Nixdorf Computer v. Jet Forwarding

Citation: Nixdorf Computer, Inc. v. Jet Forwarding, Inc., 579 F.2d 1175 (9th Cir. 1978).

Nixdorf Computer, Inc. ("Nixdorf”), an Illinois Corporation, entered into two installment sales contracts for a computer system with Jet Forwarding, Inc. ("Jet"). The contracts were to be performed in California and both parties agreed that California law was to be applied.

Approximately two weeks after the computer system was shipped to Jet, a Jet employee telephoned Nixdorf to explain that Jet was in financial difficulty and could not pay the balance of the purchase price still due. He advised Nixdorf to repossess the computer system for Nixdorf's own protection. Shortly thereafter, with Jet's consent, agents of Nixdorf repossessed the equipment.

Nixdorf subsequently returned the hardware to its inventory of new equipment, without making any effort to separately identify it. At least some of it was ultimately sold to other customers. After repossessing the equipment, Nixdorf made no effort to notify Jet of any subsequent resale.

Nixdorf brought this action against Jet for damages. Nixdorf contended that it was entitled to damages for non-acceptance or repudiation in accordance with California Commercial Code §2708, which provides that the measure of damages is the difference between the market price at the time of tender and the unpaid contract price or, in the alternative, the loss of profits to the seller, whichever is greater.

Jet, on the other hand, contended that it had accepted the goods and taken possession of them and that the repossession by Nixdorf was a realization upon a security interest reserved in the goods under the terms of the contract. Jet further contended that Nixdorf was limited to the remedy of a security interest holder under California Commercial Code section 9504.

The district court entered a judgement for Jet, together with an award of $5,000 in attorney's fees as the prevailing party. The court of appeals affirmed, holding that the purchase agreement provided by Nixdorf reserved a security interest in the goods sold and the repossession of the goods after Jet had accepted and taken possession of them was a realization upon that security interest. The court held, however, that by failing to give Jet notice of resale, Nixdorf was barted from recovering any deficiency under California law. California Commercial Code §9504 provides, inter alia:


 * (1) A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing. The proceeds of disposition shall be applied in the order following to


 * (a) The reasonable expenses of retaking, holding, preparing for sale, selling and the like and, to the extent provided for in the agreement and not prohibited by law, the reasonable attorneys' fees and legal expenses incurred by the secured party;


 * (b) The satisfaction of indebtedness secured by the security interest under which the disposition is made; . ..


 * (2) If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and, unless otherwise agreed, the debtor is liable for any deficiency.


 * (3) A sale or lease of collateral may be as a unit or in parcels, at wholesale or retail and at any time and place and on any terms, provided the secured party acts in good faith and in a commercially reasonable manner. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the secured party must give to the debtor, . . . a notice in writing of the time and place of any public sale or of the time on or after which any private sale or other intended disposition is to be made.

This section has been construed in California to preclude the security holder from any recovery of a deficiency when the holder fails to notify the debtor in writing of a resale. Atlas Thrift Co. v. Horan, 27 Cal. App. 3d 999, 1009, 104 Cal. Rptr. 315, 321 (1972).