FIRST NAT'L BANK IN ALBUQUERQUE V. CHASE, 1994-NMSC-127, 118 N.M. 783, 887
P.2d 1250 (S. Ct. 1994)
FIRST NATIONAL BANK IN ALBUQUERQUE d/b/a
SOUTHWEST CARD
SERVICES, Plaintiff-Appellant,
vs.
LINNIE E. CHASE, a/k/a LINNIE E. DURHAM,
Defendant-Appellee.
SUPREME COURT OF NEW MEXICO
1994-NMSC-127, 118 N.M. 783, 887 P.2d 1250
APPEAL FROM THE DISTRICT COURT OF
VALENCIA COUNTY. John W. Pope, District Judge.
Motion for Rehearing: N/A
Louis J. Vener, P.C., Louis
J. Vener, Albuquerque, NM, for Plaintiff-Appellant.
Chavez & Chavez, David C. Chavez, Los
Lunas, NM, for Defendant-Appellee.
STANLEY F. FROST, Justice; JOSEPH F. BACA,
Chief Justice, RICHARD E. RANSOM, Justice, PAMELA B. MINZNER, Justice, concur
and GENE E. FRANCHINI, Justice, Dissenting.
{1} Plaintiff-Appellant,
First National Bank in Albuquerque ("First National"), appeals from
the district court's order dismissing its action as barred under the statute of
limitations set out in NMSA 1978, Section
55-2-725 (Repl. Pamp. 1993). First
National sought to collect the balance remaining on an automobile installment
purchase agreement after the automobile had been repossessed and sold. The district
court held that the four-year statute of limitations on contracts for the sale
of goods governed First National's claim. We affirm.
{2} On April 3, 1986,
Defendant-Appellee, Linnie Chase ("Chase"), purchased a Toyota pickup
truck from Julian Garcia's Toyota City. Chase and the auto dealer entered into
a "motor vehicle installment contract and security agreement" that
provided for deferred payments on the balance and granted a security interest
in the truck to the seller in order to ensure full payment of the purchase
price. The dealer then sold and assigned the contract to First National.
{3} Chase made her monthly
truck payments to First National through October 19, 1987, but then defaulted
on her November 19 payment. On December 8, 1987, First National accelerated the
balance of the purchase price and repossessed the truck as provided under the
terms of the contract. On March 1, 1988, First National sold the truck. The
sale resulted in a deficiency of $ 6,889.12 in the balance due on the original
contract. Over five years after default and repossession, First National filed
suit against Chase to collect the deficiency.
{4} The issue on appeal is
whether the statute of limitations for First National's deficiency action is
governed by Article 2 of the Uniform Commercial Code, NMSA 1978, §§
55-2-101 to
55-2-725 (Repl. Pamp. 1993), which controls the sale of goods, or by Article 9
of the Uniform Commercial Code, NMSA 1978, §§
55-9-101 to
55-9-507 (Repl. Pamp.
1987),
{*784} which regulates security
transactions. The statute of limitations under Article 2 provides, "(1) An
action for breach of any contract for sale must be commenced within four years
after the cause of action has accrued. By the original agreement the parties
may reduce the period of limitation to not less than one year but may not
extend it." Section 55-2-725. Article 9 of the U.C.C., however, has no
statute of limitations, so the general six-year statute of limitations for
non-sales contracts, set out in NMSA 1978, Sections
37-1-1 and
37-1-3(A) (Repl.
Pamp. 1990), serves as the only potential time bar under that Article.
1
{5} The question whether
Article 2 or Article 9 of the U.C.C. governs an action to recover a deficiency
after a default on a motor vehicle installment contract has previously not been
addressed in New Mexico. Several other jurisdictions have considered this
issue, however, and their holdings are informative. The leading case on this
issue is
Associates Discount Corp. v. Palmer, 47 N.J. 183, 219 A.2d 858,
860-61 (N.J. 1966), in which the New Jersey Supreme Court, applying
Pennsylvania law, found that Section 2-275 of the Uniform Commercial Code
governed the deficiency action. The court looked to the Pennsylvania Uniform
Commercial Code because the defendant had purchased the automobile in
Pennsylvania. At the outset, the New Jersey Supreme Court rejected the
assertions that the automobile "bailment lease" assigned to the
plaintiff was purely a security agreement and that the deficiency action was
just a part of that security arrangement, independent of the original sale.
Instead, the court found that the contract was a hybrid agreement,
"constituting both a contract for sale and a security transaction."
Id.
The
Palmer court then examined the nature of a deficiency suit, noting
that it
is nothing but a simple in personam action for
that part of the sales price which remains unpaid after the seller has
exhausted his rights under Article 9 by selling the collateral; it is an action
to enforce the obligation of the buyer to pay the full sale price to the
seller, an obligation which is an essential element of all sales and which
exists whether or not the sale is accompanied by a security arrangement.
Id. 219 A.2d at 861. Thus, the court concluded that a
deficiency action is "more closely related to the sales aspect of a
combination sales-security agreement rather than to its security aspect and
[must] be controlled by the four-year limitation [in Section 2-275]." Id.
Subsequent to the Palmer decision, nearly every other jurisdiction that
has considered which time limitation applies to deficiency actions has adopted
the same approach.2
{6} First National, however,
argues that Article 2 of the New Mexico Uniform Commercial Code should not
apply to the contract at issue. For support, it points to the language of
Section 55-2-102, which sets out the scope of the provisions of Article 2.
Section 55-2-102
{*785} provides, in
part, "Unless the context otherwise requires, this article applies to
transactions in goods; it does not apply to any transaction which although in
the form of an unconditional contract to sell or [a] present sale is intended
to operate only as a security transaction." First National contends that
the principal and dominant purpose of the obligation it purchased from the
seller was for financing the truck purchase and for securing the installment
payments and did not involve the sale of the truck.
{7} This contention, however,
mischaracterizes the nature of the agreement at issue. We first note that Chase
entered into the motor vehicle installment contract and security agreement with
the truck dealer, not with First National. First National did not loan money to
Chase to pay the seller the purchase price. Instead, First National purchased
an assignment of the right to collect on an installment contract in conjunction
with a security agreement. First National would have us judge the financing
aspect of the contract as discrete and independent from the sale of the truck.
However, as the court in
Citizen's National Bank of Decatur v. Farmer
noted, in a contract for sale, "the sale consists of the passing of title
to the buyer for a price. The obligation to pay is a fundamental part of the
contract for sale. It is not, as plaintiff suggests, separate and distinct from
the transfer of the physical possession of the automobile." 77 Ill. App.
3d 56, 395 N.E.2d 1121, 1123, 32 Ill. Dec. 740 (Ill. App. Ct. 1979) (citation
omitted).
{8} We also note that, in
this case, First National provided the "installment contract and security
agreement" forms used by the dealer, and clearly benefitted from being
closely linked to the dealer in the sale. By holding itself out to the dealer
as a ready source for financing auto sales, First National gained a competitive
advantage over other financial institutions in obtaining automobile-loan
obligations from Chase and other customers of the dealer. Now First National
asks us to find that it is unconnected with the sale and to treat the agreement
the same as if it were an auto loan to a third party for the purchase price.
{9} The contract which Chase
and the auto dealer entered into was clearly a hybrid involving both sales and
security aspects, as was the case in both
Palmer and
Farmer. The
fact that the contract was later assigned to First National does not change the
nature of the agreement. The
Palmer court held that Article 2 applies to
the sales elements of such agreements, and the New Mexico Uniform Commercial
Code compels a similar result. The Official Comment to Section 55-2-102
provides, in part, "Article [2] 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.
" Section 55-2-102 cmt. (emphasis added). Article 2 would therefore
control the general sales aspects of the contract at issue. Furthermore, as set
out in
Palmer, a deficiency action is essentially an action for the
price and is, therefore, part of the general sales aspect of the agreement.
Thus, the four-year statute of limitations set out in Section 55-2-275 governs
First National's deficiency claim.
{10} First National also
relies on
North Carolina National Bank v. Holshouser, 38 N.C. App. 165,
247 S.E.2d 645 (N.C. Ct. App. 1978) as authority contrary to
Palmer. The
court in
Holshouser reached a conclusion opposite to
Palmer under
a similar set of facts, holding that Article 9, not Article 2, governed the
statute of limitations for a deficiency action. 247 S.E.2d at 648. The
Holshouser
court interpreted the provisions of Article 2 as establishing that the sales
aspect of the purchase was completed upon the signing of the contract. Therefore,
it found that Article 2 did not apply to any later actions for a deficiency.
However, in reaching that conclusion, the court focused on the limiting
language of the North Carolina comment to U.C.C. 2-102. The comment provided,
"This section sets out the scope of the Code, limiting it to transactions
in goods . . . and indicates 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."
Id. at 646. The
Holshouser
court concluded that the North Carolina Comment, in conjunction with a prior
legislative amendment to the statute of limitations for sealed instruments,
{*786} demonstrated the legislature's intent
to narrow the application of Article 2, and to require "deference to
Article 9 where a security interest is involved."
Id. at 647.
Noting that the intent of the North Carolina Legislature was "precisely
contrary" to that of the Pennsylvania Legislature in
Palmer, the
Holshouser
court elected not to follow
Palmer. Id. at 648.
{11} The New Mexico Uniform
Commercial Code, however, has no similar comment and expresses no such
legislative intent to limit the application of Article 2 when a security
agreement is also present. Therefore, we find
Holshouser to be
inapplicable to New Mexico deficiency actions, and instead follow the reasoning
expressed in
Palmer. Accordingly, we hold that Section 55-2-275 sets out
the appropriate statute of limitations, and that First National's deficiency
action was barred as being commenced more than four years after the cause of
action accrued.
{12} We note that Chase has
requested reasonable attorney fees as provided for under NMSA 1978, Section
39-2-2 (Repl. Pamp. 1991). Section 39-2-2 allows the court, at its discretion,
to grant attorney fees to the prevailing debtor in a deficiency action. Chase,
however, failed to make a request for attorney fees under Section 39-2-2 before
the trial court. Because the discretion of the trial court was never invoked
with regard to attorney fees, we find no basis for altering the trial court's
order. Accordingly, we deny Chase's request for attorney fees for the trial
court proceedings. We do, however, award Chase $ 1,500 for attorney fees
incurred in this appeal.
{13} For the foregoing
reasons, we affirm the judgment of the trial court and award the
Defendant-Appellee attorney fees for this appeal.
STANLEY F. FROST, Justice
JOSEPH F. BACA, Chief Justice
RICHARD E. RANSOM, Justice
PAMELA B. MINZNER, Justice
GENE E. FRANCHINI, Justice, Dissenting
Franchini, Justice (dissenting).
{15} I respectfully dissent.
The opinion readily acknowledges that Article 9 applies to the contract because
the car is collateral and the contract is a security agreement. In my view, the
longer statute of limitations should apply because the transaction between the
parties was not just a simple car sale in which the seller was immediately paid
all money due. When the
Bank agreed to get involved in the financing of
the car, the Article that applies to its involvement should be the one that
controls its right to maintain an action. The parties entitled the contract a
"security agreement, " thus the debtor should not be surprised that
the longer statute of limitations applying to secured transactions controls
instead of the one pertaining to simple sales.
{16} Further, the contract
under which the Bank bases its claim is the
security transaction, not
the bill of sale. Section 55-2-102 states that Article 2 does not apply to
contracts (like this one) intended to operate as security agreements.
Significantly, the Bank had the right to take possession of the collateral upon
default without judicial process under Article 9,
see § 55-9-503, and to
sell it under Section 55-9-504 -- not under Article 2. The deficiency arose out
of the default under the security agreement and subsequent sale. For these
reasons, the six-year statute of limitations should apply.
{17} Finally, we have long
held that the law favors the right of action over a limitation.
See Slade v.
Slade, 81 N.M. 462, 463,
468 P.2d 627, 628 (1970). I believe we should
follow the lead of the Montana Supreme Court in holding that when there is a
question of which of two statutes of limitation should apply, the question
should be resolved in favor of the longer statute.
See Thiel v. Taurus
Drilling Ltd. 1980-II, 218 Mont. 201, 710 P.2d 33, 40 (Mont. 1985). As a
matter of public policy, it seems wiser to encourage banks and similar
institutions to help economically stressed individuals to purchase essential
items like automobiles by allowing the institutions to benefit from the longer
statute of limitations. Applying the longer statute puts
{*787}
no additional hardship on the debtor who has reneged on his promise to pay.
GENE E. FRANCHINI, Justice
1
Section 37-1-1 provides, "The following suits or actions may be brought
within the time hereinafter limited, respectively, after their causes accrue,
and not afterwards, except when otherwise specially provided." Section
37-1-3(A) continues, in part, "Those founded upon any bond, promissory
note, bill of exchange or other contract in writing, or upon any judgment of
any court not of record, within six years.
2
See. e.g., Worrel v. Farmers Bank of Del., 430 A.2d 469, 471-72 (Del.
1980) (following the Palmer reasoning in applying Section 2-725 to
deficiency actions); Citizen's Nat'l Bank of Decatur v. Farmer, 77 Ill.
App. 3d 56, 395 N.E.2d 1121, 1123, 32 Ill. Dec. 740 (Ill. App. Ct. 1979)
(holding that a deficiency action is an action for the price and governed by
Section 2-725); Massey-Ferguson Credit Corp. v. Casaulong, 62 Cal. App.
3d 1024, 133 Cal. Rptr. 497, 499 (Ct. App. 1976) (noting that the reasoning in Palmer
is equally applicable in California); Chemical Bank v. Rinden Professional
Ass'n, 126 N.H. 688, 498 A.2d 706, 713 (N.H. 1985) (holding Article 2
applicable to transactions in goods involving both a sale and a security
agreement); Michael A. DiSabatino, Annotation, Application, to Security
Aspects of Sales Contract, of UCC § 2-725 Limiting Time for Bringing Actions
for Breach of Sales Contract, 16 A.L.R. 4th 1335 (1982) (listing
jurisdictions that applied Section 2-725 to deficiency actions); cf. Chaney
v. Fields Chevrolet Co., 264 Ore. 21, 503 P.2d 1239, 1241 (Or. 1972)
(holding that an action for a deficiency is more closely related to the sales
portion of the contract, but that an action by the defaulter to recover a
surplus from the resale after foreclosure is more closely related to the
security aspects of the contract). But see North Carolina Nat'l Bank v.
Holshouser, 38 N.C. App. 165, 247 S.E.2d 645, 648 (N.C. Ct. App. 1978)
(holding Article 9, not Article 2, governs deficiency actions).