Article courtesy of Michael Robson (Greenberg Traurig)
Ascentium Capital LLC v. Littell, 583 F. Supp. 3d 1234 (W.D. Mo. 2022)
The United States District Court, W.D. Missouri, Central Division (the “Court”) reviewed a breach of contract claim among Ascentium Capital LLC (“Ascentium”), as secured lender, against White Knight Limousine, Inc. (“White Knight”) and Ted and Timothy Littell (the “Littells”), collectively as debtors, regarding the repossession and sale of collateral for certain loans from Ascentium to White Night. Ultimately, the Court granted Ascentium’s motion for summary judgment, finding that Ascentium sold the collateral in a commercially reasonable manner and that the defendants’ performance of their obligations was not excused due to impossibility or the purpose of the parties’ agreements being frustrated.
The dispute stems from loan agreements between Ascentium and White Knight, whereby White Knight received five different loans from Ascentium between June 2017 and December 2019. Each of these loan agreements listed the Littells as guarantors and provided that, upon default, Ascentium was entitled to accelerate all required payments, repossess the collateral for the loans and receive monthly interest on all past due amounts. After White Knight stopped making payments to Ascentium in April 2020, Ascentium repossessed three of White Knight’s motorcoaches and sent White Knight notice of such repossession. Ascentium then sold the motorcoaches at private sales and subsequently credited the amounts received from these sales against White Knight’s outstanding balance. On September 24, 2020, Ascentium sent White Knight a notice of default and acceleration.
White Knight conceded to all elements of breach of contract under California law but contended that (1) the loan agreements were not enforceable because (a) the purpose of the agreements was frustrated by the COVID-19 pandemic and (b) their performance was impossible or impractical because of COVID-19, (2) Ascentium was not entitled to a deficiency judgment because they did not use commercially reasonable efforts to sell the collateral, and (3) Ascentium failed to mitigate its damages.
The Court ruled in favor of Ascentium, finding that Ascentium, in compliance with the secured creditor rights and requirements under Article 9 of the Uniform Commercial Code, sold White Knight’s motorcoaches in a commercially reasonable manner using best efforts by publishing the motorcoaches to a Facebook group with members of the motorcoach industry and providing expert testimony that the sale prices were the best price Ascentium could get given the market conditions. Further, the court found that White Knight was not entitled to the affirmative defenses of impossibility or impracticality because only California law permits the exclusion of a party from a contract “when performance is objectively impossible” or “impracticable ‘because of extreme and unreasonable difficulty, expense, injury, or loss involved” for all parties to perform their obligations. White Knight failed to show that COVID-19 made it impossible or impracticable for them to make their debt payments to Ascentium.
The Court also rejected White Knight’s contention that the loan agreements were unenforceable because the purpose of the agreements was frustrated by COVID-19. The Court reasoned that both parties must recognize frustration of purpose in order to excuse nonperformance of a contract. Here, the parties never agreed that the purpose of the agreements was for White Knight to “operate motorcoaches.” To the contrary, a defendant interrogatory revealed that White Knight did not know why Ascentium entered into the loan agreements. Thus, Ascentium was entitled to a deficiency judgment after using commercial reasonable efforts to sell the collateral. Furthermore, the Court held that White Knight was not entitled to any defenses because it was not impossible for it to perform its payment obligations and the parties did not agree that the purpose of their agreements were frustrated by the pandemic.
