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Lake Shore Nat'l Bk. v. Mccann

OPINION FILED NOVEMBER 13, 1979.

LAKE SHORE NATIONAL BANK, PLAINTIFF-APPELLANT,

v.

EZRA L. MCCANN, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. MICHAEL S. JORDAN, Judge, presiding.

MR. JUSTICE PERLIN DELIVERED THE OPINION OF THE COURT:

Plaintiff, Lake Shore National Bank, obtained a judgment by confession on a note and security agreement against defendant, Ezra L. McCann, in the amount of a deficiency balance after a sale of collateral. On proceedings to confirm the judgment, defendant filed an answer and a counterclaim alleging violations of Article 9 of the Uniform Commercial Code as adopted in Illinois (Ill. Rev. Stat. 1973, ch. 26, par. 9-101 et seq.) and of the Federal Truth in Lending Act (15 U.S.C. par. 1601 et seq. (1970)) and Regulation Z *fn1 (12 C.F.R. par. 226.1 et seq. (1973)). Pursuant to a motion for summary judgment filed by defendant, the circuit court vacated the judgment by confession against defendant and entered summary judgment against plaintiff on the counterclaim. Plaintiff appeals presenting the following issues for review: (1) whether the notice of sale of collateral sent by plaintiff failed to comply with section 9-504 of the Illinois Uniform Commercial Code; (2) if the notice was defective, whether plaintiff was barred from recovering a deficiency judgment; (3) whether the note and security agreement complied with the disclosure requirements of the Federal Truth in Lending Act and Regulation Z; and (4) whether defendant's claim of violations of the Truth in Lending Act is barred by the statute of limitations.

We reverse and remand.

On December 2, 1974, defendant executed a note and security agreement in the principal amount of $1913.04 plus a finance charge of $284.77. The total amount of $2197.81 was payable to plaintiff in 29 monthly installments of $74 and a final installment of $51.81. Under the terms of the agreement, plaintiff retained a security interest in a 1973 used Volkswagen. After defendant defaulted in making payments, plaintiff repossessed the Volkswagen, and on June 16, 1975, plaintiff sent notice to defendant that a sale of the automobile would be held at 605 North Michigan Avenue, Chicago, Illinois, on July 1, 1975, at 9 a.m.

On December 15, 1975, plaintiff filed a complaint for a confession of judgment against defendant in the amount of the principal due under the note and security agreement ($2143.91) less the proceeds from the sale of the automobile ($900) and less the rebate of unearned interest ($169.01) and plus attorney's fees ($136.24), or a total of $1211.14. Attached to the complaint was a copy of the note and security agreement executed by defendant. The agreement contained a confession of judgment clause.

On January 8, 1976, the court entered a confession of judgment in the amount of $1211.14 against defendant and a summons to confirm the judgment was issued to defendant.

On November 16, 1977, some 22 months later, *fn2 defendant filed an answer and a counterclaim alleging that the note and security agreement was governed by the Illinois Consumer Installment Loan Act (Ill. Rev. Stat. 1973, ch. 74, par. 51 et seq.), the United States Consumer Protection Act (Truth in Lending Act) and Regulation Z. Defendant further alleged that the security agreement violated the acts by (1) failing to list the address of the obligor; (2) failing to list the default and delinquency disclosures together on one side of the instrument; and (3) failing to disclose a description of the type of security interest held by plaintiff. Defendant requested recovery of double the amount of the finance charge ($569.54), which constitutes the damages recoverable under section 1640 of the Truth in Lending Act for violations of the disclosure requirements. (15 U.S.C. § 1640 (1970).) On December 21, 1977, defendant filed an amendment to his answer and counterclaim alleging further that the note and security agreement did not clearly disclose the finance charge.

On March 1, 1978, defendant filed a motion for summary judgment stating substantially the same allegations as those stated in defendant's answer and counterclaim. In addition defendant alleged that the notice of sale sent by plaintiff did not comply with section 9-504 of the Illinois Uniform Commercial Code (Ill. Rev. Stat. 1973, ch. 26, par. 9-504) in that the notice did not disclose whether the sale would be public or private, and that since the notice was inadequate plaintiff's claim for the deficiency was unenforceable.

On April 19, 1978, the trial court found (1) that the notice sent by plaintiff did not comply with section 9-504 of the Illinois Commercial Code and therefore plaintiff was not entitled to recover any deficiency; and (2) that plaintiff failed to disclose in the security agreement the default and delinquency charges as required by the Federal Truth in Lending Act and Regulation Z and therefore defendant was entitled to recover from plaintiff as a penalty double the amount of the finance charge. The court vacated the judgment by confession, dismissed plaintiff's complaint and granted defendant's motion for summary judgment against plaintiff in the amount of $569.54 plus costs. A motion to reconsider filed by plaintiff was denied.

Plaintiff initially contends that its failure to specify in the notice of sale whether the sale was to be public or private was not such a failure to comply with the notification provisions of section 9-504 as to bar plaintiff from recovering a deficiency judgment.

• 1-3 Section 9-504 of the Illinois Uniform Commercial Code provides in pertinent part:

"(3) Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale." (Emphasis added.) (Ill. Rev. Stat. 1973, ch. 26, par. 9-504.)

The established rule in Illinois is that the creditor bears the burden of proving compliance with the notice provisions of section 9-504 before recovering a deficiency judgment. (National Republic Bank v. Proctor (1978), 66 Ill. App.3d 534, 383 N.E.2d 1310; General Foods Corp. v. Hall (1976), 39 Ill. App.3d 147, 349 N.E.2d 573; Tauber v. Johnson (1972), 8 Ill. App.3d 789, 291 N.E.2d 180.) If notice is not sent to the debtor or is defective, section 9-507(1) provides that the debtor has a right to recover from the secured party any loss caused by a failure to comply with the notice provisions. (Ill. Rev. Stat. 1973, ch. 26, par. 9-507(1).) Loss may be determined to be the difference between what the automobile actually sold for and the price it would have brought had defendant been given notice, attended the sale and purchased the car for the amount still due on the contract. (Tauber 8 Ill. App.3d 789, 794.) Generally, Illinois follows the rule that the failure to provide adequate notice does not necessarily bar a deficiency judgment, but rather such failure raises a presumption that the value ...


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