Appellate Court (Ga.) Says Creditor Need Not First Liquidate Repossessed Collateral in Order to Obtain Judgment on Account

In Okefenokee Aircraft, Inc. v. Primesouth Bank, 2009 WL 724113 (Ga. App. 2009), the Georgia Court of Appeal was asked to address whether the UCC prohibited entry of judgment in favor of a creditor on a contractual balance notwithstanding the fact that the creditor had repossessed, but not yet sold, the collateral.  The Court concluded that “a secured creditor can retain a debtor’s collateral while seeking an independent action for money judgment”.

On September 9, 2005, the Bank issued a loan to OAI for the purchase of an airplane. OAI executed a promissory note in favor of the Bank in the principal amount of $161,306.25 plus interest, which was also personally guaranteed by the company’s president.  The Note was secured by the airplane being purchased.

OAI defaulted on the Note. The Bank made a demand for payment, but was not paid. The Bank then repossessed the airplane securing the Note. Instead of first disposing of the collateral and seeking a deficiency judgment, however, the Bank held the collateral and sued to enforce the Note, seeking a money judgment for the loan principle and interest, plus attorney fees. 

The Court of Appeal found no impediment to entry of judgment in favor of the Bank. 

The Uniform Commercial Code provides that once default has occurred, a secured creditor is authorized to take or retain possession of the collateral.OCGA § 11-9-609(a)(1). The secured creditor may then “reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure.”OCGA § 11-9-601. Indeed, “[n]othing in the Code prohibits the creditor in possession of the goods from proceeding in a judicial action on the note.” McCullough v. Mobiland, 139 Ga.App. 260, 263(2) (228 S.E.2d 146) (1976). See Ricker v. First Fed. of Lacrosse-Madison, 215 Ga.App. 793, 794-795 (452 S.E.2d 583) (1994); ITT Terryphone Corp. v. Modems Plus, 171 Ga.App. 710, 711-712(2) (320 S.E.2d 784) (1984). To the contrary, the Code expressly states that the rights and remedies afforded a secured creditor “are cumulative and may be exercised simultaneously.”OCGA § 11-9-601(c). . . .¶ . . . Here, the Bank is attempting to reduce its claim to judgment; it is not seeking to recover a deficiency judgment. See Emmons v. Burkett, 179 Ga.App. 838, 841(1) (348 S.E.2d 323) (1986) (recognizing the difference between an action on a note and a deficiency judgment action), rev’d on other grounds, 256 Ga. 855 (353 S.E.2d 908) (1987). As stated above, the law allows a secured creditor in possession of a debtor’s collateral to employ a number of different remedial steps until the debt is satisfied. Consequently, “[the Bank’s] election to repossess the collateral and then to file suit on the [Note] without first disposing of the collateral was not improper under the terms of the [Note] or of the Uniform Commercial Code.” ITT Terryphone Corp., 171 Ga.App. at 712(2). Nor did the Bank’s repossession of the collateral impact the amount of the OAI’s outstanding debt under the Note. See id.; McCullough, 139 Ga.App. at 263(2).  FN2 (We note that other jurisdictions that have considered this issue have reached the same result. See generally Center Capital Corp. v. Marlin Air, 2008 U.S. Dist. LEXIS 27766 (E.D.Mich.2008); Dorman v. Morris, 519 NW2d 685 (Wisc.App., 1994); Kimura v. Wauford, 715 P.2d 451 (N.M.1986). See also McDonnell, J., 1B-8 Secured Transactions Under the UCC § 8.03).