Case Law Summaries

Ford Motor Credit Company v. Arce

• Opinion Date: February 26, 2002
• Business Law
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UCC; INSTALLMENT SALES; DAMAGES —A suit to recover damages under a retail installment contract for the purchase of goods is governed by the UCC’s four year statute of limitation.

A customer bought a vehicle and executed a retail installment contract calling for thirty-five monthly payments. The agreement was assigned to a financing company. The buyer defaulted on his payments and voluntarily surrendered the vehicle. The financing company then sold the vehicle at public auction. Five and one-half years after the buyer defaulted, the financing company sued to recover the deficiency. The buyer argued that the suit was barred by the four-year statute of limitations in UCC Section 2-725. Article 2 of the Uniform Commercial Code (UCC) applies to “transactions in goods.” Its statute of limitations provides that “[a]n action for breach of any contract for [the] sale [of goods] must be commenced within four years after the cause of action has accrued.” Accrual is when the breach occurs. The financing company argued that this was not an action based on the sale of goods, but rather an action based on loan documents which should be governed by the six-year statute of limitations applicable to breach of contract cases. It argued that the deficiency under the retail installment contract was unrelated to the sale of the vehicle itself. Instead, the financing company argued that the deficiency was due to the buyer’s failure to make payments on the financing contract. The Appellate Division rejected that argument. It pointed to a New Jersey Supreme Court case which “addressed the precise issue… .” The Supreme Court held that a “suit to recover a deficiency after breach was barred under [Article 2 of the UCC] because a deficiency suit is essentially an action to recover monies due for the sale of goods.” The Supreme Court expressly rejected an argument that the debt was part of a “security arrangement between the parties rather than an incident of the sale aspect of their agreement.” Essentially, the Supreme Court believed that a deficiency action was “more closely related to the sales aspect of the combination sales-security agreement rather than to its security aspect and [should] be controlled by the four year limitation ... .” To this, the financing company argued that case law was overruled by legislative amendment to New Jersey’s Retail Installment Sales Act, arguing that the amendment “specifically took installment sales contracts out of the U.C.C. forum.” The Appellate Division did not agree. The amended portion of the Retail Installment Sales Act only referred to the nonapplicability of Articles 3 and 9 of the UCC. It did not refer to Article 2, “governing transactions in goods… .” Therefore, the Court found that the Legislature did not intend to overrule the earlier New Jersey Supreme Court case when amending the Retail Installment Sales Act.

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