United States: Time May Not Be On Your Side: Georgia Supreme Court Opinion Requires Holders Of Security Interests To Understand The Nature Of Their Contracts

Last Updated: October 27 2016
Article by Brian J. Levy

On September 12, 2016, the Georgia Supreme Court held that the four-year statute of limitations for actions on contracts for sale, not the six-year statute generally applicable to actions on simple written contracts, applied to bar a deficiency action for the remainder of the amount owed under a motor vehicle conditional sales contract that was coupled with a security interest following the repossession and sale of the vehicle. SunTrust Bank v. Venable, No. S16G0664 (Ga. Sept. 12, 2016).  The Court's opinion, which resolved an issue of first impression in Georgia, requires holders of security interests in goods to fully understand the nature of their contracts so as not to find their claims time barred.

In SunTrust Bank, Defendant Mattie Venable entered into a "Simple Interest Conditional Sale Contract with Options for Balloon Payment and Vehicle Return" (the "Contract") when she purchased a vehicle from the dealership.  The Contract granted the dealership a security interest in the vehicle, which it subsequently assigned to SunTrust.  Venable stopped making payments in November 2007.  Following Venable's default, SunTrust repossessed the vehicle and sold it at auction, receiving sale proceeds of less than the amount owed under the Contract.  SunTrust filed suit against Venable to recover the deficiency amount in October 2012 – nearly 5 years after she defaulted. 

Venable's appeal from the trial court order granting summary judgment in favor of SunTrust for the amount of the deficiency turned on the question of whether the statute of limitations applicable to SunTrust's claim was four years or six years.  The same statue that provides generally for a six-year statute of limitations for actions on simple contracts expressly excludes "actions for the breach of contracts for the sale of goods under Article 2 of Title 11," which is Georgia's enactment of Article 2 of the Uniform Commercial Code.  See O.C.G.A. § 9-3-24.  Actions for breach of a contract for the sale of goods "must be commenced within four years after the cause of action has accrued."  O.C.G.A. § 11-2-725(a).

Since the Contract involved the sale of a motor vehicle and also granted a security interest, the Court had to determine whether the "dominant purpose" of the Contract reflected a sales transaction, in which case it would be subject to the four-year limitations period for a contract for the sale of goods, or a security interest, in which case the six-year statute of limitations would govern.  The Court held that the "dominant purpose" of the Contract was for the sale of a good because "the Contract was labeled a 'Conditional Sale Contract,' identified the dealership and Venable as 'Seller' and 'Purchaser,' . . . provided for the sale of the minivan in exchange for Venable's agreement to pay a sum certain," and "no separate fee was required for the granting of the security interest to be held by the dealership."  As a result, the Court applied the four-year statute of limitations for contracts for the sale of goods, held that SunTrust's claim was time barred, and reversed the trial court's award of summary judgment in the amount of the deficiency.

The Georgia Supreme Court's decision in SunTrust Bank sided with the vast majority of jurisdictions to consider this question, which view a deficiency suit as an "action for that part of the sale price which remains unpaid after the seller has exhausted his rights as the holder of a security interest by selling the collateral," and, therefore, a suit arising out of a contract for the sale of goods rather than a security interest.  Associates Discount Corp. v. Palmer, 219 A.2d 858, 861 (N.J. 1966).  See also Heritage Acceptance Corp. v. Romine, 6 N.E.3d 460, 463 (Ind. Ct. App. 2014); Barnes v. Cmty. Trust Bank, 121 S.W.3d 520, 523-24 (Ky. Ct. App. 2003).  But see North Carolina Nat'l Bank v. Holshouser, 247 S.E.2d 645, 648 (N.C. Ct. App. 1978) (applying statute of limitations for contract signed under seal due to legislative comments indicating that Article 9 of the Uniform Commercial Code was intended to govern contracts creating a security interest); Chaney v. Fields Chevrolet Co., 503 P.2d 1239, 1241 (Ore. 1972) (purchaser's action to recover surplus from seller following foreclosure sale by seller "is more closely related to the security aspects of the contract that it is to that part which concerns the original sale" and was not governed by the statute of limitations for contracts for the sale of goods).

The Georgia Supreme Court's decision in SunTrust Bank helps "make uniform the law among the various jurisdictions," though one seemingly minor factual variation would have resulted affirmance of SunTrust's summary judgment.  Had Venable granted a security interest in the vehicle to a third-party lender who financed the purchase, or even to the dealer through a contract separate from the sales contract, SunTrust's deficiency action would have arisen under a security agreement governed by Article 9 of the Uniform Commercial Code, not an Article 2 contract for the sale of a good.  Almand v. Reynolds & Robin, P.C., 485 F. Supp. 2d 1361, 1367 (M.D. Ga. 2007).  See also Gray v. Suttell & Assocs., P.S., 123 F. Supp. 3d 1283, 1290-91 (E.D. Wash. 2015).  Under that scenario, the general six-year statute of limitations for simple contracts would have applied and SunTrust's action would not have been time barred.

SunTrust Bank highlights the need for holders of security interests, and particularly assignees who may acquire sales contracts that also grant a security interest, to fully understand the nature of the agreement granting their interest to ensure they enforce their rights timely.    

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Brian J. Levy
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