Alexander Raymond Gonzalez and Helena Bonner Gonzalez

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
ALEXANDER RAYMOND GONZALEZ
HELENA BONNER GONZALEZ
DEBTORS
CASE NO.
05-05993-5-ATS
ORDER ALLOWING OBJECTION TO CLAIM
The matter before the court is the debtors' objection to the claim
filed by Four Oaks Bank. A hearing took place in Raleigh, North
Carolina on February 7, 2006.
Alexander Raymond Gonzalez and Helena Bonner Gonzalez filed a
petition for relief under chapter 13 of the Bankruptcy Code on October
16, 2005. On November 22, 2005, Four Oaks Bank & Trust Company filed
a claim in the debtors' case in the amount of $29,059.63. Four Oaks
held a security interest in equipment and assets of a corporation owned
by the Gonzalezes, Rudders, Inc., and also holds a deed of trust on the
Gonzalezes' home to secure its debt. Four Oaks' claim arises from the
deficiency owed after it sold the equipment at Rudders, Inc. The
debtors objected to the claim, contending that the sale of the assets
was not commercially reasonable, and that Four Oaks is not entitled to
any deficiency claim.
Mr. and Mrs. Gonzalez, through Rudders, Inc., operated a seafood
restaurant in Fuquay-Varina, North Carolina. On Wednesday,
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 1 of 10

2
September 21, 2005, Mr. Gonzalez went to the restaurant to check on
operations and was met at the door by "Raven," a representative of the
landlord, who presented a notice of eviction to Mr. Gonzalez. Raven
allowed Mr. Gonzalez to retrieve his checkbook from the building, but
advised Mr. Gonzalez that the bank had instructed him not to allow the
Gonzalezes to remove any other items from the premises. The next day,
the Gonzalezes received a notice of default and demand for $48,250.99
from Four Oaks.
Hubert Worthington, the collection recovery manager for Four Oaks,
testified that he received a phone call from Rudders' landlord
notifying him that Rudders was being evicted and that the landlord
would change the locks. Upon receipt of that information, Mr.
Worthington decided to declare the Four Oaks obligation in default, due
to a six-month arrearage and the cessation of operations that would
result from the eviction. Mr. Worthington trusted the landlord to
secure the premises and the bank's collateral, and he had no further
contact with either the landlord or the debtors for several days.
Meanwhile, the Gonzalezes drove by the restaurant and observed
items being removed from the building and either being thrown away or
loaded into vehicles. It appeared to the debtors that the landlord was
removing food and dry goods from the restaurant, and when they looked
into the dumpsters, they discovered some food storage containers and
dishes that had been discarded. The Gonzalezes testified that there
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 2 of 10

3
was substantial food inventory present in the restaurant on the day of
the eviction in anticipation of the weekend business rush, though they
admitted that the value of the containers they observed in the
dumpsters was probably only worth about $100.
A few business days after the eviction, Mr. Worthington was
contacted by the landlord about a foul odor coming from the restaurant
premises and requested that bank representatives take measures to
remove spoiling food. Mr. Worthington met the landlord, Mr. Parker,
and the local Four Oaks representative, Mr. Riley, at the restaurant
and agreed that the landlord should remove the perishable items. Mr.
Worthington testified that there was very little food in the premises
at that time (suggesting that most of the food inventory had already
been removed), and that what remained was not salvageable.
A few days later, Mr. Worthington returned to the premises to
conduct an inventory of the bank's collateral. Ms. Gonzalez met with
Mr. Worthington at that time and inquired about how the items would be
sold. Mr. Worthington advised Ms. Gonzalez that he would conduct the
sale and that he intended to sell the equipment to the highest bidder.
Ms. Gonzalez inquired about the disposal of the food inventory, and Mr.
Worthington told Ms. Gonzalez that the bank was not interested in the
perishable items. Similarly, Mr. Worthington advised Ms. Gonzalez that
the bank was not interested in the alcoholic beverages, and indicated
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 3 of 10

4
that the debtors could have the alcohol. When Ms. Gonzalez attempted
to recover the alcohol, however, the landlord refused.
Four Oaks scheduled a sale of the restaurant equipment for
October 31, 2005. The bank sent a notice of the sale to the debtors,
and Ms. Gonzalez contends that the notice contained an incomplete
listing of the bank's collateral. Ms. Gonzalez failed to notify Mr.
Worthington of the discrepancy until the day of the sale, however, and
the list was never amended.
Mr. Worthington conducted the sale on October 31. He opened the
bidding with the bank's own bid of $19,900. The landlord agreed to
match the bank's bid, and there were no higher bidders. The equipment
was sold in a lump sum, and no effort was made to determine whether
other buyers would purchase single items for a greater return. Mr.
Worthington testified that many items were installed in the building
and damage would occur to the premises if they were removed, so the
bank determined that the equipment should be sold as it was. The
debtors testified that all of the equipment could have been removed
from the building, and they contend that certain items were sold that
were not listed on the notice of sale.
The debtors contend that the sale of the Rudders collateral was
not "commercially reasonable" and otherwise did not meet the
requirements established in Article 9 of the Uniform Commercial Code.
They contend the notice was insufficient, there was no effort to
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 4 of 10

5
attract buyers who might have paid more for the equipment, there should
have been an attempt to sell the items individually to determine
whether a greater return could be had, and there was no reasonable
attempt to value the items. The debtors also maintain that the bank
had an obligation to preserve the perishable collateral and that the
bank essentially gave the food to the landlord in violation of the
debtors' rights.
The court is not persuaded that the bank had an obligation to
preserve and dispose of the perishable collateral. When Rudders was
evicted by the landlord, Four Oaks was not required to take possession
of the perishable food, in fact, it told the debtors that they could
have the food inventory. The court expresses no opinion as to whether
the landlord might have liability for any conversion of the perishable
inventory.
With respect to the equipment inventory, North Carolina General
Statute § 25-9-610(a) provides that "[a]fter default, a secured party
may sell, lease, license, or otherwise dispose of any or all of the
collateral in its present condition or following any commercially
reasonable preparation or processing." Subsection (b) provides that
[e]very aspect of a disposition of collateral, including the
method, manner, time, place, and other terms, must be
commercially reasonable. If commercially reasonable, a
secured party may dispose of collateral by public or private
proceedings, by one or more contracts, as a unit or in
parcels, and at any time and place and on any terms.
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 5 of 10

6
N.C. Gen. Stat. § 25-9-610(b). Section 25-9-611 governs notification,
and provides in relevant part that the secured parties must send an
authenticated notice of disposition to the debtor and to
[a]ny other secured party or lienholder that, 10 days before
the notification date, held a security interest in or other
lien on the collateral perfected by the filing of a
financing statement that:
1. Identified the collateral;
2. Was indexed under the debtor's name as of that date;
and
3. Was filed in the office in which to file a financing
statement against the debtor covering the collateral as
of that date[.]
N.C. Gen. Stat. § 25-9-611(b). Section 25-9-613 sets forth the
contents of the notification that are deemed sufficient, and
establishes that a notice may still be satisfactory if it does not
contain the information specified. N.C. Gen. Stat. §§ 25-9-613 (1) and
(2).
Four Oaks issued a notice on October 12, 2005, as follows:
Four Oaks Bank & Trust Company
Notice of Sale
Pursuant to and by virtue of the power of sale contained in
a Security Agreement(s) executed by RUDDERS, INC. -
(ALEXANDER GONZALEZ, PRESIDENT), on March 31, 2001. Default
having been made in payment of the obligation secured by the
above-referenced Security Agreement(s), the undersigned
Secured Party will sell for cash at the former site of
Rudders Restaurant, which is located at 525 Broad Street,
Fuquay Varina, NC on October 31, 2005 at 1 p.m., or as soon
thereafter as possible in case of multiple sales scheduled
at the same time, the following described property (as
described in the Security Agreement(s):
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 6 of 10

7
See Attachment - All equipment, furniture and inventory are
being sold "As Is-Where Is"
Mileage: N/A
I hereby certify that I personally posted notices, an exact
copy of which appears above, in the manner and as provided
by the laws of the General Statutes of North Carolina, and
I further certify that I personally mailed an exact copy of
said notice to each debtor entitled to such notice under the
Security Agreement referred to in said notice, the 12th day
of OCTOBER, 2005.
Locations: FOUR OAKS BANK & TRUST CO. --
FUQUAY VARINA, N.C.
WAKE CO. COURT HOUSE -- RALEIGH, N.C.PARKER
RENTAL PROPERTIES -- FUQUAY VARINA, N.C.
HELENA GONZALEZ -- FUQUAY VARINA, N.C.
ALEXANDER GONZALEZ -- FUQUAY VARINA, N.C.
RUDDERS RESTAURANT -- (PRIOR) -- FUQUAY
VARINA, N.C.
(X) If checked, collateral will be sold subject to taxes and
special assessments.
Four Oaks Bank & Trust Company
Secured Party
By: /s/ HT Worthington
Exhibit "4" (collateral list omitted).
Mr. Worthington testified that the notice was posted at the local
bank branch, at the restaurant, and at the landlord's office. He also
mailed the notice to the Wake County courthouse, but he did not send it
with a cover letter asking that the notice be posted, nor did he
present any evidence that the notice actually was posted at the
courthouse. Mr. Worthington also testified that he failed to conduct
a UCC search, and he thus did not discover that another party, Supply
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 7 of 10

8
Services, Inc., also asserted a security interest on some of the same
equipment. Accordingly, Supply Services did not receive a copy of the
notice of sale.
The Four Oaks notice did not include all of the information set
forth in § 25-9-613(1), and it was not provided to all the parties set
forth in § 25-9-611. The notice, therefore, does not fall into the
"safe harbor" provisions set forth in the statutes, and it is for the
court to determine whether the notice and sale were otherwise
"commercially reasonable." Though North Carolina's Article 9 was
amended in 2001, the court considers the prior version of Article 9
instructive in determining what makes a sale "commercially reasonable."
Like the current statute, former Article 9 provided for procedures that
would conclusively be deemed commercially reasonable, see former North
Carolina General Statute § 25-9-601, and it further mandated that the
notice of sale must be posted on a bulletin board at the courthouse in
the county in which the sale is to be held. See former N.C. Gen. Stat.
§ 25-9-603.
Though the posting requirement has since been removed from the
statute, in the absence of other efforts to advertise the sale or
otherwise inform potential buyers of the sale, the court considers such
posting to have been necessary in this case for the sale to be
commercially reasonable. While Four Oaks has the burden of proving its
sale was commercially reasonable, Four Oaks did not present any
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 8 of 10

9
evidence that the notice was actually posted at the courthouse. And
though the notice of sale states that Mr. Worthington personally posted
the notice, he testified that he merely mailed the notice to the clerk
of court, without any cover letter or other instruction to the clerk.
The failure of the bank to post the notice, in conjunction with its
failure to notify the junior lienholder of the sale, renders this sale
not commercially reasonable.
Once the court determines that the sale was not in compliance with
the commercially reasonable standard, there is a presumption that the
collateral is worth at least the value of the debt. N.C. Gen. Stat. §
25-9-626(a)(4); NationsBank of N.C., N.A. v. American Doubloon Corp.,
125 N.C. App. 494, 501, 481 S.E. 2d 387, 391 (1997). The presumption
may be rebutted by the creditor, but Four Oaks did not present credible
evidence regarding the value of the collateral or what it would have
sold for at a commercially reasonable sale. As a result, the court is
compelled to find that "the amount of proceeds that would have been
realized is equal to the sum of the secured obligation, expenses, and
attorney's fees[,]" North Carolina General Statute § 25-9-626(a)(4),
and Four Oaks is not entitled to recover any deficiency from the
debtors.
In summary, the court concludes that the sale of the Rudders, Inc.
collateral was not commercially reasonable, that the value of the
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 9 of 10

10
collateral was equal to the amount of the debt, and that the bank is
not entitled to a deficiency claim.
Based on the foregoing, the debtors' objection to the claim filed
by Four Oaks Bank is ALLOWED.
SO ORDERED.
DATED: February 21, 2006
Case 05-05993-5-SWH Doc 30 Filed 02/21/06 Entered 02/21/06 15:21:24 Page 10 of
10