## Facts

- Unique Structures, Inc. (Unique) sold mobile homes at retail.
- In 1987, City National Bank (CNB) entered a dealer agreement with Unique under which CNB purchased many of Unique’s consumer mobile-home installment contracts.
- Each installment contract was secured by the purchaser’s mobile home as collateral.
- The contracts were “with recourse,” meaning Unique remained liable if the consumer defaulted.
- Susie Arnall, who operated Unique, executed a personal guaranty of Unique’s obligations on the recourse contracts.
- Before this lawsuit, CNB had sued Unique and Arnall over 58 other defaulted contracts and obtained a substantial jury verdict; that earlier judgment was affirmed on appeal.
- In this case, 27 additional consumer contracts went into default.
- After default, CNB exercised its contractual option to repossess and sell the mobile homes.
- By the time of sale, many homes were in poor condition, including missing appliances and fixtures, broken windows, and freeze damage, which contributed to low sale prices.
- The repossession sales did not satisfy the amounts due on the 27 contracts, and CNB demanded that Unique and Arnall pay the claimed deficiencies.
- Unique and Arnall refused to pay, and CNB filed this diversity action seeking a deficiency judgment totaling $431,683.48.
- The case was tried to the court on whether CNB’s repossession and disposition of the mobile homes were commercially reasonable.
- At trial, CNB’s proof consisted primarily of testimony from its senior vice president; the testimony did not establish when CNB took control of the homes, their condition when CNB took control, or what steps CNB took to protect and preserve them after taking control.
- The district court found CNB contributed to the decline in value by failing to timely repossess and dispose of the homes and by failing to adequately protect and preserve them, and it denied CNB’s deficiency claim.

## Issues

1. Whether CNB, as the secured party seeking a deficiency, carried its burden to prove that its repossession and sale of the mobile homes were commercially reasonable.
2. If CNB failed to prove commercial reasonableness, whether CNB was entitled to recover any deficiency from Unique (as recourse obligor) and Arnall (as guarantor).

## Decision

- The Eighth Circuit affirmed the district court’s judgment for Unique and Arnall.
- The court held that CNB did not carry its burden to prove the repossession sales were commercially reasonable.
- Because CNB failed to prove commercial reasonableness, CNB was not entitled to the claimed deficiency judgment against either Unique or Arnall.

## Legal Principles

- A secured party seeking a deficiency after repossession and disposition of collateral bears the burden of proving the disposition was commercially reasonable under the Uniform Commercial Code.
- Commercial reasonableness is assessed in light of the manner, method, time, place, and terms of the disposition, and may include the secured party’s handling of the collateral while it is in the secured party’s control.
- When collateral is sold in substantially deteriorated condition and the proceeds are low, the secured party must present specific evidence explaining its control of the collateral and the steps taken to preserve value.
- Conclusory testimony that the secured party followed internal practices is not enough when key facts about repossession timing, collateral condition at takeover, and preservation efforts are missing.
- If the secured party fails to prove commercial reasonableness, the court may deny deficiency recovery.

## Conclusion

The Eighth Circuit affirmed the denial of CNB’s $431,683.48 deficiency claim because CNB did not prove that its repossession and sale of 27 mobile homes were commercially reasonable, where the record supported findings that CNB delayed repossession and disposition and failed to adequately protect and preserve the collateral after taking control, contributing to deterioration and reduced sale proceeds.


City National Bank v. Unique Structures, Inc., 49 F.3d 1330 (1995)