First City Bank-Farmers Branch v. Guex

Citation659 S.W.2d 734
Decision Date23 September 1983
Docket NumberNo. 05-81-01199-CV,BANK-FARMERS,05-81-01199-CV
Parties37 UCC Rep.Serv. 1008 FIRST CITYBRANCH, Texas, Appellant, v. Andre GUEX and Mary Ann Kaprielian, Appellees.
CourtCourt of Appeals of Texas

William A. Pritchard, Dallas, for appellant.

Alan M. Glassman, G. Robert Wileman, Dallas, for appellees.

Before CARVER, VANCE and GUILLOT, JJ.

VANCE, Justice.

First City Bank appeals from a judgment awarding recovery to Andre Guex for the bank having disposed of Guex's repossessed boat and trailer without giving notice to him, as a result of which Guex was deprived of the collateral for more than a year. We affirm.

This case arose out of the purchase of a boat by Guex and Marotte. They were co-makers of a note with the bank, the bank retaining a security interest in the collateral. After a period of time, Marotte, who had been making the payments, defaulted on the note. Guex then began making the payments, having first secured a written agreement 1 with Marotte to ensure Guex would become sole owner of the boat when all payments had been completed and Marotte had been reimbursed for his interest. 2

Later Guex experienced financial difficulty and defaulted on two payments. The bank sent a notice of default to Guex, 3 and subsequently took possession of the collateral. The bank officer, Ham, testified that after the bank sent notice of default to Guex, Marotte had called him, asking him what to do in view of his joint liability on the note. Ham informed him that if he would make the past due payments, plus late charges and repossession fee, the bank would let him have possession. Marotte first suggested the loan be put in his name only. Ham agreed, but during the last moments of the phone call Marotte changed his mind and requested that the loan be put in the name of his girlfriend, Kaprielian. The agreement was that the necessary documents would be prepared to put the loan in Kaprielian's name, and that Marotte would guarantee the note. It is undisputed that thereafter, on June 16, 1980, the bank officer accepted a check drawn by Kaprielian on her family trust account in an amount to cover the amount of arrearage and storage. The check carried the notation "Deposit on Clipper, part down." It was disputed whether Kaprielian or Marotte took the check to the bank, 4 however the bank released the boat and Marotte had it delivered to the address where both he and Kaprielian resided. Two days later the bank officer apparently called Kaprielian, advising her that she could buy the boat by paying off the outstanding balance of the loan. The formalities were to be executed the next day. It is undisputed that the bank failed to give Guex any notice of this intended disposition to a third party.

Meanwhile, Guex had contacted the bank about the disappearance of his boat, and the same bank officer had informed him that he could have his boat in return for a cashier's check for the unpaid balance. Guex testified that on June 19, 1980, he brought such a check to the bank, while Kaprielian and Marotte were there, but the bank refused to accept it, stating the boat had been sold for $1500 to a third party. 4a Kaprielian had just met with the bank officer, as agreed, and signed a promissory note and a security agreement which covered only the balance due on the boat. 5 Guex later returned to the bank, this time with his attorney, who persuaded the bank to accept the proffered cashier's check. The bank officer informed Guex that he could get his boat from Kaprielian. Not until fourteen months later did Guex recover his boat, which had been damaged in the interim.

The bank eventually returned the executed promissory note and security agreement to Kaprielian, having marked "Void" across it. Although in the trial court both Guex and Kaprielian recovered judgment against the bank, the bank appeals only as to Guex. 6

The claim of Guex asserted that the bank wrongfully disposed of his collateral without notice to him of sale or other intended disposition required by 1) the contractual financing provisions between the parties and 2) § 9.504(c) of the Tex.Bus. & Com.Code Ann. (Vernon Supp.1982). Section 9.504(c), in pertinent part, provides:

Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale [emphasis added].

Section 9.507(a) of the Tex.Bus. & Com.Code Ann. (Vernon Supp.1982) provides for both compensatory and statutory damages if the disposition by the secured party has occurred without the notice required by section 9.504(c).

The jury found that the bank had disposed of the collateral and that Guex was entitled to exemplary damages; however, the court awarded him statutory damages only. On appeal Guex urges a cross-point seeking the exemplary damages found by the jury.

The bank argues that the term "disposition," as used in sections 9.504 and 9.507, has an obvious meaning of transfer of title. Thus the bank reasons that there was no sale or disposition of the collateral as a matter of law or fact because the bank did not transfer title to Kaprielian, the girlfriend of the co-maker of the note, Marotte. 7 We disagree. Section 9.504(c) requires notice to the debtor in either of two instances, a "sale or other intended disposition." While a transfer of title may be necessary to complete a sale, we have concluded that a "disposition," as contemplated in sections 9.504 and 9.507, is not limited to those transactions which involve a transfer of title. A transfer of possession to a third party without notice to the debtor is also a violation of section 9.504(c).

This construction is consistent with other provisions of the Code. Section 9.202 detaches the rights and duties of the parties from passage of title:

Each provision of this chapter [Secured Transactions], with regard to rights, obligations and remedies applies whether title to collateral is in the secured party or in the debtor.

The official comment to section 9.202 reinforces that statement, expanding its application to include third parties: "The rights and duties of the parties to a security transaction and of third parties are stated in this Article without reference to the location of 'title' to the collateral." See also Tex.Bus. & Com.Code Ann. § 2.401, comment 1 (Vernon 1968). The proposition that under Article 9 (Secured Transactions) of the Business & Commerce Code the location of title does not determine the rights of the parties accords with the underlying purposes and policies of the Code, which are to simplify, clarify and modernize the law governing commercial transactions and to permit the continued expansion of commercial practices through custom, usage and agreement of the parties. See Tex.Bus. & Com.Code Ann. § 1.102(b)(1)-(2) (Vernon 1968).

Furthermore, section 9.504, the notice provision, and section 9.507, the damages provision, refer to transfer of the collateral rather than transfer of title to the collateral. Section 9.504(a) gives a secured party after default the right to "sell, lease or otherwise dispose" of the collateral. Only the first category, a sale, would eventually involve a transfer of title. The first official comment under section 9.504 emphasizes: "Subsection (1) 8 does not restrict disposition to sale: the collateral may be sold, leased, or otherwise disposed of ...." Section 9.507(a), which provides an aggrieved party with a right to damages against a secured party who gave no notice, does not even refer to a "sale," but only to a "disposition." Clearly the draftsmen of this statute contemplated that the disposition could be something other than a sale and transfer of title. In dealing with the same statute enacted in Texas as section 9.504(c), the mandatory notice provision, the Oklahoma Supreme Court noted that:

The clear intent of the applicable provisions of the UCC is to allow the repossessing secured party substantial flexibility as to the method chosen to dispose of the collateral. Brunswick Corp. v. J. and P. Inc., 424 F.2d 100 (10th Cir.1970). Although other options are available to dispose of repossessed property other than by sale ... Wilkerson Motor Co. v. Johnson, 23 UCC Reporting Service 842, 845 (Okla.1978).

That a "disposition" may occur without a completed sale and transfer of title is reinforced by the language of section 9.504(c): "Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts." The bank officer, Ham, stated at trial that upon learning of the boat's repossession Marotte had called to ask if the bank would put the loan in Kaprielian's name, relieving him of joint liability on the note. 9 Ham agreed to this suggestion. At trial Ham stated that Kaprielian (not Marotte, as the dissent claims) presented him a check for the arrearage, having written it out at his desk, and that the bank then released the boat from storage.

The jury was instructed that:

The Bank shall be deemed to have 'DISPOSED OF THE COLLATERAL' if it delivered possession or custody of the boat and trailer to Mary Ann Kaprielian with the intention of investing her with such proprietary interest in the boat and trailer as to enable her to retain them in her possession for a period of time or permanently. [Emphasis added.]

The bank failed entirely to object to the charge as formulated or to request a different definition. A failure to raise objections in the trial court waives points of error for purposes of appeal. Ormsby v. Travelers Indemnity Co., 601 S.W.2d 779, 780 (Tex.Civ.App.--Waco 1980, no writ); First State...

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