Consumer Finance Corp. v. Reams

• Decision Date: 15 February 2005
• Docket Number: No. WD 63487.,WD 63487.
• Citation: 158 S.W.3d 792
• Parties: CONSUMER FINANCE CORPORATION, Respondent, v. Tanisha M. REAMS, Appellant.
• Court: Missouri Court of Appeals

158 S.W.3d 792

CONSUMER FINANCE CORPORATION, Respondent, v. Tanisha M. REAMS, Appellant.

No. WD 63487.

Missouri Court of Appeals, Western District.

February 15, 2005.

Motion for Rehearing and/or Transfer to Supreme Court Denied March 29, 2005.

Dale K. Irwin, Kansas City, for Appellant.

David Jay Weimer, Kansas City, for Respondent.

Before THOMAS H. NEWTON, Presiding Judge, HAROLD L. LOWENSTEIN, Judge, and RONALD R. HOLLIGER, Judge.

RONALD R. HOLLIGER, Judge.

Tanisha Reams appeals the judgment of the trial court in favor of respondent, Consumer Finance Corporation, granting its request for the deficiency remaining upon an automobile loan following repossession and disposition of the vehicle that was collateral for the loan. We conclude that the judgment was not supported by substantial evidence, in that there was insufficient evidence that the post-repossession sale was conducted in a commercially reasonable manner, and reverse the judgment below.

FACTUAL AND PROCEDURAL BACKGROUND

Tanisha Reams purchased an automobile on March 30, 2000. Most of the purchase price was financed through a loan provided by Consumer Finance Corporation, who took a security interest in the automobile as collateral. Reams subsequently defaulted upon that loan, and the collateral was repossessed and liquidated at auction on October 3, 2001, leaving an unpaid deficiency of $11,786.37.

Consumer Finance subsequently brought an action against Reams (hereinafter "Reams I"), seeking a judgment to recover that deficiency. Reams counterclaimed, alleging that the notice of sale Consumer Finance sent Reams prior to sale of the collateral was defective and that the automobile was not sold after repossession in a commercially reasonable manner. Based upon those allegations, she sought damages under the Uniform Commercial Code, specifically, Section 400.9-625(c)(2), RSMo, as well as pursuant to Section 407.025, RSMo, part of the Missouri Merchandising Practices Act.

Immediately prior to trial, Consumer Finance dismissed its petition against Reams. The case proceeded to trial on Reams' counterclaim, but the only issue actually litigated at trial concerned the sufficiency of the notice provided to Reams prior to liquidation of the collateral. A judgment issued in favor of Consumer Finance, finding that Reams had failed to present sufficient evidence to meet her burden of proof.

Consumer Finance subsequently refiled its deficiency claim against Reams.¹ The petition made no mention of the prior action and did not plead that Reams was barred from defending against any of the elements of the petition or that those elements were established due to res judicata or collateral estoppel. The parties raised no issues in that regard until the filing of pre-trial briefing. Those briefs have not been made part of the record on appeal.

The matter proceeded to trial, at which time Consumer Finance presented no evidence with regard to commercial reasonableness of the sale of the collateral, relying instead upon its contention that Reams was barred from relitigating that issue, since it was determined through the judgment granted in Consumer Finance's favor upon Reams' counterclaim. A collections supervisor at CFC was the only witness called to testify for CFC. That witness testified that RSA conducted the sale of the car by auction. He testified that he had no knowledge as to who was at the sale, how many people were at the sale, or whether it was a public or private sale. No one from RSA was called at trial to testify about what occurred at the sale.

The trial court found in favor of Consumer Finance and entered judgment against Reams. Reams appeals that judgment.

DISCUSSION

Reams raises two points on appeal. First, she argues that the trial court erred in granting judgment in favor of Consumer Finance because the notice sent prior to the repossession sale was insufficient, as a matter of law, to comply with the statutory requirements of Section 400.9-611, RSMo, thereby barring Consumer Finance's deficiency claim. Second, Reams contends that the trial court erred in its judgment because Commercial Finance failed to meet its burden to present substantial evidence that the post-repossession sale of the collateral was conducted in a commercially reasonable manner as required under Section 400.9-610 (Supp.2001). We find the second point on appeal to be dispositive and reverse the judgment below.

Our standard of review, in this bench-tried case, is supplied by Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. Banc 1976). Dean Mach. Co. v. Union Bank, 106 S.W.3d 510, 515 (Mo.App.2003). We will affirm the judgment unless it is not supported by substantial evidence, is against the weight of the evidence, or it erroneously declares or applies the law. Id. We view the evidence and the reasonable inferences that may be drawn therefrom in the light most favorable to the judgment, disregarding contrary evidence and inferences. Cub Cadet Corp. v. Mopec, Inc., 78 S.W.3d 205, 208 (Mo.App.2002).

Upon default, a secured party has the right to take possession of the collateral. RSMo Section 400.9-609 (Supp.2001); Ford Motor Credit Co. v. Henson, 34 S.W.3d 448, 450 (Mo.App.2001). After default, a secured party may sell or otherwise dispose of the collateral by public or private sale as long as it does so in a commercially reasonable manner in every aspect including the method, manner, time, place and terms. RSMo Section 400.9-610 (Supp.2001); Henson, 34 S.W.3d at 450. The debtor is liable to the secured party for any deficiency that remains after the sale of the collateral. RSMo Section 400.9-615 (Supp.2001).

CFC contends that it need only show that it introduced some evidence that a reasonable person could find proved it conducted a commercially reasonable sale. CFC misstates the standard that it must reach in order to obtain a deficiency judgment. A secured party seeking a deficiency judgment following the sale of collateral after default bears burden of proving compliance with statutory requirement of commercial reasonableness. Citizens Nat'l Bank v. Robertson, 101 S.W.3d 302, 304 (Mo.App.2003); RSMo Section 400.9-610. This is true regardless of whether the debtor pleaded the defense of commercial unreasonableness. Id. A secured party's failure to prove that the sale of collateral was commercially reasonable precludes it from obtaining deficiency judgment. Id.

In order to obtain a deficiency judgment, it was necessary for Consumer Finance to do more than establish the terms of the loan between it and Reams, as well as her subsequent default upon that arrangement. Consumer Finance was also obligated to prove that it had complied with Uniform Commercial Code provisions regarding repossession and sale of the collateral. In the proceedings below, Commercial Finance sought to employ the judgment in Reams I to satisfy its burden of proof regarding two of those elements, namely the sufficiency of the notice provided to Reams prior to the repossession sale of the car and the commercial reasonableness of that sale.

The doctrine of collateral estoppel² addresses when a party may use an adverse prior judgment against another party to bar that party from relitigating issues determined in that earlier judgment. See SSM Health Care St. Louis v. Radiologic Imaging Consultants, LLP, 128 S.W.3d 534, 541 (Mo.App.2003). There are two manners of utilizing the doctrine of collateral estoppel. In contexts where a defendant seeks to bar a plaintiff from raising an issue determined in a prior action, the use is defensive in nature. Id. Where it is the plaintiff attempting to assert the estoppel against a defendant, seeking to preclude the latter from litigating one of the elements of the plaintiff's case, it is being employed offensively. Id. Here, Consumer Finance sought to assert offensive collateral estoppel.³

Generally, offensive use of collateral estoppel is less favored than defensive use of that doctrine. Carr v. Holt, 134 S.W.3d 647, 650 (Mo.App.2004) (citing James v. Paul, 49 S.W.3d 678, 685 (Mo. banc 2001)). Where offensive collateral estoppel is sought, the party asserting the estoppel must establish four elements: (1) the same issue was present in both the present and the earlier litigation, (2) that issue was actually litigated in the earlier proceeding, (3) the issue was determined as a critical and necessary part of the prior judgment, and (4) the offensive use of collateral estoppel would not be unfair to the party being estopped. State v. Daniels, 789 S.W.2d 243, 244-45 (Mo.App.1990).

Further, in order to invoke collateral estoppel, it must be pled. In the case of...