Nelson v. Monarch Inv. Plan of Henderson, Inc.

• Decision Date: 27 March 1970
• Citation: 7 UCC Rep. Serv. 394,452 S.W.2d 375
• Parties: 7 UCC Rep.Serv. 394 Jack L. NELSON and Gail Nelson, Appellants, v. MONARCH INVESTMENT PLAN OF HENDERSON, INC., Appellee. MONARCH INVESTMENT PLAN OF HENDERSON, INC., Cross-Appellant, v. Jack L. NELSON and Gail Nelson, Cross-Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 375

452 S.W.2d 375

7 UCC Rep.Serv. 394

Jack L. NELSON and Gail Nelson, Appellants, v. MONARCH INVESTMENT PLAN OF HENDERSON, INC., Appellee.

MONARCH INVESTMENT PLAN OF HENDERSON, INC., Cross-Appellant, v. Jack L. NELSON and Gail Nelson, Cross-Appellees.

Court of Appeals of Kentucky.

March 27, 1970.

Charles B. West, Walker & West, Henderson, for appellants.

Robert G. Hunt, King, Deep, Branaman & Hunt, Henderson, for appellees.

CLAY, Commissioner.

This is a suit to recover a balance due on a note executed by defendant appellant, Jack Nelson, for the purchase of an automobile. The defendant counterclaimed for damages on the ground plaintiff appellee had sold the purchased vehicle for less than its market value and had failed to give defendant notice of the sale as required by KRS 355.9--504. The trial judge gave plaintiff summary judgment after giving defendant proper credit, and dismissed the counterclaim.

Defendant purchased the automobile on April 20, 1965, and executed his promissory note in the amount of approximately $1400. Before the first payment was due, defendant voluntarily brought the car to plaintiff's office and directed plaintiff to sell the automobile. At that time defendant stated he did not want the car under any circumstances, and delivered to plaintiff the ignition keys and the license receipt. Not long thereafter plaintiff's representative visited defendant at his home and obtained from him a signed bill of sale and a consignment agreement, the latter authorizing plaintiff to sell the vehicle at the best price it could obtain.

Subsequently defendant took back the bill of sale and said he wanted to cancel the consignment agreement. The reason for this change of mind is not shown. Thereafter plaintiff solicited and received bids from three used-car dealers. The car was then sold at a private sale to the highest bidder for $750. No claim is made that this was not a fair price on a used-car dealer market. No notice of this particular sale was given defendant.

The principal question raised on this appeal is whether the private sale of this repossessed automobile was on a 'recognized market' within the meaning of KRS 355.9--504(3). That subsection provides:

'Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, * * *.' (Emphasis added)

It will be noted first that every disposition of collateral must be 'commercially reasonable'. ¹ The record convinces us that the method, manner, time, place and terms of this private sale were commercially reasonable. This appears as a customary business practice in disposing of repossessed automobiles. There is nothing to indicate lack of good faith, unfairness or fraud.

However, the condition above discussed does not affect the requirement of notice. Reasonable notification of the sale must be given unless the collateral is either (1) perishable, or (2) threatens to decline in value, or (3) is of a type customarily sold on a recognized market. The latter is the only exemption upon which plaintiff could rely in this case. The reason for exempting such transaction from the notice requirement obviously is because the price on the recognized market represents the fair market value from day to day. The purpose of notice is to permit the debtor to bid at the sale or to protect himself from an inadequate sale price. If there is an established and recognized market, theoretically the best price at any given time is the current market price. We do not have such a recognized market for repossessed automobiles as a class. They vary widely in make, style, horsepower, age and condition.

While the question is one of first impression in Kentucky, it has been passed upon in Pennsylvania and Arkansas. Alliance Discount Corp. v. Shaw, 195 Pa.Super. 601, 171 A.2d 548 (1961); Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538 (1966). In the Alliance case it is observed (page 550 of 171 A.2d):

'* * * No other article of commerce is subject to more erratic vacillation in pricing procedures. The so-called 'red book' purporting to fix prices of various makes and models of automobiles in accordance with their year of manufacture is adopted for the convenience and benefit of dealers and is not based on market prices which are arrived at in the open, based on asking prices of sellers and bids of prospective buyers.' Notice, as required by the Act, should have been given.'

In the Norton case it was said (page 540 of 398 S.W.2d):

'First, the Code dispenses with notice when the collateral to be sold 'is of a type customarily sold on a recognized market.' Section 85--9--504(3). We cannot approve the bank's contention that a used car falls in this category. Obviously the Code dispenses with notice in this situation only because the debtor would not be prejudiced by...