Scott v. Ford Motor Credit Co.

• Decision Date: 01 September 1995
• Docket Number: No. 145,145
• Citation: 345 Md. 251,691 A.2d 1320
• Parties: , 32 UCC Rep.Serv.2d 646 Kevin J. SCOTT v. FORD MOTOR CREDIT COMPANY ,
• Court: Maryland Court of Appeals

Page 251

345 Md. 251

691 A.2d 1320, 32 UCC Rep.Serv.2d 646

Kevin J. SCOTT v. FORD MOTOR CREDIT COMPANY

No. 145, Sept.Term, 1995.

Court of Appeals of Maryland.

April 8, 1997.

Jay L. Liner, Baltimore, for Petitioner.

Robert J. Thieblot (Bruce R. Miller, Thieblot, Ryan, Martin & Miller, on brief), Baltimore, for Respondent.

Argued before MURPHY, ^* C.J., and ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, BELL and RAKER, JJ.

RODOWSKY, Judge.

The question presented here is whether the general three year statute of limitations or the four year statute of limitations under the Sales Article of the Uniform Commercial Code applies to an action for a deficiency after the outstanding balance on an installment sale of personalty has been credited with the net proceeds of the sale of that personalty as security under a security agreement. For the reasons set forth below, we hold that the four year statute applies here.

The relevant facts of this case are not in dispute. On May 14, 1987, the petitioner, Kevin J. Scott (Scott), purchased on credit a new 1986 Ford van from Koons Ford of Baltimore, Inc. (Koons Ford). The cash price was $18,399, and Scott made a down payment of $3,406. With the addition of tax and an extended service plan the amount financed was $17,167.95. Finance charges of $7,067.85 produced a total sales price of $27,641.80. Scott agreed to make sixty monthly payments of $403.93 each, beginning June 28, 1987. The transaction was evidenced by a signed contract on a preprinted form furnished by the respondent, Ford Motor Credit Company (FMCC), and headed, "Maryland Vehicle Retail Instalment Contract." There is no basis for any argument that the contract is one under seal. The contract was assigned by Koons Ford to FMCC.

When Scott's van subsequently was damaged in an accident the costs of repair exceeded its value, and FMCC was paid the insurance proceeds. Scott ceased making the installment payments required by the contract, and the van was repossessed on August 17, 1988. It was sold at public auction on March 3, 1989. FMCC advised Scott on March 14, 1989, that there was a deficiency of $6,452.56.

FMCC's suit for the deficiency was filed on April 16, 1992, in the District Court of Maryland, sitting in Baltimore County. That filing date was more than three years, but less than four years, after both the sale and the notice of deficiency. In the courts below the only contested issue was the applicable period of limitations. Scott submitted that the period of limitations for FMCC's claim is controlled by Maryland Code (1974, 1995 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article (CJ). It reads:

"A civil action at law shall be filed within three years from the date it accrues unless another provision of the Code provides a different period of time within which an action shall be commenced."

FMCC submitted that the period of limitations for its claim was controlled by Md.Code (1975, 1997 Repl.Vol.), § 2-725(1) of the Commercial Law Article (CL), reading in part as follows: "An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued."

The District Court entered judgment for FMCC, and Scott appealed to the Circuit Court for Baltimore County. That court, in a written opinion, affirmed the District Court. Scott then petitioned this Court for the writ of certiorari which we issued.

The provisions of the installment contract that are relevant to the arguments of the parties are those dealing with the security interest in the van, the creditor's remedies on the buyer's default, and applicable law. Paragraph B of the agreement provides:

"Security Interest: You give the Creditor a security interest in the vehicle, in all parts or other goods put on the vehicle, in all money or goods received for the vehicle and in all insurance premiums financed for you. This secures payment of all amounts you owe in this contract. It also secures your other agreements in this contract."

Paragraph F deals with a default by the buyer. After describing the rights of the respective parties from a default through the conclusion of a sale of the security, p F states:

"If there is any money left (a surplus), it will be paid to you. If the money from the sale is not enough to pay off this contract and costs, you will pay what is still owed to the Creditor, if allowed by law."

Paragraph G, "General," in relevant part reads:

"The law of Maryland applies to this contract including Subtitle 10 of the Maryland Commercial Law Article."

In Biggus v. Ford Motor Credit Co., 328 Md. 188, 613 A.2d 986 (1992), we held that the reference in the FMCC form contract to Subtitle 10 effected an election to have the contract governed by CL Title 12, Subtitle 10, "Credit Grantor Closed End Credit Provisions" (CLEC). Accordingly, we turn initially to CLEC to see if it addresses limitations on claims for a deficiency.

I

CLEC does not contain any statute of limitations. CLEC does, however, regulate the repossession of tangible personal property securing a loan under an agreement governed by CLEC. See CL § 12-1021. These provisions dealing with repossession make reference to a claim for a deficiency. Where, as here, there has been a public sale of the security for a loan in excess of $2,000, CL § 12-1021(k) addresses the disposition of the sale proceeds. They are to be applied first to the cost of sale, next to the cost of retaking and storage, and then to the "unpaid balance owing under the agreement at the time the property was repossessed." CL § 12-1021(k)(2)(iii). Under CL § 12-1021(k)(3) the credit grantor must furnish the consumer borrower with a written statement showing the distribution of the proceeds. Of particular relevance to the instant matter is CL § 12-1021(k)(4) which reads:

"If the provisions of this section, including the requirement of furnishing a notice following repossession, are not followed, the credit grantor shall not be entitled to any deficiency judgment to which he would be entitled under the loan agreement."

Scott does not contend that the requirements of CLEC were not followed. Thus, CLEC's prohibition against seeking a deficiency is inapplicable here. That prohibition, however, reflects that the right to claim a deficiency is determined by the provisions of the loan agreement. Accordingly, we redirect our attention to the contract.

II

The contract is a sale transaction under CL Title 2. The sale transaction is also a secured transaction under CL Title 9. Scott argues that the deficiency suit relates to the security aspect rather than to the sale aspect so that the statute of limitations in the sales title, CL § 2-725, should not apply. He contends that CL Title 9 governs the part of the contract from which this suit arose so that the limitations period should be determined under that title. Because the Secured Transactions Title does not have a limitations period, Scott argues that the general, three year statute, CJ § 5-101, should apply.

Scott claims that CL § 2-102, the scope section for CL Title 2, confirms that only the sales component of the subject contract should be governed by Title 2 while the security aspects of the contract should be governed by Title 9. CL § 2-102 reads:

"Unless the context otherwise requires, this title applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this title impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers."

Scott looks to the Official Comment to CL § 2-102 which states that "Title leaves substantially unaffected the law relating to purchase money security such as conditional sale or chattel mortgage though it regulates the general sales aspects of such transactions." Scott then concludes that a

"suit for a deficiency is inextricably related to the security aspects of the contract.... [B]ut for the financing charges, there would not be a deficiency. Subsequent to default, [FMCC's] actions, including repossession and resale, were far removed from the 'pure' sales component of the contract governed by [Title] 2. Therefore, this suit for a deficiency should not be governed by the four year statute of limitations of the sales article, § 2-725."

Petitioner's Brief and Appendix at 5.

Scott relies primarily on a case decided by the North Carolina intermediate appellate court. In North Carolina Nat'l Bank v. Holshouser, 38 N.C.App. 165, 247 S.E.2d 645 (1978), the court examined limitations in a case similar to the instant one. Holshouser had purchased a motor vehicle on credit, giving the seller a purchase money security interest in the vehicle. The plaintiff, a bank, was the assignee of the seller's side of the contract. The bank repossessed the automobile and sold it at public auction, resulting in a deficiency. More than four years later the bank sued for the deficiency. The debtor claimed that the applicable time limit was the four year period under the U.C.C., while the bank urged the ten year period for suits on sealed instruments.

The text of the relevant North Carolina U.C.C. sections is the same as that of the corresponding U.C.C. sections in Maryland, and the Official Comments to U.C.C. § 2-102 are the same in North Carolina and in Maryland. In North Carolina, however, an additional, local comment to U.C.C. § 2-102 states "that the article on sales does not apply to transactions intended as security even though in the form of an unconditional contract of sale or to sell." This local comment omits the qualifier, "only," that immediately precedes "as a security transaction" in the text of § 2-102.

The North Carolina court held that

"[t]he four-year limitation of actions found in G.S. § 25-2-725(1) applies on its face only to actions for breach of any contract for sale. Since...