Brown v. AVEMCO Inv. Corp., No. 77-2169

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore ELY and KILKENNY; FERGUSON; KILKENNY
Citation603 F.2d 1367
Parties27 UCC Rep.Serv. 885 Don BROWN, Josef H. Miller and Allen L. McAlear, Plaintiffs-Appellants, v. AVEMCO INVESTMENT CORPORATION, Defendant-Appellee.
Docket NumberNo. 77-2169
Decision Date12 September 1979

Page 1367

603 F.2d 1367
27 UCC Rep.Serv. 885
Don BROWN, Josef H. Miller and Allen L. McAlear, Plaintiffs-Appellants,
v.
AVEMCO INVESTMENT CORPORATION, Defendant-Appellee.
No. 77-2169.
United States Court of Appeals,
Ninth Circuit.
Sept. 12, 1979.

Page 1368

Thomas F. Joyce, Butte, Mont., argued, for plaintiffs-appellants; Allen L. McAlear, Bozeman, Mont., on brief.

Lyman H. Bennett, III, Bozeman, Mont., on brief for defendant-appellee.

Appeal from the United States District Court for the District of Montana.

Before ELY and KILKENNY, Circuit Judges, and FERGUSON, * District Judge.

FERGUSON, District Judge:

Plaintiffs, citizens of Montana, sued defendant, a Maryland corporation, in a diversity action (28 U.S.C. § 1332) alleging a conversion of an airplane. Defendant counterclaimed for interference with contractual rights. A jury trial was held and verdicts against plaintiffs returned. A final judgment was entered in accordance with the verdicts. The district court denied plaintiffs' motion for new trial and defendant's motion for judgment notwithstanding the verdict. Plaintiffs appeal from the judgment and the denial of the motion for a new trial. This court orders a new trial on the grounds that the trial court gave erroneous instructions on the issue of acceleration and these instructions prejudiced the plaintiffs.

FACTS

1. On September 22, 1972, Robert Herriford borrowed $6500 from AVEMCO and executed a promissory note for $9607.92 (amount borrowed plus "add-on" interest and credit for insurance).

2. The promissory note was secured by an agreement granting to AVEMCO a security

Page 1369

interest in an airplane. The security agreement contained the following language:

Time is of the essence of this Security Agreement. It is hereby agreed that if default be made in the payment of any part of the principal or interest of the promissory note secured hereby at the time and in the manner therein specified, or if any breach be made of any obligation or promise of debtor herein contained or secured hereby, or If any or all of the property covered hereby be hereafter sold, leased, transferred, mortgaged, or otherwise encumbered without the written consent of Secured Party first had and obtained, or in the event of the seizure of the aircraft under execution or other legal process, or if for any reason Secured Party may deem itself insecure, Then the whole principal sum unpaid upon said promissory note, with the interest accrued thereon or advanced under the terms of this Security Agreement, or secured hereby, and the interest thereon, Shall immediately become due and payable at the option of Secured Party. (emphasis added)

The security agreement also provided that the laws of Texas would apply with respect to rights under the agreement.

3. On July 4, 1973, Herriford entered into a lease and option agreement with the three plaintiffs whereby plaintiffs would pay hourly rentals for the plane and contribute equally toward Herriford's debt retirement with AVEMCO. Upon full payment of the mortgage on the airplane, the plaintiffs would have an option to purchase one-fourth ownership (each) of the plane for the sum of one dollar.

4. Plaintiffs became co-insureds with Herriford on the airplane in 1973. Copies of this policy were sent to AVEMCO.

5. On July 9, 1975, the plaintiffs advised AVEMCO that they had exercised their option with Herriford and now tendered to AVEMCO the $4,859.93 still owed by Herriford.

6. On July 18, 1975, AVEMCO refused this offer and wrote to Herriford announcing that because of his failure to comply with the note and security agreement, AVEMCO was accelerating the payments and the entire balance of $5,078.97 was due and payable on or before July 28, 1975. AVEMCO later explained that the additional amount was due to reimburse AVEMCO for its purchase of "Vendor's Single Interest Insurance."

7. On July 25, 1975, plaintiff McAlear advised AVEMCO that plaintiffs did not accept AVEMCO's rejection of their tender and that the money to retire the debt was available to AVEMCO at the First Security Bank of Bozeman, Montana, upon presentation of a satisfaction of the mortgage.

8. On July 29 or 30, 1975, an agent of AVEMCO used a passkey to start the plane and flew it to Seattle.

9. On July 30, 1975, AVEMCO notified Herriford of this repossession and demanded payment of $5,578.97 by August 10, 1975 or the aircraft would be sold with proceeds to be applied first to sale expenses and second to Herriford's account.

10. On September 22, 1975, a bill of sale for the plane was filed by AVEMCO with the Federal Aviation Agency. The consideration was $7000 and the bill of sale was dated August 25, 1975. (AVEMCO had earlier recorded a sale which was subsequently withdrawn as an error.)

11. Plaintiffs filed this action for conversion on August 15, 1975. Defendant counterclaimed charging interference with contract rights. A jury trial was held and the jury returned a verdict for defendant on both the conversion claim and the counterclaim. No damages were assessed, however.

12. Defendant moved for judgment notwithstanding the verdict and plaintiffs moved for a new trial. The district court denied these motions. Plaintiffs appeal from the final judgment and the denial of the motion for a new trial.

Page 1370

This court finds that the court gave erroneous instructions on acceleration and a new trial must be ordered. The court refused to instruct that acceleration could only be done if defendant believed in good faith that its security interest was impaired by the breach of the security agreement. That refusal was prejudicial error.

Before addressing the merits of the instruction on acceleration, however, the court must determine whether the plaintiff complied with Rule 51 of the Federal Rules of Civil Procedure to preserve this issue for review on appeal.

RULE 51

Rule 51 states:

Rule 51.

INSTRUCTIONS TO JURY: OBJECTION

At the close of the evidence or at such earlier time during the trial as the court reasonably directs, any party may file written requests that the court instruct the jury on the law as set forth in the requests. The court shall inform counsel of its proposed action upon the requests prior to their arguments to the jury, but the court shall instruct the jury after the arguments are completed. No party may assign as error the giving or the failure to give an instruction unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds of his objection. Opportunity shall be given to make the objection out of the hearing of the jury.

Rule 51 must be read with Rule 46, however, which provides that formal exceptions to rulings or orders of the court are unnecessary. The central question is what action, short of formal objection, meets the requirements of Rule 51.

The District of Columbia Court of Appeals recently held that there is compliance with Rule 51 when a request to instruct has been submitted to the court, considered and refused by the court and further objection would be unavailing:

As courts and commentators have recognized, Rule 51 is to be read together with Rule 46, Fed.R.Civ.P., which states:

Formal exceptions to rulings or orders of the court are unnecessary; but for all purposes for which an exception has heretofore been necessary it is sufficient that a party, at the time the ruling or order of the court is made or sought, makes known to the court the action which he desires the court to take or his objection to the action of the court and his grounds therefor * * *.

In order to preserve for appeal an objection to a jury instruction, thus, it is not necessary for a party to except or object "if the party's position has previously been clearly made to the court and it is plain that a further objection would be unavailing." 9 C. Wright & A. Miller, Federal Practice and Procedure § 2553 at 639-640 (1971) (footnote omitted)

This was precisely the situation before the trial court in the instant case. Plaintiffs specifically requested that Instructions Nos. 2 and 4 be given. Instead the judge denied both. On the basis of the record below, it appears plain that this denial represented the trial judge's final opinion that these two instructions should not be given and that further objection by plaintiffs would have been not only unavailing but wasteful of the court's time. To hold that appellants are now precluded from complaining of the trial court's refusal to give these instructions would be an unnecessary elevation of form over substance. Stewart v. Ford Motor Co., 179 U.S.App.D.C. 396, 406, 553 F.2d 130, 140 (D.C.Cir. 1977) (footnotes omitted)

The court in Stewart further noted that the same interpretation has been reached by both the Third and Seventh Circuits.

This circuit recently expressed a similar view of Rule 51 in Robinson v. Heilman, 563 F.2d 1304 (9th Cir. 1977). In that case, this court reviewed jury instructions in light of

Page 1371

a subsequent decision by the Supreme Court. In so doing, this court held that the defendant's failure to object to the trial court's instruction which incorporated the earlier controlling law of the circuit did not foreclose review by the court under the new case.

Rule 51 was designed to prevent unnecessary new trials caused by errors in instructions that the district court could have corrected if they had been brought to its attention at the proper time. . . . The rule was not intended to require pointless formalities. "There is no need for an exception after the charge has been given where, as here, the court has been fully informed in advance of the charge as to appellants' contention and it was clear that further efforts to persuade the court would have been unavailing. (citations omitted)" . . . . Heilman's counsel had earlier unsuccessfully contended that his client should not be liable for simple negligence. Restating the identical...

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    ...adequate airing of the issues, Courts of Appeals have discretion to consider such arguments. See, e.g., Brown v. Avemco Investment Corp., 603 F.2d 1367 (9th Cir. 1979); Harris v. Smith, 372 F.2d 806, 815 (8th Cir. 1967); cf. Consumers Union v. FPC, 510 F.2d 656, 661-662 (D.C.Cir.1974) (on p......
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    ...in good faith. To support this argument, Plaintiff relies on the Ninth Circuit's decision in Brown v. AVEMCO Investment Corp. , 603 F.2d 1367 (9th Cir. 1979) (construing Texas law), which applied the predecessor to Texas Business and Commercial Code section 1.309. Section 1.309 provides in ......
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