Margolin v. Franklin
270 N.E.2d 140, 132 Ill.App.2d 527, 9 U.C.C. Rep. Serv. (West) 904 (1971)
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Rule of Law:
A creditor who has established a pattern of accepting late payments waives the right to declare forfeiture based on a subsequent late payment, unless the creditor first gives the debtor reasonable, definite, and specific notice of their intent to require strict compliance with the contract's payment terms going forward.
Facts:
- On January 31, 1966, Melvin and Betty Franklin purchased a 1961 Ford Thunderbird from Essco Motors under a retail installment contract.
- The contract required 24 monthly payments of $69.00, due on the 15th of each month.
- The Franklins made their first two payments on time in February and March 1966.
- According to Mrs. Franklin, she arranged with Essco's credit manager in April to change the payment date to the 27th of the month to align with her husband's new pay schedule.
- From April through October 1966, Essco Motors accepted every payment late, between the 23rd and 27th of each month.
- During their ownership, the Franklins spent $325 for an engine overhaul on the vehicle.
- On November 26, 1966, without prior notice to the Franklins of an intent to demand strict compliance with the 15th-of-the-month due date, Essco Motors repossessed the automobile.
Procedural Posture:
- Plaintiff, Essco Motors, initiated an action in the trial court to confess judgment against defendants, the Franklins, on a promissory note.
- The Franklins petitioned the trial court to open and vacate the judgment.
- The Franklins filed a counterclaim against Essco Motors for fraudulent and willful conversion of their automobile.
- After a bench trial, the trial court found in favor of the Franklins on their counterclaim and entered a judgment against Essco Motors for $921.00.
- Essco Motors, as appellant, appealed the trial court's judgment to the intermediate appellate court.
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Issue:
Does a creditor's repeated acceptance of late payments waive the right to declare forfeiture and repossess collateral without first providing the debtor with reasonable and specific notice of its intention to require strict compliance with the contract's original payment terms?
Opinions:
Majority - Mr. Presiding Justice Adesko
No. A vendor may not establish a pattern of accepting late payments and then suddenly insist on strict compliance with the contract's time provisions to declare a forfeiture. The court found that Essco Motors' conduct of repeatedly accepting payments on or before the 27th of each month constituted a waiver of the right to enforce the original 15th-of-the-month deadline. Citing precedent from the Illinois Supreme Court, such as Boardman v. Bubert, the court reasoned that where a party has waived a time clause, it must provide 'reasonable, definite and specific notice of its changed intention' before it can avail itself of the right to forfeiture for subsequent late payments. Essco Motors provided no such notice, and therefore, its repossession of the Franklins' automobile was wrongful.
Analysis:
This decision reinforces the equitable doctrine of waiver by conduct in contract law, particularly within consumer credit and installment sales. It establishes a significant protection for debtors by preventing creditors from lulling them into a false sense of security through the acceptance of late payments, only to suddenly enforce a forfeiture clause without warning. The ruling solidifies the requirement that a creditor must affirmatively and clearly communicate a change in intention—to revert to strict enforcement—before a forfeiture can be declared. This precedent impacts future cases by placing a clear procedural burden on creditors to provide notice before repossession after a period of leniency, thereby curbing opportunistic forfeitures.
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