Minor v. Chase Auto Finance Corp.
72 U.C.C. Rep. Serv. 2d (West) 610, 2010 Ark. 246, 372 S.W.3d 762 (2010)
Rule of Law:
If a financing agreement contains both nonwaiver and no-unwritten-modification clauses, a creditor's past acceptance of late payments does not waive its contractual right to demand strict compliance or require it to give notice before declaring default for future late payments.
Facts:
- On March 15, 2003, Mose Minor entered into a Simple Interest Motor Vehicle Contract and Security Agreement with Chase Auto Finance Corporation to finance a 2003 Toyota Tundra, requiring sixty-six monthly payments starting April 14, 2003.
- The agreement included clauses stating that Chase's acceptance of lesser sums or extensions of due dates would not waive its right to enforce contract terms, and that no modification would be valid unless in writing and signed by both parties.
- Minor's initial payment and several subsequent payments were late, and he sometimes missed payments for months, for which Chase charged late fees and sent warning letters.
- On October 19, 2004, Chase and Minor agreed to a two-month extension of the agreement, pushing the final installment date to November 14, 2008, while retaining all other original terms.
- On February 24, 2005, Chase sent Minor a letter acknowledging his bankruptcy discharge but stating it still held a valid lien on the vehicle and would repossess it if payments were not continued.
- On September 28, 2006, a repossession agent located Minor's vehicle at his home, where it was accessible, and began to hoist it onto his truck.
- Minor objected to the repossession, called a Chase representative who informed him the repossession was due to three months of missed payments, and Minor insisted he could prove he was current.
- The repossession agent waited briefly, then removed Minor's possessions from the vehicle and towed it away, and Chase subsequently sold the vehicle.
Procedural Posture:
- On November 2, 2004, Mose Minor filed for Chapter 7 bankruptcy in the Eastern District of Arkansas.
- On January 7, 2008, Minor filed a complaint against Chase Auto Finance Corporation in the Johnson County Circuit Court, alleging, among other things, that Chase had waived its right to repossess and committed conversion.
- A jury trial was held on February 19, 2009.
- At the close of Minor’s case, Chase moved for a directed verdict.
- The circuit court granted Chase’s motion for a directed verdict on all grounds, finding no waiver by Chase and that Minor was in breach of contract.
- On March 27, 2009, the circuit court entered an order dismissing Minor's complaint with prejudice.
- Minor filed a timely notice of appeal on April 23, 2009, to the Arkansas Court of Appeals.
- The Arkansas Court of Appeals certified the case to the Arkansas Supreme Court pursuant to Arkansas Supreme Court Rule 1-2(b)(1), (4), and (5), identifying it as an issue of first impression needing legal clarification.
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Issue:
Does the inclusion of nonwaiver and no-unwritten-modification clauses in a financing agreement preclude a creditor from waiving its right to strict compliance by routinely accepting late payments, thereby allowing repossession without prior notice to the debtor?
Opinions:
Majority - Ronald L. Sheffield, Justice
Yes, the inclusion of nonwaiver and no-unwritten-modification clauses in a financing agreement precludes a creditor from waiving its right to strict compliance by routinely accepting late payments, thereby allowing repossession without prior notice. The Court held that when a contract contains such clauses, a creditor's acceptance of late payments does not waive its right to declare default, and the creditor is not required to give notice before enforcing that right in the event of future late payments. This decision aligns with the principle that a security agreement is effective according to its terms (Ark.Code Ann. § 4-9-201) and that nonwaiver clauses are legal and valid (Philmon v. Mid-State Homes, Inc.; Johnson v. Guar. Bank & Trust Co.). Furthermore, Arkansas Code Annotated section 4-2-209(2) explicitly states that no-unwritten-modification provisions are binding. The Court rejected the argument that such nonwaiver clauses could themselves be waived by the acceptance of late payments, deeming it illogical, as it would turn the very conduct the clause permits into a waiver of the clause itself. This ruling distinguishes previous Arkansas decisions, like Ford Motor Credit Co. v. Ellison, which required notice after a course of dealing in accepting late payments, noting that those cases lacked the specific nonwaiver and no-unwritten-modification clauses at issue here. The Court cited with approval the reasoning from jurisdictions that uphold these clauses, such as Van Bibber v. Norris.
Concurring - Wills, J.
Yes, Justice Wills concurred with the majority's answer to the certified question. However, he expressed a procedural reservation, stating his belief that the Arkansas Supreme Court's rules and case law do not support accepting 'certified questions' from the court of appeals under these circumstances. He argued that judicial economy is not promoted by the Court merely answering a specific question and then remanding the case to the court of appeals for further action, and instead, the Court should accept and decide the entire case.
Analysis:
This decision significantly strengthens the enforceability of explicit contractual terms in Arkansas, particularly nonwaiver and no-unwritten-modification clauses within secured financing agreements. It clarifies that creditors who include these provisions can accept late payments without losing their right to demand strict compliance or their ability to repossess collateral without prior notice. This ruling shifts the burden more heavily onto debtors to adhere strictly to payment schedules as written, even if a prior course of dealing suggests leniency, impacting future cases by potentially allowing for more immediate enforcement actions by creditors in such contracts.
