Bank of America v. Lallana , 77 Cal. Rptr. 2d 910 ( 1998 )

Opinion

KENNARD, J.

Under California law, a secured creditor who sells the collateral after the debtor’s default may be entitled to a judgment for the difference between the amount owed and the proceeds of the sale. To obtain such a deficiency judgment, however, the creditor must satisfy certain statutory requirements. For secured debts subject to its provisions, the Rees-Levering Motor Vehicle Sales and Finance Act (Civ. Code, § 2981 et seq.; hereafter the Rees-Levering Act) requires that a creditor, before selling a repossessed car, notify the debtor of the right to redeem the car before sale. (Civ. Code, § 2983.2.) For secured debts subject to its provisions, the California Uniform Commercial Code provides that a secured creditor must give a defaulting debtor notice as specified by statute of either a public or private sale of the repossessed collateral. (Cal. U. Com. Code, § 9504, subd. (3).)¹

Here, a creditor notified a defaulting debtor that it would sell the debtor’s repossessed car, giving the kind of notice required under the California Uniform Commercial Code for a private sale. It then advertised in local newspapers that at a certain time and place it would conduct a public auto auction. There, it sold the debtor’s car to the highest bidder without ever telling the debtor when or where the auction would occur, information that the California Uniform Commercial Code requires in a notice of a public sale. The creditor contends that it did not have to tell the debtor when or where the auction would be held because it need comply only with the provisions of the Rees-Levering Act, not those of the California Uniform Commercial Code. The creditor also contends that in any event it complied with the requirements of the California Uniform Commercial Code because it gave the debtor a private sale notice, which according to the creditor makes the subsequent sale a private sale irrespective of the characteristics of the sale.

Rejecting these contentions, we conclude, first, that the creditor was required to comply with the relevant provisions of both the Rees-Levering Act and the California Uniform Commercial Code, and, second, that the creditor’s action in giving a private sale notice did not make the subsequent sale a private sale. Because the creditor violated the relevant provisions of the California Uniform Commercial Code by holding a public sale without giving the debtor proper notice of a public sale, the creditor is precluded from obtaining a deficiency judgment.

I.

In February 1991, defendant Felisa V. Lallana (hereafter Lallana) bought a car on credit from a dealer, who assigned the contract and the security agreement to plaintiff Bank of America (hereafter Bank). When Lallana failed to make several payments, Bank repossessed the car. In November 1991, Bank notified Lallana that if she did not redeem the car or reinstate the contract within 15 days, it would sell the car. This met the notice requirements for a private sale but not a public sale.

Forrest Faulknor & Sons (hereafter Faulknor) was Bank’s vendor. Faulknor advertised its weekly sales of repossessed cars in local newspapers of general circulation and in specialized newspapers as “public auto auction[s]” and as “open to the public sealed bid auto auction[s].” Owner Michael Faulknor testified that the firm’s practice was to conduct sealed bid auctions, open to the public, instead of live auctions, because of its experience that sealed bid auctions, at which the bidders do not know the amount others are bidding, resulted in higher prices. The firm would collect sealed bids for two days, after which it would open the bids and sell the cars to the highest bidder. If the highest bid was below Bank’s minimum price, the process would be repeated until either Bank’s minimum price was met or exceeded or Bank authorized a sale below the minimum price.

On December 5, 1991, Faulknor advertised that it would conduct an “open to the public sealed bid auto auction.” It then showed Lallana’s car, with others, at a two-day auction conducted on December 16 and 17, 1991, and at three subsequent auctions. Bank did not bid at any of the auctions. On January 6, 1992, the car was sold at a sealed bid auction for $5,000. This was less than the Kelly Blue Book’s estimated wholesale value of $12,050 and estimated retail value of $14,820 and less than the minimum price set by Bank, which approved the sale.

On November 24, 1992, Bank sought a deficiency judgment against Lallana for $11,249.84, representing the difference between what she still owed on the car and the $5,000 resale price. Lallana cross-complained for an injunction and restitution. She asserted that Bank’s practice of giving notice of a private sale but then, without complying with the notice requirements for a public sale, conducting a public sale, was contrary to the California Uniform Commercial Code and was therefore an unfair business practice under Business and Professions Code section 17200, a claim that the trial court rejected but the Court of Appeal accepted.² The Court of Appeal remanded the case to the trial court to rule on Lallana’s request for injunctive and restitutionary relief. This court granted Bank’s petition for review.³

II.

We first determine whether a secured creditor wishing to sell a repossessed car need comply only with the notice requirements of the Rees-Levering Act (Civ. Code, § 2981 et seq.) or whether it must also satisfy the California Uniform Commercial Code’s requirements pertaining to the sale of collateral. Bank’s notice of sale complied with the Rees-Levering Act by informing Lallana: “If you have not reinstated the contract or redeemed the vehicle within the time shown above, including the extended period (if properly requested) the vehicle will be sold after that period . . . .” But the notice did not disclose the time and place of the sale, as California Uniform Commercial Code section 9504, subdivision (3) requires in the event of a public sale. Bank contends it did not have to comply with that provision of the California Uniform Commercial Code. We disagree.

The pertinent statutory provisions are these:

Civil Code section 2983.2, subdivision (a), which is a part of the ReesLevering Act, states that a creditor must give the debtor 15 days’ written notice by personal service, certified mail, or first class mail of its intent to dispose of a repossessed car. It then states that, “[e]xcept as otherwise provided in Section 2983.8, [a debtor] shall be liable for any deficiency after disposition of the repossessed . . . motor vehicle,” if the creditor gives the requisite notice within 60 days of repossession and provides the debtor with the statutorily specified information. (Italics added.)

Civil Code section 2983.8, also part of the Rees-Levering Act, reads: “Notwithstanding Section 2983.2 or any other provision of law, no deficiency judgment shall lie in any event in any of the following instances: [f] . . . [^] (b) After any sale or other disposition of a motor vehicle unless the court has determined that the sale or other disposition was in conformity with the provisions of this chapter and the relevant provisions of Division 9 (commencing with Section 9101) of the Commercial Code, including Section 9504.” (Italics added.)

Under California Uniform Commercial Code section 9504, subdivision (2)(b), the debtor is liable for a deficiency “only (i) if the debtor was given notice, if and as required by subdivision (3), of the disposition of the collateral in accordance with subdivision (3), and the disposition of the collateral by the secured party pursuant to this section was conducted in good faith and in a commercially reasonable manner . . . .”

Turning to subdivision (3) of California Uniform Commercial Code section 9504, it states at the outset that a secured creditor must act in good faith and in a commercially reasonable manner in the sale of the collateral. It requires the creditor to give the debtor “notice in writing of the time and place of any public sale or of the time on or after which any private sale or other intended disposition is to be made.” (Italics added.) If it is a public sale, notice of its time and place must be published in a newspaper of general circulation before the sale. The secured creditor is allowed to purchase the collateral at a public sale but, except in limited circumstances, not at a private sale.

Bank asserts that in providing that a creditor is not entitled to a deficiency judgment from the debtor unless it complies with both the Rees-Levering Act and division 9 of the California Uniform Commercial Code, “including Section 9504,” the Legislature intended to incorporate only the “commercial reasonableness” requirements of California Uniform Commercial Code section 9504, subdivision (3), not its notice requirements. Bank is wrong. As the Court of Appeal noted, “Contrary to the Bank’s argument, there is nothing in [the language of Civil Code section 2983.8] or the nature of subdivision (3) of section 9504 to permit us to conclude the Legislature intended only to incorporate the commercial reasonableness standard, but not the notice requirements contained therein.”

Equally misplaced is Bank’s reliance on Creditors Bureau v. De La Torre (1971) 16 Cal.App.3d 558 [94 Cal.Rptr. 145]. There the Court of Appeal held that a secured creditor need comply only with the notice requirements of the Rees-Levering Act, and not with “the general provisions of the [California Uniform] Commercial Code.” (Id. at p. 562.) But that case was decided in 1971, well before the Legislature in 1984 amended Civil Code section 2983.8 by adding subdivision (b). (Stats. 1984, ch. 1376, § 1, p. 4859.) As previously explained, that provision expressly requires the creditor to comply not only with the Rees-Levering Act but also with division 9 of the California Uniform Commercial Code. Therefore, the case is inapposite.

Bank also asserts that the Rees-Levering Act, which creates a broad range of consumer protections for those who buy cars on credit, is a specific statute and therefore controls over the general provisions of the California Uniform Commercial Code. Bank relies on the general rale of statutory construction “ ‘that where the general statute standing alone would include the same matter as the special act, and thus conflict with it, the special act will be considered as an exception to the general statute whether it was passed before or after such general enactment.’ ” (People v. Gilbert (1969) 1 Cal.3d 475, 479 [82 Cal.Rptr. 724, 462 P.2d 580].) It is not necessary here, however, to resort to this rule of statutory construction because the Legislature has expressly described how the Rees-Levering Act and the California Uniform Commercial Code interrelate. (See Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Cal.4th 985, 992 [73 Cal.Rptr.2d 682, 953 P.2d 858] [rule inapplicable when statutes are not inconsistent].) After providing in Civil Code section 2983.8, subdivision (b) that a creditor’s sale or disposition of a repossessed car must comply with both the Rees-Levering Act and the relevant provisions in division 9 of the California Uniform Commercial Code, the Legislature expressly states in California Uniform Commercial Code section 9203, subdivision (4) that the Rees-Levering Act controls in the event of a statutory conflict. Here, the relevant provisions in both codes do not create a conflict.

Accordingly, we hold that to obtain a deficiency judgment, a secured creditor who sells a defaulting debtor’s repossessed car must do so in a manner that complies not only with all the provisions of the Rees-Levering Act but also with any relevant provisions in division 9 of the California Uniform Commercial Code. We now address whether Bank’s sale of Lallana’s car complied with the notice requirements in division 9 of the California Uniform Commercial Code, specifically those in subdivision (3) of section 9504.

III.

Bank contends that the Court of Appeal erred in holding that Bank violated California Uniform Commercial Code section 9504, subdivision (3) by giving notice of a private sale but then holding a public sale, without complying with the notice requirements for a public sale. Contending that it did not hold a public sale, Bank relies on this language in subdivision (3) of California Uniform Commercial Code section 9504: “Any sale of which notice is delivered or mailed and published as herein provided and which is held as herein provided is a public sale.”⁴ Bank insists that this sentence contains the complete definition of a “public sale.” Bank argues that because it gave notice of a private sale, the sale it held was a private sale, irrespective of the characteristics of the sale.

The sentence on which Bank relies fails to describe the characteristics of a public sale. The quoted sentence states that a sale conducted “as herein provided” is a public sale, but there is no description of a public sale in the subdivision in which this sentence appears. Nor is there such a description elsewhere in the statute. The statute sets forth in detail when and how notice is to be given the debtor, the requirements for publication of public sales in newspapers, where public sales are to be held, and how a public sale may be postponed, but it says nothing about the characteristics of a public sale. The sentence certainly does not imply that any sale for which defective notice of public sale has been given qualifies as a private sale, no matter how public the character of the sale.

In enacting subdivision (3) of California Uniform Commercial Code section 9504, our Legislature sought to clarify the requirements for a notice of the time and place of a public sale, not to define the characteristics of a public sale. The Legislature rejected the Uniform Commercial Code’s version—as contained in section 9-504, which requires only “reasonable notification of the time and place of any public sale”—because the Uniform Commercial Code “does not specify either the manner in which notice must be given or the time within which it must be given.” (Sen. Fact Finding Com. on Judiciary, Sixth Progress Rep. to Leg., pt. 1 (1959-1961) Cal. U. Com. Code, p. 426.) The Senate Committee pointed out that the Uniform Commercial Code’s general requirement “that every aspect of the sale be done in ‘a reasonably commercial’ manner is too vague a requirement to be of any value and ... an invitation to litigation.” (Ibid.) These concerns led our Legislature to conclude that “both the time and manner of giving notice should be specified, otherwise every sale is open to attack.” (Ibid.) Accordingly, California Uniform Commercial Code section 9504, subdivision (3) defines in detail the notice requirements for both public and private sales: A notice of public sale informs the debtor of the time and place of sale. A notice of private sale requires only that the debtor be told the collateral will be sold after the expiration of a certain period. The provision does not at all define public sale.

IV.

We now determine whether Bank sold Lallana’s repossessed car at a public sale or a private sale. As discussed above, California Uniform Commercial Code section 9504 does not define these terms. Nor does its counterpart in Uniform Commercial Code section 9-504. Of assistance here are decisions from other jurisdictions, which have undertaken the task of determining the characteristics of public and private sales under Uniform Commercial Code section 9-504, subdivision (3).

“Public sale” has been described as follows: “ ‘A sale of collateral is “public” when it is publicly advertised, the sale is open to the public, and the sale is made, after competitive bidding, to the highest genuine bidder; as at an auction. [^] The opportunity of the public to bid at the sale is the essential criterion that determines that the sale is a public sale . . . .’” (Beard v. Ford Motor Credit Co. (1993) 41 Ark.App. 174 [850 S.W.2d 23, 27-28], quoting 9 Anderson, Uniform Commercial Code (3d ed. 1985) § 9-504:32, p. 733; see, e.g., Bank of Houston v. Milam (Mo.Ct.App. 1992) 839 S.W.2d 705, 708; Chrysler Dodge Country v. Curley (Utah Ct.App. 1989) 782 P.2d 536, 539; 2 White & Summers, Uniform Commercial Code (3d ed. 1988) § 27-10, p. 594, quoting Lloyd’s Plan, Inc. v. Brown (Iowa 1978) 268 N.W.2d 192, 196.) Courts have “stressed that a public sale is one open to the general public or a major segment thereof, and thus contemplates advertising of the notice, time, and place of sale.” (2 White & Summers, supra, at p. 594.)

By contrast, a private sale “is not open to the general public, usually does not occur at a pre-appointed time and place, and may or may not be generally advertised.” (2 White & Summers, Uniform Commercial Code, supra, § 27-10, p. 594.) As one commentator has observed, “[a] private sale is best described as any transaction that is not a public sale.” (Sheneman et al., Cal. Foreclosure: Law and Practice (1997) § 2.03, p. 2-19.)

Contrary to Bank’s assertion, the use of sealed bids at an auction open to the public does not turn an otherwise public sale into a private sale. Boatmen’s Nat. Bank v. Eidson (Mo.Ct.App. 1990) 796 S.W.2d 920, a decision on which Bank relies, erred in stating that competitive bidding requires “knowledge of the highest bid with an opportunity to bid higher.” (Id. at p. 923.) The use of sealed bids, which are those submitted without knowledge of what others have bid, is a competitive process, as discussed below.

At trial, Lallana’s expert explained the competitive nature of sealed bid auctions as follows: “[A] bidder in a sealed bid auction takes into account the kinds of factors that are involved in any kind of auction, makes some evaluation of what the item that is being bid for is worth to that bidder . . . [and] tries to make some assessment of what others are likely to be bidding so that he can place a bid, that this—is sufficient to win. The thing that identifies it as a competitive [auction] to me is the response that the bidder makes, for example, to the increase in the number of bidders or other factors affecting value. If there is an increase in the number of bidders, a competitor in the sealed bid auction will bid more, clearly recognizing the presence of other bidders and the likelihood that a higher bid is needed to be successful in the auction. Those sorts of factors suggest the presence of the competition in that auction.” Likewise, Michael Faulknor, an owner of the firm that conducted the auction here, testified that bidders at sealed bid auctions are competing against others.

In addition, our law permits public sales by means of sealed bids. (See, e.g., Gov. Code, § 5808, subd. (a) [public sale of corporate securities by sealed bids]; id., § 15832 [public sale of bonds by sealed bid]; id., § 53569 [public sale for refunding bonds by sealed bids]; Ins. Code, § 1063.56 [public sale of insurance assessment bonds by sealed bids].)

To summarize, applying the above stated definition of a public sale— collateral sold to the highest bidder after competitive bidding at an auction advertised to and open to the public—we conclude that Bank’s public auction of Lallana’s car was a public sale. Bank advertised the sale as a public sale; Bank invited the public to attend the sale and bid; the public did attend the sale and bid; and the car was sold to the highest bidder.

Although Bank conducted a public sale, it never gave Lallana notice of a public sale. This would entail informing Lallana of the time and place of sale. (Cal. U. Com. Code, § 9504, subd. (3).) “The purpose of notice is to give the debtor an opportunity either to discharge the debt and redeem the collateral, to produce another purchaser, or to see that the sale is conducted in a commercially reasonable manner.” (Buran Equipment Co. v. H & C Investment Co. (1983) 142 Cal.App.3d 338, 341 [190 Cal.Rptr. 878]; accord, Ford & Vlahos v. ITT Commercial Finance Corp. (1994) 8 Cal.4th 1220, 1232-1233 [36 Cal.Rptr.2d 464, 885 P.2d 877] [one purpose of the notice “is to alert the debtor and other secured creditors to take steps to protect their interests, possibly including locating bidders for their collateral . . . .”].) As Lallana observes, without notice of the time and place of sale, the debtor is denied the opportunity to determine whether the sale is conducted in a commercially reasonable manner, to encourage others to bid on the property, or to view the property to ascertain damage, if any, after repossession.⁵

When, as here, the creditor gives the debtor a notice of private sale but then holds a public sale, the creditor has not complied with the law. (First Nat. Bank of Belen v. Jiron (1987) 106 N.M. 261 [741 P.2d 1382, 1384] [“A notice of a private sale is insufficient to comply with Section 55-9-504(3) if the type of sale actually held is public . . . .”]; Associates Financial Services Co., Inc. v. DiMarco (Del.Super.Ct. 1978) 383 A.2d 296, 299 [creditor “could not give notice of private sale as a preliminary step culminating in a public sale”]; 2 White & Summers, Uniform Commercial Code, supra, § 27-12, p. 601 [courts generally hold that a “notice that leads the debtor to believe the creditor plans one type of sale (private or public), but the creditor subsequently holds the other type . . . does not satisfy 9-504(3)”]; see also Annot., Sufficiency of Secured Party’s Notification of Sale or Other Intended Disposition of Collateral Under UCC § 9-504(3) (1982) 11 A.L.R.4th 241, 297-300.)

Conclusion

The Legislature has given a creditor the choice of selling repossessed collateral at either a public sale or a private sale. When the creditor holds a private sale, it must comply with the private sale notice requirements (notice of the date after which collateral will be sold). When it holds a public sale, it must comply with the public sale notice requirements (notice of both the time and place of sale), certainly not an onerous burden. But the creditor may not, as here, circumvent the notice requirements for a public sale simply by giving notice of a private sale and then holding a public sale. “ ‘[T]he rule and requirement are simple. If the secured creditor wishes a deficiency judgment he must obey the law. If he does not obey the law, he may not have his deficiency judgment.’ ” (Backes v. Village Comer, Inc. (1987) 197 Cal.App.3d 209, 216 [242 Cal.Rptr. 716].)

The judgment of the Court of Appeal is affirmed.

George, C. J., Mosk, J., Werdegar, J., and Elia, J.,^* concurred.

1 To distinguish between our Commercial Code and the Uniform Commercial Code, which in some form or other has been adopted in every state, we refer to our code as the California Uniform Commercial Code. (See Goldie v. Bauchet Properties (1975) 15 Cal.3d 307, 314-315 [124 Cal.Rptr. 161, 540 P.2d 1, 99 A.L.R.3d 794].)

2 This appeal involves only Lallana’s cross-complaint. Bank’s claim for a deficiency judgment has been settled.

3 Bank’s petition for review challenges only the Court of Appeal’s holding that it violated applicable provisions of the California Uniform Commercial Code. It did not challenge the Court of Appeal’s further holding that the violation was an unfair business practice under Business and Professions Code section 17200. Therefore, we do not address this issue.

4 Section 9504, subdivision (3) reads: “A sale or lease of collateral may be as a unit or in parcels, at wholesale or retail and at any time and place and on any terms, provided the secured party acts in good faith and in a commercially reasonable manner. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the secured party must give to the debtor, if he or she has not signed after default a statement renouncing or modifying his or her right to notification of sale, and to any other person who has a security interest in the collateral and who has filed with the secured party a written request for notice giving his or her address (before that secured party sends his or her notification to the debtor or before debtor’s renunciation of his or her rights), a notice in writing of the time and place of any public sale or of the time on or after which any private sale or other intended disposition is to be made. Such notice must be delivered personally or be deposited in the United States mail ... at least five days before the date fixed for any public sale or before the day on or after which any private sale or other disposition is to be made. Notice of the time and place of a public sale shall also be given at least five days before the date of sale by publication once in a newspaper of general circulation published in the county in which the sale is to be held or in case no newspaper of general circulation is published in the county in which the sale is to be held, in a newspaper of general circulation published in the county in this state that (1) is contiguous to the county in which the sale is to be held and (2) has, by comparison with all similarly contiguous counties, the highest population based upon total county population as determined by the most recent federal decennial census published by the Bureau of the Census. Any public sale shall be held in the county or place specified in the security agreement, or if no county or place is specified in the security agreement, in the county in which the collateral or any part thereof is located or in the county in which the debtor has his or her residence or chief place of business, or in the county in which the secured party has his or her residence or a place of business if the debtor does not have a residence or chief place of business within this state. If the collateral is located outside of this state or has been removed from this state, a public sale may be held in the locality in which the collateral is located. Any public sale may be postponed from time to time by public announcement at the time and place last scheduled for the sale. The secured party may buy at any public sale and if the collateral is customarily sold in a recognized market or is the subject of widely or regularly distributed standard price quotations he or she may buy at private sale. Any sale of which notice is delivered or mailed and published as herein provided and that is held as herein provided is a public sale.”

5 At trial Lallana offered evidence suggesting that after Bank’s repossession the car had been in a major accident. Had she been present at the auction she could have inspected the car for post-repossession damage. The trial court, however, sustained Bank’s objection on hearsay grounds.

* Associate Justice of the Court of Appeal, Sixth District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.