Patrick v. Wix Auto Co.

                                             FOURTH DIVISION     
                                             JUNE 5, 1998












No. 1--96--0609

CATHERINE PATRICK, individually and on
behalf of all others similarly situated,

          Plaintiffs-Appellants,

               v.

WIX AUTO COMPANY, INC., an Illinois
corporation,

          Defendant-Appellee.)
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)Appeal from the
Circuit Court of
Cook County

No. 95--L--50848

Honorable
Joseph N. Casciato,
Judge Presiding.


     JUSTICE CERDA delivered the opinion of the court:
     Plaintiff, Catherine Patrick, filed a class action against
defendant, Wix Auto Company, alleging that defendant failed to
comply with the satisfaction by repossession notice requirements
of section 9--505(2) of the Illinois Commercial Code (810 ILCS
5/9--505(2)(West 1994)) after it repossessed her automobile. 
Defendant filed a section 2--615 motion to dismiss the complaint
(735 ILCS 5/2--615 (West 1994), which was granted.  The trial
court found that the notice sent by defendant was sufficient as a
matter of law.  For the following reasons, we reverse and remand.
     Plaintiff purchased a used 1987 Cadillac automobile from
defendant on March 22, 1995, for $6,995 plus finance charges. 
Pursuant to the retail installment contract, plaintiff was
required to maintain insurance on the automobile.  Defendant
repossessed the automobile on April 26, 1995, and sent a letter
entitled "Notice of Repossession" to plaintiff on May 2, 1995.
     On September 29, 1995, plaintiff filed a class action
against defendant for failure to comply with either section 
9--504 or 9--505(2) of the Illinois Commercial Code (810 ILCS
5/9--504, 9--505(2)(West 1994)).  The complaint sought statutory
damages pursuant to section 9--507 of the Code.  810 ILCS 5/9--
507(West 1994).  
     On December 5, 1995, defendant filed a section 2--615 motion
to dismiss for failure to state a cause of action.  The motion
claimed that the notice sent to plaintiff on May 2, 1995,
satisfied section 9--505(2)'s requirements.  The trial court
granted defendant's motion.
     On appeal, plaintiff asserts that the complaint adequately
pleaded a cause of action because (1) it established that
defendant was a secured creditor who, after repossessing the
secured collateral, was required by section 505(2) to send a
written notice that it proposed to retain the collateral in
satisfaction of the obligation; (2) it alleged that the notice
did not comply with the requirements of section 505(2); and (3)
it set out the damages for defendant's violation, which is a
statutory penalty under section 507.  
     The main issue on appeal is whether plaintiff stated a cause
of action pursuant to section 505(2), which reads, in pertinent
part, as follows:
          "In any other case involving consumer goods or any
          other collateral a secured party in possession may,
          after default, propose to retain the collateral in
          satisfaction of the obligation.  Written notice of such
          proposal shall be sent to the debtor if he has not
          signed after default a statement renouncing or
          modifying his rights under this subsection.  In the
          case of consumer goods no other notice need be
          given.***If the secured party receives objection in
          writing from a person entitled to receive notification
          within twenty-one days after the notice was sent, the
          secured party must dispose of the collateral under
          Section 9-504. In the absence of such written objection
          the secured party may retain the collateral in
          satisfaction of the debtor's obligation."  810 ILCS
          5/9--505(2)(West 1994).
     After repossessing a debtor's collateral, the secured
creditor can either dispose of the collateral and seek a
deficiency judgment (810 ILCS 5/9--504(West 1994)) or accept it
in discharge of the obligation (810 ILCS 5/9--505(2)(West 1994)). 
In either case, the secured creditor must send notice of its
action to the debtor.  810 ILCS 5/9--504, 505(2)(West 1994).  
     A motion to dismiss attacks only the legal sufficiency of a
complaint.  Urbaitis v. Commonwealth Edison, 143 Ill. 2d 458,
475, 575 N.E.2d 548 (1991).  In making a determination to dismiss
a complaint, the court must interpret the allegations of the
complaint in the light most favorable to the plaintiff (Kolegas
v. Heftel Broadcasting Corporation, 154 Ill. 2d 1, 9, 607 N.E.2d 201 (1992)) and all well-pleaded facts and reasonable inferences
are accepted as true (Mt. Zion State Bank and Trust v.
Consolidated Communications, 169 Ill. 2d 110, 115, 660 N.E.2d 863
(1995); Fellhauer v. City of Geneva, 142 Ill. 2d 495, 499, 568 N.E.2d 870 (1991)).
     When a claim or defense is founded upon a written
instrument, that instrument must be attached to the pleading as
an exhibit and is part of the pleading for purposes of a motion
to dismiss.  F.H. Prince & Co., v. Towers Fin. Corp., 275 Ill.
App. 3d 792, 797, 656 N.E.2d 142 (1995).  Therefore, we must
analyze defendant's notice to plaintiff to determine whether the
complaint stated a cause of action.
     The notice stated as follows:
                                   "Date:  May 2, 1995
                          NOTICE OF REPOSSESSION
          Catherine Patrick   VEHICLE: 1987 Fleetwood Cadillac
          921 W. Wilson  
          Chicago, IL 60640   SERIAL NO#:  1G6CB5189H4249770

                              BALANCE DUE:  $260.45

          Dear Customer:

               Our records indicate that you have failed to keep
          your contractual obligation.  Despite our efforts to
          notify you of such, the contract still remains in
          default of insurance.

               Therefore, we have repossessed the above mentioned
          vehicle.  Please be advised that you may redeem your
          vehicle at any time until it is restocked.  If you fail
          to bring proof of insurance, the vehicle will be
          restocked and we will retain all monies received thus
          far.

               THIS IS A FINAL NOTICE." (emphasis in original)

     The parties have cited no Illinois cases that interpret
section 505(2) and we have found none.  When there is a lack of
Illinois cases interpreting the Illinois Commercial Code, this
court has looked to Uniform Commercial Code decisions in other
jurisdictions.  Rebaque v. Forsythe Racing, Inc., 134 Ill. App.
3d 778, 781, 480 N.E.2d 1338 (1985); First Nat. Bank of
Thomasboro v. Lachenmyer, 131 Ill. App. 3d 914, 921, 476 N.E.2d 755 (1985).
     Defendant urges this court to adopt a broad standard of
notice so that the facts and circumstances surrounding the
written notice would be relevant.  Defendant asserts that the
notice was adequate because plaintiff did not allege that
defendant later resold the automobile or pursued plaintiff to
collect a deficiency after any sale.  Based on relevant cases in
other jurisdictions, we decline to adopt the broad standard
defendant suggests.
     Section 505(2) contains specific requirements for a strict
foreclosure and should not be liberally construed so that a
forfeiture can occur.  In re McNair, 90 Bankr. 912, 917 (Bankr.
N.D. Ill. 1988).  If, upon default, a creditor elects to retain
the collateral as full satisfaction of the debtor's obligations,
he must comply with the terms of section 505(2) (Fletcher v.
Cobuzzi, 499 F. Supp. 694, 699 (W.D. Pa. 1980)), which requires
that the creditor notify the debtor of the creditor's proposal to
retain the collateral as full satisfaction of the debt (Fletcher,
499 F. Supp.  at 699; Pan Ocean Navigation, Inc. v. Rainbow
Navigation, Inc., No. 8674 (Del. Ch. July 8, 1987), slip op. at
6).  The written notice must clearly and explicitly inform the
debtor that the creditor is retaining the collateral in
satisfaction of the indebtedness.  Chen v. Profit Sharing Plan of
Dr. Donald H. Bohne, P.A., 216 Ga. App. 878, 456 S.E.2d 237, 240
(1995); In re Alcom America Corporation, 154 Bankr. 97, 113
(Bankr. D.D.C. 1993).  
     Further, the notice must be of strict foreclosure in
particular, not simply of an intent to foreclose.  Fletcher, 499 F. Supp.  at 699.  A notice of default and request for payment is
inconsistent with strict foreclosure and does not satisfy the
statutory requirement of section 505(2).  In re Alcom America
Corporation, 154 Bankr. at 113.  Failure to comply with the
requirements of section 505(2) makes the purported foreclosure
ineffective.  Pan Ocean Navigation, Inc., slip op. at 6. 
     We find that the notice in this case was deficient under
section 505(2) as a matter of law.  It did not give adequate
notice because it was confusing, contradictory, and failed to
inform plaintiff that defendant proposed to retain the automobile
in full satisfaction of the debt.  First, the notice indicated
that defendant intended to "restock" the automobile, not retain
the automobile in full satisfaction of the debt.  Although no
magic words are needed, it is insufficient to state that the
automobile will be "restocked," which can be interpreted as
meaning that it will be put back on the car lot to be resold,
which would require following section 504.  In its brief,
defendant states that custom and usage of a commercial business
indicates that "restock" means to put the car back on the lot to
resell, and at oral argument, defendant stated that "'restocked'
means we're going to put [the automobile] back on the lot to
sell."  It is not clear what would happen to the debt after the
car is restocked and sold.  Perhaps the plaintiff would have to
pay a deficiency. 
     Further, the notice conveyed information that was
inconsistent with a strict foreclosure: (1) it informed plaintiff
that there was a balance due of $260.45; (2) it invited plaintiff
to "redeem [the] vehicle at any time until it is restocked;" and
(3) it stated only that defendant would "retain all monies
received thus far" if plaintiff failed to cure the default.  
     A helpful case is In re Leeling, 129 Bankr. 637, 16 U.C.C.
Rep. Serv. 267, 271 (Bank. D. Colo. 1991), where the court found
the notice to be improper under section 505(2).  The notice in In
re Leeling stated in part:
          "I have, concurrently herewith, delivered a Certificate
          of Default to Greg Van Wagner, and have instructed him
          to Smiths pay [sic] all payments hereafter due***until
          Mr. Leeling's Note obligation to the Smiths is fully
          paid***Although not required by the Note, demand is
          hereby made for Mr. Leeling's full payment***Please
          contact me if Mr. Leeling intends to pay off the Note."
     The bankruptcy court stated:
          "Most importantly, it was inconsistent to have stated
          in the Kerst letter that the Van Wagner note would be
          retained in full satisfaction of the debt, and then two
          sentences later demand full payment by the debtor on
          the outstanding note he owed to the Smiths.  If the
          Smiths were retaining the Van Wagner note in full
          satisfaction, then the debtor need not have made any
          more payments on his outstanding debt to the Smiths,
          and the demand for full payment could certainly be
          viewed as an ambiguity as to the Smith's intentions. 
          Further, while it might not be necessary to use the
          magic words 'foreclosure' or 'retain in full
          satisfaction of the indebtedness' the intent to retain
          must be such that a reasonable person would understand
          that intent, and it must be clearly manifested by the
          secured creditor.  [Cite omitted.]  The court does not
          believe that such a clear intent was manifested by the
          Smiths and consequently, there was no foreclosure
          pursuant to 4--9--505(2), as its notice requirements
          have not been complied with."  In re Leeling, 129
          Bankr. 637, 16 U.C.C. Rep. Serv. at 272.
     Another helpful case is In re Alcom America Corporation, 154
Bankr. at 113, where the notice was insufficient because it
demanded payment of all amounts due, which was inconsistent with
a strict foreclosure.  A telex was sent indicating that the
debtor had defaulted under the security agreement and that the
bank was enforcing its security interest under the Uniform
Commercial Code, then demanded payment of all amounts due.  In re
Alcom America Corporation, 154 Bankr. at 113.
     Similarly, in this case, the notice did not comply with
section 505(2) as a matter of law because it did not clearly and
explicitly inform plaintiff that defendant was retaining the
automobile in full satisfaction of the debt.  Therefore, the
complaint adequately stated a valid cause of action.
     Based on the foregoing, we reverse the circuit court
judgment and remand this cause for further proceedings.
     Reversed; remanded.

     Wolfson, P.J., and Burke, J., concur.