In Re Downing
2002 Bankr. LEXIS 1497, 286 B.R. 900, 49 U.C.C. Rep. Serv. 2d (West) 697 (2002)
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Rule of Law:
Under Missouri's Uniform Commercial Code, a creditor must strictly comply with all statutory notice requirements before disposing of repossessed consumer goods to preserve the right to a deficiency claim. The notice must specify the method of disposition, the debtor's right to an accounting, and the debtor's potential liability for any deficiency.
Facts:
- On September 25, 2000, Steven L. Downing purchased a 1999 BMW 528i from BMW Financial Services, N.A., LLC (BMW) and granted BMW a lien on the vehicle.
- After Downing defaulted on the loan, he surrendered the vehicle to BMW on March 27, 2002.
- On April 4, 2002, BMW sent a letter to Downing stating its intent to sell the vehicle 'no sooner than 10 days after the date of this letter.'
- The notice did not state whether the sale would be public or private, did not inform Downing of his right to an accounting of the unpaid debt, and did not describe his potential liability for any deficiency after the sale.
- On August 1, 2002, BMW sold the car at a commercial, dealers-only auction in Milwaukee, Wisconsin.
Procedural Posture:
- Steven L. Downing filed for Chapter 13 bankruptcy in the U.S. Bankruptcy Court for the Western District of Missouri.
- The Bankruptcy Court granted BMW Financial Services (BMW) relief from the automatic stay to repossess Downing's vehicle.
- After selling the vehicle, BMW filed an unsecured deficiency claim in the bankruptcy proceeding for $18,517.24.
- Downing objected to BMW's claim in the Bankruptcy Court, arguing that BMW failed to provide proper notice of the sale as required by state law.
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Issue:
Under Missouri's version of the Uniform Commercial Code, is a creditor's notice of disposition for a repossessed consumer good sufficient to preserve its right to a deficiency claim if it fails to state the method of disposition (public or private), the debtor's potential liability for a deficiency, and the debtor's right to an accounting?
Opinions:
Majority - Federman, C.J.
No. A notice that fails to inform the debtor that the intended method of disposition is a private sale, that the debtor has a right to an accounting, and that the debtor will be liable for any deficiency following the sale is not sufficient to preserve the creditor’s right to a deficiency claim. Missouri law requires strict compliance with the notice provisions of UCC Article 9 as a prerequisite to recovering a deficiency judgment. Because deficiency judgments are in derogation of common law, statutes permitting them must be followed exactly, and any ambiguity is resolved in favor of the debtor. The governing statutes for consumer goods require the notice to state the method of disposition, the right to an accounting, and any liability for a deficiency. BMW's notice omitted all three of these requirements. Therefore, the notice did not strictly comply with the statute, and BMW is barred from collecting a deficiency judgment, regardless of whether the defective notice caused any harm to the debtor.
Analysis:
This case reinforces Missouri's strict adherence to the 'absolute bar' rule, where any failure by a creditor to strictly comply with UCC notice requirements completely forfeits their right to a deficiency judgment. The decision emphasizes that for consumer goods transactions, there is no room for error or omission in the statutory notice; substantial compliance is insufficient. This serves as a significant precedent for creditors, mandating the use of meticulously drafted notice forms that include every element required by the UCC to avoid the total loss of a deficiency claim.
