The statute of limitations on a claim of deficient notice of disposition of collateral under Article 9 of the Uniform Commercial Code begins only when the property has been disposed of, the South Carolina Supreme Court has ruled in a 4-1 decision.

The ruling means that property owners who have possessions taken due to non-payment and receive notice that fails to comply with the requirements of Article 9 have three years to file a claim from the time the item is sold, as opposed to when the allegedly deficient notice was received.

First Financial of Charleston lawfully repossessed Otha Delaney’s pickup truck in 2008 after he failed to make payments. On May 2, 2008, it sent Delaney a letter entitled “Notice of Private Sale of Collateral,” and seven months later sold the truck.

On Oct. 3, 2011, more than three years after receiving the notice, but less than three years after the truck was sold, Delaney sued First Financial, alleging deficient notice of the disposition of the truck. First Financial moved to dismiss, arguing that the statute of limitations had expired, and Charleston County Circuit Court Judge Stephanie McDonald ruled that the limitations period began when Delaney received the notice. The state’s Court of Appeals affirmed in a split decision, and an appeal was filed.

Delaney argued that only parties who have disposed of collateral need to provide notice, and that was not possible until his truck was actually sold. Therefore, he said, the notice is not final until disposition occurs, and so the statute of limitations begins to run then.

First Financial argued the limitations period began when the noncompliant notice was sent, regardless of when the disposition occurs.

Justice Kaye Hearn, writing for the majority, agreed with Delaney, saying such claims do not accrue “unless and until [the secured party] disposes of the collateral.”

“Nothing in this Article prevents a secured party from electing not to conduct a disposition after sending a notification,” Hearn said, citing the corresponding Official Comments to section 36-9-611(b) of the South Carolina Code of Laws. Additionally, First Financial could have sent a revised notice, assuming they acted in good faith, the revision was reasonable, and the revised plan for disposition was also reasonable.

“Thus, while a secured party is required to send notification when it plans to dispose of collateral, it is also permitted to send a revised notification up until a reasonable time before disposition. We believe that by allowing such revisions, the drafters intended the sufficiency of notice to be assessed as of the date of disposition.”

Hearn also said that section 36-9-625(a) of the South Carolina Code is not an appropriate remedy and that the law does not contradict the court’s finding, as First Financial suggested.

“First Financial contends if a party can seek an injunction before the collateral is disposed of, then it can recover the penalty at the same time,” Hearn said. “However, the General Assembly used different terms for these two remedies, and we cannot impose the broader ‘not proceeding in accordance’ language into section 36-9-625(c)(2)’s requirement that a secured party ‘failed to comply.’”

On the issue of which statute of limitations period applied, Hearn said that First Financial conceded at oral argument the three-year limitations period applied, as opposed to a one-year period that was also debated.

Hearn cited another state law which establishes a three-year-limitations period for “an action upon a statute for a penalty or forfeiture when the action is given to the party aggrieved or to such party and the State, except when the statute imposing it prescribes a different limitation.”

“Because Delaney is an aggrieved party, the three-year limitations period under section 15-3-540(2) applies,” Hearn said.

Therefore, Delaney’s claim for deficient notice of the disposition of collateral was within the statute of limitations and it was remanded for further proceedings on its merits.

Justice John Kittredge dissented from the majority in part, saying that because Delaney’s claim is based entirely on an alleged noncompliant notice, he should have brought the action before disposition. Because the law allows this, Kittredge said the accrual must begin when the notice was received.

Philip Fairbanks, Kathy Lindsay and Frederick Corley, all solo practitioners in Beaufort, represented Delaney on appeal. Stephen Brown, Russell Hines and Perry Buckner IV of Young Clement Rivers in Charleston represented First Financial. Neither side responded to requests for comment.

The seven-page decision is Delaney v. First Financial of Charleston, Inc. (Lawyers Weekly No. 010-029-19). The full text of the decision is available online at

Follow Matt Chaney on Twitter @SCLWChaney

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