Plaintiff charges that section 9-503 of the Uniform Commercial Code (N.J.S.A. 12A:9-503) is unconstitutional. The section reads in part as follows:
Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. * * *
On July 10, 1970 plaintiff bought a used automobile from defendant Sandy Motors, Inc. The price was $1,674.75. The cash paid was $674.75, and plaintiff agreed to pay the balance, plus interest and insurance charges, in 24 equal monthly installments of $52.01 each. The details of the transaction were set out in a written agreement signed by plaintiff, by defendant Sandy Motors and by plaintiff's wife as co-obligor. A printed form furnished by defendant Peoples Trust Company of New Jersey was used, and immediately following the transaction between plaintiff and Sandy Motors, Inc. the latter assigned all of its rights to the Trust Company.
The agreement of July 10, 1970 provided that
Seller retains a purchase money Security Interest in the Vehicle and all accessions until Buyer fully performs hereunder.
On the reverse side of the one-sheet document a number of contract terms are to be found, including the following:
In the event of default by Buyer hereunder, (1) the entire unpaid balance of the Total of Payments shall, at the option of Holder, become immediately due and payable, and (2) Buyer, upon demand, shall deliver the vehicle to Holder, or Holder may, with or without legal process and with or without previous notice or demand for performance, enter any premises wherein the vehicle may be and take possession of the same, together with anything in the vehicle.
Though easily readable, this quotation as well as the entire reverse side of the agreement is in fine print. On the other side, where the signatures appear, there is a reference in relatively large capital letters to the terms printed on the back of the document.
When plaintiff's payment for October, 1971 fell due it was not made on time. Prior to October 1971 plaintiff had been more than ten days late with 12 payments out of a total of 14, and for two short intervals he had been in arrears for two payments at once. This history of the account bears upon the reasons of defendant bank for the action it took when the October 1971 payment was not received, and it shows considerable tolerance in the treatment of defaults.
By November 9, 1971 the bank had not received plaintiff's payment for October and had no word from him about that payment. It decided to demand possession of the car, was unable to reach plaintiff by telephone, and sent by ordinary mail to plaintiff at his residence a written demand which he says was not received by him. Having received no payment from plaintiff and having heard nothing from him by way of explanation of his delay, the bank instructed an agency to repossess the car. On November 17, 1971 the car was taken from a parking area behind the building in which plaintiff had his apartment. Repossession took place without judicial process and without any breach of the peace. In fact, the car was taken away from the parking place without any physical confrontation with anyone. Plaintiff first learned about what had happened from the Linden police, who had been notified immediately by the agent who acted for the bank.
On November 17, 1971, the date of repossession, the bank received through the mail from plaintiff the payment for October. At the time of the repossession the bank's collection department was not yet aware that payment had arrived. The payment due on November 13, 1971 was not
made at the same time and was delinquent by four days when the repossession took place.
Having taken possession of the car, defendant Trust Company proposed to sell it (N.J.S.A. 12A:9-504) and so notified plaintiff. He then brought this action. Among other things, he sought an interlocutory injunction against the sale. An order to show cause containing a preliminary restraint was issued. That was followed by a negotiated arrangement between the parties by which plaintiff got the car back and the account was reinstated. In relation to the negotiations an order was entered on December 3, 1971, consented to by the attorneys and by plaintiff personally, which provided in part that claims for nominal damages on certain counts of the complaint would survive. Plaintiff now urges that section 503 of the Uniform Commercial Code, by authorizing a secured creditor to take possession of security without a judicial proceeding, is in conflict with the Due Process Clause of the Federal Constitution. He also argues violation of the Fourth Amendment and of Article I, paragraphs 1 and 7 of New Jersey's Constitution. He says that his car was, therefore, taken unlawfully by the bank's agents on November 17, 1971 and that he is entitled to damages -- though only nominal -- for the unlawful taking. Plaintiff initially named the State as a defendant, but later a consent judgment of dismissal was entered on application of the Attorney General.
It is quite common for secured creditors, after default, to repossess automobiles by the peaceful use of self-help. Rarely, however, have the questions presented here been litigated. Yet it now seems apparent that those questions are before long going to be placed before the United States Supreme Court. The federal court for the Southern District of California, in cases involving peaceful repossession of automobiles following default under installment purchase contracts, has held sections 9503 and 9504 of the California Commercial Code unconstitutional under the due process clause of the Fourteenth Amendment of the United States
Constitution. Adams v. Egley-Posadas v. Star and Crescent Fed. Credit Union (two cases), 338 F. Supp. 614 (S.D. Cal. 1972). The federal court for the Northern District of California on similar facts has reached the opposite result. Oller v. Bank of America , 342 F. Supp. 21 (N.D. Cal. 1972). In McCormick v. First National Bank of Miami , 322 F. Supp. 604 (S.D. Fla. 1971), the court ruled that plaintiff, whose automobile had been peacefully repossessed, had not suffered any infringement of constitutional rights.
Section 9503 in California is identical with N.J.S.A. 12A:9-503. Section 9504 is identical with N.J.S.A. 12A:9-504, which provides for disposition of the collateral after it has been repossessed.
Two main questions are presented: (a) Is there a sufficient element of state action involved to make the Fourteenth Amendment to the Federal Constitution applicable at all? And (b) If the Fourteenth Amendment does apply, has plaintiff been denied due process?
In Adams, supra , it was argued that no state action or action under color of state law could be shown; that the creditor had merely exercised a right of self-help given to him under the terms of a private contract. The court rejected this argument and held, in reliance upon Reitman v. Mulkey , 387 U.S. 369, 87 S. Ct. 1627, 18 L. Ed. 2d 830 (1967), that sections 503 and 504 of Article 9 of the Code represented sufficient involvement by the State of California to bring within the scope of the Fourtenth Amendment repossessions of the cars in question. In Reitman the United States Supreme Court was concerned, not with procedural due process, but with racial prejudice and the rental of apartments. California had adopted legislation prohibiting discrimination in the sale or rental of some types of real estate. Then in 1964 the voters adopted an amendment to the state constitution ...