Randolph v. Franklin Inv. Co., Inc.

• Decision Date: 29 January 1979
• Docket Number: No. 8392.,8392.
• Parties: Joseph T. RANDOLPH and Antoinette M. Randolph, Appellants, v. FRANKLIN INVESTMENT CO., INC., Appellee.
• Court: D.C. Court of Appeals

Page 340

398 A.2d 340

Joseph T. RANDOLPH and Antoinette M. Randolph, Appellants, v. FRANKLIN INVESTMENT CO., INC., Appellee.

No. 8392.

District of Columbia Court of Appeals.

Argued En Banc March 2, 1978.

Decided January 29, 1979.

Roger K. Davis, with whom Gerald W. Von Korff and Robert B. Cornell, Washington, D. C., were on the brief, for appellants.

Bernard D. Lipton, Silver Spring, Md., with whom Charles R. Donnenfeld, Cameron M. Blake, and Howard B. Possick, Washington, D. C., were on the brief, for appellee.

Donald P. Rothschild, appointed by this court as amicus curiae, with whom Robinwyn D. Lewis, Washington, D. C., was on the brief.

Before NEWMAN, Chief Judge, KELLY, KERN, GALLAGHER, NEBEKER, YEAGLEY, HARRIS, MACK and FERREN, Associate Judges, and REILLY, Chief Judge, Retired.

FERREN, Associate Judge:

On January 27, 1977, a division of this court affirmed a $750 deficiency judgment against appellants, Joseph and Antoinette Randolph. 368 A.2d 1151. The appellee finance company, Franklin Investment Co., Inc. (Franklin), had repossessed their automobile, resold it, and then sued to recover the difference between the proceeds of the sale and the balance due on the Randolphs' note. We vacated the division's opinion and granted the petition for rehearing en banc because of the "exceptional importance," D.C.App.R. 40, of resolving certain issues inherent in automobile financing transactions under District of Columbia law. We conclude that the decision of the trial court must be reversed and the deficiency judgment disallowed because Franklin resold the auto without the requisite notice to the Randolphs. We further conclude that the case must be remanded to the trial court for entry of an order granting the Randolphs leave to file their counterclaim, which the motions judge had declined to permit.

I

On November 15, 1968, the Randolphs entered into a contract with G. B. Enterprises, t/a Lee Ford, for the purchase of a 1965 Pontiac. After making a $300 cash downpayment, appellants owed a balance of $1,445 to which an insurance charge of $175.32 and a finance charge of $453.52 were added, leaving a total time-price balance of $2,073.84. The contract called for payment of 51 biweekly installments of $39.88, commencing November 30. On the date the contract was signed, Lee Ford assigned it and the accompanying promissory note, without recourse, to Franklin for $1,445 in cash.

During the first nine months of the contract, appellants were consistently late in making payments. Joseph Randolph testified that his paydays fell on different dates, and that when he had to be late with a payment he would call Franklin to explain that he had not been paid at work. Franklin admitted to accepting 17 consecutive late payments beginning with the first on December 3. Franklin assessed delinquency charges for twelve of these payments. On August 19, 1969, appellants submitted a payment which, under the original contract schedule, had fallen due on July 26. After receiving neither of the August payments nor the one falling due on the first Saturday of September, Franklin arranged for repossession of the car sometime between Monday, September 8, and Wednesday, September 10.

After an advertised public sale on September 26 at which no bids were submitted, the car was sold as scrap for $125 some four months later at a private sale in January 1970. There is a dispute as to whether the Randolphs had been notified about the public sale, but Franklin concedes that the Randolphs did not receive notice of the second, private sale.

In Franklin's action for a deficiency judgment, the trial court took evidence on the value of the automobile at the time of resale. The Randolphs testified that prior to repossession, the automobile was in excellent working condition. One of Franklin's vice-presidents then testified that he had not seen the car between its repossession and resale, but that the wholesale value of a 1965 Pontiac like the Randolphs' would have been between $375 and $800 at the time of the January 1970 resale. On the basis of this evidence, the trial court implicitly valued the Pontiac at $503, for it offset $378 against the claimed deficiency of $1,128 (net of the $125 sale proceeds) and awarded Franklin a judgment of $750.

II

Appellants urge several grounds for reversal based on statutes claimed applicable to automobile financing and remedies in the District of Columbia: the law applicable to usury, D.C.Code 1973, §§ 28-3301 et seq.; the Motor Vehicle Financing Act of 1960, D.C.Code 1973, §§ 40-901 et seq.; the District of Columbia Consumer Credit Protection Act of 1971, D.C.Code 1973, §§ 28-3801 et seq.; and the Uniform Commercial Code, D.C.Code 1973, §§ 28:1-101 et seq. In addition, they seek leave to file a counterclaim, which the motions judge denied. The division of this court accordingly addressed three principal questions: (1) whether the automobile contract and promissory note assigned to Franklin were usurious; (2) whether the Consumer Credit Protection Act of 1971, supra, § 28-3812(e)(3), supersedes the regulations issued under the Motor Vehicle Financing Act, supra, see 5AA DCRR §§ 5.1 et seq., so as to preclude deficiency judgments altogether after resale of repossessed vehicles originally sold to the defaulting purchaser for $2,000 or less; and (3) whether, in any event, Franklin's alleged failure to comply with regulations requiring notice to the debtor of the proposed public and private sales, see 5AA DCRR §§ 5.2 and 5.3, precluded the deficiency judgment awarded by the trial court.¹

In order to resolve the deficiency judgment issue, we need only answer the third question.² Franklin concedes that it did not notify the Randolphs of the proposed private sale. We conclude, contrary to the division's opinion, see 368 A.2d at 1155-56, that Franklin's failure to give the required notice of the private sale was not cured — and legally could not be cured — by the trial court's determination of the reasonable value of the car (for which the Randolphs were given credit) at the time of the sale. Assuming, without deciding, that a creditor may pursue a deficiency judgment in this situation — contrary to the Randolphs' contention³ — we hold that by failing to give the required notice or the private sale, the creditor, Franklin, is not entitled to a deficiency judgment; its recovery is limited to the proceeds of the private sale.⁴

A. A creditor's obligation to give the debtor notice of repossession and resale of collateral, as well as its responsibility to carry out this remedy in a prescribed fashion, is governed by the Uniform Commercial Code (UCC), D.C.Code 1973, §§ 28:9-101 et seq. and by the regulations promulgated by the District of Columbia Council pursuant to the Motor Vehicle Financing Act, D.C.Code 1973, § 40-902(e)(1).⁵ The UCC provides that following repossession, a secured party electing to dispose of the collateral must do so in a "commercially reasonable" manner, having sent the debtor reasonable advance notice of sale:

. . . [E]very 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 . . . [D.C.Code 1973, § 28:9-504(3)][⁶]

The notice requirement is elaborated in Title 5AA of the District of Columbia Rules and Regulations. Section 5.2 sets forth the manner of informing the debtor ("buyer") that the repossession has taken place and of the right to redeem:

(a) Within five days after any motor vehicle is repossessed, the holder shall deliver to the buyer personally, or send him by registered or certified mail to his last known address, a written notice stating (1) the buyer's right to redeem and the amount due and payable, (2) the buyer's rights as to a resale and his liability for a deficiency, and (3) the exact address where the motor vehicle is stored and the exact address where any payment is to be made or notice delivered. [5AA DCRR § 5.2.]

Section 5.3 requires the secured party ("holder") to provide certain details of any contemplated sale or auction of the collateral:

The holder shall, at least 10 days prior to the date of any such public sale or auction, give written notice to the buyer of the time and place of such sale or auction, which notice shall be delivered personally or sent by registered or certified mail, or, in the case of a private sale, 10 days notice of the time after which such private sale may be held. [5AA DCRR § 5.3.]

The rules of court incorporate these creditor responsibilities. Super.Ct.Civ.R. 55-II(b) bars recovery of a deficiency judgment after repossession of personal property unless the plaintiff-creditor has "complied with applicable law" and the property has been "resold for a fair and reasonable price."⁷ We have to determine, therefore, how literal the creditor's compliance must be with the applicable statutes and regulations, in order to permit a deficiency judgment in Superior Court.

B. In proceeding to the merits, we need not consider the Randolphs' argument that Franklin failed to comply with the requirements for notification about repossession and the scheduled public sale. Franklin concedes that it neglected to notify the Randolphs of the second, private sale. Under our analysis, the legal consequence of this failure is no less than the consequence of failing to give the earlier required notices. Because Rule 55-II(b) denies the trial court authority to grant a deficiency judgment unless the plaintiff-creditor has "complied with applicable law," and because, as elaborated below, we conclude that the UCC and Title 5AA regulations preclude a...