Pollack v. Pulaski Bank & Trust Co.

Citations: 30 Ark. App. 20; 781 S.W.2d 497; 11 U.C.C. Rep. Serv. 2d (West) 390; 1989 Ark. App. LEXIS 646Docket: CA 89-255

Court: Court of Appeals of Arkansas; December 20, 1989; Arkansas; State Appellate Court

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On July 15, 1987, the appellants executed a promissory note for $62,180.12 to the appellee, securing it with equipment from their business, The Image Factory, Inc. The security agreement mandated that the appellee provide five days' written notice before selling the collateral in case of default. The appellants defaulted in October 1987 and voluntarily returned the equipment. In February 1988, the appellee accepted a $50,000 offer for the equipment from Filmed Events Network. Although the appellee obtained consent from appellant Robin Craft for the sale, appellant Cary Pollack was not contacted, and no written notice was provided to either appellant. The appellee later sued for the deficiency, resulting in a trial on February 6, 1989, where the court ruled the sale was conducted in a commercially reasonable manner and awarded the appellee $14,871.48 plus costs. The appellants appealed, arguing the sale was not commercially reasonable and that the appellee was thus not entitled to a deficiency judgment. The court affirmed in part and reversed in part. Testimony revealed that the appellee's vice president, Jean Blackwood, communicated with potential buyers and followed up with Craft regarding the sale. Ultimately, Craft suggested proceeding with the sale after failing to reach Pollack, despite receiving a higher offer later for the equipment.

Ms. Blackwood testified about the decision to honor a previous commitment despite a higher offer, emphasizing the obligation to fulfill their word. She acknowledged receiving an oral offer from Filmed Events Network for $50,000, which the appellants were not formally notified about. Ms. Craft confirmed that Ms. Blackwood communicated this offer, stating that Charles Friedman indicated he could pay up to $70,000 for the equipment. Friedman contacted the bank but was informed that the equipment was already sold. Mr. Pollack noted that the appellee had assured him of involvement in the sale process. Friedman reiterated his offer but was told by the appellee that they had made a verbal commitment to the lower offer. The circuit judge remarked on the inadequacy of the five-day written notice requirement, given the ongoing communication between the parties. Ultimately, the court ruled in favor of the appellee, confirming the acceptance of the $50,000 offer and stating that the sale process complied with commercial reasonableness as per Arkansas law, rendering the written notice unnecessary.

Appellants contend that the absence of written notice regarding the sale of collateral renders the appellee's actions commercially unreasonable under Ark. Code Ann. Section 4-9-504(3). They cite McIlroy Bank, Trust v. Seven Day Builders of Arkansas, Inc. to support their claim that written notice was mandatory and argue that their security agreement stipulated a minimum of five days' written notice. In contrast, the appellee asserts that McIlroy Bank, Trust pertains to Ark. Code Ann. Section 4-9-505 and is thus irrelevant. The appellee further claims that Section 4-9-504(3) does not obligate written notice and allows for notification by telephone. Additionally, the appellee argues that the appellants waived their right to written notice through their post-default actions, including their engagement with the bank and Ms. Craft's instruction to accept an offer.

Section 4-9-504(3) states that reasonable notification of the time and place of a public sale or the time for a private sale must be sent to the debtor unless they have waived this right in writing after default. The appellants did not sign any waiver. Legal commentary highlights that private sales require reasonable notice of the time after which the sale will occur, while public sales require specific notice of the time and place. Arkansas case law, including Barker v. Horn and Womack v. First State Bank of Calico Rock, suggests that failure to provide written notice can invalidate the sale. In Barker, the court ruled that oral notice without a specified time did not meet the reasonable notification requirement, indicating that written notice should be sent to the debtor unless they have explicitly waived that right post-default.

The circuit judge determined that the appellants were estopped from claiming a lack of written notice regarding the sale of collateral because Ms. Craft was aware of the proposed sale and instructed acceptance of Mr. Moore’s offer. This situation parallels the case of Wheeless v. Eudora Bank, where the appellant debtor contested a repossession and sale due to lack of specific notice, despite the bank's claims of prior communication. The court ruled that mere knowledge of repossession did not satisfy the statutory notice requirements, establishing that debtors are entitled to know the specific date of sale to protect their interests. Estoppel requires strict proof; any claims must be substantiated by clear and certain facts, not mere inference. In contrast, the trial judge found that Ms. Craft’s informed agreement to proceed with the sale constituted a valid basis for estoppel, as she acted on her knowledge and directed the acceptance of the offer, thus the requirement for written notice did not apply to her.

The proof required to establish estoppel concerning Mr. Pollack is insufficient. A marital relationship does not inherently grant spouses agency over each other, as established in Langston v. Langston. The appellee could not demonstrate that Ms. Craft had the authority to waive Mr. Pollack’s right to written notice in his absence, meaning reliance on her actions regarding his rights was unreasonable. Consequently, the circuit judge's determination that the security agreement's notice requirement did not apply to Mr. Pollack was erroneous.

The determination of whether a collateral sale was conducted in a commercially reasonable manner is a factual question, as noted in Farmers and Merchants Bank v. Barnes. Evidence indicates that Ms. Craft was estopped from claiming a lack of written notice, validating the circuit judge’s finding of commercial reasonableness concerning her rights. However, since there is no evidence that Mr. Pollack was bound by Ms. Craft's actions or estopped from asserting a lack of notice, the trial court’s conclusion of commercial reasonableness regarding him was erroneous.

The appellants argue that the failure to conduct a commercially reasonable sale invalidates the deficiency judgment. This issue does not need to be addressed for Ms. Craft since her sale was deemed commercially reasonable. Importantly, based on First State Bank of Morrilton v. Hallett, the appellee cannot obtain a deficiency judgment against Mr. Pollack due to the lack of proper notice in the sale of collateral, emphasizing that creditors must adhere to legal requirements to claim such judgments. The ruling is affirmed in part and reversed in part, with Judges Jennings and Mayfield concurring.