Hall v. Owen County State Bank

• Decision Date: 20 December 1977
• Docket Number: No. 1-177A4,1-177A4
• Parties: , 7 A.L.R.4th 285, 23 UCC Rep.Serv. 267 Howard E. HALL, Appellant (Defendant and Counterclaimant below), v. OWEN COUNTY STATE BANK, Appellee (Plaintiff and Counterdefendant below), Allan L. Reed, Appellee (Defendant below).
• Court: Indiana Appellate Court

Page 918

370 N.E.2d 918

175 Ind.App. 150, 7 A.L.R.4th 285, 23

UCC Rep.Serv. 267

Howard E. HALL, Appellant (Defendant and Counterclaimant below), v. OWEN COUNTY STATE BANK, Appellee (Plaintiff and Counterdefendant below) Allan L. Reed, Appellee (Defendant below).

No. 1-177A4.

Court of Appeals of Indiana, First District.

Dec. 20, 1977.

Rehearing Denied Jan. 20, 1978.

Robert A. Ledgerwood, Nisenbaum & Brown, Indianapolis, for appellant.

Hickam & Hickam, Spencer, for appellee.

ROBERTSON, Chief Judge.

Defendant-appellant, Howard Hall (Hall) brings this appeal from an adverse judgment by the trial court, sitting without a jury, in an action by Owen County State Bank (Bank) for judgment on three promissory notes executed by Hall. The fifteen issues raised by Hall on appeal may be grouped and summarized as follows:

1. Is the decision of the trial court that Hall waived his right to notice under IC 1971, 26-1-9-504(3) not supported by sufficient evidence and contrary to law? (Hall's issues 9 & 10).

2. Is the decision of the trial court that Hall received sufficient notice of the sale of collateral under IC 1971, 26-1-9-504(3) not supported by sufficient evidence and contrary to law? (Hall's issues 1, 3, 4, 5 and 7).

3. Is the decision of the trial court that the fair value of the collateral did not exceed $25,000.00 not supported by sufficient evidence? (Hall's issue 6).

4. Is the trial court's decision that the sale of the collateral was commercially reasonable not supported by sufficient evidence and contrary to law? (Hall's issues 11 and 12).

5. Did the trial court err by not awarding certain attorney's fees to Hall? (Hall's issue 15).

6. Did the trial court err in not allowing Hall to testify as to certain elements of his claim for punitive damages? (Hall's issue 2).

7. Is the decision of the trial court that the bank did not act in a willful and malicious manner not supported by sufficient evidence and contrary to law? (Hall's issue 8).

8. Is the decision of the trial court on the complaint and on Hall's counterclaim not supported by sufficient evidence and contrary to law? (Hall's issues 13 and 14).

The relevant facts of this case show that sometime in late 1971, Hall and his son-in-law, Allan Reed, began a trucking business under the name of H & R Trucking Company. In order to finance the needed trucking equipment, it was necessary for Hall and Reed to apply for loans from the Bank. The Bank granted loans aggregating approximately $56,000.00 in return for promissory notes and a security interest in the equipment purchased with the loan proceeds.

All went well until late 1973 or early 1974 when the business began to fail and Hall and Reed became delinquent in their monthly installments on the notes. At one point in the spring of 1974, one Bank officer, Lewis Cline, testified he called on Hall at his home to discuss the delinquent loan payments and that Hall stated he could not afford to make any more payments, that he "washed his hands" of the entire matter and did not want to be bothered any more, and that the Bank should thereafter talk with Reed.

The Bank then contacted Reed on numerous occasions concerning the delinquent loans and an attempt was made to restructure the payment schedule. However, Reed was unable to make the payments required under the new schedule and the Bank, on June 8, 1974, sent a letter to Reed demanding possession of the collateral, which consisted of two tractor-trailer rigs. On Sunday, June 30, 1974, Reed delivered both tractors and both trailers to the Bank's parking lot without any prior notice to the Bank. He returned the next morning, Monday, July 1, to surrender to the Bank the keys to the trucks.

Robert Ingalls, a used car and truck dealer in the area, was in the Bank on Monday morning and noticed the trucks in the parking lot. He inquired as to whether the equipment was for sale, and upon receiving an affirmative response, began to negotiate with Bank officers for the purchase of the equipment. Later that day, the negotiations ended with a take-it or leave-it offer for that day only of $25,000 in cash for all four units.

After deciding to accept the offer, the Bank notified Reed, who was at Hall's residence in Gosport, by telephone and Reed returned to the Bank. Bank officers explained the terms of the sale to him and explained that the proceeds of the sale were less than the amount due on the notes. Reed agreed that Ingalls' offer was fair and endorsed the truck titles without objection. Ingalls then paid the $25,000.00 to the Bank and the Bank credited the entire amount, without any deductions for expenses, to the amount due on the notes.

On June 9, 1975, the Bank filed its action against Hall and Reed for the amount still due under the notes. Default judgment was rendered against Reed and he has not joined in this appeal. Hall filed his answer, certain affirmative defenses, and a counterclaim against the Bank for compensatory and punitive damages. The trial court found in favor of the Bank and against Hall and awarded judgment against Hall in the sum of $2,328.25 in principal and interest and $500.00 in attorneys' fees. Hall then timely perfected this appeal.

The trial court stated in its findings that Hall had waived his right to notice of sale and that he was therefore estopped to assert any lack of notice. This finding is based on the meeting between Hall and Lewis Cline in which Hall allegedly stated that he "washed his hands" of the whole matter and directed the Bank to deal exclusively with Reed. Hall argues that this finding is contrary to law and not supported by sufficient evidence. He argues that he was entitled to notice of sale under IC 1971, 26-1-9-504(3). ¹ He further cites IC 1971, 26-1-9-501(3) as being a statutory prohibition of a waiver of that notice and also cites a provision incorporated in each of the notes which states:

"If any notification of intended disposition of any of the collateral is required by law, such notification shall be deemed reasonably and properly given if mailed at least ten (10) days before such disposition, postage pre-paid, addressed to the Borrower at the address shown on other side."

The Bank argues, on the other hand, that IC 1971, 26-1-9-501(3) does not apply in this situation, that notice of sale can be waived, and that Hall did in fact waive his right to any notice.

IC 1971, 26-1-9-501(3) (which is § 9-501(3) of the Uniform Commercial Code) reads in pertinent part as follows:

(3) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied . . .

(b) subsection (3) of section (26-1-)9-504 and subsection (1) of section (26-1-)9-505 which deal with disposition of collateral;

While this section has not been the subject of interpretation by the Indiana appellate courts, it appears that a question has arisen in the cases from other jurisdictions dealing with UCC § 9-501(3) as to the extent of this non-waiver provision. The cases seem to be in agreement, and we would also agree, that under this section the secured party may not incorporate a waiver provision in the security agreement. However, there is a split of authority as to whether or not the debtor may waive notice of sale after default. In Nelson v. Monarch Investment Plan of Henderson, Inc. (1970), Ky., 452 S.W.2d 375, it was held that UCC § 9-501 applied only to the antecedent agreement between the debtor and secured party (the security agreement) and did not affect the right to invoke the principles of waiver and estoppel to transactions of the parties subsequent to default. In O'Neil v. Mack Trucks, Inc. (Tex.Civ.App.1975), 533 S.W.2d 832, 19 UCC Rep. 984, the court held that only a written waiver signed after default would be effective against the debtor. Finally, the court in Aimonetto v. Keepes (Wyo.1972), 501 P.2d 1017, 11 UCC Rep. 1081, ruled that UCC § 9-501(3) prevented any waiver of the debtor's right to notice under UCC § 9-504(3).

Although it has been argued that UCC § 1-103 ² brings in the common law of waiver and estoppel so as to allow a waiver by the debtor after default, we feel that the general provisions of UCC § 1-103 are supplanted by the specific language in section 9-501(3) prohibiting any waiver. Furthermore, Indiana has not adopted the 1972 amendments to the UCC proposed by the Commissioners on Uniform State Laws which would amend UCC § 9-504(3) to allow the debtor to sign after default a renunciation of his rights to notification. Finally, we find very persuasive as to the policy behind UCC § 9-501(3) the following portion of Official Comment 4 to UCC § 9-501:

The default situation offers great scope for overreaching; the suspicious attitude of the courts has been grounded in common sense.

Subsection (3) of this section contains a codification of this long standing and deeply rooted attitude: the specified rights of the debtor and duties of the secured party may not be waived or varied except as stated.

Although there are persuasive arguments in favor of allowing a waiver of rights by the debtor after default, we feel the better interpretation of UCC § 9-501(3), and that which is more in line with the policy of UCC § 9-504 to protect the rights of the debtor, is that the non-waiver provision of UCC § 9-501(3) applies both before and after default. We therefore hold that IC 1971, 26-1-9-501(3) does not allow a waiver by the debtor of his right to reasonable notification under IC 1971, 26-1-9-504(3) and that the trial court erred in finding that Hall waived notice of the sale and was estopped by this waiver to contest the sale because of insufficient notice. ³

Hall further argues that the trial court erred in its findings of fact that sufficient notice was sent by the Bank to Hall. Although the trial court's findings do not specifically state that sufficient notification was sent by the Bank, its Finding...