Bank of America v. Lallana

• Decision Date: 31 August 1998
• Docket Number: No. S062489,S062489
• Citation: 19 Cal.4th 203,77 Cal.Rptr.2d 910,960 P.2d 1133
• Parties: , 960 P.2d 1133, 36 UCC Rep.Serv.2d 608, 98 Cal. Daily Op. Serv. 6785, 98 Daily Journal D.A.R. 9393 BANK OF AMERICA, Plaintiff, Cross-defendant and Respondent, v. Felisa V. LALLANA, Defendant, Cross-complainant and Appellant
• Court: California Supreme Court

Page 910

77 Cal.Rptr.2d 910

19 Cal.4th 203, 960 P.2d 1133, 36 UCC Rep.Serv.2d 608,

98 Cal. Daily Op. Serv. 6785,

98 Daily Journal D.A.R. 9393

BANK OF AMERICA, Plaintiff, Cross-defendant and Respondent, v. Felisa V. LALLANA, Defendant, Cross-complainant and Appellant.

No. S062489.

Supreme Court of California

Aug. 31, 1998.

Andrew J. Ogilvie, Chimicles, Jacobsen & Tikellis, Kramer, Kaslow & Grannan, Kraslow, Grannan & Lipson and Patrick J. Grannan, Los Angeles, for Defendant, Cross-complainant and Appellant.

Lillick & Charles, Stephen Oroza, Walter T. Johnson and James S. Monroe, San Francisco, for Plaintiff, Cross-defendant and Respondent.

Steefel, Levitt & Weiss, Harvey L. Leiderman and Julie B. Landau, San Francisco, as Amici Curiae on behalf of Plaintiff, Cross-defendant and Respondent.

KENNARD, Justice.

Under California law, a secured creditor who sells the collateral after the debtor's default may be entitled to a judgment for the difference between the amount owed and the proceeds of the sale. To obtain such a deficiency judgment, however, the creditor must satisfy certain statutory requirements. For secured debts subject to its provisions, the Rees-Levering Motor Vehicle Sales and Finance Act (Civ.Code, § 2981 et seq.; hereafter the Rees-Levering Act) requires that a creditor, before selling a repossessed car, notify the debtor of the right to redeem the car before sale. (Civ.Code, § 2983.2.) For secured debts subject to its provisions, the California Uniform Commercial Code provides that a secured creditor must give a defaulting debtor notice as specified by statute of either a public or private sale of the repossessed collateral. (Cal. U. Com.Code, § 9504, subd. (3).) ¹

Here, a creditor notified a defaulting debtor that it would sell the debtor's repossessed car, giving the kind of notice required under the California Uniform Commercial Code for a private sale. It then advertised in local newspapers that at a certain time and place it would conduct a public auto auction. There, it sold the debtor's car to the highest bidder without ever telling the debtor when or where the auction would occur, information Rejecting these contentions, we conclude, first, that the creditor was required to comply with the relevant provisions of both the Rees-Levering Act and the California Uniform Commercial Code, and, second, that the creditor's action in giving a private sale notice did not make the subsequent sale a private sale. Because the creditor violated the relevant provisions of the California Uniform Commercial Code by holding a public sale without giving the debtor proper notice of a public sale, the creditor is precluded from obtaining a deficiency judgment.

that the California Uniform Commercial Code requires in a notice of a public sale. The creditor contends that it did not have to tell the debtor when or where the auction would be held because it need comply only with the provisions of the Rees-Levering Act, not those of the California Uniform Commercial Code. The creditor also contends that in any event it complied with the requirements of the California Uniform Commercial Code because it gave the debtor a private sale notice, which according to the creditor makes the subsequent sale a private sale irrespective of the characteristics of the sale.

I.

In February 1991, defendant Felisa V. Lallana (hereafter Lallana) bought a car on credit from a dealer, who assigned the contract and the security agreement to plaintiff Bank of America (hereafter Bank). When Lallana failed to make several payments, Bank repossessed the car. In November 1991, Bank notified Lallana that if she did not redeem the car or reinstate the contract within 15 days, it would sell the car. This met the notice requirements for a private sale but not a public sale.

Forrest Faulknor & Sons (hereafter Faulknor) was Bank's vendor. Faulknor advertised its weekly sales of repossessed cars in local newspapers of general circulation and in specialized newspapers as "public auto auction[s]" and as "open to the public sealed bid auto auction[s]." Owner Michael Faulknor testified that the firm's practice was to conduct sealed bid auctions, open to the public, instead of live auctions because of its experience that sealed bid auctions, at which the bidders do not know the amount others are bidding, resulted in higher prices. The firm would collect sealed bids for two days, after which it would open the bids and sell the cars to the highest bidder. If the highest bid was below Bank's minimum price, the process would be repeated until either Bank's minimum price was met or exceeded or Bank authorized a sale below the minimum price.

On December 5, 1991, Faulknor advertised that it would conduct an "open to the public sealed bid auto auction." It then showed Lallana's car, with others, at a two-day auction conducted on December 16 and 17, 1991, and at three subsequent auctions. Bank did not bid at any of the auctions. On January 6, 1992, the car was sold at a sealed bid auction for $5,000. This was less than the Kelly Blue Book's estimated wholesale value of $12,050 and estimated retail value of $14,820 and less than the minimum price set by Bank, which approved the sale.

On November 24, 1992, Bank sought a deficiency judgment against Lallana for $11,249.84, representing the difference between what she still owed on the car and the $5,000 resale price. Lallana cross-complained for an injunction and restitution. She asserted that Bank's practice of giving notice of a private sale but then, without complying with the notice requirements for a public sale, conducting a public sale, was contrary to the California Uniform Commercial Code and was therefore an unfair business practice under Business and Professions Code section 17200, a claim that the trial court rejected but the Court of Appeal accepted. ² The Court of Appeal remanded the case to the trial court to rule on Lallana's request for

injunctive and restitutionary relief. This court granted Bank's petition for review. ³

II.

We first determine whether a secured creditor wishing to sell a repossessed car need comply only with the notice requirements of the Rees-Levering Act (Civ.Code, § 2981 et seq.) or whether it must also satisfy the California Uniform Commercial Code's requirements pertaining to the sale of collateral. Bank's notice of sale complied with the Rees-Levering Act by informing Lallana: "If you have not reinstated the contract or redeemed the vehicle within the time shown above, including the extended period (if properly requested) the vehicle will be sold after that period...." But the notice did not disclose the time and place of the sale, as California Uniform Commercial Code section 9504, subdivision (3) requires in the event of a public sale. Bank contends it did not have to comply with that provision of the California Uniform Commercial Code. We disagree.

The pertinent statutory provisions are these:

Civil Code section 2983.2, subdivision (a), which is a part of the Rees-Levering Act, states that a creditor must give the debtor 15 days' written notice by personal service, certified mail, or first class mail of its intent to dispose of a repossessed car. It then states that, "[e]xcept as otherwise provided in Section 2983.8, [a debtor] shall be liable for any deficiency after disposition of the repossessed ... motor vehicle," if the creditor gives the requisite notice within 60 days of repossession and provides the debtor with the statutorily specified information. (Italics added.)

Civil Code section 2983.8, also part of the Rees-Levering Act, reads: "Notwithstanding Section 2983.2 or any other provision of law, no deficiency judgment shall lie in any event in any of the following instances: [p] ... [p] (b) After any sale or other disposition of a motor vehicle unless the court has determined that the sale or other disposition was in conformity with the provisions of this chapter and the relevant provisions of Division 9 (commencing with Section 9101) of the Commercial Code, including Section 9504." (Italics added.)

Under California Uniform Commercial Code section 9504, subdivision (2)(b), the debtor is liable for a deficiency "only (i) if the debtor was given notice, if and as required by subdivision (3), of the disposition of the collateral in accordance with subdivision (3), and the disposition of the collateral by the secured party pursuant to this section was conducted in good faith and in a commercially reasonable manner...."

Turning to subdivision (3) of California Uniform Commercial Code section 9504, it states at the outset that a secured creditor must act in good faith and in a commercially reasonable manner in the sale of the collateral. It requires the creditor to give the debtor "notice in writing of the time and place of any public sale or of the time on or after which any private sale or other intended disposition is to be made." (Italics added.) If it is a public sale, notice of its time and place must be published in a newspaper of general circulation before the sale. The secured creditor is allowed to purchase the collateral at a public sale but, except in limited circumstances, not at a private sale.

Bank asserts that in providing that a creditor is not entitled to a deficiency judgment from the debtor unless it complies with both the Rees-Levering Act and division 9 of the California Uniform Commercial Code, "including Section 9504," the Legislature intended to incorporate only the "commercial reasonableness" requirements of California Uniform Commercial Code section 9504, subdivision (3), not its notice requirements.

Bank is wrong. As the Court of Appeal noted, "Contrary to the Bank's argument, there is nothing in [the language of Civil Code section 2983.8] or the nature of subdivision (3) of section 9504 to permit us to conclude the Legislature intended only to incorporate the commercial reasonableness standard, but not the...