Mercedes-Benz Credit Corp. v. Morgan, MERCEDES-BENZ

• Decision Date: 01 March 1993
• Docket Number: MERCEDES-BENZ,No. 92-982,92-982
• Citation: 312 Ark. 225,850 S.W.2d 297
• Parties: , 20 UCC Rep.Serv.2d 705 CREDIT CORPORATION, Appellant, v. Jerry MORGAN, Appellee.
• Court: Arkansas Supreme Court

Page 297

850 S.W.2d 297

312 Ark. 225, 20 UCC Rep.Serv.2d 705

MERCEDES-BENZ CREDIT CORPORATION, Appellant, v. Jerry MORGAN, Appellee.

No. 92-982.

Supreme Court of Arkansas.

March 1, 1993.

On Rehearing April 5, 1993.

Robert R. Ross, Little Rock, for appellant.

Robert T. James, Little Rock, for appellee.

GLAZE, Justice.

This tort of conversion case was commenced by Dr. Jerry Morgan after his 1984 Porsche had been repossessed by Mercedes-Benz Credit Corporation (MBCC). Morgan purchased the Porsche from Riverside Motors and afterwards, Riverside assigned the purchase installment contract to MBCC. Under the contract, Morgan was to make a payment of $253.37 on the first day of each month for forty-eight months commencing March 1, 1990. Morgan was indisputably late in his payments, and on March 22, 1991, MBCC decided to exercise its right under statutory law and the parties' contract to self-help repossession. MBCC peacefully and without incident gained possession of the Porsche on April 8, 1991. Following repossession, Dr. Morgan brought his account current. MBCC then offered to return the Porsche to Morgan, but he refused, choosing instead to file this conversion action against MBCC.

Prior to trial, MBCC moved for summary judgment which the trial court denied. The parties tried the case to a jury which returned a verdict for Dr. Morgan in the sum of $11,900.00. MBCC filed motions for directed verdict and for judgment not withstanding the verdict, all of which were denied. The trial court also awarded attorney's fees to Morgan. MBCC brings this appeal arguing the trial court erred in denying its motions for directed verdict and judgment notwithstanding the verdict and in awarding Morgan attorney's fees.

Morgan proceeded below on two theories, namely (1) he was not in default when MBCC decided to repossess Morgan's car, and alternatively (2) if Morgan was in default, MBCC had established a course of dealing by accepting late payments, so MBCC was required to put Morgan on notice that it would no longer allow late payments and would require strict compliance with the parties' contract. Both of these theories were presented to the jury, and if Morgan is correct on either argument, we must affirm.

As to Morgan's first point, our review of the record shows he was clearly in default at the time MBCC repossessed Morgan's car. Morgan makes much of the argument that MBCC had miscalculated the receipt of his late February 1 and March 1, 1991 payments. He showed MBCC had misapplied his February 1 payment to the wrong account and mistakenly delayed in crediting this payment to Morgan's correct account until April 15, 1991. Morgan argued MBCC had actually accepted his late February 1 payment well in advance of its declaring Morgan in default. Morgan also claimed that MBCC had accepted his late March 1 payment on April 1, 1991. In both cases, Morgan asserts his account was current prior to MBCC's repossession of Morgan's car on April 8, 1991.

Although the record appears to support Morgan's argument as to his February and March payments, the evidence also reflects he still was late on his payment due on April 1, 1991, which was not received by MBCC until on or about April 11, 1991--several days after MBCC repossessed Morgan's car. In sum, we conclude MBCC is correct in its argument that Morgan was, indeed, in default when it regained possession of Morgan's car. That being so, MBCC argues it was not liable for conversion.

Accordingly, MBCC relies on the case of Ford Motor Credit Co. v. Herring, 267 Ark. 201, 589 S.W.2d 584 (1979), where the Herrings purchased two pickup trucks which were financed by Ford Motor Credit Company and the purchase contract allowed repossession of the trucks if the Herrings defaulted in their payments. That is what occurred. The Herrings subsequently sued Ford Motor Credit Company for conversion of the trucks and a jury awarded the Herrings a verdict. This court reversed the jury verdict and reiterated the right of the seller to repossess the vehicle upon default if it could be done without a breach of the peace. See also Ark.Code Ann. § 4-9-503 (1987). The court held that, because the Herrings were in default in their payments and their trucks had been peacefully repossessed, the Herrings had failed to present sufficient evidence to establish a fact question that the repossession of the trucks constituted a conversion.

Here, Morgan's argument that he was not delinquent in his account at the time his car was repossessed is not supported by the evidence, and if that were the only issue, we would reverse, holding MBCC was within its rights as set out in Herring.

The Herring case, however, is not controlling here because it does not address Morgan's second theory or argument. In other words, while the Herring case correctly upheld a seller's or secured creditor's right to repossess collateral when a debtor is in default, the Herring court was not confronted with the argument Morgan makes here--where the secured creditor (MBCC) routinely accepts a debtor's (Dr. Morgan's) delinquent payments, does the creditor waive strict compliance with the parties' contractual payment and enforcement provisions, at least until the creditor notifies the debtor that strict compliance will be expected henceforth?

Morgan's theory argued below and on appeal is well-grounded in legal authority. In pre-code cases, this court adhered to the principle that acceptance of late payments waives strict compliance with contract terms specifying time of payments. See Commercial Credit Co. v. Ragland, 189 Ark. 349, 72 S.W.2d 226 (1934); General Motors Acceptance v. Hicks, 189 Ark. 62, 70 S.W.2d 509 (1934); see also Ford Motor Credit Co. v. Waters, 273 So.2d 96 (Fla.Dist.Ct.App.1973), (where seller of automobile had consistently accepted late payments from the buyer, who had made more than half of the thirty-six monthly payments when the vehicle was repossessed at time buyer was two months behind, the court held the seller's conduct led buyer to believe late payments would be accepted and therefore buyer had a right to be notified, prior to repossession, of any modification of such conduct, and in absence of such notice, buyer was entitled to recover for wrongful repossession.)

Professor Steve H. Nickles thoroughly discussed in his article, Rethinking Some U.C.C. Article 9 Problems, the foregoing principle concerning the effect of a creditor's acceptance of late payments as follows:

A similar case involves a secured party who has regularly accepted late payments but eventually decides to repossess when the debtor fails to make the next payment on time. A clause in the security agreement usually gives the creditor the right to declare the contract in default if any payment is delinquent. When sued by the debtor, the secured party argues that this contract language entitled him to repossess despite the established pattern of accepting late payments and foregoing repossession. The courts typically hold that "an established course of dealing under which the debtor ... makes continual late payments and the secured party ... accepts them does not result in a waiver of the secured party's right to rely upon such a clause in the agreement authorizing him to declare a default and repossess the chattel." But "a secured party who has not insisted upon strict compliance in the past ... must, before he may validly rely upon such a clause to declare a default and effect repossession, give notice to the debtor ... that strict compliance with the terms of the contract will be demanded henceforth if repossession is to be avoided." By his course of dealing the secured party has, in effect, waived the right to repossession based on defaults in making timely payments. The secured party must then reinstate the right by giving the debtor notice that strict compliance with the contract is now expected before a late payment can justify repossession. In many of these cases such notice has not been given, and the secured party is found liable for wrongful repossession.

34 Ark.Law Rev. 1, 137 (1980-81) (emphasis added).

In the present case, Dr. Morgan made only one timely payment of the fourteen monthly payments required prior to MBCC having repossessed Morgan's automobile. The thirteen late payments ranged from a few days to more than thirty days delinquent from the due date required under the parties' agreement. MBCC's personnel had contacted Morgan concerning his delinquent payments, but...