Automotive Finance Corp. v. Smart Auto Center, Inc.

A used-car dealership, Smart Auto Center, Inc. (Smart Auto) (defendant), and the owner of the dealership, Carl Schwibinger (defendant), defaulted on loans with Automotive Finance Corporation (Automotive) (plaintiff). Each used car that Schwibinger purchased with the line of credit provided by Automotive was set up as a separate loan. Schwibinger was supposed to repay Automotive for each used car sold within 48 hours. Upon Schwibinger’s default, in December 1999, Automotive was able to make a new loan in exchange for cars that Schwibinger owned. The new loan was used to pay off some existing loans and to extend the due date on other loans. However, by the end of the month, Schwibinger had failed to make payments as agreed. Upon this second default, Automotive requested that Schwibinger relinquish the vehicles that had been used as collateral. Schwibinger refused. Automotive then sent an agent to repossess some vehicles. The agent had repossessed 16 vehicles before Schwibinger arrived, blocked the roadway, and objected to the removal of more vehicles. After an altercation, Schwibinger was arrested, and the agent took four additional vehicles and even tried to take vehicles that Schwibinger owned personally. Later, Schwibinger tried to settle with Automotive. Schwibinger had already notified Automotive of his intention to sell Smart Auto. Schwibinger proposed to redeem the repossessed vehicles by giving Automotive $265,000 from the sale of Smart Auto. However, Automotive and Schwibinger never reached an agreement. Nine of the vehicles were sold through auctions. Automotive sold the 11 other vehicles, which had unknown mileages, for $160,000 to a dealer able handle such vehicles. These vehicles would have received a low price if sold at auction because of their unknown mileages. The outstanding balance on Schwibinger’s loans was $117,000, and Automotive sued to collect the deficiency. Schwibinger argued that he was not in default and that Automotive did not mitigate its damages by accepting his offer and then sold the cars for too little money, which was not commercially reasonable. Further, Schwibinger filed a counterclaim, arguing that Automotive had wrongfully repossessed the four vehicles that were taken after he objected. The district court ruled that Schwibinger was in default. The court ruled that Automotive’s disposition of the collateral was commercially reasonable and that Automotive was entitled to around $165,000. The court ruled also that Schwibinger was entitled to $12,000 for wrongful repossession of the four vehicles repossessed after his objection. Schwibinger appealed, arguing that Automotive should have taken his offer to redeem the cars once Smart Auto sold.