American Business Credit Corp. v. Kirby

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Opinion

KINGSLEY, J.

In 1973, defendant purchased from A. K. Equipment Company four vehicle vans. That purchase was under two “Security Agreements” calling for installment payments and expressly authorizing the seller to assign its rights thereunder to a finance company. The seller exercised that right and assigned the contracts to plaintiff herein. Defendant made progress payments on the contract for some time, until a dispute arose between him and the seller arising out of an alleged failure of seller to pay taxes on the vehicles—a failure which defendant contended prevented him from securing clear title from the Department of Motor Vehicles.

1

That dispute not having been resolved, defendant returned the four vehicles to the seller

2

and ceased making payments. The plaintiff thereupon declared a default and, after a notice of sale, sold the vehicles to the original seller for a price less than the amount due under the original purchase agreements and then, in this action, sued defendant for the resulting deficiency. Defendant here appeals from the deficiency judgment. We reverse.

I

The effect of the contracts herein involved was to make the original seller a guarantor to the plaintiff of defendant’s debt. It is the principal contention of defendant that, under subdivision (5) of section 9504 of the California Uniform Commercial Code, it was unlawful for the finance company to sell the vehicles to the original seller, but that the seller, being in possession of the vehicles, was obligated to give its own notice of default and sale and to sell the vehicles to some other purchaser. We disagree.

The provision relied on reads as follows: “(5) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or

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