Credit sellers of large-ticket
items reserve security interests in the items sold to secure the buyer's
payment of the purchase price. These creditors sometimes get off track by
assuming that Article 9 does not apply to the transaction. In a recent Virginia
Supreme Court decision, an automobile dealer erroneously assumed that it need
not comply with Article 9 and suffered a significant damages judgment. The case
is discussed in this article.
Commonly, credit sellers of
large-ticket items reserve security interests in the items sold to secure the
buyer's payment of the purchase price. Article 9 of the Uniform Commercial Code
provides for relatively straightforward methods for achieving attachment and
perfection of such security interests, and the rules for foreclosing on the
security interests are explicit as well. See generally UCC §§ 9-203,
9-308, 9-310, 9-601-9-628 (Official Text 2009). Nonetheless, creditors
sometimes get off track by assuming that Article 9 does not apply to their
transaction. In a recent Virginia Supreme Court decision, the creditor made the
erroneous assumption that it need not comply with Article 9 and suffered a
significant damages judgment as a result. Cappo Management, Inc. v. Britt,
711 S.E.2d 209 (Va. 2011) [hereafter Cappo] [an enhanced version of this opinion is available to lexis.com subscribers
/ unenhanced version available from lexisONE Free Case Law].
In Cappo, the plaintiff Britt entered into a contract to purchase an
automobile from the defendant Cappo, d.b.a Victory Nissan. Cappo, 711
S.E.2d at 210. She signed a number of documents, including a "Buyer's
Order" and a "Retail Installment Sales Contract," traded in her
old car, and provided a down payment of $1,500. Victory Nissan sought to obtain
financing on Britt's behalf from a third party lender. The third party lender
withdrew its offer of financing, however, and Victory Nissan repossessed the
vehicle from her although she was technically not in default under her payment
obligations. 711 S.E. 2d at 210. The car dealer ultimately disposed of the
vehicle without providing notice of the disposition to Britt. 711 S.E.2d at
Britt then sued the defendant dealer for violations of Article 9, including the
defendant's failure to give notice, and ultimately received a damages award of
$15,000 plus interest from the trial court. Cappo, 711 S.E.2d at 210.
The dealer appealed to the Virginia Supreme Court and argued that Article 9 did
not apply to it because the sales contract did not create a security interest
in favor of the dealer. The Virginia Supreme Court affirmed the lower court
judgment, finding that the contract did provide for an Article 9 security
interest and that, therefore, the dealer was bound to observe Article 9
procedures in repossessing and disposing of the collateral. 711 S.E.2d at 212.
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