Layne v. Bank One, Kentucky, N.A.
United States Court of Appeals for the Sixth Circuit
395 F.3d 271 (2005)
Bank One, Kentucky, N.A. and Banc One Securities Corporation (Bank One) (defendants) gave Charles Johnson, Jr. (plaintiff) a $2.8 million line of credit secured by his restricted PurchasePro.com shares, subject to a loan-to-value ratio requiring the collateral be valued at least 2.5 times the loan amount, with any breach triggering immediate default and Bank One's option to sell the shares upon 10 days' written notice. When the shares' price fell in February 2001, pushing the ratio out of compliance, Bank One negotiated with Johnson through May 2001 as he indicated plans to pledge additional collateral (which never materialized), and Bank One ultimately sold the shares in July 2001 for $524,757.39, leaving a roughly $2.2 million deficiency; Johnson sued alleging Bank One breached a duty to preserve the collateral's value, Bank One counterclaimed for the deficiency, and the district court granted Bank One summary judgment.
Whether, under the Uniform Commercial Code, a lender has a duty to sell collateral merely because that collateral is declining in value.