Begay v. Foutz & Tanner, Inc.

• Decision Date: 23 October 1979
• Docket Number: Nos. 3804,3805,s. 3804
• Parties: , 27 UCC Rep.Serv. 1488 Grace BEGAY, Lydia Reeves, Plaintiffs-Appellees, v. FOUTZ & TANNER, INC., d/b/a Tanner's Big Dollar, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

Page 551

619 P.2d 551

95 N.M. 106, 27 UCC Rep.Serv. 1488

Grace BEGAY, Lydia Reeves, Plaintiffs-Appellees, v. FOUTZ & TANNER, INC., d/b/a Tanner's Big Dollar, Defendant-Appellant.

Nos. 3804, 3805.

Court of Appeals of New Mexico.

Oct. 23, 1979.

Rehearing Denied Nov. 6, 1979.

Writ of Certiorari Granted Dec. 14, 1979.

Judy A. Flynn-O'Brien, Earl R. Mettler, Timothy V. Flynn-O'Brien, Shiprock, for plaintiffs appellees

John E. Schindler, Palmer & Frost, Farmington, for defendant-appellant.

OPINION

WALTERS, Judge.

Plaintiffs Begay and Reeves are Indians who frequently pawned Indian jewelry articles with defendant trading company. Both complained, in separate suits below, that when they defaulted in payment of the loans collateralized by their pawned jewelry, defendant attempted to retain the collateral pursuant to Sec. 505 of the Uniform Commercial Code (Sec. 55-9-505, N.M.S.A. 1978), instead of proceeding properly under Sec. 504 which requires notice of intention to sell and delivery of any surplus to the debtor. The jewelry was sold ultimately by defendants as 'dead pawn' to a related corporation dealing in the retail and wholesale business of Indian jewelry. Plaintiff Reeves claimed in addition that she had not received the postcard notice sent by defendant of its intention to retain possession in discharge of her debt. The suits were consolidated for appeal.

In both cases (non-jury trial in one case being followed the next day by trial of the other) the court decided the issues in favor of plaintiffs.

I

We will discuss the Begay case first because defendant's method of asserting its creditor's right upon default was the same in both cases and, forgoing for the moment the issue of notice raised in Reeves, our resolution of the rights of the plaintiffs and the remedies available to defendant will apply to both cases.

The trial court found that plaintiff Begay was uneducated, did not speak English, and had a limited understanding of commercial and legal matters (Finding 9). It made the further findings that:

11. Tanner's Big Dollar is a retail outlet which sells groceries and other merchandise, including Indian jewelry and other Indian goods, and which has a substantial pawn business.

12. That plaintiff, for many years prior to and during 1974, borrowed money from defendant's pawn department, usually three or four times per month, using her Indian jewelry as collateral.

13. That plaintiff was a regular pawn loan customer of defendant and was known personally by the manager of defendant's pawn department, who regarded her as a special customer and had loaned on her pawn approximately fifteen years.

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15. That the value of the jewelry pawned by plaintiff in these transactions was several times greater than the amount loaned by defendant, which amount was $200.00 in each transaction.

16. That plaintiff did not repay the loans made by defendant.

17. That on or about November 26, 1974, defendant sent plaintiff a notice of intent to retain the collateral with respect to each transaction, on a form regularly used by defendant for that purpose, a copy of which was admitted into evidence as Defendant's Exhibit 1.

18. That in other transactions, defendant had previously kept plaintiff's pawned jewelry after default until plaintiff was able to pay back the amount loaned.

19. That the course of prior dealings between the parties led plaintiff to expect that defendant would retain her jewelry for her until she could redeem it.

20. That defendant moved plaintiff's jewelry into defendant's sale inventory upon plaintiff's default and a short time thereafter sold the jewelry.

21. That in accordance with its normal business practice, defendant sold the jewelry to Joe E. Tanner, president and a director of Foutz & Tanner, Inc., or to Joe E. Tanner, Inc., a corporation owned and operated by Joe E. Tanner and engaged in the retail and wholesale of Indian jewelry.

22. That defendant did not maintain records sufficient to identify the date on which the sale of a particular piece of pawn took place or for how much it was sold.

23. That Joe Tanner decided how much he would pay defendant for dead pawn by estimating the new replacement cost of a piece of jewelry and by delivering to defendant an amount equal to this cost figure plus 10 percent.

24. That Joe Tanner, on behalf of himself or of Joe E. Tanner, Inc., customarily resold dead pawn from Tanner's Big Dollar to individuals or to other retail or wholesale establishments including retail outlets in Scottsdale, Arizona, and LaJolla, California, owned by Joe Tanner.

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28. That the defendant, or its employees, including Robert Tanner, determined the amount of money that it would loan on a particular piece of Indian jewelry, and as a general rule loaned substantially less than what it determined to be the value of the jewelry, so that there would be virtually no chance of loss to defendant in the event of a default.

29. That in the instant case, the value of the jewelry pawned was several times greater than the amount of money borrowed from defendant.

30. That defendant never returned surplus proceeds from sales of dead pawn to the pawn debtors and did not return any surplus from the sale of the jewelry in question to plaintiff.

31. That defendant did not act in good faith in purporting to retain plaintiff's jewelry instead of acknowledging that it sold the jewelry and accounting to her for any surplus received after satisfaction of her debt.

32. That the notice of intent to retain used by defendant stated that the debtor had thirty days from the date of preparation of said notice in which to object to the retention, rather than thirty days from receipt of the notice.

33. That the notice of intent to retain that was sent by defendant did not inform plaintiff that defendant would sell her jewelry in satisfaction of her debt.

34. That the notice of intent to retain sent by defendant did not inform plaintiff that she could require defendant to sell the jewelry and pay her any surplus received.

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36. That defendant's conduct in claiming to have retained collateral while in fact selling it and in selling dead pawn to a stockholder and director of a related corporation always resulted in a complete loss of the debtor's substantial equity in the collateral.

37. That the conduct of defendant in selling the collateral to a stockholder or related corporation in such a way as to result in a complete loss of the debtor's substantial equity was not commercially reasonable.

38. That defendant's conduct was not in good faith, considering the relative bargaining power of the parties.

The court concluded that Sec. 55-9-504 applied to defendant's sale of the collateral; that the section was violated because notice of sale was not given, the jewelry was not sold in a commercially reasonable manner and that 'the surplus of such a sale' was not returned to Mrs. Begay; that defendant's failure to act in good faith violated Sec. 55-1-203; that the form of notice of retention was in violation of Sec. 55-9-505 because it gave the debtor only thirty days from preparing the notice (rather than from its receipt) within which to object to retention; and that plaintiff was entitled to damages of $2060 plus interest from November 1, 1974. ¹

Appellant does not attack the court's findings; it argues, in essence, that the law under the Commercial Code, regardless of the facts found, was ignored. Notices of default and intention to retain the collateral pawned on July 6th and July 23rd, 1974 were mailed to Mrs. Begay on November 20th and 25th, 1974, respectively; and she received the notices. She and her sister inquired of defendant about the pawned jewelry for the first time in February 1975, to find that the articles no longer were in defendant's possession. At that time, her obligations to repay were approximately six months overdue and her right to object to retention, under Sec. 55-9-505, had expired by almost two months. There was no evidence to show when the 'dead pawn' was sold to, or the amount paid to defendant by, the other Tanner corporation. Consequently there was no evidence whether the sale by defendant was 'a short time' (Finding No. 20) or a long time after default-nor, indeed, any standard of measurement of either a 'short' or 'long' time.

The gist of plaintiff's suit was that although defendant gave notice of its intention to retain the pawn, and did retain it for some period after the time for objection had run, the fact of later sale conclusively established a concealed intention to sell. If defendant intended to sell, she urged, it must follow the public or private sale requirements of Sec. 55-9-504.

We think that both counsel for plaintiff and the trial court misunderstood Part 5 of Article 9 of the Uniform Commercial Code. Counsel suggested, when asked at oral argument, that the creditor's option of retention under Sec. 55-9-505(2) is not available to pawnbrokers dealing in Indian pawn because, in the context of the disparity in value of the pawn and the amount loaned, the customary ignorance of the borrowers in commerce and law, and the pawnbroker's usual practice of subsequently selling dead pawn, there could never be a true intention to retain the collateral.

We observe, first, that the Code places no limitations on the kind of secured party--creditor who may exercise the options provided in Part 5. Section 55-9-501, N.M.S.A. 1978. Secondly, an election to retain under Sec. 55-9-505(2) is a complete satisfaction of the debt, and where the collateral is other than consumer goods, the debtor is relieved of any deficiency that might arise if the secured party had, instead, proceeded under Sec. 55-9-504. Third, when the...