|FROM:||The Legal Taxi|
|RE:||Retail finance of vehicle, Thomas’s claim for recovering down payment from customer & conversion of remaining advance from bank under UCC|
Thomas’s claim for recovering down payment from customer & conversion of remaining advance from bank
Can retail financer sue the buyer of the vehicle to recover the down payment of the vehicle, and remaining advance from bank through conversion under NY UCC?
A customer ‘Sharon’ purchased a vehicle with retail financing arranged by Thomas (retail financer). The dealer of the vehicle has deposited the money received from the finance of contract’s sale with a bank. The contract recites that a down payment has already been made but Sharon arranged with vehicle dealer to make the payment afterwards when he will receive money from other source, as and when. However, vehicle dealer's business apparently failed, because ‘the bank’ which financed the dealer for opening the showroom, seized and sold all automobiles on dealer's lot, including sharon’s vehicle. Now, Thomas the ‘financer’ wants his money back and he wants to sue the sharon to recover the down payment, and the bank for conversion of his money, which he gave to sharon as the down payment under NY UCC.
Standard Research Memo
- Highlighted Copies of Key Cases.
- Summaries of Key Cases.
Can Thomas’s retail financing company sue Sharon to recover the down payment, and bank for conversion?
NY uniform commercial code, UCC and case law
The facts suggest that the ‘ownership of vehicle’ is not clear but the bank has possession of the vehicle. Accordingly, In order to look for conclusive points between retail financing company and sharon as to retail finance, ‘title’ of the vehicle be examine within the scope of, its ownership, , contract, and validity of the agreement. While looking for the precedents some facts requires special attention because Sharon’s rights might supersede at some points, but at the same time claim of Thomas (Client) supported with ‘investment issue’, should be given prominence as in whole process his money is lost so it is to be supported, providing crucial substance through principles of UCC. Henceforth, another important point should come after this, which is possibility of ‘conversion’ through bank under NY UCC.
Ownership of the vehicle & its contract
NY UCC § 2-606(1), when the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted without objection shall be relevant to determine the meaning of the agreement.
Under, NY Pers. Prop. Article 9 - § 301, sets forth certain definitions concerning motor vehicle retail instalment sales contracts. Such as:
9. "Financing agency" means a person engaged, in whole or in part, in the business of purchasing retail instalment contracts from one or more retail sellers. The term includes but is not limited to a bank, trust company, savings bank, savings and loan association, private banker, or investment company, if so engaged. The term also includes a retail seller engaged, in whole or in part, in the business of holding retail instalment contracts acquired from a retail financer.
Under NY UCC § 1-201, General definitions:
'Buying' may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or total or partial satisfaction of a money debt."
Under, NY UCC § 9-103, Purchase-money Security Interest, Application of Payments, burden of Establishing:
§ (2) "purchase-money obligation" means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.
(b) Agreement does not prevent transfer. An agreement between the debtor and secured party, which prohibits a transfer of the debtor's rights in collateral or makes the transfer a default does not prevent the transfer from taking effect.
While determining the Owenrship & Posession of vehicle, In Ford Motor Credit Co. LLC v Black, 27 Misc. 3d 1211A (N.Y. Misc. 2010) the court stated that:
The retail financer furnishing new value in contract may be a buyer in the ordinary course of business without regards to collateral oral agreements or time of delivery, and without the necessity of determining whether such delay brings about technically, a bailment, a non-delivery, or repossession.
Sharon who makes a purchase on a printed form contract in good faith with a full understanding enters into a binding contract. She will generally not be able to consummate the purchase of a newer vehicle, as the financing of the full equity is integral to the completion of the sale. Where an applicable retail contract does not itself indicate that the full amount was financed, any interested party objecting to financer’s secured claim has the initial burden to demonstrate that the claim included arrears that was not secured by a purchase money receiving treatment under
11 U.S.C.S. § 1325(a).
In, Matter of Peaslee, 13 N.Y.3d 75 (N.Y. 2009), the court does not considered the title cases of vehicles prior to the full payment.
A motor vehicle financer's secured claim includes debt, which is not secure by a purchase money security. The motor vehicle financer always retains the right to demonstrate that full equity in a trade-in vehicle is refinance. Finance company which financed automobile dealer's sales, and to which he assigned retail installment contracts, has prior right to possession of such automobiles, as against bank which financed dealer's purchases and which had merely floating lien on his inventory of automobiles
In, Hyosung Am. v. Sumagh Textile Co., 1996 U.S. Dist. LEXIS 12829 (D.N.Y. 1996), the court distinguished that:
An "absolute assignment" and a mere financing assignment is not an easy task. Indeed, "it is difficult to find an easy rule for determining when a transaction is one involving an assignment or contract for security purposes and when there is an absolute assignment."
This is especially so where article 9 of the UCC provides such a finely integrated plan for the determination of the priorities and equities of the parties to secured transactions. Therefore, it is pertinent to follow the rules as described therein to come to any conclusion, which may provide substantial support for the claim of a retail Thomas. Generally, a Sharon must pay at the contract rate for any goods accepted as per NY UCC § 2-607(1). Acceptance occurs where after a reasonable opportunity to inspect the goods; the Sharon signifies to the seller that the goods are conforming or that he will take them in spite of their non-conformity.
Possibilities of conversion of financed money through bank
Conversion refers to an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights. Conversion, if willful and malicious, constitutes an injury to property within the meaning of 11 U.S.C.S. § 523(a) (6). The cash sale price may include the unpaid balance of any amount financed under an outstanding motor vehicle loan agreement or motor vehicle retail instalment contract. There is no indication that the Sharon had any input into the terms and conditions or made additions or alterations to the contract, which would indicate that there was anything approaching the type of negotiations expect to be included to qualify as ‘an arm's length’ agreement.
The plaintiff was not denied due process when the defendant bank repossessed her automobile under its security agreement contract and section 9-503 of the UCC for default in payments while the automobile was in the possession of an automobile dealership. There is a distinction between "self-help repossession" under a private contract and relevant prior to a taking, even though both involve a taking prior to a judicial determination of the validity thereof, and the interests of both the Sharon and the seller under the contract should be protected in a resolution of the due process question. As the vendee-debtor, the plaintiff had title subject to her obligation to make timely payments. The agreement expressly authorizing the "self-help" provisions in compliance with the statute cannot be held unconscionable.
The first sentence of section 2-401 of the NY UCC limits this application and restricts its use as each provision of this article with regard to the rights, obligations, and remedies of the seller, the Sharon, purchasers, or other third parties applies irrespective of title to the goods except where the provision refers to such title.
In, Northeast Remarketing Servs. v. Guthier (2010 Bankr. LEXIS 2128), the court stated:
"Willful" and "malicious" are not elements of a cause of action for conversion.
New York has defined "price" in its Motor Vehicle Retail instalment Sales Act (MVRISA) to include negative equity, personal property law § 301(6). Under the MVRISA, "cash sale price" can include the unpaid balance of any amount financed under an outstanding motor vehicle loan agreement or motor vehicle instalment contract or the unpaid portion of the early termination obligation under an outstanding motor vehicle retail lease agreement.
A discussion of a fact that Thomas would be able to sue the Sharon, as the down payment already has been made relates to whether the irregularities of the transaction would make the buyer other than a buyer. In making determination, the court may determine that the buyer of goods was a buyer in the ordinary course of business out of inventory. To fail to place the exposure of such risk with the assignee in such situation would make it impossible for retail finance companies to do business with any dealer unless the assignee was directly a participant. To say otherwise, would expose the retail financer to a double loss as against at most a partial loss for both dealer and the retail financer.
The court might enter a judgment against the bank for conversion of the financed money because the sale of the vehicle in terms of its ‘value’ purchased price had taken place and Sharon is construed to be a ‘buyer in the ordinary course of business’ under N.Y.U.C.C. § 1-201(9). Consequently, the court may hold against bank for a certain amount, because the automobile purchased out of inventory in the ordinary course of business before the defendant bank's seizure. Furthermore, Thomas can recover the down payment from Sharon, as it is clear that vehicle is secure by contract's sale which is deposited with the bank and the Sharon had not yet taken the possession of the vehicle.
1. Highlighted copies of Key Cases.
2. Summaries of Key case.
3. Referred Statutes.
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