CIT Financial Services v. Herb's Indoor RV Center, Inc.

SWANSTROM, Judge.

This is the second appeal in a guaranty case. In earlier proceedings, CIT Financial Services (CIT), the secured creditor, was granted partial summary judgment on a guaranty executed by Herb’s Indoor RV Center (Herb’s RV). On appeal, a special panel of this Court reversed the summary judgment and remanded the case to resolve disputed material facts. CIT Financial Services v. Herb’s Indoor R.V. Center, 108 Idaho 820, 702 P.2d 858 (Ct.App.1985). On remand, the district court found that CIT disposed of the travel trailer in a commercially reasonable fashion and was entitled to the deficiency under the guaranty. Herb’s RV appealed again. This Court must now decide whether the district court erred, as a matter of law, in holding the guarantor liable to the creditor for the deficiency. We affirm.

The following facts have led to this second appeal. In November 1979, Rand and Deborah Hughes (buyers) purchased a travel trailer from Herb’s RV. The buyers obtained financing from CIT for the purchase. They signed a contract (security agreement) naming Herb’s RV as seller, which Herb’s RV contemporaneously assigned to CIT. The buyers were then required to make their monthly payments to CIT. CIT paid Herb’s RV for the contract but required Herb’s RV to guarantee payment “of each installment when due ... and payment of the unpaid balance upon demand ... if Customer defaults.”

For several months the buyers made payments to CIT. However, in July 1980, they notified CIT that no further payments would be made until substantial defects in the trailer — existing at the time of purchase — were remedied. In accordance with its guarantee Herb’s RV stepped in to make the payments to CIT between August 1980 and April 1981.1 Subsequently, CIT demanded that Herb’s RV continue paying the installments. Herb’s RV refused and demanded that CIT repossess and sell the trailer.

On January 27, 1982, CIT repossessed the travel trailer and delivered it to Herb’s RV. The next day CIT wrote Herb’s RV and demanded payment of $13,035.90 as the “net payoff” of the buyers’ contract, in accordance with the guaranty. Herb’s RV refused to pay the amount demanded, giving as its reason CIT’s nine-month delay in repossessing the trailer. In October 1982, CIT filed its “Complaint on Guarantee” against Herb’s RV. In addition to its answer and counterclaim, Herb’s RV filed a third-party complaint against the buyers of the trailer and against the manufacturer. In May 1983, the district court granted summary judgment to CIT on its complaint, *187but did not decide the issues raised by the counterclaim and third-party complaint. CIT proceeded to execute on its judgment, directing the sheriff to seize and sell the travel trailer which was still in possession of Herb’s RV. After the sheriff’s sale, Herb’s RV tendered the balance of the judgment, CIT’s costs and fees and filed the first appeal. A special panel of this Court reversed the summary judgment and remanded the case to resolve disputed material facts. The special panel held that the district court should not have certified the summary judgment as final because of the need to resolve the issues raised by the counterclaim and third-party complaint.

Following remand, CIT and Herb’s RV stipulated to most of the facts recited above. They again submitted the controversy to the district court to decide questions of law. The court issued its memorandum decision holding that Herb’s RV was liable to CIT on the guaranty agreement. Implicitly, the court ruled against Herb’s RV on its counterclaim. Because Herb’s RV had paid and satisfied the earlier judgment in 1983, before the first appeal, the district court’s final judgment, as amended May 9, 1988, showed no further sums due. Nevertheless, Herb’s RV brought this second appeal to seek recovery of the “deficiency,” costs, and fees that it was forced to pay following the earlier summary judgment.

An unconditional guaranty is a promise by the guarantor to pay the debt or perform the obligation upon default without requiring the secured party to first exhaust its remedies against the debtor. Commercial Credit Corp. v. Chisholm Bros. Farm Equipment Co., 96 Idaho 194, 525 P.2d 976 (1974); Gebrueder Heidemann, K.G. v. A.M.R. Corp., 113 Idaho 510, 746 P.2d 579 (Ct.App.1987) (review denied). When the guaranty is unconditional, the guarantor cannot imply limitations upon the lender’s right to recover. Folsom, LENDER V. GUARANTOR: RIGHTS AND OBLIGATIONS UNDER THE “UNCONDITIONAL” GUARANTY, 2 Me. B.J. 172 (May 1987). Plain and unambiguous terms dictate the intent of the parties and the obligations guaranteed. Johnson Equipment, Inc. v. Nielson, 108 Idaho 867, 702 P.2d 905 (Ct.App.1985); see also Industrial Investment Corp. v. Rocca, 100 Idaho 228, 596 P.2d 100 (1979), appeal after remand 102 Idaho 920, 643 P.2d 1090 (1981).

The guaranty agreement entered into between Herb’s RV and CIT stated:

I [Herb’s RV] guarantee payment to you [CIT] of each installment when due under this contract and payment of the unpaid balance upon demand and all other obligations of Customer if Customer defaults, without first requiring that you proceed against Customer or that you perfect or ensure enforceability of the Customer’s obligations or security. I ... waive notice of its acceptance and any defaults thereunder____ If I default under this guaranty and you refer this Guaranty to an attorney for collection, I will pay your attorney’s fees (15% of the amount in default, if not prohibited by law), court costs and disbursements. (Emphasis added.)

By this language Herb’s RV unconditionally agreed to pay CIT the installments due upon default by the buyers. However, Herb’s RV refused to honor the guaranty instead demanding that CIT proceed against the debtor and repossess the trailer. Eventually, as we have stated, CIT repossessed and delivered the trailer to Herb’s RV lot.

Herb’s RV contends that CIT is not deserving of any deficiency judgment after the sheriff’s sale because of the nine-month delay in repossessing the trailer. This argument ignores the fact that the guaranty was unconditional. Under its terms, CIT had no duty to repossess the collateral before looking to Herb’s RV for payment. The argument is not persuasive.

Herb’s RV also argues that the sheriff’s sale did not constitute a commercially reasonable disposition of the trailer in light of two prior offers to purchase the trailer for $14,000 and $10,000. This argument is made in light of the following stipulated facts. As noted earlier, CIT repossessed the trailer and delivered it to Herb’s RV sales lot on January 27, 1982. The next *188day CIT wrote Herb’s RV demanding payoff of the defaulted contract according to the guaranty. Ten months later — after CIT filed this action — Herb’s RV wrote CIT that it had received an oral offer of $14,000 for the trailer. Herb’s requested CIT “to release the title and sell it.” CIT responded immediately that it was willing to release the title upon payment in full of all sums due. The letter said that Herb’s RV may sell the trailer “at any time, for any sum, but remains responsible for the entire balance, pursuant to the guaranty.” It is not disputed that CIT then claimed $14,200, including accrued interest, was due as the payoff on the contract. This sale did not occur. Two months later, in January 1983, CIT received a written offer of $10,000 from a prospective purchaser who was apparently referred to CIT by Herb’s RV. CIT responded that Herb’s RV and not CIT had the trailer for sale. A copy of this letter was sent to the attorney representing Herb’s RV. This sale did not take place.

In April 1983, the district court entered summary judgment for CIT. A writ of execution was issued and the sheriff was directed to sell the trailer. Herb’s RV was the purchaser at the sale for $6,000. To avoid further executions, Herb’s RV paid the remaining balance due on the judgment and filed the first appeal.

The first appeal was from a summary judgment and this Court was required to view the record most favorably to Herb’s RV. This Court suggested that it was necessary for the trial court-to determine whether the sheriff’s sale was a commercially reasonable disposition of the collateral by CIT in light of all of the circumstances related earlier. On remand, the trial court dutifully made findings on this issue, holding that the disposition was commercially reasonable. The trial court did not base its decision solely on this ground however. The trial court correctly perceived that the events preceding the sheriff’s sale were determinative.

The district court held that by transferring the collateral to Herb’s RV, CIT was relieved of its duty to dispose of the trailer in a commercially reasonable manner. The district court agreed with CIT’s arguments that a “transfer of collateral” occurred within the meaning of I.C. § 28-9-504(5):

(5) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or disposition of the collateral under this chapter.

When the seller guarantees the underlying debt of the purchaser to the finance company, “it is the seller who has the rights and duties of a secured party when the finance company repossess collateral and transfers it to the seller pursuant to the repurchase agreement or guaranty.” (Emphasis added.) Reeves v. Assoc. Financial Services Co., Inc., 197 Neb. 107, 247 N.W.2d 434, 439 (1976). See also Treptow Co. v. Duncan Aviation, Inc., 210 Neb. 72, 313 N.W.2d 224 (1981); Stoppi v. Wilmington Trust Co., 518 A.2d 82 (Del.1986); Erickson v. Marshall, 115 Idaho 847, 771 P.2d 68 (Ct.App.1989). “The purpose of section 9-505(5), U.C.C., is to insure that the value of repossessed collateral is measured by a bona fide sale in the marketplace____” Reeves v. Assoc. Financial Services Co., Inc., 247 N.W.2d at 439. Here, it is apparent that Herb’s RV was in a better position to sell the repossessed trailer at a fair market price than was CIT. We agree with the district court that CIT did nothing to this point impairing the value of the collateral. After delivering the collateral and making a demand for payment, CIT waited nine months before suing on the guaranty. This afforded Herb’s RV more than a reasonable time to dispose of the collateral before incurring litigation expenses.

Herb’s RV next argues that it was unable to sell the trailer to other customers during this time because CIT refused to transfer title along with possession of the collateral. A “transfer of collateral” oc*189curs under I.C. § 28-9-504(5) regardless of delivery of title. Section 28-9-202 states: “Each provision of this chapter with regard to rights, obligations and remedies applies whether title to collateral is in the secured party or in the debtor.” When notified of a potential sale for $14,000, CIT stated that it was “perfectly willing to release the certificate of title, upon payment in full of all sums due.” The district court concluded that CIT had this right under the terms of the contract — including the guaranty— signed by Herb’s RV. We agree. According to the record before us, Herb’s RV could have discharged the debt to CIT at this time for $14,200. Moreover, Herb’s RV has not shown that CIT frustrated a $14,000 sale of the collateral by insisting on its rights. A more reasonable view is that by refusing to contribute $200 of the $14,-200 it owed to CIT, Herb’s RV frustrated a sale that CIT was “perfectly willing” to allow. The district court correctly decided that Herb’s RV could have avoided this problem simply by performing its obligation under its contract with CIT. As this Court held in Gebrueder Heidemann, K.G., v. A.M.R. Corp., supra, a guarantor’s interests are best safeguarded upon default by paying the debt and taking prompt action against the debtor or others against whom the guarantor or secured party may have had a right of action.

Finally, we agree with the district court’s order awarding attorney’s fees to CIT. Since CIT was successful on both the district and appellate court levels in an action against the guarantor, CIT is entitled to attorney’s fees incurred in an action to collect on the guaranty. Idaho First Nat. Bank v. Wells, 100 Idaho 256, 596 P.2d 429 (1979); Bank of Idaho v. Colley, 103 Idaho 320, 647 P.2d 776 (Ct.App.1982) (review denied). CIT has requested an award of fees incurred in this appeal. Herb’s RV has objected to any such award relying upon a clause in the guaranty as a limitation upon the amount of fees which can be awarded in this action. Because it is not disputed that the maximum allowable fees were awarded in the trial court, we believe no attorney fees are awardable on appeal.

The judgment of the district court granting the deficiency to CIT is affirmed. Costs to respondent CIT. No attorney fees awarded.

HART, J. Pro Tem., concurs.

. In the meantime, the buyers filed an action against Herb’s RV for rescission of the contract and for return of payments, plus costs and attorney fees. Herb's RV filed an answer and counterclaim and a third-party complaint against the manufacturer of the trailer. The disputes among these parties were eventually settled.