City National Bank v. Unique Structures, Inc.

Unique Structures, Inc. (Unique) sold mobile homes. In 1987, City National Bank (CNB) (plaintiff) entered into a dealer agreement with Unique to purchase many of Unique’s mobile-home installment contracts in which the customers pledged the respective mobile homes as collateral. The installment contracts were with recourse such that Unique assumed liability for payment if the customer defaulted. Susie Arnall, who operated Unique, personally guaranteed Unique’s liability on the contracts. Before this action, CNB sued Unique and Arnall (defendants) and obtained a large jury verdict regarding 58 defaulted installment contracts. Thereafter, 27 more contracts defaulted. After default, CNB exercised its option under the dealer agreement to repossess and sell the respective mobile homes. However, many of the mobile homes had missing appliances and fixtures, broken windows, and freeze damage. Given their poor condition, the mobile homes did not sell for much, which left a balance due on the contracts. Accordingly, CNB demanded payment from Unique and Arnall, who refused. Thus, CNB initiated action against Unique and Arnall and sought a deficiency judgment. The case went to trial to determine whether CNB sold the mobile homes in a commercially reasonable manner. At trial, CNB relied solely on its senior vice president’s testimony, which did not address when CNB took control of the mobile homes, the condition of the homes when CNB took control, and whether CNB tried to protect the mobile homes after gaining control. The district court found that CNB contributed to the decline of the mobile homes’ value by not timely repossessing and disposing of the mobile homes and failing to adequately protect and preserve the mobile homes. Consequently, the district court concluded that CNB failed to show the sales were commercially reasonable and denied CNB’s claim. CNB appealed.