebuttable presumption rule. The Court of Appeals’ holding was not limited to a determination of relevance, however. As the foregoing makes clear, the Court of Appeals also concluded that evidence of the debtor‘s or guarantor‘s inability in this regard is required to rebut the presumption under
Regions and Guarantors assert their same positions in this Court; Regions adheres to the conclusion reached by the trial court, and Guarantors adhere to that reached by the Court of Appeals. We reject both positions.
We hold that a secured creditor is not required to introduce evidence negating a debtor‘s or a guarantor‘s ability or motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses and attorney‘s fees in order for the creditor to rebut the presumption under the codified rebuttable presumption rule and create a question of fact. Rather, by introducing evidence that the collateral was sold for an amount equal to or in excess of its fair market value, a creditor may sufficiently rebut the presumption to create a question of fact as to whether the sale of the collateral still would have yielded proceeds less than the sum of the secured obligation, expenses, and attorney‘s fees had proper notice been provided. This, however, does not end the matter. In cases in which the statutorily required notice has not been provided, evidence of a debtor‘s or a guarantor‘s ability and motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees may be relevant to the ultimate determination of the amount of proceeds that would have been realized had the secured creditor provided the statutorily required notice.5 Therefore, a debtor or guarantor, may offer such evidence, in addition to any countervailing evidence regarding the fair market value
We believe that this holding is logical and is supported by the analytical framework applicable to statutory rebuttable presumiums generally, the language of the statute, the purpose of the notice requirement, and case law from this and other jurisdictions.
Even prior to the adoption of the rebuttable presumption rule in the UCC and its codification in Tennessee, the appellate courts of this State applied the rule to cases involving the disposition of collateral in a commercially unreasonable manner or without proper notice as required under the UCC as then adopted in Tennessee. In a case involving the failure to give notice, for example, the Court of Appeals explained the analytical framework applicable to the rebuttable presumption rule:
Here it is appropriate to examine in more detail the nature of the presumption raised. Presumptions used in the law of evidence are of two kinds. The first is a presumption of law which bears no relationship to a logical deduction and the second one of fact which does have a rational basis and might more accurately be termed an inference. When creditable evidence is introduced to rebut a presumption of law it disappears from the case and is no longer to be considered. An inference, however, remains in the case to be considered with other evidence and given such weight as the trier of the fact may choose.
We believe the presumption enunciated in Investors Acceptance Company is one of law as we see no particular logical basis for its indulgence. It seems to us that as was indicated in Norton, it is a burden-shifting device requiring the party who is in a better position to have knowledge of the facts to go forward with the evidence. Our conviction in this regard is buttressed by Judge Todd‘s use of the word “prima facie” which was addressed by the Supreme Court of Michigan in Hill v. Hairston, 299 Mich. 672, 1 N.W.2d 34, 36 ([Mich.] 1941), thusly:
The rule is better expressed in the quotation from Gillett v. Michigan United Traction Co., [205 Mich. 410, 171 N.W. 536, 538 (Mich. 1919)], In Re Cotcher‘s Estate, [274 Mich. 154, 264 N.W. 325, 326 (Mich. 1936)], as follows: “It is now quite generally held by the courts that a rebuttable or prima facie presumption has no weight as evidence. It serves to establish a prima facie case; but, if challenged by rebutting evidence, the presumption cannot be weighed against the evidence. Supporting evidence must be introduced, and it then becomes a question of weighing the actual evidence introduced, without giving any evidential force to the presumption itself.”
In view of the fact that creditable evidence was introduced sufficient to rebut the prima facie presumption raised, we shall review the proof touching on this question to determine where the preponderance lies.
The Uniform Commercial Code explains the operation of a presumption, including that created by the codified rebuttable presumption rule, as follows: “Whenever chapters 1-9 of this title create a ‘presumption’ with respect to a fact, or provide that a fact is ‘presumed‘, the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence.”
Although
Under this analytical framework, the trial court is to first consider whether the creditor, which bears the initial burden of rebutting the presumption, has introduced evidence which supports a finding of the nonexistence of the presumed fact. See
We do not find that the language of the codified rebuttable presumption rule mandates the specific evidence which a creditor must introduce in the first instance to sufficiently rebut the presumption that the sale would have yielded an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees and to create a question of fact. More specifically, we do not find that the language of the codified rule mandates that a creditor introduce in the first instance evidence which establishes the inability or lack of desire on the part of a debtor or guarantor to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. The fact that the text of the codified rule contains no reference to fair market value does not negate the relevance of evidence that the collateral was sold at its fair market value to the question of whether, had proper notice been provided, the proceeds from the sale of the collateral still would have been in an amount less than the sum of the secured obligation, expenses, and attorney‘s fees.
Although predating the codification of the rebuttable presumption rule, we find prior decisions of our appellate courts addressing the presumption to be instructive.6 Contrary to the Court of Appeals in this case, we do not find the court‘s prior articulation of the fact presumed or the
burden to be met by a creditor under the pre-codification rebuttable presumption rule to be materially different from that under the codified version of the rule. Under both the pre-codification rule and the codified rule, the creditor ultimately must establish that the amount that would have been obtained at a sale conducted in accordance with the requirements of UCC Article 9 as adopted in this State is less than the sum of the secured obligation, expenses, and attorney‘s fees in order to recover a deficiency.
For example, in ITT, a pre-codification case, the Court of Appeals described the fact presumed and the presumption to be rebutted under the rebuttable presumption rule as follows: “[A] presumption arises that ‘the collateral was worth at least the amount of the debt, thereby shifting to the creditor the burden of proving the amount that should reasonably have been obtained through a sale conducted according to law.‘” ITT, 1982 WL 170990, at *383 (emphasis added) (quoting Norton v. Nat‘l Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538, 542 (1966), abrogated by First State Bank of Morrilton v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987)). After then discussing the analytical framework applicable to the rebuttable presumption rule, the ITT court concluded: “In view of the fact that creditable evidence was introduced sufficient to rebut the prima facie presumption raised, we shall review the proof touching on this question to determine where the preponderance lies.” Id. at 384. That “creditable
We additionally note that, in at least some of the pre-codification cases in which the rebuttable presumption rule has been addressed, the Court of Appeals expressly noted the purpose of notice under UCC Article 9, as did the Court of Appeals in this case. And yet, in those prior cases, the court concluded that the creditor‘s introduction of evidence of the sale of the collateral at fair market value was relevant to rebuttal of the presumption and might be sufficient to rebut the presumption, without any mention of the need for evidence negating the possible ability or motivation of a debtor or guarantor to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. See, e.g., ITT, 1982 WL 170990, at *383.
We also find instructive decisions from other jurisdictions applying the very same rebuttable presumption rule as that codified in Tennessee. These decisions have determined that a creditor rebuts the statutory presumption by presenting proof of the fair market value of the collateral. These decisions make no mention of a requirement that a creditor present evidence negating the ability or motivation of a debtor or guarantor to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees in order to rebut the presumption.
For example, the Supreme Judicial Court of Maine, applying New York law, has explained the operation of the codified rebuttable presumption as follows:
However, [the creditor‘s] failure to comply with [the notice] requirement only created a presumption that, if the proper notice had been given, the sale proceeds would have equaled the sum of the secured obligation, expenses, and attorney fees.
N.Y. U.C.C. Law § 9-626(a)(3)-(4) ; Coxall v. Clover Commercial Corp., 4 Misc.3d 654, 781 N.Y.S.2d 567, 576 (Civ. Ct. 2004) (discussing the adoption of the rebuttable presumption rule in New York for non-consumer transactions).. . . .
[¶ 19]. Under New York law, the effect of a presumption is “that the trier of fact must find the existence of the fact presumed unless and until evidence is introduced which would support a finding of its nonexistence.”
N.Y. U.C.C. Law § 1-201(31) (Consol. 1999). To rebut the presumption, [the creditor] need only have provided “some evidence” that the sale proceeds would have been less than the sum of the secured obligation, expenses, and attorney fees even if authenticated notice had been given. See Freeman Check Cashing, Inc. v. State, 97 Misc.2d 819, 412 N.Y.S.2d 963, 964-65 (Ct. Cl. 1979),
Hawkins, 985 A.2d at 1144-45 (footnote omitted). The court went on to hold that the creditor had “produced some evidence that it was more probable than not that the [collateral] would still have sold for [the same amount] if [the guarantor] had been given authenticated notice” and that it had therefore rebutted the presumption under the codified rebuttable presumption rule. Id. at 1145. The evidence which the creditor had produced concerned the sale of the collateral at fair market value and did not include any evidence regarding the ability of the guarantor to redeem the collateral or to purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees.
That such a requirement is not placed on the creditor in order to rebut the presumption under the codified version of the rebuttable presumption rule is made particularly clear by a decision from the Ohio Court of Appeals. In Midstate Educators Credit Union, Inc. v. Werner, 175 Ohio App.3d 288, 886 N.E.2d 893 (2008), the plaintiff creditor sought recovery of a deficiency from the defendant debtor. The debtor asserted as an affirmative defense lack of notice. Id. at 895-96. Following a bench trial, the trial court entered a judgment in favor of the defendant debtor and against the plaintiff creditor. Id. at 896. The Ohio Court of Appeals reversed. Id. at 903. The court first affirmed the trial court‘s determination that the plaintiff creditor had not provided notice as required under the UCC as adopted in Ohio. Id. at 901. The court then turned to the issue of whether the plaintiff creditor had rebutted the presumption under the rebuttable presumption rule as codified in Ohio.7 Id. at 902. In answering this question in the affirmative, and holding the plaintiff creditor entitled to recover a deficiency, the court explained:
{¶ 34} In the case sub judice, the secured obligation prior to the sale was $19,944.06. The amount of the sale was $3,799, resulting in a deficiency of $14,120.06 plus interest. Because appellant was unable to prove compliance with the requisite provisions of [Ohio Rev. Code Ann.] Chapter 1309, the deficiency judgment would be limited to either (a) $19,944.06 less $3,799 or (b) $19,944.06 less what the amount would have been had there been compliance. It
is presumed by statute that the amount that would have been obtained had there been compliance is $19,944.06, resulting in a deficiency of zero. If, however, appellant was able to show that even if it complied with the statutory notice provisions, the amount recovered still would have been less than the $19,944.06, it is entitled to a deficiency judgment of the difference between $19,944.06 and whatever amount is greater, $3,799, or what would have been recovered that is still less than $19,944.06.
{¶ 35} Here, it was established at trial that even if appellant sent requisite notice of the sale and deficiency explanation that the amount that would have been recovered is the same as that actual proceeds recovered. Though appellee stated in her affidavit in support of her motion for summary judgment that she needed a vehicle and would have taken over payments had she known about the default, none of this testimony was adduced at trial. The judgment of the trial court must be based upon the evidence actually adduced from the witness stand, from exhibits admitted during trial or from any stipulations agreed upon by counsel. An affidavit is not subject to cross-examination and, standing alone, is inadmissible at trial. The fact an affidavit has been filed in the record does not mean it is admitted at trial. At trial, appellee‘s affidavit was neither offered nor admitted as evidence, nor was she questioned about it. To the contrary, appellant established that the amount of the proceeds that would have been realized had proper notice been sent was the same as the amount actually received. The evidence established that the vehicle was sold at a public auction and that the auction house obtained the highest
price possible for the collateral at auction at that time. Thus, even if notice had been sent to appellee, appellant‘s evidence establishes the amount realized at the public auction would have been unchanged, and therefore, still been less than the $19,944.06 obligation, and appellee and Mr. Werner would still be liable for the same deficiency. No evidence was submitted at trial to refute this.
{¶ 36} Therefore, the only evidence before the trial court at the conclusion of the trial is that the proceeds amount that would have been realized had appellant sent notice is the same as the amount actually realized, which is less than the secured obligation. Therefore, the trial court erred in its analysis of [Ohio Rev. Code Ann. section] 1309.626 because here appellant did rebut the presumption that the amount realized is the same as the secured obligation. Therefore, appellant is entitled to a deficiency judgment.
Id. at 902-03 (citations omitted) (internal quotations omitted). Had the burden been on the plaintiff creditor in Werner to negate the ability or intent of the defendant debtor to redeem or purchase the collateral, it would have been entirely irrelevant that the defendant debtor failed to properly introduce evidence of what her actions would have been had she received proper notice.8
Although we conclude that a secured creditor need not affirmatively negate a debtor‘s or guarantor‘s ability or motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees in order to rebut the statutory presumption and create a fact question, this does not mean that such evidence is not relevant to the ultimate determination of the amount of proceeds that would have been realized had the secured creditor provided the statutorily required notice, and thus, whether the creditor might be entitled to a deficiency judgment. Assuming that a secured creditor, in the first instance, rebuts the statutory presumption and thereby creates a question of fact, the debtor or guarantor should be allowed to introduce evidence regarding the ability and motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees as countervailing evidence. The secured creditor, of course, may introduce contradictory evidence. The trial court should consider and weigh such evidence as part of the totality of the relevant evidence introduced by the parties in ultimately determining the fact question of what amount of proceeds would have been realized had the noncomplying secured creditor provided the statutorily required notice, and the amount of the deficiency, if any, to which the creditor may be entitled.9 As previously noted, the burden of proof, however, remains on the noncomplying se-
Contrary to Regions’ contention,10 we do not view the language of the codified rebuttable presumption rule,
The purpose of the notice requirements supports the relevance of such evidence in those cases in which a creditor has failed to comply with the statutory notice requirements. As the Court of Appeals noted some fifty years ago, “[t]he purpose of this notice, without doubt, is to enable the debtor to protect his interest in the property by paying the debt, finding a buyer or being present at the sale to bid
on the property or have others do so, to the end that it be not sacrificed by a sale at less than its true value.” Mallicoat v. Volunteer Fin. & Loan, Inc., 57 Tenn.App. 106, 415 S.W.2d 347, 350 (1966). The court more recently reiterated this purpose in R & J of Tennessee, Inc.:
The policy justifications for providing notice to a debtor are equally applicable to a secondary obligor, and can be stated as follows: “We think the provision for notice in connection with a sale is intended to afford the debtor a reasonable opportunity (1) to avoid a sale altogether by discharging the debt and redeeming the collateral or (2) in case of sale, to see that the collateral brings a fair price. A notice that does not afford him this reasonable opportunity is not reasonable notification and a sale under it is not commercially reasonable.”
166 S.W.3d at 203 (citations omitted). Permitting a debtor or guarantor to introduce evidence of the ability and motivation of the debtor or guarantor to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees is wholly consistent with this purpose.
Decisions from other jurisdictions lend further support to the relevance of such evidence. See Bank of Am., N.A. v. Sea-Ya Enters., LLC, No. CA 11-445-RGA, 2013 WL 126268, at *3 (D. Del. Jan. 9, 2013); In re Wilmington Hospitality. LLC, 320 B.R. 73, 77 (Bankr. E.D. Pa. 2005); C & J Leasing Corp. v. Beasley Invs., Inc., 767N.W.2d 420 (Iowa Ct. App. 2009); Werner, 886 N.E.2d at 903.
Accordingly, we conclude that both the trial court and the Court of Appeals erred in their respective applications of the codified rebuttable presumption rule. In this case, Regions rebutted the statutory presumption and created a question of fact by presenting evidence that the Aircraft was sold for an amount in excess of fair market value. It then became incumbent on the trial court to consider the totality of the evidence presented to determine whether the sale of the Aircraft still would have yielded proceeds less than the sum of the secured obligation, expenses, and attorney‘s fees had proper notice been provided, as Regions contended. We further conclude that remand to the trial court is appropriate in this case in order for the trial court to conduct those proceedings necessary for the proper application of the rebuttable presumption rule as we have articulated that Rule herein.
The trial court excluded and did not consider evidence regarding the ability and motivation of Guarantors to redeem or purchase the Aircraft for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. As a result, it did not make any findings in this regard. As noted, during the trial before the first appeal and remand, Regions successfully sought to preclude Guarantors from introducing evidence regarding what they would have done had they received notice of the sale and, particularly, evidence regarding their ability and motivation to redeem or purchase the Aircraft for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees.
On remand, Guarantors moved for entry of a final judgment of dismissal on the ground that Regions had failed to meet its burden to show that Guarantors were in-capable of redeeming or purchasing the Aircraft for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. Guarantors supported their motion with an affidavit attesting to the Guarantors’ ability to redeem or purchase the collateral. Regions opposed that motion on the ground that such evidence was irrelevant and cited the trial court‘s prior exclusion of testimony in this regard. The trial court denied Guarantors’ motion. In their proposed findings of fact and conclusions of law, Guarantors attempted to rely, at least in part, on the previously excluded testimony. The trial court did not include those particular proposed findings in its findings of fact, conclusions of law, and judgment, at least implicitly rejecting the relevance of evidence regarding Guarantors’ ability and motivation to redeem or purchase the Aircraft for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees.11 In the Court of Appeals, Guarantors sought to rely not only on the previously excluded testimony, but also on the affidavit which they had submitted in support of their unsuccessful motion to dismiss. In this Court, Guarantors again cite to the excluded testimony at the original trial and to the affidavit submitted in support of their previously denied motion for entry of a final judgment of dismissal on remand.
The only relevant testimony of Guarantors in the record is the stricken testimony of Mr. Thomas, in which he testified that he could have paid the actual
The record, therefore, is insufficient for this Court to make the necessary findings for the proper application of the rebuttable presumption rule, even were the Court so inclined. Consequently, remand to the trial court for the receipt of proof and the finding of facts necessary to the proper application of the rebuttable presumption rule, and for the proper application of that rule, is appropriate. See, e.g., Raines v. Nat‘l Health Corp., No. M2006-1280-COA-R3-CV, 2007 WL 4322063, at *7 (Tenn. Ct. App. Dec. 6, 2007) (“Often when a trial court‘s decision rests upon an improper legal standard and omits necessary factual and legal analysis, it is appropriate to remand the case to the trial court for reconsideration.“).
C. Fair Market Value
The trial court found that the fair market value of the Aircraft on the date of sale was $1,500,000. The parties raised in the Court of Appeals numerous issues regarding the trial court‘s determination of fair market value, but the Court of Appeals deemed those issues pretermitted. The parties continue to raise those issues in this Court, and Guarantors raise an additional issue as well.13
Both parties raise issues regarding the underpinnings of the trial court‘s finding that the Aircraft had a fair market value of $1,500,000 as of the date of sale. Regions, for its part, contends that although the trial court indicated that it was utilizing as a starting point the “blue book” average retail value for the subject model aircraft from the Winter 2008/2009 Blue Book,14 the $2,000,000 figure stated by the trial court actually came from the Summer 2008 Blue Book. Regions asserts that the trial court inadvertently utilized the $2,000,000 figure from the Summer Blue Book; that the relevant blue book was the Winter 2008/2009 Blue Book; and that the trial court intended to utilize this edition,
which stated an average retail value of $1,600,000 for the subject model aircraft.
Guarantors respond that the error was not on the part of the trial court, but rather was on the part of Regions’ witness Joe Duncan. This is simply incorrect. The deposition testimony of Joe Duncan designated by the parties contained a discussion, albeit brief, of both the average retail value of $2,000,000 according to the Summer 2008 Blue Book; and, the average retail value of $1,600,000 according to the Winter 2008/2009 Blue Book.
Regardless, there is internal inconsistency in the trial court‘s finding regarding the starting point for its fair market value determination. Moreover, we are unable to glean from the record whether the trial court erred in its designation of the edition of the Blue Book it intended to utilize, or erred in its designation of the average retail value figure it intended to utilize. Therefore, we cannot determine whether the trial court‘s finding that the starting point for its determination of fair market value was $2,000,000 was correct.
Guarantors, for their part, contend that the trial court erred in reducing the stated $2,000,000 average retail value by $500,000 in determining the fair market value of the Aircraft. According to Guarantors, the trial court improperly relied on testimony from Joe Duncan in determining that this deduction should be made when the court had excluded that portion of Mr. Duncan‘s testimony. The only evidence cited by the trial court for the proposition that the average retail blue book value for the subject model aircraft should be reduced by $500,000 in determining the fair market value of the Aircraft was the testimony of Joe Duncan that the Aircraft “needs over a half million dollars spent on it now to make
Both parties raise issues regarding the trial court‘s use of the average retail value set forth in any version of the Blue Book as the basis for its determination of the fair market value of the Aircraft as of the date of sale. Both parties contend that other testimony and evidence in the record established either a lower fair market value (Regions) or a higher fair market value (Guarantors) for the Aircraft than the average retail value for the subject model aircraft as set out in either the Summer 2008 Blue Book or the Winter 2008/2009 Blue Book.
The evidence offered by the parties relative to fair market value includes both live testimony from witnesses at the original trial, and deposition testimony.
Haglund, Graubart, Conn, and Duncan each offered testimony bearing on the fair market value of the Aircraft, and the parties variously have relied on the testimony of each. The trial court concluded that each of these witnesses qualified as an expert witness with respect to the matters as to which each was permitted to testify,15 and cited testimony of each of these witnesses in its Findings of Fact. The trial
court found that “[t]he evidence established that on December 2, 2008, the fair market value of the Aircraft was $1,500,000.00 and not $875,000.00.” The trial court later stated in its Conclusions of Law that the testimony of Joe Duncan established the fair market value of $1,500,000. A review of Mr. Duncan‘s testimony, however, indicates that he did not testify that this was the fair market value of the Aircraft. Rather, it appears that the trial court is referring to Mr. Duncan‘s testimony regarding the Blue Book average retail value and that the basis for the trial court‘s finding of a starting value of $2,000,000 was actually the Blue Book.16 It further appears that the basis for the trial court‘s deduction of $500,000 from that starting figure to arrive at a fair market value of $1,500,000 was the previously excluded testimony of Mr. Duncan.
The Court already has determined that remand is necessary for application of the rebuttable presumption rule. Given that the issue of the fair market value of the Aircraft is also relevant to the trial court‘s ultimate determination of whether Regions is entitled to any deficiency judgment, the Court concludes that remand to the trial court also is appropriate for the trial court to revisit its determination of fair market value of the Aircraft at the time of sale.
D. Other Issues
Both parties raise collateral evidentiary issues potentially bearing on the trial court‘s determination of the fair market value of the Aircraft. Regions challenges the trial court‘s exclusion of portions of the testimony of Joseph Duncan
Guarantors also challenge the trial court‘s finding that Regions had incurred $425,000 in expenses necessary to render the collateral marketable. In determining the amount of the deficiency, the trial court added this amount to the amount of the secured debt. Guarantors contend that the record fails to contain evidence supporting the necessity and reasonableness of these expenses as is required for their potential recovery as a part of the calculation of any deficiency pursuant to
Regions raises as an issue in this Court the trial court‘s calculation of pre-judgment interest. The trial court determined that Regions was entitled to pre-judgment interest on the deficiency at the rate of 3% which equated to $83.65 per day, for total pre-judgment interest in the amount of $191,725.80. Regions failed, however, to state this as an issue in the “Statement of Issues” in its brief in the Court of Appeals, although it did address the issue in the argument section of its brief. Regions II, 2016 WL 1719325, at *5 n.3. Therefore, we conclude that the issue is waived. See Hodge, 382 S.W.3d at 334-35.
Finally, Guarantors raise as an additional issue the Court of Appeals’ holding that Guarantors lack standing to seek recovery of a surplus pursuant to
E. Remand
In light of our holding that Regions has sufficiently rebutted the statutory rebuttable presumption and has created a question of fact, on remand the trial court is to determine the amount of proceeds that would have been realized had Regions provided the statutorily required notice, and the amount of the deficiency, if any, to which Regions may be entitled. Regions bears the burden of proof with respect to these issues. In order to make these determinations, the trial court is to consider the totality of the evidence introduced by the parties, including evidence with respect to the fair market value of the Aircraft as of the date of sale, the Guarantors’ ability and motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees,17 and the amount of the
The trial court shall permit the parties to introduce additional testimony and evidence regarding the Guarantors’ ability and motivation to redeem or purchase the collateral for an amount equal to the sum of the secured obligation, expenses, and attorney‘s fees. The trial court, in its discretion, may permit additional discovery relevant to this question. The trial court, in its discretion, also may permit additional discovery and the introduction of additional evidence regarding the fair market value of the Aircraft as of the date of sale and regarding the reasonable and necessary expenses incurred by Regions to render the Aircraft marketable. Finally, the trial court, in its discretion, may reconsider its evidentiary rulings regarding the testimony of witnesses Mark Graubart, Edd Conn, and Joe Duncan.
CONCLUSION
For the reasons stated herein, we reverse the judgment of the Court of Appeals. We also vacate the judgment of the trial court and remand the case to the trial court for further proceedings consistent with this opinion.