Opinion
Dissenting Opinion as Modified Oct. 15, 1993.
As Modified on Denial of Rehearing Oct. 20, 1993.
Review Granted Dec. 30, 1993.
Review Granted Previously published at: 29 Cal.App.4th 63, 18 Cal.App.4th 1107
COUNSEL [Copyrighted Material Omitted] [Copyrighted Material Omitted]
[23 Cal.Rptr.2d 176] Stephen L. Joseph, Law Offices of Kline & Joseph, Washington, DC, Richard Collier Sears, San Francisco, for plaintiff, cross-defendant & appellant.
Jerome B. Falk, Jr., Bernard A. Burk, Howard, Rice, Nemerovski, Canady, Robertson & Falk, A Professional Corp., San Francisco, for defendant, cross-complainant & appellant.
Christopher E. Chenoweth, San Francisco, for amicus curiae on behalf of defendant, cross-complainant & appellant.
OPINION
PERLEY, Associate Justice.
This appeal arising from the foreclosure sale of an airplane presents two issues under California's version of Article 9 of the Uniform Commercial Code. The first issue is whether the specifications for a notice of sale under Commercial Code section 9504, subdivision (3) (hereinafter § 9504(3)) conclusively establish what is required to publicize the sale of collateral. We conclude that they do. The second issue is whether secured parties can be denied reimbursement under Commercial Code section 9504, subdivision (1)(a) (hereinafter § 9504(1)(a)) for the expenses they incur in connection with collateral if they fail to adequately account for those expenses. We conclude that they can. These conclusions lead us to reverse in part, and affirm in part, the judgment entered below.
Unless otherwise indicated, all further statutory references are to the Commercial Code.
The 1962 version of the section provided in pertinent part: " Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor...." (U.Com.Code, § 9-504(3).)
Background
In 1981 Ford & Vlahos, a partnership between John Ford and John Vlahos (Mr. Ford and the partnership are hereinafter referred to jointly and severally as Ford), was appointed the exclusive agent of the government of Australia for the sale of ten C-130A airplanes. C-130A's are large, propeller-driven cargo planes built in the 1950's for use as military transports.
In December 1983 Ford bought a C-130A (the Aircraft) from the Australian government for approximately $1 million, and leased it to a company called Hayes International for use under a contract with the federal government. Ford financed the purchase with a loan from ITT Commercial Finance Corp., then doing business as ITT Industrial Credit Company (ITT). The loan was to be repaid in installments over the course of three years, and it was secured by the Aircraft under a security agreement that provided for the application of California law.
After the Hayes International lease was terminated in mid-1985, Ford rented the Aircraft briefly to two other entities, and thereafter defaulted on the ITT loan. In February 1986 ITT notified Ford that it would repossess the Aircraft, which was then located in Athens, Greece. ITT retained Glen Conrad, then doing business as Multi-trade, Ltd. (hereinafter Multitrade), to maintain and sell the Aircraft. A crew hired by Conrad flew the Aircraft from Athens to Tuscon, Arizona, in August 1986. The Aircraft was eventually moved to Chandler Memorial Airport near Phoenix.
In September 1986 Conrad obtained a " civil certification" for the Aircraft so that it could be used for civilian as well as governmental purposes. Conrad testified that civil certification substantially increased the Aircraft's value because it was the first plane of its type to receive such certification. However, over the course of the next year efforts to sell the Aircraft were unsuccessful.
[23 Cal.Rptr.2d 177] In October 1986 Conrad received a conditional offer from a company called Calm Air to buy the Aircraft for $1.6 million, and ITT notified Ford under section 9504(3) that it intended to effect a private sale of the Aircraft after October 14. Ford responded that it was negotiating a sale of the Aircraft to the French government for $1.8 million. ITT's deal with Calm Air fell through, and the French government never produced a firm offer. In November 1986 a broker hired by Conrad reported that advertisements for the Aircraft in the trade journal Trade-A-Plane had generated " very good activity" and " several good prospects," but nothing materialized. In March 1987 ITT contracted with an affiliate of Reem Air Ltd. to sell the Aircraft for $1.35 million, and received a $100,000 deposit. Reem Air later rescinded the contract and sued ITT to recover the deposit.
Charles Chawafaty, a buyer procured by Ford who represented the government of Egypt, executed a one-page purchase order dated June 27, 1987, for nine C-130A planes, including the Aircraft, for $2.8 million each. The Aircraft was inspected on June 30 by Ford, Chawafaty, members of the Egyptian Air Force, and an appraiser hired by the Egyptians. Ford testified that he called Alan Witte of ITT on June 30 and told him about the $2.8 million purchase order. The next day Witte wrote Ford and proposed pursuant to section 9505, subdivision (2), that ITT retain the Aircraft in satisfaction of Ford's debt. When Ford objected to this proposal, Witte advised that ITT would hold a public sale of the Aircraft.
Other evidence casts doubt on this testimony. Ford did not mention the purchase order when he wrote Witte on July 7 to object to ITT's retention of the Aircraft. In a July 23 letter urging cancellation of the public sale, Ford's counsel acknowledged that, as of July 13, Witte " did not yet know" of Ford's arrangement to sell the Aircraft for $2.8 million.
While the majority is saucing the dissenting goose it is declining any sauce for its gander. We are taxed by the majority opinion for not looking to the year of negotiations and aborted sales of the aircraft and instead " focusing" only " on the last few days before the sale." (Maj. opn., ante, p. 184.) How that year of unsuccessful sales becomes relevant under the majority's own rule that the duty to publicize is fully satisfied by giving proper legal notice for five days is not explained. If this is a bright line test then the line presumably is drawn at whether adequate notice has been published for five days. That sounds like " focusing" only " on the last few days before the sale."
On July 24, 1987, ITT published a notice in the national edition of the Wall Street Journal stating that the Aircraft would be auctioned on August 25, 1987, at ITT's offices in Creve Coeur, Missouri. On July 28 Witte wrote Ford's attorney, Thomas Crary, and indicated that Ford would need to conclude any sale by the scheduled auction date. On August 19 Crary sent a copy of Chawafaty's purchase order to Witte and requested that the auction be postponed for 90 days. On August 21 Witte responded that ITT did not find the purchase order " convincing" evidence that a sale was likely, and demanded a $500,000 non-refundable deposit as a condition to postponing the auction. No such deposit was proffered.
Although a number of companies inquired about the Aircraft in response to the Wall Street Journal notice, no one appeared at the August 25 auction except attorney Crary. Crary demanded that the auction be cancelled because it was not being held in California where Ford resided, or Arizona where the Aircraft was located, as required by section 9504(3). ITT agreed to adjourn the auction to September 3, 1987, at Chandler, Arizona. On August 28, 1987, ITT published a notice of the time and place of the auction in the Arizona Republic, a newspaper of general circulation in the county where the Aircraft was located.3 The full text of the notice is set forth in the margin. A typographical [23 Cal.Rptr.2d 178] error omitted the bracketed portion of the last sentence of the notice, which should have read: " For further information, to arrange inspection of the aircraft and to qualify as a bindder, contact Alan C. Witte at 314-993-8887.]" This error was corrected when the notice was republished in the Phoenix Gazette the day before the auction.
This dissent's reading of the statute and its legislative history in some nonspecified way " distorts the legislative history of the statute" in the majority's eyes. Not bad company. (Maj. opn., ante, pp. 182-183.)
None of the third parties who attended the September 3 auction entered a bid, and ITT purchased the Aircraft for a credit bid of $1 million against Ford's indebtedness. After the auction Conrad ran a continuing advertisement for the Aircraft in Trade-A-Plane, which included a photo of the Aircraft and offered to sell it for $1.6 million. ITT advised Ford that it would sell him the Aircraft for the amount of his debt if he could find a buyer. On March 31, 1988, African Air Trans, Inc. signed an agreement to purchase the Aircraft for $1.525 million, and the sale evidently closed in May 1988. In August 1988 ITT advised Ford that African Air had paid a total purchase price of $1.487 million. At that point ITT calculated that it had sustained a net loss of at least $100,000 on the Ford loan. In December 1988 African Air transferred the Aircraft to an affiliate for $3.5 million. Ford sued ITT under section 9507 for improper disposition of the Aircraft, and ITT cross-complained for a deficiency Ford allegedly owed after credit for the $1 million auction bid. After a bench trial, the court concluded that ITT violated section 9504 in connection with the auction, and disallowed most of the expenses ITT claimed for maintenance of the Aircraft. The court placed the Aircraft's fair market value at $3.8 million and Ford's debt at $996,050 on the date of the auction, and entered judgment for the difference in favor of Ford.
Section 9507 provides that the debtor has a right to recover any loss caused by the secured party's failure to comply with the provisions of sections 9501 et seq.
The court filed a statement of decision setting forth the findings in support of its determination that ITT had improperly disposed of the Aircraft. The court found that the only publicity for the auction was the notice of sale placed in the Arizona Republic, that this notice was " legally insufficient," and that ITT failed in various ways to " give [the auction] sufficient publicity." The court noted that: the auction was not publicized in any aviation trade journals, such as Trade-A-Plane; no evidence showed that the Arizona Republic was read by potential purchasers of the Aircraft; ITT did not enlist Conrad's help in promoting the sale, even though he knew potential buyers and the means for publicizing airplane auctions; and ITT did not tell anyone about the auction who had responded to the previous notice in the Wall Street Journal. The court indicated [23 Cal.Rptr.2d 179] that each of its findings was an independent basis for its conclusion that ITT violated section 9504.
After the court filed its tentative decision, ITT requested a statement of decision on " [w]hether the September 3, 1987 auction was conducted improperly and, if so, in what respects," and " [w]hether ITT acted in a good faith or commercially reasonable manner in connection with the auction ... and, if not, the bases for [that] conclusion." The court ordered Ford to prepare the statement of decision, and then adopted verbatim all of Ford's proposed findings, over ITT's objection that those findings were insufficient to support any liability under the Commercial Code. In these circumstances, the " judgment must stand or fall on the finding[s] expressly made." (In re Marriage of Hoffmeister (1987) 191 Cal.App.3d 351, 360, 236 Cal.Rptr. 543; see also Whittington v. McKinney (1991) 234 Cal.App.3d 123, 126-128, 285 Cal.Rptr. 586 [statement of decision provides the basis for appellate review]; In re Marriage of Weinstein (1991) 4 Cal.App.4th 555, 571, 5 Cal.Rptr.2d 558 [findings omitted over objection are not inferred on appeal].) Hence we do not refer to evidence Ford cites that might have supported findings other than those the court chose to make.
California's version of section 9504(3) provides for public sales of collateral as follows: " A sale ... of collateral may be as a unit or in parcels, at wholesale or retail and at any time and place and on any terms, provided the secured party acts in good faith and in a commercially reasonable manner. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the secured party must give to the debtor ... a notice in writing of the time and place of any public sale.... Such notice must be delivered personally or be deposited in the United States mail postage prepaid.... Notice of the time and place of a public sale shall also be given at least five days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held.... Any public sale shall be held ... in the county in which the collateral ... is located or in the county in which the debtor has his or her residence or chief place of business.... If the collateral is located outside of this state or has been removed from this state, a public sale may be held in the locality in which the collateral is located. Any public sale may be postponed from time to time by public announcement at the time and place last scheduled for the sale. The secured party may buy at any public sale...."
At issue is the italicized portion of the statute, which does not appear in the official text of the Uniform Commercial Code. (See Ford Motor Credit Co. v. Price (1985) 163 Cal.App.3d 745, 750, 210 Cal.Rptr. 17.) The UCC stipulates only that the debtor receive " reasonable notification of the time and place of any public sale." (Id., at p. 750, fn. 7, 210 Cal.Rptr. 17.) It does not mandate any form of advertising by the secured party. (9 Hawkland, Uniform Commercial Code Series (1991) § 9-504:05, p. 805.) Thus, under the UCC as enacted elsewhere, the adequacy of presale publicity is judged according to a general standard of commercial reasonableness. (Ibid.) Under this standard, courts in other states have held that a notice of sale may need to be given in trade journals, or published over a course of weeks in a local newspaper. (Id., at pp. 805-807 and authorities cited.) The question is whether this standard applies to presale publicity in California.
ITT contends that by specifying the time and manner for notice of a public sale, our Legislature intended to establish a bright-line rule to prevent disputes over the " reasonableness" of presale publicity. This contention is supported by the legislative history of section 9504(3).
As noted in Justice Panelli's opinion in Ford Motor Credit Co. v. Price, supra, 163 Cal.App.3d at p. 745, 210 Cal.Rptr. 17, " [w]e can find the reasons behind the California modifications in the Sixth Progress Report to the Legislature by the Senate Fact Finding Committee on Judiciary (1959-1961) part I, The Uniform Commercial Code, page 426, which states the following: ‘ The Official Text requires that " reasonable notification of the time and place of any public sale must be given" ... but does not specify either the manner in which notice must be given or the time within which it must be given. We think both the time and manner of giving notice should be specified, otherwise every sale is open to attack.... the requirement that every aspect of the sale be done in " a reasonably commercial" [sic] manner is too vague a requirement to be of any value and would only be an invitation to litigation. ’ ... ‘ The California Bankers Committee believe that a secured party, when his debtor is in default, is entitled to more specific instructions as to how he may conduct a valid foreclosure sale, otherwise every sale would be subject to subsequent challenge. We think so too....’ " (Id., at p. 750, 210 Cal.Rptr. 17 [italics added in that opinion]; see also Atlas Thrift Co. v. Horan (1972) 27 Cal.App.3d 999, 1004, 104 Cal.Rptr. 315 [California varied the official text of UCC § 9-504(3) " to avoid controversy in each case as to whether the notice was reasonable by [23 Cal.Rptr.2d 180] substituting a definite standard [fn. omitted]" ].)
Consistent with this intent to substitute specific directives for a general standard of reasonableness, our courts have strictly construed section 9504(3) to preclude creditors from obtaining a deficiency judgment if they fail to comply with the letter of the statute's requirements for notice of a public sale. (See C.I.T. Corp. v. Anwright Corp. (1987) 191 Cal.App.3d 1420, 1422-1424, 237 Cal.Rptr. 108 [notice specified wrong address]; Ford Motor Credit Co. v. Price, supra, 163 Cal.App.3d at pp. 747, 751, 210 Cal.Rptr. 17 [notice published in wrong county].) But what is good for the goose is good for gander. Compliance with the letter of section 9504(3) creates a safe harbor against claims that the publicity for a public sale was inadequate. Any other rule would invite the kind of litigation the Legislature sought to prevent when it departed from the official text of the UCC on this subject.
We have phrased the rule broadly because that is the kind of rule the Legislature sought to create. We must decline, of course, to give the statute an absurd construction. (See, e.g. DeYoung v. City of San Diego (1983) 147 Cal.App.3d 11, 17, 194 Cal.Rptr. 722.) Buran Equipment Co. v. H & C Investment Co. (1983) 142 Cal.App.3d 338, 341, 190 Cal.Rptr. 878, observed that by providing for at least five day's advance notice, section 9504(3) " avoids controversy as to whether the period between notice and sale is too short, but not as to whether the period is too long." The court sensibly concluded that " [t]he latter issue is to be resolved in each case pursuant to the general provision in section 9504 that the sale be conducted ‘ in a commercially reasonable manner.’ " (Ibid.) The Legislature obviously did not intend to authorize a notice today of a public sale in the year 2000, and such a notice is properly excepted from the rule that compliance with the letter of section 9504(3) is sufficient to preclude any claim about inadequate publicity. While it may be necessary to recognize other limited exceptions to avoid absurd results, no exception arises in a case such as this where the debtor's only argument is that more publicity should have been afforded.
In this case, ITT gave " [n]otice of the time and place of a public sale ... at least five days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale [was] to be held." (§ 9504(3).) This notice was sufficient as a matter of law, and thus the trial court erred when it determined that ITT had inadequately publicized the auction of the Aircraft.
Ford submits that we should construe section 9504(3) to provide only for the minimum required of any secured creditor in connection with a public sale. In Ford's view, the statute's reference to notice of the time and place of sale leaves a court free to require additional publicity as circumstances warrant. Such a construction would be contrary to the Legislature's desire to minimize litigation, because the debtor can always argue that more should have been done. However, Ford's position finds some support in cases that have suggested, contrary to our conclusion, that a single, timely newspaper notice might not be sufficient.
Other cases cited by the trial court and Ford are inapposite, either because they did not address publicity for a public sale (Credit Bureau Metro, Inc. v. Mims (1975) 45 Cal.App.3d.Supp. 12, 119 Cal.Rptr. 622), or they did not involve California's variant of UCC section 9-504(3) (Contrail Leasing Partners v. Consolidated Airways (7th Cir.1984) 742 F.2d 1095 [applying Indiana law]; Connex Press, Inc. v. International Airmotive, Inc. (D.D.C.1977) 436 F.Supp. 51 [applying Maryland law] ).
In American Business Credit Corp . v. Kirby (1981) 122 Cal.App.3d 217, 221, 175 Cal.Rptr. 720, a notice of sale in a newspaper of general circulation was held to be insufficient in the absence of any showing that the newspaper was " circulated among, or read by" dealers in the collateral. Clark Equipment Co. v. Mastelotto, Inc., supra, 87 Cal.App.3d at p. 97, 150 Cal.Rptr. 797, upheld an auction where newspaper notice was given, but stated that " publication of the notice of sale in trade journals might have attracted additional buyers to bid on the equipment" (id., at p. 96, 150 Cal.Rptr. 797), as if that were a relevant consideration.
In Savage Const. Inc. v. Challenge-Cook Bros. (1986) 102 Nev. 34, 714 P.2d 573, the creditor held a public sale, purchased the collateral, and then turned [23 Cal.Rptr.2d 181] around and resold the collateral two weeks later for about twice the price it had paid at the auction. Notice of the auction was given in several publications, but none of them were shown to be newspapers of general circulation in the county where the auction was held. It also appeared that one of the buyers negotiated with the creditor prior to the auction, but did not learn that an auction would be held. Applying California law, the Nevada Supreme Court concluded that the creditor was not entitled to a deficiency judgment " in particular, because potential buyers had been identified but were not advised of the upcoming auction sale." (Id., at p. 576.)
These cases did not consider section 9504(3)'s legislative history, or address whether the statute's notice provisions were meant to conclusively establish what is required to publicize an auction of collateral. Opinions are not authority for propositions they do not consider (Ginns v. Savage (1964) 61 Cal.2d 520, 524, 39 Cal.Rptr. 377, 393 P.2d 689), but we must disagree with American Business Credit, Clark Equipment, and Savage Construction to the extent they suggest that more must be done to publicize an auction than what section 9504(3) expressly requires. A single newspaper notice may be less than ideal for a million dollar item of collateral, and there may be situations like the one in Savage Construction where such a limited notice would seem less than fair. However, the Legislature evidently concluded that the benefits of a bright-line rule outweighed any potential for abuse. As noted by the California Bankers Association in an amicus brief, a firm rule that facilitates recourse to collateral tends to promote lower interest rates and make credit more widely available.
In light of Ford's testimony that the best way to sell the Aircraft was through personal contacts, it does not appear that any form of advertising would have been " ideal" in this instance.
The foregoing analysis applies equally to the trial court's finding that ITT should have sent Ford copies of the notices that appeared in the Arizona Republic and Phoenix Gazette. Again, section 9504(3) is specific about the notice the debtor is to receive of a public sale. It stipulates that, absent a written waiver of the right to notice, the debtor shall receive " a notice in writing of the time and place of any public sale ... delivered personally or be deposited in the United States mail postage prepaid addressed [in a specific manner] ... at least five days before the date fixed for any public sale." (§ 9504(3).) There is no dispute that Ford received this notice and no more was required of ITT.
Little would be gained by giving the debtor a copy of the newspaper notice of sale, and Ford does not attempt to justify the judgment on this ground. However, there is at least one case Ford could cite to the effect that it may not be sufficient to comply with the letter of section 9504(3)'s provisions for notice to the debtor. Unlike the official text of the UCC, which provides only for " reasonable notification" of the debtor, section 9504(3) is very specific about how the debtor's notice is to be furnished. It states that the notice " must be delivered personally or be deposited in the United States mail postage prepaid addressed to the debtor at his or her address as set forth in the financing statement or as set forth in the security agreement or at such other address as may have been furnished to the secured party in writing for this purpose, or, if no address has been so set forth or furnished, at his or her last known address...." (§ 9504(3).) In In re Carter (9th Cir.1975) 511 F.2d 1203, notice was mailed to the debtor in accordance with the statute, but the debtor did not actually receive it. Evidence was presented that the creditor knew the debtor's whereabouts. The court denied the creditor a deficiency judgment for lack of notice to the debtor, even though the creditor " could be said to have technically complied with the notice provision." (Id., at p. 1205.) Again we must disagree with that ruling. The Carter court nodded to the legislative history of section 9504(3), and noted that the Legislature " hoped" by its enactment " to avoid controversy in each case as to whether the notice was reasonable." (In re Carter, supra, at p. 1204.) [23 Cal.Rptr.2d 182] But if the purpose of a statute is apparent then that purpose ought to be effectuated. This is the cardinal rule of statutory construction. (See 2A Sutherland Statutory Construction (5th ed. 1992) § 45.05, p. 22 and authorities cited [statutes are to be interpreted in accordance with their apparent purpose].)
Ford protests that our holding will give secured creditors leave to act in bad faith and in a commercially unreasonable manner in publicizing public sales. Our answer is that the Legislature has conclusively defined good faith and commercial reasonableness in this context. California's definitive rules for publicizing the sale of collateral run contrary to much of the UCC, where generalized standards such as reasonableness and good faith are a mandate for the courts to declare the law and not merely " find" it. (See Note, How Appellate Opinions Should Justify Decisions Made Under The U.C.C. (1977) 29 Stan.L.Rev. 1245, 1258.)
There is also no substance to Ford's concern that our decision will permit creditors to " tell barefaced derogatory lies about the collateral in its notice." Apart from the sufficiency of presale publicity, other matters incident to the sale of collateral, such as the accuracy of presale publicity, and the time, place and manner of sale, remain subject to the general requirements of good faith and commercial reasonableness set forth in the first sentence of section 9504(3). The Legislature did not intend to authorize false or misleading notices any more than it intended to permit auctions at midnight on the top of Mount Whitney. A timely notice that correctly identified the time and place of a public sale could be deemed to violate the statute if it was otherwise so inaccurate as to deter potential bidders.
Which brings us to the trial court's findings about the typographical error at the end of the Arizona Republic notice. The language in question was: " For further information, to arrange inspection of the aircraft and to qualify as bi ..." The court reasonably interpreted this fragment to mean that " prequalification as a bidder was necessary." The court properly determined that the amended notice in the Phoenix Gazette the day before the auction came too late to rectify the mistake. (See Backes v. Village Corner, Inc. (1987) 197 Cal.App.3d 209, 212, fn. 3, 242 Cal.Rptr. 716 [an untimely notice is ineffective]; C.I.T. Corp. v. Anwright Corp., supra, 191 Cal.App.3d at pp. 1422-1424, 237 Cal.Rptr. 108 [specific requirements of section 9504(3) are strictly enforced]; Ford Motor Credit Co. v. Price, supra, 163 Cal.App.3d at p. 751, 210 Cal.Rptr. 17 [same].) At issue is the court's conclusion that " the omission of any contact name or telephone number to obtain prequalification information rendered the wording contained in the Arizona Republic notice legally insufficient under [section] 9504."
A similar issue was presented in Clark Equipment Co. v. Mastelotto, Inc., supra, 87 Cal.App.3d at p. 96, 150 Cal.Rptr. 797, where the notice of sale incorrectly identified the creditor as " Clark Leasing Company" rather than " Clark Equipment Company." The court rejected a claim that the notice was " nullified by this error" because the mistake " did not mislead the defendant or anyone else and could not have affected the sale in any way." (Ibid.) We reach the same conclusion here.
Anyone who wanted to qualify as a bidder for the Aircraft would have been able to determine whom to contact despite the typographical error. The notice identified T & G Aviation as the site of the auction. T & G knew how to get in touch with ITT because it had previously made its own offer for the Aircraft. As ITT puts it: " It bears noting that the property at auction was not some used Chevy with nominal value, but a highly sophisticated and specialized piece of equipment worth a million dollars or more. A purchaser with a need for such equipment and the wherewithal to buy it certainly would be willing to invest a phone call or two in a search for any additional information that might be desired. [Ford] testified that it was not atypical for the potential buyer of a plane like the Aircraft to travel out-of-state, and even out of the country, just to inspect a potential purchase." [23 Cal.Rptr.2d 183] Thus, while perhaps there are situations where a single " typo" could justify a $3.8 million damage award, this is not one of them.
We respond finally to the dissent on this first issue. The dissent interprets section 9504(3) as a license to litigate every public sale of collateral. It distorts the legislative history of the statute to reach that conclusion, and along the way it distorts the facts of this case and the effect of our decision.
As Justice Panelli observed eight years ago, California's version of UCC section 9504(3) arose out of the Sixth Progress Report to the Legislature by the Senate Fact Finding Committee on the Judiciary (1959-1961), a substantial collaborative effort spanning hundreds of pages in Volume One of the Appendix to the Journal of the Senate, 1961 Regular Session (the Report). The Report includes proposals and comments on section 9504(3) by the California Bankers Association, the State Bar Committee on Article 9, and professors Harold Marsh, Jr. and William D. Warren. The Bankers Association and the Bar Committee recommended that the UCC standard of " ‘ reasonable notification’ " be replaced by specific requirements for notice, because " [o]therwise, every foreclosure sale would be open to challenge on the basis that ‘ reasonable notification’ was not given." (Report, pp. 401, 426.) Professors Marsh and Volk agreed with this recommendation. (Report, p. 586) To dispel any possible doubt on the point we quote the full text of their discussion:
" This subsection of the Code in effect tells a secured party that he may conduct a valid foreclosure sale of the collateral if he gives ‘ reasonable notice’ and acts in a ‘ commercially reasonable’ manner with regard to all aspects of the sale. The California Bankers Committee believe that a secured party, when his debtor is in default, is entitled to more specific instructions as to how he may conduct a valid foreclosure sale, otherwise every sale would be subject to subsequent challenge. We think so too. It is notorious that in most situations the lender resorts to foreclosure only as a last resort and after the debtor is hopelessly in default. This is not generally a case where the borrower is in need of any special protection and, in our opinion, the amended provision gives him completely adequate protection.
" We see nothing to be gained by substituting the word ‘ reasonable’ for the phrase ‘ commercially reasonable,’ as proposed by the California Bankers Committee. One is just as vague as the other. And the phrase ‘ commercially reasonable’ at least has the advantage that it indicates the context in which ‘ reasonableness' is to be determined." (Report, pp. 586-587)
The " amended provision[s]" giving borrowers " completely adequate protection" were Bankers Association amendments to the original Senate version of section 9504(3), which added all of the specific requirements for notice. (Report, pp. 288-289, 435, 586-587.) Specific requirements for notice were endorsed by everyone who commented on the statute— lenders, lawyers and academicians alike— and it is crystal clear from the Report that those requirements were specified for the benefit of secured parties. If, as the dissent states, the legislative history " compels" the conclusion that substantial compliance with those requirements is not sufficient, then that history even more strongly compels the conclusion that strict compliance with those requirements is sufficient.
The dissent implies that the Report reveals unsuccessful lobbying by the banking industry for a statute that did not require secured parties to act reasonably. This is not true. The first sentence of section 9504(3) as adopted by the Legislature in 1963 (Stats.1963, ch. 819, § 9504, p. 1993) and retained thereafter reads as follows: " A sale or lease of collateral may be as a unit or in parcels, at wholesale or retail and at any time and place and on any terms provided the secured party acts in good faith and in a commercially reasonable manner." The version of this sentence proposed by the Bankers Association did not include the word " commercially." (Report, p. 435.) This word was inserted at the suggestion of professors Marsh and Volk. [23 Cal.Rptr.2d 184] (Report, pp. 586-587.) It is difficult to see how this bears on our issue.
As previously noted, the general standards of good faith and commercial reasonableness in the first sentence of section 9504(3) govern all aspects of the sale of collateral, apart from presale publicity where the Legislature established specific rules for the benefit of secured parties. This conclusion is consistent with the first sentence of Marsh and Warren's discussion, which refers to notice and then to the requirement that all aspects of the sale itself be conducted in a commercially reasonable manner. The dissent has no support in the legislative history of section 9504(3), much less in the text or history of section 9507, subdivision (2), which are entirely irrelevant to our problem.
This case illustrates the potential benefit of bright-line rules for presale publicity. Like the trial court, the dissent can conclude that ITT acted unreasonably only by focusing on the last few days before the sale of the aircraft and ignoring the rest of the record. Well over a year elapsed after Ford's default. During that time, Ford had no more luck than ITT in selling the aircraft, despite its professed diligence and expertise in marketing such planes. Ford objected when ITT proposed a private sale, and again when ITT proposed to retain the collateral in satisfaction of the debt. When ITT employed its only other remedy under the Commercial Code, that of public sale, it ended up owing a substantial judgment even though it complied with the letter of the law in connection with that sale. This is precisely the kind of unfortunate result the Legislature sought to preclude when it specified the means of presale publicity.
Since bright-line rules promote certainty and stability, our decision will not create any uncertainty or " havoc" as the dissent claims. If there is any havoc to be wreaked then it is the dissent that would wreak it, by opening the door to litigation incident to every public sale, including thousands of sales already concluded in reliance on the notice provisions of section 9504(3).
The dissent evidently feels that bright-line rules for the sale of collateral are " absurd," but a majority of the Senators involved in the Report that created section 9504(3) thought that it " represent[ed] the best that can be had in the Code for California," " according to the best advice that the Advisory Committee has been able to get." (Report, p. 809.) While the dissent may prefer a rule that would allow judges and juries to second-guess every foreclosure, it is not our function to substitute our predilections for the will of the Legislature.
None of the trial court's findings are adequate to support its conclusion that ITT violated section 9504 in connection with the auction of the Aircraft. As a consequence, Ford's damage award must be reversed.
In view of this conclusion, we do not reach ITT's argument that the award must be reversed because Ford is not the real party in interest, and we need not address either sides' arguments about the proper measure of Ford's damages.
A secured party is obligated to use reasonable care in the custody and preservation of collateral in its possession. (§ 9207, subd. (1).) Section 9207, subdivision (2)(a) states that, unless otherwise agreed, the " reasonable expenses" of the secured party in the " custody, preservation, use or operation" of collateral " are chargeable to the debtor and are secured by the collateral." Such expenses are covered by section 9504(1)(a), which directs that the proceeds from disposition of collateral be applied first to the " reasonable expenses of retaking, holding, preparing for sale or ... selling" the collateral, and only then to the balance of the secured obligation. (See J.T. Jenkins Co. v. Kennedy (1975) 45 Cal.App.3d 474, 480, 119 Cal.Rptr. 578; Gilmore, Security Interests in Personal Property (1965) § 42.2, 43.5, 44.8, pp. 1131-3, 1201, 1249-1250.)
The parties disputed the amount of ITT's " reasonable expenses" for purposes of section 9504(1)(a). ITT sought to recover all of the money it had paid to Glen Conrad's [23 Cal.Rptr.2d 185] company, Multitrade, to repossess and refurbish the Aircraft prior to the auction. Conrad testified to the problems he experienced in repatriating the Aircraft from Greece, and described various defects in the Aircraft that had to be repaired. He reconstructed the Aircraft's logbooks, arranged for its civil certification, and had it cleaned and painted. He billed ITT over $400,000 for his services and his invoices were admitted into evidence at trial.
According to Richard Wright, who testified for Ford as an expert in aviation-related accounting, the majority of Conrad's invoices failed to substantiate the amounts charged. Based on his experience in auditing expenses for airplanes, Wright opined that about $330,000 of the charges did " not meet even the weakest of standards for payment." Wright went through Conrad's bills invoice-by-invoice, and explained why most of them needed additional documentation detailing the purpose and nature of the expenditures. He noted that Conrad often billed large, rounded-off amounts with little explanation or documentation, and contrasted Conrad's invoices with more detailed billings from others who worked on the Aircraft. In Wright's opinion, only about $83,000 of ITT's expenditures had " reasonable documentation, [and] therefore ... would have appropriately been charged to the account of Mr. Ford."
Ford also presented evidence that Conrad forged a document supporting one of his invoices. The document purported to be an invoice from T & G Aviation to Multitrade for an inspection of the Aircraft. The president of T & G Aviation testified that the document was not an invoice from his company. He said that T & G did not do the inspection listed on the invoice and was not paid for one. The invoice in question was dated " 9.28," reflecting Conrad's practice of separating days and months with a period. In another invoice, Conrad misspelled the word " reconstruction" as " re construction." The invoice in question misspelled " rebuild" as " re build." Conrad admitted at trial that he did not know whether " rebuild" was one word or two.
The trial court found that the invoice was " not authentic," and " disallowed" all but $82,743 of the expenses paid to Conrad. The statement of decision reads in part: " The Court finds Richard Wright's expert testimony regarding the invoices more convincing than any evidence offered by Defendant ITT. Based on Richard Wright's expert testimony, the Court finds that all remaining amounts disallowed by this Court were ambiguous as to the services performed and the nature of these services. The Court finds that Defendant ITT failed to satisfy the accounting standards generally accepted in the aviation industry as to these amounts. [¶ ] The Court finds that Defendant ITT failed to prove that the Multitrade charges, unsupported by third party documentation, were actually incurred by Multitrade. [¶ ] The Court finds that Defendant ITT failed to prove that any of the amounts disallowed by this Court were reasonable or necessary."
In support of its unsuccessful motion for new trial, ITT submitted the declaration of Bill Penny, a T & G Aviation mechanic, that he had personally performed most of the work reflected on the forged invoice. Penny said that the Aircraft was in " horrible condition" when he first saw it in 1986, but that " it was airworthy and its appearance and condition were greatly improved" by the time of the auction. In Penny's opinion, it would have been " a practical impossibility to put this Aircraft in a saleable condition for less than $300,000." On appeal, ITT concedes that there is substantial evidence to support disallowance of $80,282 of the total it expended on the Aircraft. However, ITT argues that the court erred in disallowing the balance of the expenses based solely on expert testimony that the underlying invoices did not measure up to accepted accounting standards. The issue thus presented is whether expenses that are not properly accounted for can be deemed to be " unreasonable" for purposes of section 9504(1)(a).
The parties cite little or no law on the question, which appears to be one of first impression. California's version of section 9504(1)(a) follows the official text of the [23 Cal.Rptr.2d 186] UCC, and we have looked for applicable precedents among " the growing miscellany of cases" (2 White & Summers, Uniform Commercial Code (3d ed. 1988) p. 592, fn. 9) on secured party expenses here and elsewhere. Thomas v. International Harvester Credit Corp. (1982) 5 Ark.App. 244, 636 S.W.2d 296, 298, disallowed a 15 percent " handling charge" in part because of " the lack of any detailed information relating expenses ... to the general [handling charge]." This case suggests that expenses must be adequately documented, but it is distinguishable because ITT did not claim a flat fee in lieu of specific expenditures. Even before enactment of the UCC " [t]he courts ha[d] regularly turned down attempts to include indirect expenses— such as the secured party's general cost of doing business— or to avoid the necessity of proving actual expenses by using the 15 percent formula...." (Gilmore, supra, § 43.5, p. 1201.)
ITT relies primarily on 1st City Div. Chase Lincoln 1st Bk. v. Vitale (N.Y.App.1987) 123 A.D.2d 207, 510 N.Y.S.2d 766, but that case did not address documentation of expenditures and it is not otherwise on point. The 1st City court held that a secured creditor does not necessarily lose its entitlement to a deficiency judgment simply because some of the expenses it claims are unreasonable. The court stated: " To the extent that such expenses are established to have been unreasonable, this would not constitute a complete bar to [the secured party's] recovery, but only affect the amount of [the secured party's] expenses chargeable toward the deficiency." (Id., at p. 770.) This statement has no bearing here. The trial court did not purport to preclude ITT from claiming any deficiency just because some of ITT's expenses were unreasonable. It merely denied a portion of those expenses.
ITT's other cases are also less than conclusive. K.B. Oil Co. v. Ford Motor Credit Co., Inc. (6th Cir.1987) 811 F.2d 310, 315, points out that it is not enough for the debtor to allege that expenses are unreasonable, but this is irrelevant because Ford supported its allegations of unreasonableness with competent expert testimony. Brown v. Ford (1983) 280 Ark. 261, 658 S.W.2d 355, 357, shows that expenses may be proven by evidence on the condition of the collateral before and after the expenses were incurred, but this does not establish that the court in our case was bound to allow any specific sum of expenses based on Conrad's self-serving testimony that the Aircraft was rundown when he found it.
While it appears that the issue of adequate documentation has not been squarely addressed, three general propositions are pertinent. First, the secured party has the burden of proving that its expenses are " reasonable." (Hall v. Crocker Equipment Leasing, Inc. (Tex.App.1987) 737 S.W.2d 1, 3; Clark, The Law of Secured Transactions Under the Uniform Commercial Code (2d ed. 1988) § 7.15[4][a].) This is the proper rule because the secured party decides which expenses to incur. Second, expenses that are " necessary" are not ipso facto " reasonable." (See Hall v. Crocker Equipment Leasing, Inc., supra, at p. 4; Davis v. Small Business Inv. Co. of Houston (Tex.App.1976) 535 S.W.2d 740, 744-745.) The secured party has the burden of proving not only that its expenses were reasonably necessary, but also that the amounts claimed for those expenses are reasonable. (Ibid.) Third, the trier of fact's determination of " reasonableness" is conclusive if it boils down to a question of credibility. (See Johnson Equipment v. Nielson (App.1985) 108 Idaho 867, 702 P.2d 905, 908.) The reasonableness of an expense is treated like other issues of fact for purposes of appellate review.
The thrust of ITT's case is that lots of expenditures on the Aircraft were necessary. However, this does not necessarily mean that those expenditures were " reasonable." ITT's claim was predicated on Conrad's testimony and invoices, and the court was not obliged to believe that evidence. Conrad forged an invoice, and his [23 Cal.Rptr.2d 187] credibility was further impeached by uncontradicted expert testimony that most of his charges were unsubstantiated. The court could reasonably infer that Conrad billed for work that was not performed, and that his charges were routinely inflated. We conclude that ITT did not carry its burden of proof with respect to the expenses that were disallowed.
Nor was the court obliged to entertain evidence from another source, presented for the first time in connection with the motion for new trial, on the amount required to refurbish the Aircraft. No reason appears why such evidence could not have been produced at trial. (Code of Civ.Proc., § 657, subd. (4).)
ITT submits that it is " just not fair" to deny reimbursement for expenses solely because they are inadequately documented. However, since a creditor with the right to be paid for expenses out of the proceeds of collateral is in effect spending the debtor's money when it incurs those expenses, we fail to see why it is " unfair" to require a proper accounting.
Disposition
The judgment is reversed insofar as it awards damages to Ford, and affirmed insofar as it denies expenses to ITT. The case is remanded for entry of a new judgment consistent with this opinion. Each side shall bear its own costs on appeal.
ANDERSON, P.J., concurs.
POCHé, Associate Justice.
I respectfully dissent. I have not a doubt that in any other state which has adopted section 9-504 of the Uniform Commercial Code1 this auction of a multimillion dollar air transport plane would be found not to have been conducted in a commercially reasonable manner. The public sale was advertised only in two local Arizona newspapers with one notice appearing seven days and the other one day before an auction at which the only bidder was the secured party. The timely published notice indicated that bidders needed to be qualified but failed to explain how to qualify. No notice of the sale was given to prospective purchasers who had responded to an earlier advertisement in the Wall Street Journal; there were no ads in trade journals. The services of an airplane broker familiar with the aircraft were not used to publicize the auction. Not surprisingly the trier of fact concluded that this sale was not conducted in a commercially reasonable manner.
The majority opinion contends that the trial court shouldn't have been concerned with such troublesome questions, because— in its view— California's version of the section precludes any inquiry into the publicity efforts made by the secured party so long as it has complied with the bare, statutory minimum requirements of notice.
Section 9504, subdivision (3) of the California Uniform Commercial Code provides in pertinent part: " A sale or lease of collateral may be as a unit or in parcels, at wholesale or retail and at any time and place and on any terms, provided the secured party acts in good faith and in a commercially reasonable manner. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the secured party must give to the debtor ... a notice in writing of the time and place of any public sale.... Notice of the time and place of a public sale shall also be given at least five days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held...."
Suddenly— in 1993— my colleagues have discovered a safe harbor in the notice provisions of the code as adopted in California [23 Cal.Rptr.2d 188] some 30 years ago. Relying upon their unique reading of the legislative history of the section, they conclude that by complying with the notice publication provisions of the section, a creditor need do nothing further to publicize a public sale of collateral. In short, it is their view that the notice provisions define what is a commercially reasonable manner of publicizing a sale. Despite the widespread availability over the past 30 years of the legislative history, the majority opinion now concludes that prior California cases have misread the statute. The result of their revelation is to create uncertainty at best, havoc at worst, in scores of day-to-day commercial transactions throughout this state.
It is, of course, not this " bright line rule" that will create the mess but the jettisoning of an unbroken background of appellate decisions that presumably has been relied upon by the business community. How the majority opinion can conclude that " thousands of sales already concluded" have been made " in reliance" on the majority's unique reading of the statute announced for the first time in today's opinion is not explained. (Maj. opn., ante, p. 184.)
As they read the statute, its notice publication requirements are indeed a safe harbor: one that permits a secured creditor to make exactly the same publicity efforts regardless of whether it is selling two dozen paper clips or a multimillion dollar airplane. All the creditor need do is publish notice five days before the sale in a newspaper of general circulation in the county where the collateral is located.2 The absurd result of that reading is to shield from any inquiry into commercial reasonableness this defendant's decision to buy only a classified ad in the Arizona Republic and one in the Phoenix Gazette for a military transport plane which ITT itself eventually resold to an entity called African Air Transport. I am utterly unpersuaded by the majority opinion's reading of the legislative history. The Uniform Commercial Code provides that " every aspect of the disposition [of the collateral] including the method, manner, time, place and terms must be commercially reasonable." (U.Com.Code, § 9-504(3).) The section goes on to provide for " reasonable notification of the time and place of any public sale ... to the debtor." (Ibid.) This language was incorporated unchanged into the first version of the code as proposed for adoption in California. (Sen. Bill No. 1 (1961 Reg.Sess.) § 1.)
A subcommittee of the State Bar then objected to the phrase " reasonable notification." (Final Rep. of Subcom. on Art. 9 of the U.Com.Code of the State Bar of Cal., pp. 396, 401, 1 Appen. to Sen.J. (1961).) It recommended greater specificity in the notice provisions. (Ibid.) The California Bankers Association responded by offering a revised section 9-504, subdivision (3). (Recommendations and Comments of the Cal.Bankers Assn., pp. 402, 435, 1 Appen. to Sen. J. (1961).) The opening sentence of their version was a redraft of the Uniform Code language, but the redraft introduces the requirement of " good faith" and deletes the modifier " commercially," so that every aspect of the disposition need be merely " reasonable." The redraft reads: " A sale or lease of collateral may be ... at any time or place and on any terms, provided the secured party acts in good faith and in a reasonable manner." (Id. at p. 435.) The redraft sets out in great detail how notice is to be given— that is it replaces the more general language in the Uniform Commercial Code about " reasonable notification" with specifics as the bar subcommittee had recommended.
[23 Cal.Rptr.2d 189] At the direction of the Senate Factfinding Committee, the proposals of the bar and the bankers were studied by two law professors. (Sixth Progress Rep. to the Legislature by Sen. Factfinding Com. on the Judiciary (1959-1961) p. 436, 1 Sen.J.Appen. (1961).) The professors describe the proposed amendments thusly: " The State Bar Committee and California Bankers Committee propose that the phrase ‘ reasonable notification’ in this subsection be amended to state exactly what advance notice is required and how it is to be sent. The California Bankers Committee proposes, in addition, that the term ‘ public sale’ be defined and that the requirement that all aspects of the disposition be ‘ commercially reasonable’ be deleted. " (Rep. on Proposed Amendments to U.Com.Code (Sen. Preprint Bill No. 1) pp. 436, 586, 1 Sen.J.Appen. (1961), emphasis added.) The professors recommended " that the draft amendment to this subsection proposed by the California Bankers Committee be adopted (except for minor changes and retention of the phrase ‘ commercially reasonable’ )." (Ibid.) The professors go on to discuss the revised section proposed by the Bankers: " This subsection of the Code in effect tells a secured party that he may conduct a valid foreclosure sale of the collateral if he gives ‘ reasonable notice’ and acts in a ‘ commercially reasonable’ manner with regard to all aspects of the sale. " (Id. at p. 587.) The next sentences of the report are those quoted by Justice Panelli in Ford Motor Credit Co. v. Price (1985) 163 Cal.App.3d 745, 210 Cal.Rptr. 17, and noted in the majority opinion at pages 179-180.3 The professors recommended retention of the phrase " commercially reasonable," concluding that it " at least has the advantage that it indicates the context in which ‘ reasonableness' is to be determined." (Rep. on Proposed Amendments to U.Com.Code (Sen. Preprint Bill No. 1) p. 587, 1 Sen.J.Appen. (1961).)
As a result of the extensive revisions to the bill as originally proposed, a second version of it, Senate Bill No. 1093, was introduced in March 1961. (See Final Rep. of Subcom. on Art. 9 of the U.Com.Code of the State Bar of Cal., p. 655, 1 Appen. to Sen.J. (1961).) That version of the bill contained the language eventually enacted, requiring the foreclosing party to act in " good faith and in a commercially reasonable manner." (Sen. Bill No. 1093 (Reg.Sess.1961) § 1; Stats. 1963, ch. 819, § 1, p. 1993.)
Seizing upon the recommendation of the professors that unnecessary litigation would be avoided by precise notice provisions in place of the more general requirement of " reasonable notification," the majority argues that compliance with California notice provisions relieves a secured party from all other obligations to publicize a foreclosure sale. In short, conduct which the trial court here found to be not in good faith and not commercially reasonable is irrelevant so long as notice of the public sale was given five days beforehand in a paper of general circulation in the county in which the collateral was located and the sale was held.
Apart from its ruling that notice was defective, the trial court found by its statement of decision that ITT had failed to conduct the sale in a commercially reasonable manner. It noted that ITT did not publicize the sale in trade journals, that it had not notified potential purchasers who had responded to prior advertisements, and that it had not used the services of its aircraft broker to contact potential buyers. Under the rule proposed by the majority opinion these findings are surplusage.
In order to read the subsection in this manner the majority opinion must resort to hints and inferences derived from its gloss of the legislative history, since every prior California case and every out-of-state or federal case construing California law has [23 Cal.Rptr.2d 190] held to the contrary. 4 The majority opinion's safe harbor has consistently eluded discovery by the bankers, their lobbyists, the commentators, and the courts for 30 years.
The majority opinion discounts prior case law as not binding upon us because, it argues, the legislative history and the safe harbor theory were not specifically before those courts. Only by framing the issue that narrowly can it make such an assertion. The majority opinion cannot deny, however, that prior opinions have addressed the interplay of commercially reasonable publicity and the adequacy of notice under subdivision (3).
In Clark Equipment Co. v. Mastelotto, Inc. (1978) 87 Cal.App.3d 88, 150 Cal.Rptr. 797, the court rejected the notion that notice published in newspapers and posted in public places of a public sale was inadequate because the lessor was incorrectly named and in the next paragraph moved on to the issue of commercial reasonableness. (Id. at pp. 92, 96, 150 Cal.Rptr. 797.) " Defendant does have some basis for questioning the validity of the sale as commercially reasonable. There was evidence that publication of the notice of sale in trade journals might have attracted additional buyers to bid on the equipment." (Id. at p. 96, 150 Cal.Rptr. 797.)
Whether a foreclosure sale of five " reefer vans" was made in a commercially reasonable manner was at issue in American Business Credit Corp . v. Kirby (1981) 122 Cal.App.3d 217, 175 Cal.Rptr. 720. In that case notice of the sale was published in the Los Angeles Daily Journal which the court conceded is, in the language of the subdivision, " a ‘ newspaper of general circulation,’ in the sense that that paper is authorized to publish legal notices, [ but] there is no showing that it is circulated among, or read by, dealers in ‘ reefer vans.’ " ( Id . at p. 221, 175 Cal.Rptr. 720.) The court went on to note that the creditor as a dealer in such vehicles " must necessarily have been aware of potential purchasers" and should therefore be expected to show " it had exposed the potential sale to at least a substantial number of potential buyers." ( Ibid . ) American Business Credit Corp . in effect concluded that one with special knowledge of a given market may be held to a higher standard of sales promotion to satisfy commercial reasonableness. (See also Connex Press, Inc. v. International Airmotive, Inc. (D.C.Cir.1977) 436 F.Supp. 51, 57 [applying Maryland law which includes the " commercially reasonable" language of the U.Com.Code as first proposed in California (quoted at p. 187, ante) ].) The duty to publicize a sale to known potential purchasers under California law was at issue in Savage Const., Inc. v. Challenge-Cook Bros. (1986) 102 Nev. 34, 714 P.2d 573. In that case the Nevada Supreme Court concluded that the notice requirements of section 9504 had not been met. (Id. at p. 575.) However, it did not stop there. It went on to suggest that " advertising efforts" made over a protracted period which fail to produce anyone other than the secured party at a public auction " may indicate either a lack of good faith or inadequate and ineffective publication on the part of the secured party." (Id. at p. 576.) The court went on to fault the creditor for failing to inform an identified potential buyer about the upcoming auction. (Id. at p. 574.) " When a sale is being advertised to an open but unknown market, then the normal minimum legal requirements for commercial reasonableness of an auction may be sufficient. But when ... potential buyers are identified and not advised of the auction, then there is a breach of duty by the secured party. " (Id. at p. 576, emphasis added.)
In each of these cases the court treated adequate notice and publicity adequate to be commercially reasonable as two distinct inquiries. Adequate notice, that is notice which met the minimum requirements of the subdivision, did not define the scope of commercially reasonable publicity or advertising. Rejecting this authority the majority [23 Cal.Rptr.2d 191] opinion goes out of its way to create a conflict in an area of the law which has long been settled.
Putting aside for the moment our disagreement over the interpretation of legislative history, the simple point over which the majority and I part ways is this: does the general duty of commercial reasonableness imposed upon a foreclosing secured creditor by the first sentence of section 9504, subdivision (3) apply to all aspects of the sale of collateral? I maintain that it does. In my view the specific notice requirements imposed by the section define the minimum notice which must be given. I do not, unlike the majority, construe notice to be coextensive with publicity. The duty to publicize a sale adequately arises from the general duty of the creditor to act " in a commercially reasonable manner." What is commercially reasonable publicity must turn on the specific circumstances of what the collateral is and how it is to be sold.
I would hold that notice here was sufficient— it complied with the statutory minimum. I, like the trial court (and the authors of Clark Equipment Co., American Business Credit Corp. and Savage Construction, Inc.) object to the lack of any publicity other than legally adequate notice. The published notice given here was not, standing alone, commercially reasonable publicity for the sale of a multimillion dollar aircraft. In short, the majority opinion equates notice with publicity and argues that the general duty of commercial reasonableness cannot require more than legally adequate notice, regardless of what is being sold. Even the majority opinion concedes that the result here under its reading of the section may be " less than fair." (Maj. opn., ante, p. ----.) The majority opinion's discomfort is well founded. I find nothing in the legislative history, whatever the policy reasons the California Bankers Association may now advance, which requires us to torture the statutory language into the reading proposed by the majority opinion.
I submit that all the courts which have considered the problem did not fail to perceive the bright line rule the majority insists was the Legislature's intent. The statutory scheme demonstrates that there is no such rule to be perceived.
As one commentator has noted " ‘ [c]ommercial reasonableness' is not defined in the U.C.C. Rather, it is a general and flexible term that is left to the courts to apply on a case-by-case basis. It is the critical requirement inherent in every step of the U.C.C. foreclosure process." (Articles, The U.C.C. Mixed Collateral Statute— Has Paradise Really Been Lost? (1988) 36 UCLA L.Rev. 1, 16-17.) This nationwide way of proceeding— the way the U.C.C. requires— is evidently not favored by the majority opinion which variously describes such protections as (a) " a license to litigate every public sale of collateral" (Maj. opn., ante, p. 183) and (b) " a rule that would allow judges and juries to second-guess every foreclosure." (Maj. opn., ante, p. 184.)
Although the code fails to define commercial reasonableness, in section 9507, subdivision (2) it provides some protection for the secured party. That subdivision provides in pertinent part: " The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the secured party is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner. If the secured party either sells the collateral in the usual manner in any recognized market therefor or if he sells at the price current in such market at the time of his sale or if he has otherwise sold in conformity with reasonable commercial practices among dealers in the type of property sold he has sold in a commercially reasonable manner."
Interestingly enough, section 9507 was one which the bankers sought to have deleted in its entirety from the California version of the code. (Recommendations and Comments of the Cal.Bankers Assn., pp. 402, 426, 1 Sen.J.Appen. (1961).) Thus, even if we were to read the lobbying position of the bankers at the time the bill was being considered as creating the safe harbor which the majority perceives, the Legislature [23 Cal.Rptr.2d 192] declined to adopt that proposal. Instead, in section 9504 it retained the requirement of commercial reasonableness in addition to adding specific notice provisions, and it adopted section 9507 with its description of what conduct would be commercially reasonable. Only by looking to isolated pieces of legislative history, discounting a substantial body of authority, and ignoring the internal logic of article 9 can the majority opinion discern its bright line rule.
A safe harbor for creditors who can enjoy the warming breeze of a sea free from such chilling concerns as old fashioned requirements that they conduct their foreclosure sales in conformity with commercial reasonableness is— like Brigadoon— a place that I doubt exists. But if the majority has truly found it, then it should be treated as more than a harbor; it is nothing less than a Camelot for creditors of which it can be said that as for them " there's simply is not a more congenial spot for happ'ly ever aftering than here in Camelot [California]." With apologies to Alan Jay Lerner and Frederick Loewe, I would affirm.
" AIRCRAFT AUCTION
of
C-140A Hercules
" BY ORDER OF SECURED PARTY, there will be offered at auction at 10:00 o'clock a.m. Mountain Time on September 3, 1987, at the offices of T & G Aviation Memorial Airfield, 22000 South Price Road, Chandler, Arizona 85248, one(1) C-130A Hercules aircraft having the following characteristics: (a) interior condition 8 out of 10, exterior condition 10 out of 10; (b) approved for corporate use under Part 91; (c) all log books up to date; (d) new Collins Proline Avionics (to be completed); (e) recently repainted (Dupont imron) and treated against corrosion; (f) NGWTO-124,000 lbs.; (g) range carrying 30,200 lbs., 1,500 nautical miles; (h) empty weight 67,000 lbs., (i) total airframe time 12,948 hours. This aircraft will be sold at absolute auction, subject, however, to both U.S. State Department approval of the purchaser and the secured party's right to bid and purchase. Secured party reserves right to adjourn auction to another time and place, upon public announcement at the original time and place of the auction. For further information, to arrange inspection of the aircraft and to qualify as a bi "