The Supreme Court of Missouri recently reversed the judgment of a trial court in favor of two consumers on the finance company’s petition for a deficiency judgment in relation to a promissory note and security agreement financing the consumers’ vehicle.
In so ruling, the Court held that (1) the trial court’s finding that the consumers did not receive any pre-sale notice of the disposition was not supported by substantial evidence; and (2) the trial court misstated the law when it required the finance company to provide the consumers with “reasonable notification” of the sale of the collateral.
Instead, the Court held that, because the vehicle was sold at a dealers-only auction, and because a dealers-only action constituted a private sale, the finance company’s pre-sale notice complied with Missouri law.
A copy of the opinion in Central Trust Bank v. Branch is available at: Link to Opinion.
The consumers defaulted on an automobile retail installment contact, and the finance company sent the borrowers two notices of their default and right to cure.
After the consumers did not cure, the finance company repossessed the vehicle and sent the consumers a pre-sale notice of disposition that advised the consumers that it: (1) had repossessed the vehicle; (2) intended to apply for a repossession title; and (3) intended to sell the vehicle “by private sale.” The consumers admitted on record that they received the pre-sale notice.
The finance company then sold the vehicle at an auction conducted by a third party and open only to automobile dealers licensed in Missouri. The vehicle sold for less than the balance owed, and therefore the finance company sent the consumers a post-sale notice explaining (1) that the vehicle had been sold; (2) that the consumers owed a deficiency of approximately $8,600; (3) how the finance company calculated the deficiency; and (4) that the finance company “reserved the right to pursue legal action” if the deficiency was not paid.
The finance company sent the post-sale notice via certified mail to the consumers at their last known address. Postal records showed delivery of the post-sale explanation was unsuccessful and a notice of attempted delivery was left at the address. The consumers never claimed the post-sale notice, and after several weeks, it was returned to the finance company. The finance company took no further action to mail or deliver the post-sale notice.
The finance company filed a petition to recover the deficiency with interest, but the trial court found that the finance company was not entitled to recover a deficiency because: (1) the finance company failed to provide “reasonable notification” of the sale of the collateral, as mandated by section 400.9-504(3), RSMo 2000; and (2) the pre-sale notice failed to comply with sections 400.9-614(1)(A) and 400.9-613(1)(C), (E) in that it stated the vehicle would be sold at a private sale when the trial court found the dealers-only auction constituted a public sale.
The finance company timely appealed, and the appellate court affirmed. The Supreme Court of Missouri granted transfer after the ruling by the court of appeals.
The finance company first asserted on appeal that the trial court erred in determining that it failed to send “reasonable notification” of the sale of collateral because the finance company sent, and the borrowers admitted they received, a pre-sale notice of its intent to sell the vehicle and the finance company complied with section 400.9-616(b) when it sent the borrowers the post-sale notice by certified mail to an address reasonable under the circumstances.
The Supreme Court agreed with the finance company and held that the trial court’s findings of fact and conclusions of law were erroneous. Specifically, the Court found that there was no evidence in the record that either the first or second notices of the consumers’ defaults and rights to cure were undelivered or unclaimed. The record also showed that the finance company sent the pre-sale notice via certified mail, and the consumers admitted they received the pre-sale notice.
The only evidence of unclaimed correspondence between the finance company and the consumers related to the post-sale notice, which all parties agreed was not delivered and was eventually returned to the finance company.
In this regard, the Supreme Court noted that, after the secured party disposes of collateral in a consumer-goods transaction, section 400.9-616(b)(1) requires it to “[s]end an explanation to the debtor or consumer obligor, as applicable, after the disposition[.]” Section 400.9-102(a)(74) defines “‘send,’ in connection with a record or notification” as:
(A) To deposit in the mail, deliver for transmission, or transmit by any other usual means of communication, with postage or cost of transmission provided for, addressed to any address reasonable under the circumstances; or
(B) To cause the record or notification to be received within the time that it would have been received if properly sent under subparagraph (A)[.]
The Supreme Court determined that Missouri appellate courts and other jurisdictions have found that certified mail complies with the requirements of subparagraph (A). See, e.g., Springfield Chrysler-Plymouth, Inc. v. Harmon, 858 S.W.2d 240, 244 (Mo. App. 1993); Auto Credit of Nashville v. Wimmer, 231 S.W.3d 896, 903 (Tenn. 2007); Coy v. Ford Motor Credit Co., 618 A.2d 1024, 1027 (Pa. Super. Ct. 1993); see also White, Summers, & Hillman, Uniform Commercial Code § 34:33 (6th ed. 2022).
Therefore, the Court concluded that the finance company “sent” its post-sale notice to the consumers when it mailed the explanation to the consumers at their last known address.
Accordingly, the Supreme Court held that the trial court was erroneous in finding that the finance company failed to provide “reasonable notification” of the sale of the collateral.
The finance company also argued on appeal that the trial court erred in ruling that the finance company did not strictly comply with sections 400.9-614(1)(A) and 400.9-613(1)(C), (E), in that the pre-sale notice stated the vehicle would be sold at a private sale but the trial court determined that the dealers-only auction at which it was sold was a public sale.
In consumer-goods transactions, section 400.9-614(1)(A) requires a notification of disposition to provide the “information specified in section 400.9-613(1)[.]” As relevant here, subdivision (C) of section 400.9-613(1) requires the pre-sale notification of disposition to state “the method of intended disposition,” and subdivision (E) of the same section requires it to state “the time and place of a public disposition or the time after which any other disposition is to be made[.]”
The trial court determined that the vehicle was sold “at an auction in which only certain dealers who qualified could participate,” but held that this constituted a public sale. The Supreme Court noted that the UCC does not define “public sale” or “public disposition,” but reasoned that comment 7 to section 400.9-610 provides guidance.
Comment 7 states a public sale “is one at which the price is determined after the public has had a meaningful opportunity for competitive bidding.” The same comment states: “Meaningful opportunity is meant to imply that some form of advertisement or public notice must precede the sale (or other disposition) and that the public must have access to the sale (disposition).” Id. (internal quotation omitted).
Because “only certain dealers who qualified” could participate in the auction, the Supreme Court concluded that neither the public nor the borrowers had a “meaningful opportunity” for competitive bidding. Id.; see also section 400.9-614. As a result, the Court decided that the auction was not a public sale, and the finance company’s pre-sale notice stating that the vehicle would be “sold by private sale” and stating “the time after which” the vehicle would be sold complied with sections 400.9-613(1)(C), (E) and consequently, section 400.9-614(1)(A).
Therefore, the Supreme Court held that the trial court erroneously applied the law when it determined that the dealers-only auction at which the vehicle was sold was a public sale.
Accordingly, the Supreme Court of Missouri reversed the trial court’s decision and remanded the cause.