Dorothy Hyler SHIELDS, On Behalf of Herself and All Other Persons Similarly Situated,
v.
BOBBY MURRAY CHEVROLET, INC.
No. 7910DC54.
Court of Appeals of North Carolina.
January 8, 1980.Wake-Johnston-Harnett Legal Services, Inc., by Leonard G. Green, Smithfield, and Marcia L. Stein, Raleigh, for plaintiff appellant.
Gulley, Barrow & Boxley, by Jack P. Gulley, Raleigh, for defendant appellee.
MORRIS, Chief Judge.
This appeal concerns the effect of a guaranty and repurchase agreement on a secured party's right to dispose of collateral *240 upon default under Article 9, Chapter 25 of the North Carolina General Statutes.
G.S. 25-9-503 provides that "[u]nless otherwise agreed a secured party has on default the right to take possession of the collateral." Under G.S. 25-9-504, "[a] secured party after default may sell, lease, or otherwise dispose of any or all of the collateral. . . ." Furthermore, "[d]isposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts." G.S. 25-9-504(3). Such disposition operates to transfer to a purchaser for value "all of the debtor's rights therein". G.S. 25-9-504(4). Upon the sale of collateral subject to an Article 9 security interest, "the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency." G.S. 25-9-502(2). Under G.S. 25-9-504(5), there is excluded from the above stated provisions transfers that are mere assignments of collateral, as opposed to private or public sales under G.S. 25-9-504(3). G.S. 25-9-504(5), relied upon by plaintiff in this action, provides as follows:
"(5) A person who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like and who receives a transfer of collateral from the secured party or is subrogated to his rights has thereafter the rights and duties of the secured party. Such a transfer of collateral is not a sale or disposition of the collateral under this article."
Plaintiff argues that the transactions resulting in defendant's ownership and possession of the repossessed automobile do not constitute a "public sale" in that G.S. 25-9-504(5) specifically excludes from that concept transfers of collateral pursuant to a repurchase or guaranty agreement. Defendant, on the other hand, argues that the sale by First Citizens was a valid public sale because the repurchase agreement treats the dealer as having placed a bid in the amount due under the contract, and that all the requirements for a public sale were fulfilled.
It is our opinion that First Citizens conducted a valid public sale when it held its auction and subsequently transferred the automobile to defendant. "A `public sale' is one made at auction to the highest bidder and at which all persons have the right to come in and bid. It must be held in a public place, upon proper notice, so that the public is given full opportunity to bid upon a competitive basis for the property placed on sale." Johnson Cotton Co. v. Cannon, 242 S.C. 42, 51, 129 S.E.2d 750, 755 (1963). See generally 77 C.J.S. Sales § 1(d) (1952). The key element, then, in a public sale is the opportunity for competitive bidding. See 7 C.J.S. Auctions and Auctioneers § 1(a) (1937). The purpose of the requirement of the opportunity for competitive bidding is to insure that the sale of repossessed collateral is measured by a bona fide market value, and not by an artificial value. G.S. 25-9-504(5) encourages this result in that persons obtaining collateral under a guaranty or repurchase agreement are subject to the debtor's rights in the collateral when a subsequent disposition of the property is made under Article 9. See e. g., Reeves v. Associates Financial Services Co., 197 Neb. 107, 247 N.W.2d 434 (1976).
In the case before us, all the materials presented on motion for summary judgment indicate that First Citizens conducted a public sale. Upon exercising its right as a secured creditor under G.S. 25-9-503 to repossess the automobile, First Citizens duly sent notice to plaintiff concerning sale of the collateral. See G.S. 25-9-504(3), -9-602, -9-603. The sale was held as scheduled, at which time any person had the right to enter a bid on the automobile. Hence, the elements of proper notice and opportunity for competitive bidding were satisfied.
Plaintiff contends, nevertheless, that the sale was invalidated by the fact that no third persons bid at the sale. We find no requirement that the collateral actually be sold. All that is required is that there be an opportunity for competitive bidding. Under G.S. 25-9-605(1)(a), the sale need not be postponed because of the lack of bidders:
*241 "§ 25-9-605. Postponement of public sale.(1) Any person exercising a power of sale or conducting a public sale hereunder may postpone the sale to a day certain not later than six days, exclusive of Sunday, after the original date for the sale:
(a) When there are no bidders . . . ." (Emphasis added.)
That the presence of bidders does not control is more apparent when we note that a secured party may buy at any public sale. G.S. 25-9-504(3).
Moreover, it is apparent from the record that in this case the public sale held by First Citizens was consummated by the transfer of title to the automobile to defendant. William E. Smith, Assistant Vice President of First Citizens, stated by way of affidavit that at all public sales held by the bank, First Citizens, pursuant to the repurchase agreement, treats retail dealers as having placed a bid in the amount due upon the contract. He stated further that in this instance, First Citizens considered defendant as having placed a bid of the amount due, and as there were no outside bids, title was transferred to defendant. We note at this point that First Citizens' authority to enter a bid for defendant is not disputed.
In addition, we hold that G.S. 25-9-504(5) is inapplicable to the facts of this case. First, as discussed above, although defendant is a person "who is liable to a secured party under a guaranty, indorsement, repurchase agreement or the like", in this case defendant did not receive a "transfer of collateral" from First Citizens under that section. It is clear that First Citizens executed a change of title, and not an assignment of its rights as a secured creditor. In addition, at the time defendant gained possession of title, the automobile no longer qualified as "collateral" under G.S. 25-9-504(5) in that it was not "subject to a security interest", as required by G.S. 25-9-105(1)(c). Indeed, "[w]hen collateral is disposed of by a secured party after default, the disposition transfers to a purchaser for value all of the debtor's rights therein, discharges the security interest under which it is made and any security interest or lien subordinate thereto." (Emphasis added.) G.S. 25-9-504(4). Finally, we feel that the rationale underlying G.S. 25-9-504(5) is inapplicable to the present case. In Rangel v. Bock Motor Co., 437 S.W.2d 329 (Tex.Civ.App.1969), the Court construed § 9.504(e), Texas Business & Commerce Code Annotated, which is in language identical to that contained in G.S. 25-9-504(5), as follows:
"There is no sale or disposition of the collateral under these provisions when a party other than a debtor who is liable to the secured party takes a transfer or is subrogated to the rights of the secured party. For example, in the common situation where the automobile dealer has agreed with the finance company that it will repurchase certain paper after the default of the prospective purchaser, a transfer of the paper, or of the repossessed automobile by the finance company to the dealer pursuant to their agreement, will not be a disposition of collateral under the provisions of the Code and the dealer will still have to comply with the provisions of Part 5 of Article 9." 437 S.W.2d at 332, quoting Loiseaux, "Default Proceedings Under The Texas Uniform Commercial Code," 44 Tex.L.Rev. 702, 709 (1966).
Although we concur in that reasoning, it is clear that in this case First Citizens complied with the North Carolina provisions for disposition of collateral in Part 5 and Part 6 of Article 9, Chapter 25, General Statutes of North Carolina. A public sale having been conducted prior to the transfer of title to defendant, to subject any further disposition of the automobile to the requirements of these provisions would be superfluous.
We hold that upon obtaining title to the repossessed automobile, defendant had no obligation to account to plaintiff for any surplus proceeds received through sale of the automobile to P & S. Although it is unfortunate that there were not higher bids placed on the automobile at the public sale by First Citizens, the fact remains that plaintiff was afforded an opportunity to *242 realize a surplus in the sale of the car. The law requires no more.
The trial court, therefore, properly entered summary judgment in favor of defendant, and upon the facts of this case, we reject plaintiff's arguments concerning defendant's liability for unfair trade practices and for failing to serve proper notice of its sale of the automobile.
Affirmed.
PARKER, J., concurs.
ROBERT M. MARTIN, J., dissents.