Otto imports vintage cars from overseas and has an import finance arrangement with a finance company allowing him to borrow up to $40,000 with the finance company taking security over the items purchased.
Otto had imported a car costing him $15,000, that he had pre-sold to a buyer for $24,000. Otto anticipated that he would need to do some repairs on the car, but when it arrived it was in worse condition than he expected. Otto cancelled the sale and purchase agreement and arranged for a specialist repairer to fix the car.
The repair took longer than expected, and Otto had to extend the term of the loan with the finance company. The finance company had a good relationship with Otto and was happy to extend, but then the loan term ended and there was no contact from Otto.
The finance company then found out that the police had raided Otto’s warehouse and loaded cars onto a truck. Further enquiries showed that Otto had been arrested. The finance company acted quickly. Through careful work by a repossession agent, the car was found. The finance company paid the repairer $1,000 for the completed work, repossessed the car and sold it that day for $6,000.
When Otto was released from police custody, he was very angry. Not only had the finance company sold the car for a fraction of its worth, but he now owed about $10,000 to the finance company. Otto complained to FSCL.
We referred the complaint to the finance company who did not accept that it had done anything wrong but, in the interests of resolving the complaint, offered to write off the debt.
Otto said that if the finance company had been patient and waited a couple of weeks, he would have been able to sell car for at least $24,000 and maybe more. The offer to write off the debt did not take into consideration the money Otto had already spent having the car repaired, approximately $2,000. To resolve the complaint, Otto wanted the finance company to pay him the $15,000 it cost to buy car and the $2,000 he had spent having it repaired.
The finance company disagreed saying the car was not in good condition and it had got the best price in the circumstances. The finance company considered its offer to writeoff the residual debt was very generous.
We reviewed the complaint and advised Otto that we thought he should accept the finance company’s offer to writeoff his debt.
Under section 109 of the Personal Properties and Securities Act 1999 (the Act) the finance company could repossess the car if the loan was in default or the property at risk. The loan was in default, so we were satisfied the finance company could repossess the car. We also acknowledged the finance company’s concern that the police had taken possession of other vehicles.
Further, under section 114 of the Act the finance company should have given Otto ten days’ notice of its intention to sell. By selling the car the same day it repossessed it, the finance company had breached the Act. However, Otto was still in prison 10 days after the repossession, so the failure to give him notice of an intention to sell was likely to have had little effect on his situation.
The finance company was also unable to give us any information to show that the sale price was reasonable.
It seemed to us the finance company had sold the car very quickly without any real consideration of what it was worth, but it was very difficult to now say what would be a reasonable price. It was extremely difficult to value such a rare item. While $6,000 may have been too low, Otto’s estimate of $24,000 was likely too high. He had the car for well over a year but had not repaired and sold it.
By offering to write off the residual debt, the finance company’s offer was actually closer to $16,000. As Otto was claiming $17,000 it seemed to us the finance company’s offer was reasonable and we told him we thought he should accept the offer to write off the residual debt.
The finance company accepted our view, but Otto did not respond so we discontinued our investigation.
Insights for participants
It is important to get the sale process right. In this case selling the item without giving adequate notice had no impact on the outcome. However, if Otto had not been in prison he would have had an argument that he would have achieved a better price, perhaps by introducing the lender to the original purchaser, who may have been prepared to pay more than $6,000 for the car.