Marine Midland Bank v. Green, 48 N.Y.2d 903 (1979)

A creditor’s unsuccessful attempt to sell collateral and notification to the debtor of a proposed sale does not constitute constructive repossession under UCC § 9-503, thereby preserving the creditor’s right to pursue a deficiency judgment against a guarantor.

Summary

Marine Midland Bank sought to recover the unpaid balance on a guaranteed equipment lease from the defendants after the lessee defaulted. The defendants argued that the bank’s attempt to sell the equipment to a third party constituted a repossession under UCC § 9-503, limiting the bank’s recovery to the value of the collateral. The New York Court of Appeals held that the bank’s actions did not amount to constructive repossession because the bank never took physical possession or interfered with the lessee’s use of the equipment. The court affirmed the lower court’s decision, allowing the bank to recover the full amount due from the guarantors, including attorney’s fees.

Facts

Defendants guaranteed a note for theatre equipment leased to a third party. The lease required an advance payment and monthly installments. After nine months, the lessee defaulted. The bank attempted to find a buyer for the equipment and notified the defendants of a proposed sale to Mi-Ann Theatre. The sale to Mi-Ann never materialized, but the bank did not formally notify the defendants until months later. The equipment remained on the lessee’s premises and continued to be used. The bank then sued the guarantors for the unpaid balance of the lease.

Procedural History

The trial court ruled in favor of the bank, holding the guarantors liable for the unpaid balance. The Appellate Division affirmed, directing inclusion of attorney’s fees in the judgment after a hearing. The case was then appealed to the New York Court of Appeals.

Issue(s)

1. Whether the bank’s conduct in attempting to sell the collateral constituted a constructive repossession under UCC § 9-503, thereby limiting its recovery to the security interest in the equipment.

2. Whether attorney’s fees can be included in the judgment before they are actually paid.

Holding

1. No, because the bank did not take physical possession of the equipment or interfere with the lessee’s use of it; thus, there was no repossession that would limit the bank’s recovery to the collateral.

2. Yes, because the value of the services was established before inclusion in the judgment, even if the fees had not yet been paid.

Court’s Reasoning

The court reasoned that under UCC § 9-503, a creditor must take possession of the collateral either by removing it or by rendering it unusable on the debtor’s premises to constitute a repossession. Here, the equipment remained on the premises and was used by the debtor continuously. The notice of sale offered the defendants an opportunity to protect their interests, but no sale ever took place, and the bank did not interfere with the use of the property. The court distinguished the case from Crowe v. Liquid Carbonic Co., where the creditor leased the collateral to a third party and appropriated the rent. In this case, the bank did not exercise dominion and control over the collateral. Because the bank made no election to retain the collateral in satisfaction of the debt, it was entitled to recover the whole amount due on the guarantee from the defendants.

Regarding attorney’s fees, the court stated that its prior decisions do not require that the fees be paid before recovery may be had, only that the value of the services be established before inclusion in the judgment, citing Matter of First Nat. Bank v. Brower, 42 N.Y.2d 471, 473. The court found that the Appellate Division properly directed inclusion of attorney’s fees in the judgment after a hearing to establish their value.