State Bank v. Keysor
419 N.W.2d 752, 166 Mich. App. 93 (1988)
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Rule of Law:
A secured creditor's failure to comply with the notice and sale provisions of UCC § 9-504 when disposing of collateral does not constitute the tort of conversion. This failure operates as an absolute bar to the recovery of a deficiency judgment.
Facts:
- On January 10, 1978, defendant executed a promissory note to plaintiff for the purchase of a Northwest Model 6 Crane, which was listed as collateral for the note.
- Plaintiff perfected its security interest by filing a financing statement with the Secretary of State.
- Defendant failed to pay the note when it became due on May 10, 1978.
- In early 1980, plaintiff’s attorney sent a writ of execution to a private process server.
- The private process server, who was not an authorized officer of the court, located and levied on the crane at Bay Harbor Marina.
- On March 28, 1980, the private process server conducted an auction and sold the crane for $1,000.
- Plaintiff did not provide defendant with notice of the sale.
- Other property belonging to the defendant, not covered by the security agreement, was also sold at the auction.
Procedural Posture:
- On November 27, 1978, plaintiff sued defendant in Bay Circuit Court (trial court) to collect on the promissory note and to take possession of the crane.
- On July 16, 1979, the trial court entered a default judgment against defendant for approximately $17,000.
- On January 2, 1985, defendant filed a motion for satisfaction of judgment in the trial court, arguing the sale was improper.
- The trial court found the sale was defective but characterized it as a conversion, holding defendant's motion was barred by the three-year statute of limitations for torts.
- On March 25, 1985, the trial court denied defendant's motion for satisfaction of judgment.
- Defendant (as appellant) appealed the trial court's denial to the Michigan Court of Appeals (intermediate appellate court).
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Issue:
Does a secured creditor's failure to comply with the notice and sale provisions of UCC § 9-504 when disposing of collateral constitute the tort of conversion, thereby subjecting the debtor's claim to the shorter statute of limitations for conversion?
Opinions:
Majority - J. R. Kirwan, J.
No, a secured creditor's failure to comply with the UCC's notice and sale provisions is not a conversion. The court found that because the attempted writ of execution was 'fatally defective,' the subsequent seizure and sale constituted a private action by a secured party, subject to the requirements of the Uniform Commercial Code (UCC). The court held that a failure to comply with the notice and commercially reasonable sale provisions of UCC § 9-504 triggers liability under UCC § 9-507 but is not 'truly a liability for conversion.' Therefore, the three-year statute of limitations for conversion does not apply; instead, the six-year 'catchall' period of limitation is applicable. Because the plaintiff failed to provide proper notice of the collateral's disposition, its right to recover any deficiency judgment is absolutely barred.
Analysis:
This decision establishes an important precedent in Michigan for remedies under the UCC. By classifying a non-compliant sale not as a conversion but as a violation of UCC § 9-504, the court prevents creditors from benefiting from a shorter statute of limitations to escape liability for improper sales. Furthermore, the court adopts the 'absolute bar' rule, which holds that any failure to provide proper notice completely eliminates the creditor's right to a deficiency judgment. This creates a powerful incentive for secured creditors to adhere strictly to the UCC's procedural requirements when disposing of collateral, providing significant protection for debtors.
