WELLS FARGO BUSINESS CREDIT vs. ENVIRONAMICS CORPORATION & others. [Note 1]

KATZMANN, J. We consider an appeal of the allowance by a Superior Court judge of summary judgment issued in favor of plaintiff Wells Fargo Business Credit (WFBC) as to counts VI and VII of its complaint against defendants Robert Rockwood and Roxana Marchosky (guarantors), who were determined to be liable pursuant to personal guaranties made to WFBC under a credit and security agreement, and as to the guarantors' counterclaims against WFBC. The guarantors' appeal seeks review of (1) their liability, generally, as they claim an oral forbearance agreement precluded collection on this debt until the forbearance date had passed, (2) the commercial reasonableness of WFBC's disposition of the collateral under Article 9 of the Massachusetts Uniform Commercial Code (UCC), G. L. c. 106, [Note 2] (3) whether WFBC complied with reasonable notice requirements prior to foreclosure, (4) the amount of the damages, and (5) the dismissal of their counterclaims. So much of the judgment as implicitly determined that the sale of the collateral was commercially reasonable is reversed and that issue is remanded for further proceedings consistent with this opinion, and in all other respects the judgment is affirmed. [Note 3]

Background. The summary judgment record, which includes an informative memorandum from the motion judge, shows the following. Environamics Corporation (Environamics) was a New Hampshire corporation that manufactured pump and rotary equipment used in the processing industry. Environamics borrowed $3 million dollars from WFBC on May 7, 2004, and executed a credit and security agreement, a revolving note, and various documents granting WFBC a number of security interests in Environamics and its assets as collateral (collectively, loan documents). [Note 4] The security interests included essentially, the

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entirety of the operating assets of Environamics as well as its patents, copyrights, and inventory. As further surety on this loan, personal guaranties (guaranties) were offered on May 7, 2004, by the two principal shareholders and officers, Rockwood and Marchosky.

In July of 2005, Environamics failed to make payments of the loan. In lieu of assessing the default rate and permitting additional events of default from occurring, WFBC agreed, in a number of written agreements, to defer payments on the loan. These agreements spanned from July, 2005, through February, 2006, and imposed a fee for the accommodation and forbearance. According to the agreements, these extensions were permitted to facilitate the guarantors' attempts to capitalize Environamics with outside investment or find suitable buyers for the assets or company itself. Over this period, the guarantors sought a number of potential buyers, but were unable to finalize a deal.

In late February of 2007, WFBC hired Gordon Brothers Group to put together a book on Environamics to assist in the sale and marketing of the company as an entity. Gordon Brothers Group created a teaser mailing and distributed it to approximately 130 companies targeted for potential interest. Six companies responded and requested additional information, which was anticipated to be contained in the book. Receipt of the book was predicated upon the execution of nondisclosure agreements. This book presented a bid date in late June of 2007. According to the affidavit of WFBC's vice president, Vincent R. D'Alessandro, submitted in support of summary judgment, failure of the guarantors to provide requested information in order to complete the book prompted WFBC's filing of the lawsuit at issue in this appeal. The electronic mail message (email) entered as evidence at the summary judgment hearing contains objections that Rockwood voiced at the

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time of the creation of the book. But other emails produced by Rockwood appear to show he was cooperative in response to questions posed by Gordon Brothers Group after a draft of the book was created. A version of the book as of April 9, 2007, was entered as evidence at the summary judgment hearing.

Prior to the lawsuit and during the difficulties regarding the book, through counsel, WFBC sent the defendants a demand letter demanding possession of the business premises. On May 2, 2007, in order to collect on the guarantees, WFBC filed the lawsuit. After a Superior Court judge ruled in WFBC's favor on its motion for a preliminary injunction, granting the right to all of Environamics' collateral subject to WFBC's security interests, WFBC proceeded with plans to either sell Environamics or liquidate its assets. In June of 2007, Environamics filed for bankruptcy in the United States District Court for the District of New Hampshire. [Note 5] In or about September of 2007, the bankruptcy court awarded WFBC control of Environamics. An order converting Environamics's bankruptcy case from Chapter 11 to Chapter 7 of the United States Bankruptcy Code was entered on October 31, 2007.

WFBC proceeded to field offers for the assets individually, without Gordon Brothers Group's involvement. According to the affidavit submitted by WFBC's vice president, WFBC took various steps in contacting the six entities that had expressed interest prior to the lawsuit, as well as another company that had heard about the sale from the bankruptcy court. By offering to sell the patents and inventory separately, WFBC was able to negotiate and secure an offer of $479,000 from Dickow Pump Company, which sought to purchase the two assets together. On January 9, 2008, the guarantors were notified by WFBC's counsel of the pending sale through a letter sent via Federal Express and via email. This letter stated that the sale would take place on January 21, 2008. The terms of the loan documents contain the validity of telefacsimile service, but are silent as to email communication. Also, provisions of the loan documents state that notice, if given ten calendar days before the intended date of disposition, will be deemed commercially reasonable.

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The guarantors, in a last moment attempt to prevent the sale, corresponded with WFBC's vice president concerning their ability to redeem the loan. They reiterated that they had $1.3 million available. This figure of $1.3 million had been discussed by the parties in regards to a previous correspondence, where such a figure would allay the sale of Environamics's assets. However, this figure would not redeem the loan amount, which had grown to over $3.95 million in October of 2007, and exceeded $4 million in January, 2008. WFBC disregarded these declarations because the guarantors could not provide documentation of the immediate availability of the funds. The sale of the assets ultimately did occur on January 21, 2008.

Standard of review. "The standard of review of a grant of summary judgment is whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law." Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991). Here, WFBC was the moving party.

I. Liability of the defendants. The guarantors argue there exists a genuine issue of material fact as to whether they are in breach of the loan documents. They contend that a genuine issue of material fact exists because WFBC had orally agreed to forbear enforcement of the guaranties at the time when the lawsuit was filed on May 2, 2007. The guarantors argue that the parties entered into oral agreements extending the forbearance to a period after the foreclosure date, or, in the alternative, that the Gordon Brothers Group's documents set a forbearance date subsequent to the foreclosure, on which the guarantors relied. We disagree.

"When the words of the guaranty 'are clear they alone determine the meaning.' " Federal Financial Co. v. Savage, 431 Mass. 814, 817 (2000) (citation omitted). See Davis v. Wells, 254 Mass. 118, 125 (1925) (a "guaranty is to be construed strictly"). The "liability of the guarantor . . . can be terminated only in accordance with the terms of the contract." Federal Financial Co. v. Savage, supra, quoting from Merchants Natl. Bank v. Stone, 296 Mass. 243, 252 (1936).

Here, each guaranty required any modifications be in writing. [Note 6]

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In recognition of these provisions, the parties after default executed a number of written loan deferral agreements to modify the terms of the guaranties as to deferring payments. These agreements and all the promises thereunder expired March 3, 2006, more than a year prior to the date of this action.

As to the oral modification of a contract, "a provision that an agreement may not be amended orally but only by a written instrument does not necessarily bar oral modification of the contract." Cambridgeport Sav. Bank v. Boersner, 413 Mass. 432, 439 (1992). But in order to support the existence of an oral modification, the parol evidence must be sufficiently weighted and of competent probity to present a material issue for trial; that is, the parol evidence must be of sufficient strength to present an ambiguity between the actual conduct of the parties and the contract. See Eastern Holding Corp. v. Congress Financial Corp. (New England), 74 Mass. App. Ct. 737, 742 n.5 (2009) (ambiguity cannot be predicated solely on statements in affidavits). See also Cambridgeport Sav. Bank v. Boersner, supra at 439 n.10 ("The evidence of a subsequent oral modification must be of sufficient force to overcome the presumption that the integrated and complete agreement, which requires written consent to modification, expresses the intent of the parties").

The speculative assertions as to the issue of oral modification made by Rockwood in various affidavits do not provide the specificity necessary to establish a dispute of material fact. See Community Natl. Bank v. Dawes, 369 Mass. 550, 554 (1976). The assertions find no reflection in the clear terms of the various

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written loan deferral agreements duly executed by the parties and in some cases expressly contradict provisions of these agreements. We note that Rockwood also asserts that additional documents memorialized the 2007 forbearance agreements, but were stored at a facility seized by WFBC and were unavailable to him and Marchosky. Rockwood, however, provides no detail about those asserted forbearance agreements, no information as to who signed them, or the extent of their coverage. We reject the attempt to create an ambiguity by disregarding the affidavit as to the issue of liability. See Martino v. Hogan, 37 Mass. App. Ct. 710, 721 n.12 (1994) (disregarding self-serving affidavit on review of summary judgment); Eastern Holding Corp. v. Congress Financial Corp. (New England), supra at 741-742 ("Because there is no contract language supporting [the defendant's] interpretation of the seventh loan, we discern no ambiguity that would permit the introduction of extrinsic evidence as to the parties' intentions in this regard"). See also Billings v. GTFM, LLC, 449 Mass. 281, 294-295 (2007).

Next, the guarantors assert that a voicemail left by WFBC's vice president constitutes evidence of the oral forbearance agreement that was in place. That voicemail is ostensibly from April 13, 2007, and on appeal the guarantors provided this court with a transcription of its contents. The portion emphasized by the guarantors states, "there's still many weeks as far as your other avenues." That statement was made in relation to the guarantors other avenues of disposition. It does not create a genuine issue of material fact because it does not refer to the existence of a forbearance agreement and would not, in any event, be sufficient to contravene the writing requirement of the loan documents. Indeed, the statement more likely refers to the right of the guarantors to redeem the loan.

Finally, the guarantors assert that the Gordon Brothers Group's sale date and other aspects of the marketing create a genuine issue of material fact as to forbearance under an oral "going concern" agreement. [Note 7] However, the only evidence supporting the existence of a going concern agreement involving forbearance

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is Rockwood's affidavit dated May 22, 2008. [Note 8] The underlying security agreement and guaranties are clear in their terms and require more than conjecture for modification. See note 6, supra. Because the affidavit fails to comprise anything beyond Rockwood's own belief of the existence of an oral going concern agreement, we disregard it as a basis for ambiguity. See Eastern Holding Corp. v. Congress Financial Corp. (New England), 74 Mass. App. Ct. at 742 n.5. See also The General Convention of the New Jerusalem in the U.S., Inc. v. MacKenzie, 449 Mass. 832, 836 (2007) ("extrinsic evidence cannot be used to contradict or change the written terms, but only to remove or to explain the existing uncertainty or ambiguity").

In sum, there is no genuine issue of material fact concerning forbearance on the foreclosure date. No forbearance agreement was in effect on the date of foreclosure and WFBC is entitled to summary judgment as to the guarantors' liability for the debts of Environamics.

II. Commercial reasonableness. The guarantors also claim that a material issue of fact was raised concerning whether WFBC's sale of the collateral was commercially reasonable as required by the UCC. We agree that the judge should have denied WFBC's motion for summary judgment as to that issue.

After default, a secured party, such as WFBC, is entitled to dispose of the collateral. See G. L. c. 106, § 9-610(a). [Note 9] Sales of collateral not held within "recognized market" (such as a stock market or other market fixing a value to a commodity) must conform "with reasonable commercial practices among dealers in the type of property that was the subject of the disposition." G. L. c. 106, § 9-627(b)(1) & (3). See Official Comment 2 to

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Uniform Commercial Code § 9-627, 3 U.L.A. 568 (Master ed. 2002). A debtor's right to a commercially reasonable disposition cannot be waived. Shawmut Worcester County Bank, N.A. v. Miller, 398 Mass. 273, 279 (1986). It has also been noted that "generally, where a creditor is proceeding against a debtor for a deficiency after disposing of collateral, courts place the burden of proving commercial reasonableness on the creditor." Shawmut Bank, N.A. v. Chase, 34 Mass. App. Ct. 266, 270 (1993), citing Federal cases. See G. L. c. 106, § 9-626(a)(2). Furthermore, Massachusetts case law does "underscore the lack of precision in the meaning of the term 'commercially reasonable'; its determination depends on the particular facts in each case." Poti Holding Co. v. Piggott, 15 Mass. App. Ct. 275, 277 (1983). Thus, to obtain summary judgment as to that issue, WFBC would have had to provide incontrovertible evidence that the sale was commercially reasonable as an essential element of their claim.

"Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable." G. L. c. 106, § 9-610(b). See Shawmut Worcester County Bank, N.A. v. Miller, supra at 276. See generally 4 White & Summers, Uniform Commercial Code § 34-11, 464-466 (6th ed. 2010) (aside from price, several other factors are relevant to the determination of whether a transaction is commercially unreasonable: [1] whether the timing between the sale and notice was too short or too long; [2] whether the seller advertised the sale; [3] whether the sale was in a proper place; [4] whether the seller permitted necessary inspections by prospective bidders; [5] whether the seller performed necessary repairs; and [6] whether the seller held the sale at the same time and location as advertised). In this regard, adjudication of the " 'commercially reasonable' standard . . . produces inquiry into the competence and aggressiveness of the marketing effort." Pemstein v. Stimpson, 36 Mass. App. Ct. 283, 291 (1994). See Nadler v. BayBank Merrimack Valley, N.A., 733 F.2d 182, 184 (1st Cir. 1984) (requiring debtor to "point to specific deficiencies in the conduct of the sale that render it commercially unreasonable"). [Note 10] See also Annot., What is "Commercially Reasonable" Disposition of Collateral Required by UCC § 9-504(3), 7 A.L.R.

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4th 308 § 14, 387-392 (1981 & Supp. 2010) (discussing cases where "familiarity of a secured party selling repossessed collateral, or of one selling such collateral for a secured party, with the type of property involved, or with the market for such property, has been recognized . . . as an important factor to be considered, along with other circumstances of the particular case, in determining whether . . . all aspects of a disposition of repossessed collateral be commercially reasonable").

Here, the evidence raises an issue as to whether WFBC pursued commercially reasonable avenues for marketing and selling Environamics's assets. WFBC supported its summary judgment motion with a single affidavit that was silent as to the background of its vice president, and affiant, who conducted the sale. The guarantors, however, presented documents created by experts that establish material factual issues regarding the methods of marketing prior to disposition. Specifically, the documents submitted by the guarantors highlighted the deficiencies in the evidence supporting WFBC's motion for summary judgment as to that issue. Those documents suggest that there were numerous other avenues consistent with industry practice that could have achieved the goal of liquidating the assets to achieve more reasonable value. Furthermore, the guarantors presented an affidavit from an Environamics employee describing how the assets could be sold separately for more money within the pump industry, as opposed to as mere scrap metal. Moreover, the guarantors supported their over-all argument against commercial reasonableness with evidence that described

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the pump market generally, established the value of the assets, and estimated costs associated with liquidation. See note 4, supra.

The totality of the evidence placed the issue of commercial reasonableness squarely into contention. See Shawmut Worcester County Bank, N.A. v. Miller, 398 Mass. at 282 ("Based on [guarantors'] affidavits, a genuine issue of material fact appears to exist" respecting the commercial reasonableness of secured party's sale of collateral). In short, there is a dispute as to whether WFBC's methods of sale were commercially reasonable "among dealers in the type of property that was the subject of the disposition." G. L. c. 106, § 9-627(b)(3). See G. L. c. 106, § 9-627. WFBC's affidavit, viewed in light of the guarantor's proffer, failed to meet its burden of proving the absence of a genuine issue of material fact on the commercial reasonableness of the disposition, and therefore summary judgment in favor of WFBC as to that issue was not properly granted and that issue needs to be resolved in further proceedings on remand. [Note 11]

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III. Notice of intended disposition. The guarantors also argue that the disposition was not commercially reasonable because WFBC failed to give reasonable notice of the disposition of the collateral. [Note 12] They contend that the notice they were provided was not timely, they were not afforded a sufficient time prior to the disposition, and that a bank holiday on the date of disposition diminished duration of the notice and impaired their ability to redeem the collateral. Although raised by the guarantors, the motion judge did not address that issue. We do not need to resolve it either. Even assuming arguendo that there exists a genuine issue of fact as to the timeliness of the notice, [Note 13] the

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guarantors fail to point to any evidence in the record that they could pay the redemption amount, regardless of its amount. [Note 14] See G. L. c. 106, § 9-625(b) (damages calculated by the "amount of any loss caused by a failure to comply with this article"). For that reason, summary judgment as to the notice issue was properly granted.

IV. Damages. The guarantors, through assertions of Rockwood in his affidavits, claim that the motion judge neglected to consider the money in accounts seized by WFBC in September of 2007, in its award of damages. However, the record does not support the existence of any accounts, let alone the amounts, that were seized by WFBC. All citations in the guarantors' brief are to the affidavits of Rockwood or to documents immaterial to the issue. Without additional reference to some source beyond personal opinion, we can only consider these averments as being predicated upon information and belief. Such proof fails at summary judgment. See Shapiro Equip. Corp. v. Morris & Son Constr. Corp., 369 Mass. 968, 968 (1976) ("All affidavits or portions thereof made on information and belief, as opposed to personal knowledge, are to be disregarded in considering a motion for summary judgment"). We discern no issue of material

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fact as to the amount of damages and summary judgment as to this issue was properly granted. Thus, we affirm the judgment as to the amounts owed under the guaranties with the caveat that this figure could be reduced by a finding that the sale was not commercially reasonable.

V. Counterclaims. The guarantors raised a number of counterclaims which were denied at summary judgment. [Note 15] They contend that these counterclaims arose under the going concern agreement. As we discussed previously, at pages 818-819, supra, the record does not support the guarantors' assertion that a cognizable "going concern" agreement was ever in existence. Under the terms of the guaranties, all counterclaims were waived. [Note 16] Because there was no other cognizable agreement, "we agree with the judge's determination that under the terms of their guaranties, the [guarantors] waived their rights to assert these counterclaims." Cambridgeport Sav. Bank v. Boersner, 413 Mass. at 443.

Conclusion. So much of the judgment as implicitly determined that the sale of the collateral was commercially reasonable is reversed, and that issue is remanded to Superior Court for further proceedings consistent with this opinion. In all other respects, the judgment is affirmed.

So ordered.