In Engram v. JPMorgan Chase Bank, 2010 WL 3447390 (Ariz. App. 2010), the Court of Appeal in an unpublished decision reversed summary judgment granted to an automobile finance company on a consumer’s wrongful repossession claim. The facts were recited as follows:
The Engrams bought a car in February 2005. The sales price, with tax, registration and fees, totaled $13,277. The Engrams made a cash down payment of $3,500; the dealer agreed to finance the remaining balance pursuant to a Motor Vehicle Retail Installment Sales Agreement and Purchase Money Security Agreement (“Security Agreement”). Under the Security Agreement, the Engrams promised to pay 60 monthly payments of $303.10. The Engrams also promised in the Security Agreement to insure the car “for its full value against loss or damage.” . . . . ¶ The dealer assigned the Security Agreement to Chase. The Engrams repeatedly were late with their monthly payments, but Chase accepted the late payments and assessed late charges and assessments. As of June 26, 2006, however, the Engrams were $908.50 past due. Chase intended to repossess the car and on July 7 talked to Ms. Engram about “hand[ing][it] over” to the bank. ¶ . . . Ms. Engram averred that on July 5, she “spoke to someone in Collections at Chase who told me that if I made all of my past due payments, they would not repossess the vehicle.” The morning of July 10, Ms. Engram went to a Chase branch and asked a teller how much was owing; the teller responded that the Engrams “needed to pay $908.50.” Ms. Engram gave the teller $908.50 and asked the teller whether there was anything else she needed to do to avoid having the car repossessed. The teller responded that there was nothing else she needed to do to avoid repossession. Out of an abundance of caution, Ms. Engram asked another employee at the branch to check with “the main office” to see that the account was in order. That employee went into an office and returned to say “that he had confirmed with the main office that my account was in order.” The payment receipt the teller gave Ms. Engram bears a time of 10:13 a.m. ¶ Unfortunately, Chase’s collection system did not post the payment immediately, and the Chase collections department did not learn of the payment until the following day. By then it was too late; Chase repossessed the Engrams’ car at about midnight the evening of July 10, roughly 14 hours after it had accepted their payment of the full amount then due and, at least by her account, had assured Ms. Engram there was nothing more she needed to do to forestall re-possession. ¶ According to a log, the collector in charge of the account at Chase learned at 10:46 a.m. on July 11 that the Engrams’ car had been repossessed even though they had brought their account current. Four minutes later, the collector contacted the Engrams’ insurance company to find out whether insurance on the car was current. He was told the insurance had been canceled for nonpayment. Chase had not previously known that the Engrams’ insurance had been cancelled. Under Chase’s standard practices, it usually does not keep track of whether a borrower is in breach of his or her promise to maintain insurance; it verifies insurance coverage only when a vehicle has been repossessed and a customer seeks to redeem it.
The Court of Appeals reversed, finding questions of fact on the Plaintiff’s claim for wrongful re-possession, rejecting the finance company’s assertion that it believed repayment was insecure and that it could rely on its post-repossession discovery of an event of default – to wit, insurance cancellation. The Court of Appeals explained:
Although the July 10 payment was late, by accepting that payment Chase waived any right it might have had to repossess the car based on that breach. See Miller v. Uhrick, 146 Ariz. 413, 414, 706 P.2d 739, 740 (App.1985) (acceptance of late payments waived creditor’s right to invoke remedies in deed of trust unless creditor gave notice of her insistence on timely payment). . . .¶ Nevertheless, Chase contends that it was entitled to accelerate the debt and repossess the car because, in the language of the Security Agreement, it “reasonably deem[ed]” itself “insecure.” A lender’s right to accelerate a debt based on insecurity, however, is limited by A.R.S. § 47-1309, [which prohibited it from] accelerat[ing] and repossess[ing] based on insecurity [unless it] “in good faith believe[d] that the prospect of payment or performance [was] impaired.” Under A.R.S. § 47-9102(A)(43) (Supp.2009), “ ‘[g]ood faith’ means honesty in fact and the observance of reasonable commercial standards of fair dealing.” ¶ . . . Although the Engrams’ payments had been repeatedly tardy, the fact that they had brought their loan current by paying more than $900 the morning of July 10 at least creates a question of fact about any assertion by Chase that after receiving that payment, it honestly and in good faith believed that the prospect of further payments by the Engrams was impaired.
The Court of Appeals also rejected the finance company’s use of the post-repossession discovery of insurance cancellation as a basis to refute any wrongful repossession claim. The Court of Appeals explained:
The record discloses both that Chase did not know of the Engrams’ insurance default at the time it ordered the repossession and that it is not Chase’s normal practice to repossess based on a borrower’s failure to maintain insurance. Nevertheless, Chase argues the Engrams’ failure to maintain property insurance on their car was an event of default under the Security Agreement that entitled it to repossess. Chase relies on A.R.S. § 47-9609(A)(1), which states that “[a]fter default, a secured party … [m]ay take possession of the collateral.” It argues that § 47-9609 does not require the secured party to have knowledge of, or to base its decision on, any particular default; so long as there is a default, the secured party is entitled to seize the collateral. ¶ In response, the Engrams argue that pursuant to A.R.S. § 47-1309, the insurance default entitled Chase to repossess only if the lack of insurance reasonably caused Chase to believe that its security was impaired. The Engrams also contend that a lender’s decision to accelerate a debt upon an event of default is subject to A.R.S. § 47-1304 (Supp.2009), which provides, “Every contract or duty within this title imposes an obligation of good faith in its performance and enforcement.” They argue Chase’s attempt to justify the repossession based on the lack of insurance is a breach of Chase’s duty of good faith. ¶ No Arizona case has addressed whether the good-faith provisions of the Uniform Commercial Code limit the right of a secured party to accelerate a debt and seize the collateral after an event of default, and other jurisdictions are split on the issue. In Brown v. AVEMCO Inv. Corp., 603 F.2d 1367 (9th Cir.1979), the issue was whether a lender acted within its authority in repossessing an airplane that secured a debt. The security agreement provided that the debt could be accelerated if the borrower sold the airplane without prior written consent of the lender. Id. at 1369. Without first obtaining consent, the borrower sold the airplane to a third party, which then tendered what it believed was the full amount owing under the note. Id. The lender refused the payment, accelerated the note and demanded a larger sum to pay off the loan. Id. When the new owner did not pay, the lender seized the airplane, then sold it for a profit. Id. ¶ . . . ¶ 21 By contrast, other cases have held that the insecurity provisions of the U.C.C. do not apply when a lender accelerates after an event of default. [citations omitted] ¶ We need not resolve the issue under Arizona law given the record in this case, which discloses evidence on which a jury could conclude that Chase three times assured Ms. Engram that if she and her husband brought the loan current, the bank would not repossess their car. The Engrams offered evidence that Chase made those assurances to Ms. Engram once on the phone on July 5 and then twice in the branch on July 10, when two bank employees told her separately that having paid the amount owing, she did not have to do anything else to forestall repossession. A jury hearing this evidence could conclude that having received Chase’s assurances that if they brought their loan current, their car would not be repossessed, the Engrams acted in reliance on those assurances by paying the full amount outstanding as of July 10. ¶ Under these circumstances, the jury could find that Chase was estopped or had waived its ability to repossess the car on July 10 for an event of default other than a failure to pay. See, e.g., Ariz. Title Guar. & Trust Co. v. Modern Homes, Inc., 84 Ariz. 399, 403, 330 P.2d 113, 115 (1958) (“When one has waived strict performance of the provisions of a contract as to when payments must be made, he thereby waives prior defaults and cannot forfeit for subsequent failure until the purchaser is notified of seller’s intention to insist upon strict performance and given a reasonable opportunity to bring payments to date”); Miller, 146 Ariz. at 414, 706 P.2d at 740; Mercedes-Benz Credit Corp. v. Morgan, 850 S.W.2d 297, 299-300 (Ark.1993) (lender that repeatedly accepts late payments waives right to insist on timely payment absent notice); Cobb v. Midwest Recovery Bureau Co., 295 N.W.2d 232, 237 (Minn.1980) (same); Moe v. John Deere Co., 516 N.W.2d 332, 337-38 (S.D.1994) (citing estoppel principles).