Daniel v. Bank of Hayward

Facts

Joseph and Marijane Daniel, the purchasers, entered into a motor vehicle purchase contract in May 1983 with Don Hofstadter, Inc. The purchasers agreed to purchase a 1984 Chevrolet van which had not yet been manufactured and to trade in the order motor home. The cash price of the vehicle was $12,077.55; the trade-in-allowance was $8,675.55. The dealership did its financing with defendant Bank of Hayward. On September 30, 1983, the Bank received a sight draft from General Motors for the van the purchasers had ordered. The dealership executed a floor plan note in the amount of $9,905.22 to pay General Motors. On October 21, 1983, the Chevrolet van was delivered to the dealership. The Bank discovered that its debtor, the dealership, was removing used vehicles from the lots. Because these used vehicles were collateral for the Bank’s loans, the Bank called all loans and secured the lot. The purchasers went to the dealership to complete the purchase of the van. The Bank was willing to release the van only if the purchasers paid in full the Bank’s interest in the van pursuant to the floor plan note.