DEARBORN CAPITAL CORP V FACUNDO BRAVO
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STATE OF MICHIGAN
COURT OF APPEALS
DEARBORN CAPITAL CORPORATION,
UNPUBLISHED
September 22, 2009
Plaintiff-Appellee,
v
No. 284274
Oakland Circuit Court
LC No. 2007-082316-CK
FACUNDO BRAVO,
Defendant-Appellant.
Before: Davis, P.J., and Murphy and Fort Hood, JJ.
PER CURIAM.
In this case involving a dispute under the Uniform Commercial Code (UCC) – Secured
Transactions, MCL 400.9101 et seq., we conclude that defendant Facundo Bravo was entitled to
an order granting him summary disposition on plaintiff’s complaint, where there is no factual
dispute that defendant did not receive, nor did plaintiff deliver, notice under MCL 440.9611
relative to the disposition of the collateral (segregated account funds), and where plaintiff was
required to comply with the statutory notice requirement under the circumstances presented.
Accordingly, we reverse the trial court’s judgment and remand for entry of judgment in favor of
defendant.
The collateral that had secured the loan made by plaintiff to Uni Boring, i.e., a transfer
line referred to as the Lamb Technicon Cylinder Head Automation Machine (cylinder head
machine), had been disassembled and was no longer being used in its original capacity by the
time of the bankruptcy.1 Some of the cylinder head machine’s components had been scrapped,
but other components were converted for use in different Uni Boring lines. The bankruptcy
court authorized and approved the sale of Uni Boring’s assets to UC Investors, Inc. (UC), free
1
The parties do not provide documentary evidence regarding the facts prior to the bankruptcy.
However, defendant asserted that plaintiff was a subsidiary of the Ford Motor Company (Ford).
After the award of the contract between Ford and Uni Boring, the loan for the purchase of
cylinder head machine was executed. However, Ford later cancelled the contract for the
manufacture of the vehicle thereby negating the need for the use of the cylinder head machine.
The briefs submit that a restructuring of the agreement occurred, however, there is no allegation
regarding any steps to protect the collateral, the cylinder head machine, in its original form.
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and clear of all encumbrances, for $19.3 million. There was evidence that these assets included
components that originally came from the cylinder head machine (collateral) and which had been
shifted to other lines still in existence at the time of sale.
The following provision is found in the order entered by the bankruptcy court that
approved the sale of assets from Uni Boring to UC:
The sum of $500,000.00 shall be paid at Closing into a segregated account
at Comerica to be held pending a determination of the allowed secured amount
and whether the alleged secured claim of Dearborn Capital Corporation (“DCC”)
has priority over the interests of Comerica in the collateral securing DCC’s claim.
Payment of DCC’s secured claim shall be limited to the amount of said
segregated funds referenced in this Paragraph 8.C. only, and the value of DCC’s
collateral (determined in relation to the total Purchase Price for the Purchased
Assets other than accounts and inventory) to the extent its secured claim in said
collateral is found to be superior to the interests of Comerica, with any funds
remaining after said determination and payment to DCC paid to Comerica for the
account of Debtor.
Disposition of the $500,000 contained in the segregated account was later resolved by a
settlement between our plaintiff, Comerica, and the bankruptcy debtor (Uni Boring). In a
bankruptcy order approving the settlement, the court provided:
A.
DCC shall have an allowed secured claim in the amount of
$25,000.00, which shall have priority over the interest of Comerica in the
collateral securing DCC’s claim, and Comerica shall remit to DCC the sum of
$25,000.00 from the funds held in [the] segregated account . . . in full satisfaction
and payment of DCC’s secured claim.
B. The $475,000.00 balance of the funds held in [the] segregated account
. . . shall be remitted and paid to Comerica under the Financing Order to be
applied as Equipment Proceeds . . . .
C. DCC shall have an Allowed Unsecured Claim for the balance of its
claims against the Debtor in the amount of $439,655.79.
With respect to plaintiff’s agreement to release, for $25,000 of the segregated funds, its
security interest in the collateral, which was now in the form of the segregated account,2
Raymond Riberdy3 executed an affidavit, opining:
2
We reach this legal conclusion for reasons stated below.
3
Riberdy has over 40 years experience in machinery and equipment, including inspections,
appraisal review, purchasing, and sales.
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… Dearborn Capital could have recovered well in excess of $25,000.00 by
implementing commercially reasonable collateral recovery measures related to the
[cylinder head machine] and/or its components in 2005, even if the [cylinder head
machine] had been disassembled and put to uses, or its components put to uses, in
other lines or for other functions in or about 2005, and that if the [cylinder head
machine] had been disassembled, its significant components and equipment
would be identifiable and subject to both appraisal and sale in or around 2005.
Under the UCC, a security interest in collateral, here initially the cylinder head machine
and later some of its components, can continue in identifiable proceeds, which include monies
received on sale of the original collateral, thereby making the segregated account created by the
bankruptcy court “new collateral,” so to speak, subject to plaintiff’s security interest, depending
to a degree on Comerica’s priority in the account and limited to the extent of the value of the
components from the cylinder head machine. MCL 440.9102(1)(l) and (lll); MCL 440.9315;
Conagra, Inc v Farmers State Bank, 237 Mich App 109, 120-121; 602 NW2d 390 (1999).4 The
funds in the segregated account most certainly qualify as “identifiable proceeds” flowing from
the sale of Uni Boring’s assets to UC, including, specifically, the cylinder head machine’s
disassembled and reused components. Moreover, the bankruptcy court’s order setting up the
segregated account utilized language that clearly indicated that the account encompassed security
interests previously held in the machinery. And the bankruptcy court’s subsequent order
approving the settlement stated that plaintiff “shall have an allowed secured claim in the amount
of $25,000.00.” (Emphasis added.)
We now turn to the language of MCL 440.9610 and 440.9611. MCL 440.9610 provides
in relevant part:
(1) After default, a secured party may sell, lease, license, or otherwise
dispose of any or all of the collateral in its present condition or following any
commercially reasonable preparation or processing.
(2) Every aspect of a disposition of collateral, including the method,
manner, time, place, and other terms, must be commercially reasonable. If
commercially reasonable, a secured party may dispose of collateral by public or
private proceedings, by 1 or more contracts, as a unit or in parcels, and at any
time and place and on any terms.
MCL 440.9611 provides in pertinent part:
4
Under the UCC, “proceeds” are defined, in part, as “[w]hatever is acquired upon the sale,
lease, license, exchange, or other disposition of collateral.” MCL 440.9102(1)(lll). “Collateral”
is defined as including “[p]roceeds to which a security interest attaches.” MCL 440.9102(1)(l).
MCL 440.9315(1)(b) provides that “[a] security interest attaches to any identifiable proceeds of
collateral.” We also note that MCL 440.9315(3) provides that “[a] security interest in proceeds
is a perfected security interest if the security interest in the original collateral was perfected.”
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(1) As used in this section, “notification date” means the earlier of the date
on which 1 of the following occurs:
(a) A secured party sends to the debtor and any secondary obligor an
authenticated notification of disposition.
(b) The debtor and any secondary obligor waive the right to notification.
(2) Except as otherwise provided in subsection (4), a secured party that
disposes of collateral under section 9610 shall send to the persons specified in
subsection (3) a reasonable authenticated notification of disposition.
(3) To comply with subsection (2), the secured party shall send an
authenticated notification of disposition to all of the following:
(a) The debtor.
(b) Any secondary obligor.
Given our conclusion that the security interest in the cylinder head machine’s
components could become a security interest in the segregated fund (new or replacement
collateral), and considering that defendant sat in the position of a debtor5 or secondary obligor,
the question that must be answered is whether there was a disposition of the interest in the
collateral by way of the settlement, such that defendant was entitled to notice under MCL
440.9611. It is argued that plaintiff did not and could not dispose of the proceeds contained in
the segregated account because plaintiff never technically possessed the account or monies
therein, where the bankruptcy court’s initial order made no final determination on how the
$500,000 would be allotted. We agree that the bankruptcy court’s initial order only gave rise to
the possibility that plaintiff would receive some or all of the $500,000 contained in the
segregated account, where the language in the order spoke of a disposition of the account
“pending a determination of the allowed secured amount” and whether the alleged secured claim
had “priority over the interests of Comerica.” This uncommitted order of the bankruptcy court,
standing alone, could be viewed as not having given plaintiff possession of anything, and it could
likewise be viewed as not definitively establishing a security interest in the segregated account in
favor of plaintiff, such that the account could be deemed collateral. However, the argument fails
to appreciate the necessary impact of the subsequent $25,000 settlement and the bankruptcy
court’s order approving the settlement, which effectively constituted a determination that
plaintiff had a right to possess $25,000 of the account’s funds and that plaintiff therefore had a
5
This Court has held that, for purposes of the UCC – Secured Transactions, “a guarantor is a
‘debtor’ and is thereby entitled to notice of sale.” Honor State Bank v Timber Wolf Constr Co,
151 Mich App 681, 684; 391 NW2d 442 (1986), citing In re Bluestone Estate, 121 Mich App
659; 329 NW2d 446 (1982).
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$25,000 secured interest in the segregated account, which secured claim was discharged upon
payment of that amount to plaintiff.6
Furthermore, we conclude that plaintiff’s act of settlement, wherein Comerica received
$475,000 from the segregated account and plaintiff received $25,000 in full satisfaction of
plaintiff’s secured claim, was an act by a secured party that disposed of collateral, i.e., disposed
of plaintiff’s secured interest in the segregated fund, MCL 440.9610. By analogy, what occurred
through the settlement process is no different than if plaintiff had repossessed the cylinder head
machine’s components themselves and sold them for $25,000. In both instances, the collateral,
either the components or the interest in the segregated account holding the proceeds from the
sale of the components, would be disposed of, whether by sale or by way of settlement.
Plaintiff, citing Fodale v Waste Mgt of Michigan, Inc, 271 Mich App 11; 718 NW2d 827
(2006), contends that there was no “disposition” of collateral, where a disposition must involve a
transfer of an interest held by the secured party and a transfer of an interest held by the debtor,
and where Uni Boring, as the debtor, did not transfer any interest relative to the settlement
agreement, having previously fully transferred its interest on sale of the assets to UC. We first
note that MCL 440.9610(1) and (2) speaks only of the “secured party” disposing of the
collateral. The Fodale panel, quoting Silverberg v Colantuno, 991 P2d 280, 289 (Colo App,
1998), did state that an examination of the default provisions of article 9 of the UCC leads to a
conclusion that the term “disposition” was “‘intended to refer to a transfer of some portion of the
creditor's interest in the collateral and a transfer of the debtor's interest.’” Fodale, supra at 23
(emphasis in Silverberg). Here, although Uni Boring had sold its assets to UC for 19.3 million,
$500,000 from the sale, which ordinarily would have gone to Uni Boring absent its debts, was
placed into the segregated account without any final determination of disbursement by the
bankruptcy court; it was a tentative disbursement to either Comerica and/or plaintiff. A final
determination of disbursement was made when the settlement occurred, and, while Uni Boring
may no longer have had a claim to any of the segregated funds, the order approving the
settlement explicitly acknowledged that, along with plaintiff and Comerica, “[t]he Debtor,”
which was Uni Boring, agreed to the resolution encompassed by the settlement. Ultimately, the
settlement and order approving it resulted in a disposition or transfer of plaintiff’s interest in the
account and in a final, definitive disposition or transfer of Uni Boring’s interest in the proceeds
from the sale to UC. Accordingly, there was a disposition of collateral.
Having concluded that there was a disposition of collateral, MCL 440.9610, there was a
need to give notification to defendant under MCL 440.9611; however, there is no genuine issue
of fact, for purposes of MCR 2.116(C)(10),7 that plaintiff did not give any notice to defendant.
6
The order approving the settlement indicated that the parties “agreed to resolve the issues as to
the amount and priority of [plaintiff’s] allowed secured claim.”
7
This Court reviews de novo a trial court’s decision on a motion for summary disposition.
Kreiner v Fischer, 471 Mich 109, 129; 683 NW2d 611 (2004). MCR 2.116(C)(10) provides for
summary disposition where there is no genuine issue regarding any material fact, and the moving
party is entitled to judgment or partial judgment as a matter of law. A trial court may grant a
motion for summary disposition under MCR 2.116(C)(10) if the pleadings, affidavits, and other
(continued…)
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Defendant repeatedly claims that he never received notice of the disposition as required by MCL
440.9611, and plaintiff presents no evidence, nor even an argument, to the contrary, but simply
maintains that no notice was required. An affidavit submitted by defendant from James
Lewandowski, a financial advisor for Uni Boring, indicated that Lewandowski met with
plaintiff’s William Lang and that he informed Lang “that Mr. Bravo’s ability to satisfy any
potential obligations under the loan agreement [were] premised upon obtaining a reasonable
market value for the Collateral.” Lewandowski further averred that “[o]nly after the sale of the
Collateral was complete did [plaintiff] release any information pertaining to the sale.”
Additionally, Lewandowski stated that Lang had informed him that plaintiff accepted the
$25,000 settlement offer “without performing any due diligence, investigation or inspection
regarding the Collateral’s market value.” The record also includes deposition testimony from
plaintiff’s president implicitly suggesting that no notice was ever given to defendant or that he
had no knowledge regarding whether notice was given. We make these observations because,
although not argued by plaintiff, bankruptcy documents, as well as simply defendant’s former
position with Uni Boring, give rise to a possibility that defendant had notice of the settlement
and its approval.8 Bankruptcy documents indicate that defendant Bravo was a named creditor in
(…continued)
documentary evidence, when viewed in a light most favorable to the nonmovant, show that there
is no genuine issue with respect to any material fact. Quinto v Cross & Peters Co, 451 Mich
358, 362; 547 NW2d 314 (1996), citing MCR 2.116(G)(5). "A genuine issue of material fact
exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open
an issue upon which reasonable minds might differ." West v Gen Motors Corp, 469 Mich 177,
183; 665 NW2d 468 (2003). A court may only consider substantively admissible evidence
actually proffered relative to a motion for summary disposition under MCR 2.116(C)(10).
Maiden v Rozwood, 461 Mich 109, 121; 597 NW2d 817 (1999).
8
The general definitional statute of the UCC, MCL 440.1201, which has been applied to the
notification-of-disposition provision in article 9 by this Court, Luhellier v Bolline Constr, Inc,
157 Mich App 131, 134-136; 403 NW2d 522 (1987), contains the following definitions:
(25) A person has “notice” of a fact when he or she has actual knowledge
of it; he or she has received a notice or notification of it; or from all the facts and
circumstances known to him or her at the time in question he or she has reason to
know that it exists. A person “knows” or has “knowledge” of a fact when he or
she has actual knowledge of it. “ Discover” or “learn” or a word or phrase of
similar import refers to knowledge rather than to reason to know. The time and
circumstances under which a notice or notification may cease to be effective are
not determined by this act.
(26) A person “notifies” or “gives” a notice or notification to another by
taking such steps as may be reasonably required to inform the other in ordinary
course whether or not such other actually comes to know of it. A person
“receives” a notice or notification when 1 of the following occurs:
(a) It comes to his or her attention.
(continued…)
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the proceedings and that he was represented by counsel. The order approving the settlement
provided that it was being entered “after notice to all parties entitled to Notice pursuant to the
Court’s Order Limiting Notice[.]” The order limiting notice is not included in the record;
therefore, we cannot say whether defendant had notice in the bankruptcy proceedings relative to
the settlement. Given the documentary evidence indicating that defendant had no notice9 and the
inconclusive record on whether the bankruptcy proceedings or defendant’s position with Uni
Boring may have provided defendant with notice, along with considering plaintiff’s complete
lack of argument on the matter, we find that, as a matter of law, defendant was not given the
required notice under MCL 440.9611.
The effect of a notification failure was explored in Honor State Bank v Timber Wolf
Constr Co, 151 Mich App 681, 684; 391 NW2d 442 (1986), wherein the “sole issue . . . on
appeal [was] whether the failure of a secured creditor to give notice to the debtor or guarantor of
the sale of collateral completely bars the creditor from recovering a deficiency judgment.” This
Court answered the question by holding that a secured creditor’s failure to give notice of the
disposition of collateral, as required by the UCC, operates as an absolute bar to the recovery of a
deficiency judgment. Id. at 685-689. The ruling in Honor State Bank was reaffirmed by this
Court in Asset Acceptance Corp v Robinson, 244 Mich App 728, 737-738; 625 NW2d 804
(2001) (“failure to provide notice . . . bars recovery of any deficiency”). Moreover, the panel in
Asset Acceptance Corp made clear that issues concerning the commercial reasonableness of the
secured party’s disposition of the collateral are irrelevant if indeed notice was not given, stating:
The trial court . . . held that the issue of notice was irrelevant in that
defendant failed to present any evidence that the sale was commercially
unreasonable. Specifically, defendant failed to provide any foundation for his
valuation of the vehicle, and failed to indicate the manner in which he surrendered
the car to the original creditor. The court noted that plaintiff presented
documentary evidence that demonstrated that the vehicle had been abandoned and
not surrendered as alleged by defendant. This Court holds that the trial court's
determination that defendant failed to demonstrate that the sale was commercially
unreasonable does not overcome the potential lack of notice. As noted by the
Honor State Bank Court, the notice provisions are in place to protect the debtor.
The creditor, on the other hand, is in a position to exercise a high degree of
control over the relationship. Honor State Bank, supra, 687-688. Thus, we hold
that the case should be remanded for trial on the issue whether defendant received
the statutorily required notice of sale. [Asset Acceptance Corp, supra at 738.]
(…continued)
(b) It is duly delivered at the place of business through which the contract
was made or at any other place held out by him or her as the place for receipt of
such communications.
9
Defendant was also adamant at oral argument that notice had not been effectuated.
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Accordingly, it is unnecessary to determine here whether the settlement was
commercially reasonable, as there is no dispute that the statutorily required notice was not given.
Therefore, plaintiff’s complaint seeking to enforce the guaranty in order to obtain the deficiency
between the $25,000 and the loan balance fails as a matter of law. Thus, we reverse the trial
court’s judgment and remand for entry of judgment in favor of defendant.
We do wish to briefly address some arguments made by plaintiff that are not covered by
our discussion above. Plaintiff relies on some of the following language in the personal
guaranty to assert that it was entitled to seek repayment from defendant without repossessing and
disposing of the collateral:
Facundo Bravo . . . hereby unconditionally guarantees to [plaintiff] . . .
that [he] will fully, promptly and faithfully perform, pay and discharge all of [Uni
Boring’s] present and future obligations . . . and agrees (a) without [plaintiff] first
having to proceed against [Uni Boring] or liquidate other collateral or security, to
pay on demand all sums due and to become due to [plaintiff] from [Uni Boring]
and all losses, costs, attorneys’ fees and expenses which [plaintiff] may suffer by
reason of [Uni Boring’s] default, (b) to be bound by and on demand to pay any
deficiency established by a sale (with or without notice) of collateral or security,
and (c) to pay reasonable attorneys’ fees if this Guaranty is placed with an
attorney for collection.
Under this language, as acknowledged by defendant, plaintiff did in fact have the ability
to first proceed directly against defendant to recover the balance owing on the debt following
default; there was no need for plaintiff to first repossess or dispose of the collateral. However, as
correctly argued by defendant, plaintiff did not choose such a course of action, deciding instead
to first pursue a claim against the collateral (segregated account) and making a recovery of
$25,000 upon disposition through the mechanism of a settlement. Proceeding as it did, plaintiff
became legally obligated to comply with the UCC’s provisions governing secured transactions,
notably MCL 440.9610 and 440.9611. We note that the above-quoted passage from the personal
guaranty refers to a “sale (with or without notice),” but this language was not enforceable under
the UCC in the circumstances presented. MCL 440.9602 provides in relevant part:
Except as otherwise provided in section 9624, to the extent that they give
rights to a debtor or obligor and impose duties on a secured party, the debtor or
obligor may not waive or vary the rules stated in the following listed sections:
...
(g) Sections 9610(2), 9611, 9613, and 9614, which deal with disposition
of collateral.
Therefore, any language in the personal guaranty that could be read as waiving or varying
the rules governing notification of a collateral disposition, MCL 440.9611, would have no force
or effect unless the exception in MCL 440.9624 was applicable. MCL 440.9624(1) provides that
“[a] debtor or secondary obligor may waive the right to notification of disposition of collateral
under section 9611 only by an agreement to that effect entered into and authenticated after
default.” (Emphasis added.) The personal guaranty was not executed after the default;
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therefore, MCL 440.9624 has no application. For these same reasons, plaintiff’s reliance on the
following language from the personal guaranty is also misplaced:
[Plaintiff] may renew, extend, modify or transfer any obligations of [Uni
Boring] . . . or of co-guarantors, may accept partial payments thereon or settle,
release, compound, compromise, collect or otherwise liquidate any obligation or
security therefor in any manner and bind and purchase at any sale without
affecting or impairing the obligation of [defendant] hereunder.
Plaintiff contends that this language allowed it to settle its secured claim against Uni
Boring in the manner that was undertaken. This argument suggests that the UCC’s requirements
on the disposition of collateral need not have been observed simply because the personal
guaranty allowed plaintiff to reach a settlement with Uni Boring and others. First, the
contractual language does not expressly preclude application of the UCC’s provisions regarding
the disposition of collateral.10 Second, to the extent that the contractual language in the personal
guaranty suggests that there is no need to comply with the UCC regarding commercial
reasonableness and notification relative to the disposition of collateral, the language would be
invoking a waiver of, or varying the rules in, MCL 440.9610 and 440.9611, which is not
permissible for the reasons stated above.
In sum, we hold that defendant was entitled to an order granting him summary
disposition on plaintiff’s complaint, where there is no factual dispute that defendant did not
receive, nor did plaintiff deliver, notice under MCL 440.9611 relative to the disposition of the
collateral, and where plaintiff was required to comply with the statutory notice requirement
under the circumstances presented. Accordingly, we reverse the trial court’s judgment and
remand for entry of judgment in favor of defendant.
Reversed and remanded for entry of judgment in favor of defendant. We do not retain
jurisdiction. Defendant, having fully prevailed on appeal, is entitled to and awarded taxable
costs pursuant to MCR 7.219.
/s/ Alton T. Davis
/s/ William B. Murphy
/s/ Karen M. Fort Hood
10
In other words, although there may have been a right to settle, there is no contractual language
indicating that settlement could be made in a commercially unreasonable manner and without
notice.
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