Associates Discount Corporation v. Palmer , 47 N.J. 183 ( 1966 )

The opinion of the court was delivered by

Proctor, J.

The sole question on this appeal is whether plaintiff’s suit is barred by the statute of limitations. Defendant appealed from an adverse judgment in the Mercer County District Court, and we certified the cause on our own motion prior to argument in the Appellate Division.

On April 18, 1957, defendant purchased an automobile from Reedman Motors Corporation in Langhorne, Pennsylvania. The sale was financed by a “Bailment Lease Security Agreement” which recited that defendant was a resident of Trenton, New Jersey. The instrument also stated: “This agreement is subject to the provisions of the Pennsylvania Motor Sales Pinance Act and the Uniform Commercial Code.” Next to defendant’s signature appears the printed term “(Seal).” On the day after the sale Reedman Motors assigned the agreement to the plaintiff corporation.

On July 10, 1957, defendant made his first and only installment payment, and in August 1957 he voluntarily permitted plaintiff to repossess the automobile.’ It was sold at auction on August 16, 1957, for $393.70 less than defendant’s outstanding debt to plaintiff.

No further steps were taken by plaintiff to enforce its claim until Juty 20, 1964, almost seven years after the auction sale, when it brought this action to recover the $393.70 deficiency, accrued interest and attorney’s fees, a total of $642.91. The trial court, sitting without a jury, found that the agreement “was a legal contract under seal properly executed by the defendant” and held for the plaintiff. However, there is nothing in the trial court’s written opinion dealing with the statute of limitations defense which had been raised by the defendant.

We think the trial court erred and that plaintiff’s action is barred by the statute of limitations. Plaintiff’s assignor and defendant specifically agreed that the sale of the automobile would be governed by the provisions of the Uniform Commercial Code which had become effective in Pennsylvania in 1954. Pa. Stat. Ann. tit. 12A, § 1-101 et seq.¹ The Sales Article of the Code provides at Pa. Stat. Ann. tit. 12A, § 2-725(1) :

“An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.”

Admittedly, plaintiff here did not commence its action until long after the four year period had elapsed. There is no suggestion that defendant at any time attempted to evade service of process. Plaintiff’s assignor knew from the inception of the transaction that defendant was a New Jersey resident and that any legal action against him would probably have to be taken in the courts of this State.

Plaintiff contends that the Uniform Commercial Code cannot apply to any transaction to which the Pennsylvania Motor Vehicle Sales Financing Act, Pa. Stat. Ann. tit. 69, § 601-637, is applicable. We disagree. The Pennsylvania courts have applied the provisions of both laws together when deciding cases involving motor vehicle sales, Commonwealth Bank and Trust Co. v. Keech, 201 Pa. Super. 285, 192 A. 2d 133 (Super. Ct. 1963); Frank v. McCafferty Ford Co., 192 Pa. Super. 435, 161 A. 2d 896 (Super. Ct. 1960); Commonwealth v. Two Ford Trucks, 185 Pa. Super. 292, 137 A. 2d 847 (Super. Ct. 1958); and the Pennsylvania Motor Vehicle Sales Financing Act contains no statute of limitations which might conflict with the four year limitation in Pa. Stat. Ann. tit. 12A, § 2-725. See also Pa. Stat. Ann. tit. 12A, § 9-203 (2).

Plaintiff argues that a longer statute of limitations should apply because the agreement is a sealed instrument. We find no merit in this contention. Pa. Stat. Ann. tit. 12A § 2-725 malees no distinction between sealed and unsealed instruments and provides a four-year statute of limitations for “any contract for sale.” Moreover, the Code specifically states at Pa. Stat. Ann. tit. 12A, §2-203:

“The affixing of a seal to a writing evidencing a contract for sale or an offer to buy or sell goods does not constitute the writing a sealed instrument and the law with respect to sealed instruments does not apply to such a contract or offer.”

See Commonwealth Bank and Trust Co. v. Keech, supra, at 201 Pa. Super. 290, 192 A. 2d 135.

The “bailment lease” signed by the defendant is a combination, all inclusive instrument, constituting both a contract for sale and a security transaction. It has been suggested by the concurring opinion that an action for a deficiency is not governed by Pa. Stat. Ann. tit. 12A, § 2-725 on the theory that such action is part of the security arrangement between the parties rather than an incident of the sales aspect of their agreement. However, we think this view mistakes the true character of a deficiency suit. Such a suit is nothing but a simple in personam action for that part of the sales price which remains unpaid after the seller has exhausted his rights under Article 9 by selling the collateral; it is an action to enforce the obligation of the buyer to pay the full sale price to the seller, an obligation which is an essential element of all sales and which exists whether or not the sale is accompanied by a security arrangement.² See Pa. Stat. Ann. tit. 12A, § 2-709. Thus, because of the absence of a contrary indication anywhere in the Code, a deficiency action must be considered more closety related to the sales aspect of a combination sales-security agreement rather than to its security aspect and be controlled by the four year limitation in Pa. Stat. Ann. tit. 12A, § 2-725. Nothing in Pa. Stat. Ann. tit. 12A, § 2-102 changes this result.³ This section excludes from Article 2 those dealings designed to operate only as security transactions,⁴ a point which was emphasized by the official comments of the Pennsylvania Bar Association to Pa. Stat. Ann. tit. 12A, § 2-102:

“Since transactions intended to operate ‘only’ as security transactions are excluded, actual sales are subject to this Article of the Code [Article 2 — -Sales], although a security interest is retained by the seller.”

As we noted above, the instrument sued upon in the present case is not only a security agreement but is a sales contract as well.

The judgment of the trial court is reversed and the -cause is remanded with a direction to enter judgment for the defendant.

1 The Uniform Commercial Code in substantially identical form became effective in New Jersey on January 1, 1963. N. J. S. 12A:1-101 et seq.

2 In fact, a seller may get his “deficiency judgment” before foreclosing his security interest or before deciding whether or not such a foreclosure would even be necessary or desirable. By reducing his total claim on the sales contract to judgment prior to foreclosure, a subsequent deficiency action becomes unnecessary should the collateral be insufficient to satisfy the buyer’s debt. Cf. Pa. Stat. Ann. tit. 12A, § 9-501(1) and (5) ; Pa. Stat. Ann. tit. 12A, § 9-504(2).

3 Pa. Stat. Ann. tit. 12A, § 2-102 provides:

“Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating- sales to consumers, farmers or other specified classes of buyers.”

4 This section is frequently applied to transactions where a lender seeking a security interest will “buy” a chattel from the borrower in an effort to avoid the obligations of Article 9.