## Facts

- In 1998, Landreth School Bus Services (Bus Services) purchased three school buses using three separate loans from Textron Financial Corporation (Textron).
- For each loan, Bus Services granted Textron a security interest in the specific bus and agreed that, upon default and disposition of the collateral, Textron could pursue any remaining deficiency if the sale proceeds did not satisfy the debt.
- Larry Landreth, who owned Bus Services, personally guaranteed Bus Services’ obligations on the loans.
- In 2000, Textron assigned its interests in the loans and security agreements to CIT Group/Equipment Financing, Inc. (CIT).
- In 2003, Bus Services defaulted. CIT sent notices on each loan addressing default, acceleration, foreclosure, and its intent to seek a deficiency judgment.
- CIT accelerated the loans and demanded full payment. Bus Services could not pay and voluntarily returned the buses to CIT.
- CIT disposed of the buses and applied the sale proceeds to the loan balances; outstanding balances remained on each loan after crediting the proceeds.
- CIT sued Bus Services and Landreth to recover the deficiencies and moved for summary judgment.
- Landreth opposed the deficiency claim by asserting that a CIT employee told him by telephone that returning the buses would satisfy the obligations in full, which Landreth characterized as a strict foreclosure (acceptance of collateral in full satisfaction) under U.C.C. Article 9. CIT disputed that such an agreement existed.

## Issues

1. Whether the defendants raised a legally effective “strict foreclosure” defense under U.C.C. Article 9 based on an alleged oral statement that returning the buses would satisfy the debt in full.
2. Whether CIT was entitled to recover deficiencies after disposing of the buses, including whether the required pre-disposition notices were given and whether the dispositions were commercially reasonable under Article 9.
3. Whether Landreth, as guarantor, could be held liable for the remaining deficiencies owed by Bus Services.

## Decision

- The court granted CIT’s motion for summary judgment on its deficiency claims.
- The court rejected the defendants’ strict-foreclosure theory, concluding that the return of the buses and the alleged oral statement did not establish an acceptance of collateral in full satisfaction under Article 9.
- The court found CIT was entitled to deficiency judgments after disposition of the buses because the record supported Article 9 compliance on notice and commercial reasonableness for the sales at issue.
- The court held Landreth liable as guarantor for the deficiencies owed by Bus Services.

## Legal Principles

- Under U.C.C. Article 9, a secured party’s acceptance of collateral in full satisfaction of an obligation requires the statutory conditions for acceptance; repossession or voluntary surrender of collateral, without more, does not by itself bar a deficiency.
- A claimed agreement to treat surrendered collateral as “payment in full” must satisfy Article 9’s requirements for acceptance of collateral; informal and disputed oral statements are generally insufficient to establish strict foreclosure as a matter of law.
- A secured party may seek a deficiency after disposing of collateral if it proves default, the amount due, and that the disposition process satisfied Article 9 requirements, including proper notice and commercial reasonableness.
- A guarantor is responsible for the borrower’s unpaid balance where the guaranty covers the obligation and the creditor establishes the borrower’s default and the remaining deficiency following disposition.

## Conclusion

The court entered summary judgment for CIT, holding that the borrower’s voluntary return of the buses and an alleged phone statement about “full satisfaction” did not create an Article 9 acceptance of collateral in full satisfaction, and that CIT—after providing notice and conducting commercially reasonable dispositions shown in the record—could recover the remaining deficiencies from both the bus company and its owner-guarantor.


CIT Group/Equipment Financing, Inc. v. Landreth, 2007 U.S. Dist. LEXIS 93372 (2007)