Topeka Datsun Motor Co. v. Stratton

• Decision Date: 16 April 1987
• Docket Number: No. 59448,59448
• Citation: 12 Kan.App.2d 95,736 P.2d 82
• Parties: TOPEKA DATSUN MOTOR COMPANY, Appellee, v. Paulette S. STRATTON, Appellant.
• Court: Kansas Court of Appeals

Page 82

736 P.2d 82

12 Kan.App.2d 95

TOPEKA DATSUN MOTOR COMPANY, Appellee, v. Paulette S. STRATTON, Appellant.

No. 59448.

Court of Appeals of Kansas.

April 16, 1987.

Review Denied July 1, 1987.

Syllabus by the Court

1. In a consumer credit transaction subject to UCCC provision K.S.A. 16a-5-103(1), the consumer is not liable for a deficiency judgment as a matter of law unless the repossessing creditor has disposed of the goods in good faith and in a commercially reasonable manner.

2. If a creditor fails to give the reasonable notification required by UCC provision K.S.A. 84-9-504(3), prior to the disposal of repossessed goods, the disposal is not commercially reasonable.

3. 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, if he has not signed after default a statement renouncing or modifying his right to notification of sale. K.S.A. 84-9-504(3).

4. When collateral is surrendered to a secured party who transfers the goods to a dealer liable under a guaranty, indorsement, or repurchase agreement, the transfer is not a disposition of the collateral under K.S.A. 84-9-504(3) and the sale used to measure the amount of any deficiency owed by a debtor is determined by the ultimate sale by the dealer rather than by the terms of any repurchase agreement between the dealer and secured party. K.S.A. 84-9-504(5).

5. Under the circumstances of this case as described in Syl. p 4, it is the dealer who controls the type and conduct of the disposal of the collateral and it is the dealer who has the duty to comply with the notification requirements of K.S.A. 84-9-504(3).

6. While K.S.A. 84-9-504(3) does not require the notice to the debtor to include information concerning his right to redemption, once the creditor undertook to represent those rights, its incorrect statement in a manner which gave the debtor less opportunity to redeem than he actually had rendered the notice unreasonable as a matter of law.

7. When the disposal of consumer collateral is commercially unreasonable but even a commercially reasonable sale would have resulted in an amount still owing, the UCCC bar against a deficiency judgment secures to the debtor the full protection of the UCC default provisions.

8. Unless the commercially unreasonable conduct of the creditor causes the debtor in a consumer transaction to lose the benefit of a surplus which would have resulted from a commercially reasonable sale of the collateral, the remedy of the debtor is limited to the denial of a claim for deficiency judgment under the UCCC. The penalty provided by K.S.A. 84-9-507(1) for cases involving consumer goods does not apply when the transaction is covered by the UCCC and a commercially reasonable sale of the collateral would still have resulted in an amount owing by the debtor.

Anne P. Garlinghouse, Topeka, for appellant.

H. Kent Hollins, Topeka, for appellee.

Before DAVIS, P.J., and PARKS and MEYER, JJ.

PARKS, Judge:

Plaintiff, Topeka Datsun Motor Co. (Topeka Datsun), brought this action for a deficiency judgment after defendant, Paulette S. Stratton, defaulted on a new truck loan. Defendant counterclaimed alleging plaintiff disposed of the collateral in a commercially unreasonable fashion, violated provisions of the Uniform Commercial Code (UCC) and Uniform Consumer Credit Code (UCCC), and relied upon an unconscionable sales contract. After a trial to the court, defendant's counterclaims for actual and punitive damages as well as statutory penalties and attorney fees were denied. Plaintiff was granted a deficiency judgment of $3,083.51 and defendant appeals.

On May 19, 1984, defendant took advantage of manufacturer sponsored 8.8% financing to buy a new Datsun "King Cab" pickup. She testified she had to wait in line to meet with the Topeka Datsun financing officer and that she was rushed and pressured into signing the contract. Defendant also testified she was told to sign the contract in two places and that she did so even though several essential terms had not been written into the blanks on the form and she was given no time to read the contract. Defendant said that she provided a figure which would be her maximum acceptable monthly payment but that the final price, amount financed, and monthly payment terms were not stated in the contract when she signed it. She also testified she was given no option concerning the purchase of credit life or disability insurance and that, despite her inquiries, she was not told the amount of her monthly obligation until she received a payment booklet in the mail.

The retail sales contract was signed on behalf of Topeka Datsun by Marion Thomas. He testified that he had no involvement in the negotiations with defendant or personal knowledge concerning the manner in which the contract was executed by her. However, he testified that the ordinary practice of the dealership did not include pressuring the buyer's execution of an incomplete contract.

The contract, which obligated defendant to make payments of $272.92 for 48 months, was assigned with recourse to the Fidelity State Bank & Trust (Fidelity). Defendant made her payments directly to Fidelity and when she first received her payment book she contacted the bank seeking to modify the amount of the payments. Defendant was told the monthly obligation could not be altered. Defendant made a total of 12 monthly payments between June 18, 1984, and May 31, 1985. The December 1984 payment was not made until January 11, 1985, after Fidelity sent defendant a notice of default and right to cure dated January 3. Defendant subsequently missed the June payment and once again called the bank about changing the terms of the payment schedule. The bank officer who dealt with defendant testified that he told defendant that the payments could not be altered and that she could either seek to refinance the loan with her own bank or sell the truck. The Fidelity employee could not recall whether he told defendant she would be liable for any deficiency if the truck were repossessed but stated that it was his usual practice to do so. Defendant called several local dealers about selling the truck but none of the dealers was interested. One of the dealers told defendant that if he wanted the truck he would be able to buy it wholesale when it was repossessed. Unable to sell the truck herself, defendant surrendered it to Fidelity on July 29, 1985. Defendant was informed by letter the next day that Fidelity would sell the truck at a private sale but that defendant had ten days to redeem the truck.

Since defendant's purchase of the truck, Topeka Datsun has ceased doing active business. When plaintiff bought the truck Topeka Datsun was a corporation wholly owned by the holding company EBI, Inc., which was in turn owned by Ed Bozarth. On July 1, 1985, Topeka Datsun merged with EBI, Inc.; the holding company took over all obligations of Topeka Datsun and its assets were sold. At all times pertinent to this case, Ed Bozarth was the president and sole stockholder of Ed Bozarth Chevrolet, Inc., and EBI, Inc.

After defendant surrendered the truck to Fidelity, it was taken to the lot of Ed Bozarth Chevrolet, Inc. The chattel paper held by Fidelity on the truck was reassigned to Topeka Datsun under Fidelity's right to recourse in exchange for the payment of $8,885.93 by EBI, Inc. Bids were orally solicited from local used car dealers between August 20 and September 20. Bids were received from Shawnee Wholesale for $4,800 and from Gurss Motors for $4,900. On September 20, a bid of $5,000 from Ed Bozarth Chevrolet, Inc., was made and accepted by EBI, Inc. The truck remained on the Ed Bozarth lot until it was sold at retail to a third party for $6,300. Plaintiff introduced evidence of the value of the truck surrendered by defendant according to the N.A.D.A. (National Automobile Dealers Assocation) official used car guide which indicated that the trade-in value of the truck was $4,800 while the retail value was $5,676. The N.A.D.A. guide also indicated that the special equipment on defendant's truck would add $850 to its value as trade-in and $925 to its retail value. The deficiency of $3,885 claimed by plaintiff was based on the $5,000 price paid in the private wholesale purchase by Ed Bozarth Chevrolet, Inc., rather than the subsequent retail sale.

Once defendant was notified by Fidelity that the truck would be sold in a private sale if she failed to redeem it in ten days, she received no further notice of time or manner of the sale or her right to bid on the truck. Defendant was not aware that she would be liable for a deficiency until she received a demand letter from an attorney on behalf of Ed Bozarth Chevrolet, Inc. When she failed to pay the deficiency, suit was filed in the name of Topeka Datsun. Every effort has been made by the plaintiff to emphasize the independent corporate identities of Ed Bozarth Chevrolet and Topeka Datsun.

The district court reviewed the characteristics of a commercially reasonable sale and rejected defendant's claim that plaintiff's actions were unreasonable. The court did not specifically rule on the claim of unconscionability of the retail sales contract but denied defendant any relief. The court granted a deficiency judgment to plaintiff and defendant appeals.

I. Disposal of Collateral

Whenever a secured creditor accepts the surrender of collateral by a defaulting debtor, he may dispose of the collateral and seek a judgment for the balance of the indebtedness not satisfied by the sale proceeds. K.S.A. 84-9-504. However, the manner in which the creditor sells the collateral is subject to three essential limitations. K.S.A. 84-9-504(3). First, the...