Jones v. Morris Plan Bank
1937 Va. LEXIS 224, 168 Va. 284, 191 S.E. 608 (1937)
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Rule of Law:
When an indivisible contract for debt contains an automatic acceleration clause, a creditor's suit for only a portion of the then-due installments constitutes a splitting of the cause of action, which bars any subsequent action for the remainder of the debt.
Facts:
- William B. Jones purchased a Plymouth sedan from a dealer, agreeing to pay the remaining balance of $428.40 in 12 monthly installments.
- Jones signed a single promissory note for the full balance, which contained a clause automatically accelerating the entire debt upon the nonpayment of any installment.
- The debt was secured by a conditional sales contract, under which the dealer retained title to the car until the note was paid in full.
- The dealer assigned the contract and endorsed the note to the Morris Plan Bank of Portsmouth on the day of the sale.
- Jones failed to make the installment payments for May and June.
- After the bank had initiated legal action and received payment for the May and June installments, its agent repossessed the automobile from the street in front of Jones's home during the night without his consent.
- The bank subsequently sold the repossessed automobile.
Procedural Posture:
- The Morris Plan Bank of Portsmouth sued William B. Jones in the Civil and Police Court of Suffolk for two defaulted installments.
- The court entered a default judgment for the bank after Jones failed to appear.
- The bank obtained an execution on the judgment, which Jones subsequently paid in full.
- The bank later filed a second suit in the same court for the next unpaid installment.
- Jones filed a plea of res adjudicata, after which the bank took a non-suit, withdrawing the second action.
- Jones then initiated the present action against the bank in a trial court for the conversion of his automobile.
- At the close of the plaintiff's evidence, the trial court sustained the bank's motion to strike the evidence and entered a verdict for the bank.
- Jones, the plaintiff, appealed the trial court's decision.
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Issue:
Does a creditor who obtains a judgment for only a portion of an accelerated debt, when the entire debt was due at the time of the suit, waive its right to collect the remaining balance and consequently lose its security interest in the underlying collateral?
Opinions:
Majority - Gregory, J.
Yes. When the entire debt becomes due under an acceleration clause, a creditor who sues for and recovers only part of that debt is barred from any further action for the remainder, thereby extinguishing the debt and the associated security interest. The court reasoned that the unconditional acceleration clause caused the entire note to mature upon Jones's first default. The note and conditional sales contract constituted a single, indivisible contract, giving rise to a single cause of action for the entire debt. The legal principle against splitting a cause of action prohibits a party from litigating a single claim in multiple lawsuits. By suing for only two installments when all were due, the bank split its cause of action. The judgment for that partial amount legally barred the bank from ever collecting the remaining installments. Because the debt on the note was legally extinguished, the purpose of the conditional sales contract—to secure that debt—was fulfilled, and title to the automobile passed to Jones. Therefore, the bank's subsequent seizure of the car constituted conversion.
Analysis:
This decision strictly applies the rule against splitting a cause of action to installment contracts with automatic acceleration clauses. It serves as a significant precedent, warning creditors that upon a default that triggers such a clause, they must sue for the entire outstanding balance in a single action. Failure to do so results in the forfeiture of the remaining debt and any security interest, a harsh penalty intended to prevent vexatious, piecemeal litigation against debtors. This ruling differentiates between optional and automatic acceleration clauses, emphasizing that with the latter, the creditor has no choice but to treat the entire debt as due and pursue it accordingly.
