In the
United States Court of Appeals
For the Seventh Circuit

Nos. 00-3508 & 00-4333

AAR AIRCRAFT & ENGINE GROUP, INC.,

Plaintiff-Appellee,

v.

CHARLES EDWARDS,

Defendant-Appellant.

Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2302--William J. Hibbler, Judge.

Argued September 28, 2001--Decided November 15, 2001



  Before FLAUM, Chief Judge, and BAUER and
EVANS, Circuit Judges.

  EVANS, Circuit Judge. AAR sold Charles
Edwards’ company (Kiwi International) an
airplane engine on an installment plan,
requiring Edwards to sign an "absolute"
and "unconditional" personal guaranty for
the loan. The purchase price was
$1,325,000. After paying around $325,000
on the note, Kiwi missed a payment, and
AAR accelerated the debt and sued Edwards
to collect just over $1 million remaining
on the contract. AAR also repossessed the
engine, then "bought" it back at an
auction for $250,000--some $750,000 less
than its estimated value--when no one
else appeared and entered a bid.
Therefore, when the district court
entered summary judgment for AAR, it got
both a $1 million damage award against
Edwards plus the engine, which was worth
roughly the same amount. So it got, in
essence, double what it had coming.
Edwards, apparently no meshuggener,
senses that something is not quite right
with this deal so he appeals.

  Edwards was the chairman and principle
shareholder of Kiwi. In 1998 AAR Aircraft
& Engine Group, Inc., a subsidiary of
American Airlines, and Kiwi entered into
a 3-year, monthly-installment sales
agreement for the engine. Edwards’
personal guaranty, which AAR drafted,
provided that he "absolutely and
unconditionally" guaranteed Kiwi’s debt.

  After Kiwi defaulted and filed
bankruptcy proceedings in March 1999, AAR
accelerated the debt and demanded payment
from Edwards. When he didn’t pay, AAR
filed suit and moved for summary
judgment. While awaiting the district
court’s ruling, AAR repossessed the
engine and held an auction where it was
the sole bidder, winning the engine for
$250,000.

  The day after the sale, the district
court granted summary judgment for AAR.
The decision did not specify a damage
amount, so AAR filed a renewed motion for
damages. The motion requested an amount
reduced by the $250,000 that AAR had
"recovered" at auction. The district
court entered judgment for just under a
million dollars. Pursuant to the
guaranty, AAR also moved for and received
attorneys fees and costs.

  Edwards appealed, arguing that the
engine sale was commercially unreasonable
in both price and methodology. According
to Edwards, the engine was worth
$1,075,000. He argues that auctioning the
engine was not commercially reasonable
because it implied that the engine was
defective. Additionally, he notes that
AAR advertised the auction as a "secured
party sale," which denoted legal problems
and may have deterred prospective buyers.
The commercially reasonable way to sell
an airplane engine, Edwards argues, is
through classified ads in airline trade
journals.

  We review de novo a district court’s
grant of summary judgment. See Denius v.
Dunlap, 209 F.3d 944, 949 (7th Cir.
2000). In doing so, we view all evidence
in the light most favorable to the
nonmoving party and draw all reasonable
inferences in that party’s favor. See id.
at 950 (citing Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986)). The
meaning of a guaranty agreement is a
question of law, which we review de novo.
See Exchange Nat’l Bank of Chicago v.
Bergman, 153 Ill. App. 3d 470, 472 (1st
Dist. 1987); Chemtool, Inc. v.
Lubrication Tech., Inc., 148 F.3d 742,
744-45 (7th Cir. 1998). A guaranty, of
course, is a contract, so we apply
general rules of contract interpretation
to the dispute. See McLean County Bank v.
Brokaw, 119 Ill. 2d 405, 412 (1988).

  Here, the guaranty states, "the
undersigned hereby absolutely and
unconditionally guarantees to Creditor
the full and prompt payment when due,
whether at maturity or earlier by reason
of acceleration or otherwise, of the
debts, liabilities and obligations" of
Kiwi. It goes on to state, "[t]his is an
absolute, unconditional, and continuing
guaranty of payment of the indebtedness
and shall continue to be in force and be
binding upon the undersigned until such
time as all indebtedness is paid in
full." It also states, "[c]reditor shall
not be required first to resort for
payment of the indebtedness to Debtor or
other persons or their properties, or
first to enforce, realize upon or exhaust
any collateral security for indebtedness,
before enforcing this guaranty."

  This one-sided language clearly states
that Edwards’ guaranty is absolute and
that AAR need not resort to selling the
plane engine before seeking satisfaction
from him. Therefore, AAR argues that
Edwards may not quibble with how AAR
chose to sell the collateral. Edwards
counters that the guaranty did not waive
his statutory right to a commercially
reasonable sale of collateral, see 810
Ill. Comp. Stat. 5/9-504(3) (codifying
U.C.C. sec. 9-504(3)), because that right
is unwaivable.

  Because the district court exercised
diversity jurisdiction, we must apply
Illinois law as the Illinois Supreme
Court would apply it. See Home Valu, Inc.
v. Pep Boys, 213 F.3d 960, 963 (7th Cir.
2000). The Illinois Supreme Court has not
ruled directly on whether a guarantor may
waive commercial reasonableness. The
Illinois Appellate Court, however, noted
that a guarantor may waive commercial
reasonableness. See Chemical Bank v.
Paul, 244 Ill. App. 3d 772, 781 (1st
Dist. 1993); Lincoln Park Fed. Sav. &
Loan Ass’n v. Carrane, 192 Ill. App. 3d
188, 192 (1st Dist. 1989). The United
States District Court for the Northern
District of Illinois has interpreted
Illinois law in the same way. See
National Acceptance Co. of Am. v.
Wechsler, 489 F. Supp. 642, 647 (N.D.
Ill. 1980).
  Although persuasive, the Illinois
Appellate Court decisions do not bind us.
When a state supreme court has not spoken
on an issue, the decisions of the state’s
intermediate appellate courts are
authoritative unless we have a compelling
reason to doubt that they have stated the
law correctly. See Home Valu, 213 F.3d at
963; Green v. J.C. Penney Auto Ins. Co.,
806 F.2d 759, 761 (7th Cir. 1986).

  Here, several facts compel us to
conclude that Chemical Bank and Lincoln
Park did not accurately predict how the
Illinois Supreme Court would rule on a
guarantor’s ability to waive commercial
reasonableness. First, the Illinois
Supreme Court held that guarantors are
debtors for purposes of 810 Ill. Comp.
Stat. 5/9-504(3). See Watseka First Nat’l
Bank v. Ruda, 135 Ill. 2d 140, 158
(1990); First Galesburg Nat’l Bank &
Trust Co. v. Joannides, 103 Ill. 2d 294,
298 (1984); Commercial Disc. Corp. v.
Bayer, 57 Ill. App. 3d 295, 299 (1st
Dist. 1978); Ford Motor Credit Co. v.
Solway, 825 F.2d 1213, 1217 (7th Cir.
1987). Second, state statute prohibits
debtors from waiving commercial
reasonableness. See 810 Ill. Comp. Stat.
5/9-501(3) (codifying U.C.C. sec. 9-
501(3)). Combining these two principles,
it follows that the Illinois Supreme
Court would prohibit guarantors from
waiving commercial reasonableness. Third,
the appellate court cases discussed
commercial reasonableness in only a
cursory way. Chemical Bank merely noted
in dicta Lincoln Park’s holding that
guarantors could waive commercial
reasonableness. See Chemical Bank, 244
Ill. App. 3d at 781. Lincoln Park itself
announced its holding without addressing
sec. 9-501(3)’s prohibition on waivers of
commercial reasonableness. See Lincoln
Park, 192 Ill. App. 3d at 192-93.
Therefore, because only cursory analysis
supported Chemical Bank and Lincoln Park,
and because Illinois Supreme Court
precedent seems to contradict their
conclusions, we decline to give them con
trolling weight.

  Although the Northern District of
Illinois held in Wechsler that guarantors
may waive commercial reasonableness, it
based this holding on policy rather than
on Illinois law. The court noted that the
guarantor usually does not own the
collateral, and therefore has a lesser
interest in it than the debtor. See 489
F. Supp. at 647-48. It also noted that
guaranties facilitate loans by giving
lenders ready sources from which to
collect if debtors default. See id. at
648. Wechsler, however, specifically
noted the dearth of Illinois precedent on
these issues. See id. at 647. Because no
clear statement of Illinois law supported
Wechsler and its progeny, see Sanwa Bus.
Credit Corp. v. Harris, No. 91 C 0204,
1991 WL 156116, at *5-6 (N.D. Ill. Aug.
6, 1991); United States v. Crispen, 622
F. Supp. 75, 79 (N.D. Ill. 1985);
Exchange Nat’l Bank of Chicago v. Brown,
No. 84 C 10801, 1985 WL 2274, at *5 (N.D.
Ill. August 9, 1985), we find their
reasoning unpersuasive. Indeed, the
Northern District of Illinois expressly
called Wechsler’s holding into doubt in
Commercial Discovery Corp. v. King, 515
F. Supp. 988, 992 (N.D. Ill. 1981),
noting that Wechsler’s holding rested on
a questionable interpretation of Bayer,
577 Ill. App. 3d 295.

  King also held that sec. 9-501(3)
prohibits guarantors from waiving notice
of a sale of collateral. See id. at 990.
King’s analysis is persuasive with regard
to commercial reasonableness because the
same statutory provision creates both
that right and the right to notice. See
810 Ill. Comp. Stat. 5/9-504(3). The
Illinois Supreme Court also held that
guarantors may not waive the right to
notice. See Watseka, 135 Ill. 2d at 158;
Joannides, 103 Ill. 2d at 298. Because
the rights to commercial reasonableness
and notice are so closely related, we
think it follows that the Illinois
Supreme Court would hold that guarantors
may not waive the right to commercial
reasonableness.

  AAR argues, however, that the rights to
notice and commercial reasonableness
implicate different policy concerns.
Notice allows the guarantor to raise in
advance procedural concerns about the
collateral sale. Commercial
reasonableness complaints, on the other
hand, necessarily arise after the sale
and could unduly burden creditors in
disposing of collateral. Although we
understand this concern, the distinction
that AAR draws between the rights to
notice and commercial reasonableness is
illogical. The policy underlying the
right to notice, as AAR conceded at oral
argument, is allowing the debtor or
guarantor to affect the collateral sale
by, among other things, attracting
buyers. Although AAR argues to the
contrary, the purpose of notice,
therefore, is to assure commercial
reasonableness. It defies logic to say
that Illinois law guards the right to
notice so jealously that it prohibits
debtors and guarantors from waiving it,
but that it also allows them to waive the
underlying right to commercial
reasonableness.

  Therefore, we draw on the Illinois
Supreme Court’s holdings in other closely
related contexts and determine that it
would prohibit guarantors from waiving
commercial reasonableness. Additionally,
we note that the Illinois Supreme Court
tends to follow the majority rule on
U.C.C. issues. See Joannides, 103 Ill. 2d
at 301 (following majority rule in
applying "rebuttable presumption"
approach as remedy for deficient notice
of collateral sale); Northrop Corp. v.
Litronic Indus., 29 F.3d 1173, 1178 (7th
Cir. 1994) (noting that Illinois courts
tend to follow the majority rule on
U.C.C. issues). Because we encourage
consistent nationwide application of the
Uniform Commercial Code, when a state
tends to follow majority rules on U.C.C.
issues, we presume that it would adopt
the majority rule for the issue at hand.
See Zemco Mfg., Inc. v. Navistar Int’l
Transp. Corp., 186 F.3d 815, 819 (7th
Cir. 1999). Therefore, because a majority
of jurisdictions that have considered the
issue prohibits guarantors from waiving
U.C.C. sec. 9-504(3)’s right to
commercial reasonableness, we conclude
that Illinois would follow suit./1
Thus, Edwards’ purported waiver of
commercial reasonableness was invalid./2
This result prevents economic waste and
unjust enrichment because creditors who
believe that they have obtained a waiver
have no incentive to behave in a
commercially reasonable manner. And the
absurd result here--a huge windfall to
AAR--shows that it had no incentive to do
other than enrich itself in this deal.

  Although we held in other contexts that
Illinois law permits absolute waivers to
defeat all of a guarantor’s defenses,
those cases did not involve U.C.C. sec.
9-501(3)’s express prohibition on waivers
of commercial reasonableness. See FDIC v.
Rayman, 117 F.3d 994, 998 (7th Cir.
1997); United States v. Shirman, 41
F.R.D. 368, 370 (N.D. Ill. 1966). Because
state law prohibits waivers of commercial
reasonableness, especially ones drawn up
by creditors themselves, the defense
survives even guaranties purporting to be
absolute and unconditional.

  Finally, Edwards argues that if we
reverse the underlying judgment, we
should also reverse the award of
attorneys fees. Even if the district
court finds that AAR’s behavior was
commercially unreasonable, AAR might
still be entitled to attorneys fees. This
is so because a finding of commercial
unreasonableness would entitle Edwards to
only a rebuttable presumption that the
engine’s value equaled the amount of the
debt. It would not absolutely bar AAR’s
ability to recover. See Munao v.
Lagattuta, 294 Ill. App. 3d 976, 983-984
(1998); Standard Bank & Trust Co. v.
Callaghan, 177 Ill. App. 3d 973, 981-82
(1988); Ford Motor Credit Co. v. Jackson,
126 Ill. App. 3d 124, 128 (1984). Thus,
AAR could still prove that the engine was
worth less than the remaining debt, in
which case it could recover the
discrepancy from Edwards, entitling AAR
to attorneys fees.

  Therefore, we REVERSE and REMAND so that
the district court may determine whether
AAR’s sale of the engine was commercially
reasonable and whether AAR is entitled to
attorneys fees.

FOOTNOTES

/1 See Tropical Jewelers, Inc. v. Nationsbank, N.A.,
781 So. 2d 392, 392-93 (Fla. App. 2000); Security
State Bank v. Burk, 100 Wash. App. 94, 99 (2000);
Marine Midland Bank v. CMR Indus., Inc., 559
N.Y.S.2d 892, 900 (N.Y. App. Div. 1990); FDIC v.
Wrapwell Corp., 922 F. Supp. 913, 923 (S.D.N.Y.
1996) (predicting New York law); Bank of China v.
Chan, 937 F.2d 780, 785 (2d Cir. 1991) (predict-
ing New York law); United States v. Contestabile,
989 F.2d 463, 464 (11th Cir. 1993) (applying
Georgia law); Davis v. Concord Commercial Corp.,
209 Ga. App. 595, 598 (1993); Branan v. Equico
Lessors, Inc., 255 Ga. 718, 722 (1986); United
States v. Kelley, 890 F.2d 220, 222-23 (10th Cir.
1989) (predicting Kansas law); United States v.
Hunter, 652 F. Supp. 774, 779 (D. Kan. 1986)
(predicting Kansas law); May v. Women’s Bank, 807
P.2d 1145, 1150 (Colo. 1991); Cooper Inv. v.
Conger, 775 P.2d 76, 80 (Colo. Ct. App. 1989);
Shawmut Worcester County Bank v. Miller, 398
Mass. 273, 279 (1986); Ford Motor Credit Co. v.
Lototsky, 549 F. Supp. 996, 1005 (E.D. Pa. 1982)
(applying Pennsylvania law); United States v.
Chatlin’s Dep’t Store, Inc., 506 F. Supp. 108,
112 (E.D. Pa. 1980) (adopting Pennsylvania law as
federal rule of decision); United States v.
Willis, 593 F.2d 247, 255 (6th Cir. 1979) (apply-
ing federal law); but see Borg-Warner Acceptance
Corp. v. Johnston, 97 N.C. App. 575, 581 (1990)
(holding that guarantor may waive commercial
reasonableness); First City Div. of Chase Lincoln
First Bank v. Vitale, 510 N.Y.S.2d 766, 768 (N.Y.
App. Div. 1987) (holding same).

/2 Edwards argues that the Illinois Supreme Court
would draw a distinction between pre-default and
post-default waivers of commercial reasonable-
ness, voiding only pre-default waivers. He bases
this argument on Bayer, 57 Ill. App. 3d 295, and
Solway, 825 F.2d 1213. In Bayer, the court noted
that the guarantors had not "waived or modified
the notice requirement after the occurrence of
default." See id. at 300. This statement, howev-
er, was based on express statutory language
indicating that guarantors may waive the notice
requirement after default. See 810 Ill. Comp.
Stat. 5/9-504(3) (requiring secured party to send
notice to debtor "if he has not signed after
default a statement renouncing or modifying his
right to notification of sale."); see also Bayer,
57 Ill. App. at 299 (quoting this language). No
parallel language appears in the commercial
reasonableness clause, indicating that the stat-
ute bars all waivers of commercial reasonable-
ness. In Solway, 825 F.2d at 1217 n.2, the court
merely noted in a footnote that it would not
reach the question of whether Illinois law per-
mitted pre-default waivers of notice.
