Mack Financial Corp. v. Crossley

• Decision Date: 15 November 1988
• Docket Number: No. 13356,13356
• Citation: 209 Conn. 163,550 A.2d 303
• Court: Connecticut Supreme Court
• Parties: , 7 UCC Rep.Serv.2d 600 MACK FINANCIAL CORPORATION v. Frank G. CROSSLEY, et al.

Page 303

550 A.2d 303

209 Conn. 163, 7 UCC Rep.Serv.2d 600

MACK FINANCIAL CORPORATION v. Frank G. CROSSLEY, et al.

No. 13356.

Supreme Court of Connecticut.

Argued Oct. 6, 1988.

Decided Nov. 15, 1988.

Bryan L. LeClerc, Waterbury, for the appellants (defendants).

Robert H. Hall, Newtown, with whom was E. Huntington Deming, New Haven, for the appellee (plaintiff).

Before PETERS, C.J., and ARTHUR H. HEALEY, SHEA, CALLAHAN and COVELLO, JJ.

PETERS, Chief Justice.

The sole issue in this case is whether the principles governing the liquidation of commercial security interests are superseded by a provision in a security agreement that expressly incorporates, by statutory reference, the procedures governing the foreclosure of consumer installment sales. The plaintiff, Mack Financial Corporation, brought this action, as the assignee of a purchase money security interest in a used trailer truck, to recover a deficiency judgment from the buyers of the truck, the defendants Frank G. Crossley, Joyce Crossley and John W. Brundage. Because of the plaintiff's failure to comply with statutory notice requirements, the trial court first granted the defendants' motion for a directed verdict, but thereafter granted the plaintiff's motion to set aside the verdict and for a new trial. The defendants have appealed. We find error.

The facts relevant to this appeal are as follows. On July 27, 1982, the defendants bought a used Mack tractor trailer truck from Bridgeport Mack Trucks, Inc., for $18,525.36. The defendants intended to use, and did use, the truck to haul goods for hire. The contract of sale, denominated a "retail installment contract," created a security interest on behalf of the seller or its assignee to secure payment of the defendants' outstanding indebtedness. The seller immediately assigned all of its rights in the contract to the plaintiff, and the defendants, duly notified, agreed to make the required payments directly to the plaintiff. After the truck broke down in Oregon on January 14, 1983, the defendants ceased making further payments. The plaintiff repossessed the truck peacefully and resold it, in Oregon, for $1700, without giving the defendants the required notification of its resale plans.

Whether these events permit the plaintiff to recover a deficiency judgment from the defendants is a question that turns, as the parties acknowledge, on the proper interpretation of one of the conditions of the installment contract, a contract drafted by the plaintiff. The contract provides: "In the event that the cash price of the property is $25,000.00 or less and buyer shall default in any of the terms and conditions of this contract, seller shall proceed in accordance with Section 42-98 of the Connecticut General Statutes to the extent that the procedure set forth in the preceding paragraph of this contract is inconsistent with the provisions of said section." The plaintiff maintains that, with respect to a deficiency judgment, this provision is strictly gratuitous, while the defendants maintain that noncompliance with § 42-98 defeats the plaintiff's cause of action. We agree with the defendants.

To place this question into context, it is important to clarify three subsidiary matters not seriously at issue: (1) the fact of the plaintiff's noncompliance with statutory requirements for written notification of sale; (2) the legal consequence of such noncompliance in a commercial secured transaction; and (3) the legal consequence of such noncompliance in a transaction involving the purchase of consumer goods for consumer purposes. Each of these matters warrants only brief discussion.

During the presentation of its case-in-chief, the plaintiff introduced no evidence that it had given the defendants any written notice expressly informing the defendants of the plaintiff's intent to resell the repossessed truck either at a public or at a private sale. For consumer transactions, such written notification is a procedural requirement of § 42-98(d). ¹ A similar requirement, less specific in its details, governs commercial transactions under the Uniform Commercial Code, General Statutes § 42a-9-504(3). ² In the absence of any proffer of documentation demonstrating the required written notification, the plaintiff at oral argument in this court conceded that it had failed to comply with the notification requirement of either of these statutes. See Connecticut Bank & Trust Co. v. Incendy, 207 Conn. 15, 21-24, 540 A.2d 32 (1988).

For entirely commercial transactions, this court in Connecticut Bank & Trust Co. v. Incendy, supra, 27-28, 540 A.2d 32, recently discussed the consequence of noncompliance with the statutory notification requirements of § 42a-9-504(3). We there held that the failure to provide the required notification serves to limit but not to preclude a creditor's action for a deficiency judgment. Id. The defendants do not contest the proposition that, if Incendy applies, their motion for a directed verdict was correctly denied because of the plaintiff's effort, at trial, to make a factual showing of "the amount that should reasonably have been obtained through a sale conducted in accordance with the 'commercially reasonable' requirements of the code." Id., 27, 540 A.2d 32.

For entirely consumer transactions, by contrast, Connecticut case law has assigned a more serious consequence to a failure to give the notification of sale that § 42-98(d) makes a procedural requirement. We must bear in mind that we are dealing with consumer legislation, whose interpretation is to be guided by its remedial purpose of protection for retail buyers. Barco Auto Leasing Corporation v. House, 202 Conn. 106, 116, 520 A.2d 162 (1987); Rhodes v. Hartford, 201 Conn. 89, 95, 513 A.2d 124 (1986). In construing a similar provision in a related section, General Statutes § 42-84, which prescribes the informational content of retail installment contracts, we held compliance with that statutory requirement to be mandatory. Keyes v. Brown, 155 Conn. 469, 474-75, 232 A.2d 486 (1967). Relying on Keyes v. Brown, the Appellate Session held compliance with § 42-98(d) to be equally mandatory and refused to permit the recovery of a deficiency judgment when proper notification of resale had not been sent. Colt Employees Federal Credit Union v. Lagassie, 30 Conn.Sup. 604, 606, 316 A.2d 512 (1973), cert. denied, 166 Conn. 660, 314 A.2d 780 (1974). We agree with the holding in that case, as does the plaintiff, whose brief concedes that it would not be entitled to a deficiency judgment had the defendants been "retail buyers."

We can therefore restate the question that we must resolve as follows. If a secured creditor, having reason to know of a secured buyer's intention to use contract goods for commercial purposes, ³ denominates the security agreement as a "retail installment contract," incorporates therein a reference to consumer procedures, and thereafter fails to comply with the referenced consumer procedures, does this procedural default trigger the deficiency rules that apply to commercial transactions or the deficiency rules that apply to consumer transactions?

The trial court resolved this question in favor of the plaintiff. In its memorandum of decision setting aside the verdict, the court concluded that the evidence unquestionably established that: (1) the plaintiff did not satisfy the notice requirements of § 42-98; and (2) the...