5.  CASES

Williams v. Ford Motor Credit

This case addressed the issue of what constitutes a "breach of peace" under the UCC. As you read the case, answer the following questions:
  1. Were the pre-requisites of repossession (security agreement and default) present?
  2. What common law tort did Mrs. Williams claim For had committed?
  3. How did the lower court rule?
  4. Did S&S, the repo. agent, engage in any threatening action?
  5. Did Mrs. Williams give S&S permission? Did she object?
  6. Whose position makes the most sense, the majority's or the disssent's?

Chrysler Credit Corp. V. McKinney

This case addressed the issue of whether the use of fraud or “trickery” makes a repo unlawful.  As you read the case, answer (for yourself) the following questions:

  1. Why did McKinney return the vehicle to the dealer?
  2. What did the creditor, Chrysler Credit, agree to do at that point?
  3. Did it live up to its promise?  What did it do with the car?
  4. For whom did the lower court rule and on what two bases?
  5. On what basis did Chrysler appeal?
  6. For whom did the Supreme Court of Alabama rule?  Why?
  7. What precedent did the court rely on in making its decision?
  8. What FTC regulation were the McKinneys relying on in withholding payments?
  9. Do you think that the Court would have been as sympathetic to the McKinneys if they were simply behind on their payments?
McKinney and Byrd are minority decisions.  Most state supreme courts have held that fraud and trickery are not a breach of the peace.

Here’s a sad yet humorous case that was brought to the attention of the Consumer Assistance Program by a Vermont family.  The day before Thanksgiving they received a phone call telling them they had won three pies.  The caller asked them for directions to their home so the pies could be delivered.  Two hours later a tow truck arrived and towed their car away.  (And the consumers didn't even get any pies!)


In Re Ford Motor Company

This case isn't in your reading, but it's worth mentioning here.

In this case the FTC sued Ford, Ford Motor Credit (FMC), and a Ford dealer in Portland, Oregon.  Ford and FMC settled, leaving only the dealer as a defendant.

The facts are similar to a Vermont case I described earlier. If a consumer defaulted on his or her loan, the car dealer paid FMC the consumer's outstanding balance and took possession of the car.  The consumer's debt was then credited with the amount the dealer paid FMC. The dealer then sold the car off its lot at the best price it could get.

As in the Vermont case, Ford dealers did not use the price the dealer received from the sale off its lot to determine the consumer’s deficiency or surplus.  They used the amount of the outstanding balance.  The consequence of this policy was that there could never be a surplus!

The defendant dealer argued that it assigned each vehicle an “estimated wholesale value” and this was the figure credited to the consumer's outstanding balance to determine the amount of any surplus or deficiency.

The decision held that it didn’t matter which of the two procedures was used, because both were illegal.  It said that the UCC clearly contemplates a sale to be used to determine the deficiency or surplus, and that it was the subsequent sale from the dealer’s lot that should have been used to determine that amount.

Some states have found ways to avoid this type of problem.  In Massachussets, for example, a creditor may collect a deficiency only after crediting the consumer with the fair market value of the goods.  Fair market value for a car, for example, is determined by its average retail value in the "blue book."

In its original draft, the FTC’s Credit Practices Rule--which you looked at in an earlier session--had a provision similar to the Mass. law.  Unfortunately, the section was dropped before final passage of the rule.
 
Something to think about:
Does the court’s decision in Williams encourage debtors to use violence to protect their property from being repo’d? 
Something else to think about:
If you were a judge in a case involving trickery or fraud on the part of a creditor to get possession of a car, how would you rule?

 
 
Answer to Introductory Problem:
The FTC's position is that the UCC requires that an actual "sale" take place. It is the amount received by the selling dealer from a sale off its lot that determines how much should be credited to the consumer's outstanding balance--and thus whether the consumer receives a surplus or owes a deficit.  You should have been credited not with the $8,000 wholesale value of the car, but with the $16,000 that the sale off the dealer's lot garnered.  Instead of a deficiency, you should receive a surplus of $2,000.  Here are the calculations:

$12,000    outstanding balance
+ 1,000     repossession costs
+ 1,000     cost of repairs
$14,000    total owed to the creditor

$16,000    selling price of the car
-14,000     total owed to the creditor
    2,000    surplus owed to you
 

Assignment:
Call an automobile finance company (e.g., GMAC, Ford Motor Credit, etc.) or a bank that makes car loans.  Get information about how it handles repossessions.

Does it do them itself or does it hire a repossession business?
How and when does it prefer to take a vehicle (e.g., at night, from a parking lot, etc.)?
Why?
What does it do with the cars that it repossesses (i.e., does it sell them from the dealer's lot, at auction, or some other way)? 
Is there ever a surplus?
If there is a deficiency, how do they go about collecting it?

Ask the person you are speaking to whether he or she thinks the procedure used to sell the vehicle gets the maximum return for the consumer.  Let me know what you find out.