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First Fidelity Acceptance v. Hutchins

315 N.J. Super. 201, 717 A.2d 437 (Law Div. 1998)

UCC; REPOSSESSION; DAMAGES—Because it is commercially unreasonable to incur repossession costs in excess of the value of the collateral, a repossessing financer can not recover its costs that exceed the property’s value.

An automobile financing company sued for the deficiency between the balance due on a retail installment contract and the proceeds of the sale of the repossessed vehicle. The vehicle was purchased for $7,480.36 and was financed by a bank. When installment payments stopped, the bank repossessed the vehicle and sold it for $500. It then sought $6,488.18, which included the balance left on the loan plus the cost of storage.

The Court denied recovery to the bank because, as a creditor, it had a duty to handle the collateral in a commercially reasonable manner. The Court believed that this did not happen here because the cost of the bank’s repossession and storage exceeded the price at which the car was sold. The Court also noted that under the applicable statute, the expenses of retaking, holding, preparing for sale, and reasonable attorney’s fees are to be deducted from the sale at disposition, but nowhere does the statute permit those expenses to exceed the sale of the item. In the Court’s view, to allow such expenses to increase, rather than decrease, the balance owed would be commercially unreasonable. If a creditor fails to dispose of collateral in a commercially reasonable manner, it is presumed that the value of the collateral equals the debt. Here, the lower court judge determined that it was commercially unreasonable to incur repossession costs in excess of the value of the car itself.


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