Hertz Commercial Leasing Div. v. Morrison

• Decision Date: 22 August 1990
• Docket Number: No. 89-CA-0137,89-CA-0137
• Citation: 567 So.2d 832
• Parties: HERTZ COMMERCIAL LEASING DIVISION v. Valford MORRISON, d/b/a, Midway Inn Grocery.
• Court: Mississippi Supreme Court

Page 832

567 So.2d 832

HERTZ COMMERCIAL LEASING DIVISION v. Valford MORRISON, d/b/a, Midway Inn Grocery.

No. 89-CA-0137.

Supreme Court of Mississippi.

Aug. 22, 1990.

Dudley H. Carter, Carter & Davidson, Columbus, for appellant.

Jeffrey C. Smith, Sims & Sims, Columbus, for appellee.

Before ROY NOBLE LEE, C.J., and ROBERTSON and ANDERSON, JJ.

ROBERTSON, Justice, for the court.

I.

Today's appeal presents a nice question of pleadings. At issue is whether the defendant, a lessee under an equipment leasing agreement, must affirmatively plead that the acceleration clause is a penalty--and thus substantially unenforceable--to employ that theory and judicially avoid obligations otherwise provided under the literal language of the lease. We find Rule 8(c), Miss.R.Civ.P., declares that he must. Because the lessee/defendant failed to plead this affirmative defense, the trial court's decision crediting same must be reversed.

II.

Valford Morrison is an adult resident citizen of Lowndes County, Mississippi. He does business as a proprietorship under the trade name of Midway Inn Grocery. Morrison's place of business is on Highway 12 in the Caledonia area, midway between Columbus, Mississippi, and Vernon, Alabama. Morrison was the Defendant below and is the Appellee here.

The Hertz Corporation is a foreign corporation authorized to do and doing business in the State of Mississippi. Hertz operates a Commercial Leasing Division which maintains its principal headquarters in Parsippany, New Jersey. Hertz's Commercial Leasing Division is in the business of financing leases of business and commercial equipment. Hertz was the Plaintiff below and is the Appellant here.

Stanco Communications Products, Inc. is a foreign corporation having its principal place of business in Atlanta, Georgia. Stanco is in the business of marketing security equipment and facilities for use in retail sales businesses. At all times relevant hereto Stanco was represented by its salesman, Lloyd Sharpe. Stanco is not a party to this action.

In August of 1984, Stanco, acting through salesman Sharpe, approached Morrison about the latter's need for video monitoring security equipment in his grocery store. Salesman Sharpe negotiated a lease with Morrison for two active cameras, two inactive cameras, a 19 inch television monitor, a manual switcher, a VCR box and a 9 inch television set. The lease was made on a form Hertz had provided to Stanco and Morrison signed it on August 17, 1984. Salesman Sharpe witnessed Morrison's signature. Apparently Stanco sold Hertz its interest in the equipment for some $4,380.00, and then forwarded the agreement to Hertz, which signed it on September 1, 1984.

The lease agreement provided that Hertz owned the equipment and leased it to Morrison for a term of five years. Morrison gave Hertz a security deposit of $118.88 and agreed to pay Hertz $125.42 per month beginning September 1, 1984. Shortly thereafter Morrison became dissatisfied with the equipment and says it has been inoperable ever since. On March 5, 1985, Hertz declared Morrison in default and advised him that it was terminating the lease. To the point, Hertz cited an acceleration clause in the lease agreement which provided that, upon Morrison's default, Hertz held the option to aggregate all unpaid lease payments for the entire five year term and to declare same immediately due and payable. Hertz also held the right to retake the equipment.

Push came to shove and on December 13, 1985, Hertz commenced the present action by filing its complaint in the Circuit Court of Lowndes County, Mississippi, naming Morrison as defendant. Hertz sued on the lease agreement and demanded accelerated, aggregated rentals in the sum of $6,968.76 together with costs and reasonable attorneys' fees. See Miss.Code Ann. Sec. 11-53-81 (1972).

After several false starts of no import, Morrison answered the complaint and asserted three defenses. First, Morrison admitted the agreement, the security deposit and one monthly payment, and then simply denied that he owed Hertz any more money. Morrison does not dispute the mathematics of Hertz's demand. Second, Morrison's pleading asserted affirmatively Hertz had failed in its duty to mitigate its damages by failing to retake possession of the security equipment after Morrison requested that Hertz do so in December, 1984. Third, Morrison charged that the agreement was in essence a sale and that Hertz had impliedly warranted the fitness of the equipment and had thereafter breached its warranty, thus relieving Morrison of the duty to pay.

Of importance, Morrison made no charge that the acceleration clause of the lease agreement constituted a penalty nor did he assert any other reason in fact or in law why that clause might be unenforceable or why he should be relieved of (any part of) the obligations its written language imposed upon him.

On January 2, 1987, the Circuit Court transferred the case to the County Court of Lowndes County for hearing and disposition.

In due course, Hertz moved for summary judgment. On April 10, 1987, Morrison filed a written response to the motion, including citations of authority. As before, Morrison asserted no factual or legal theory upon which the acceleration clause may be held illegal or unenforceable, other than the breach of warranty and mitigation defenses set forth in its answer.

In time, the Court granted Hertz partial summary judgment, holding the agreement enforceable as a lease rather than as a contract for sale, citing Briscoe's Foodland, Inc. v. Capitol Associates, Inc., 502 So.2d 619 (Miss.1986). The Court then set the case for trial on the limited question of Morrison's defense that Hertz had failed in its duty of mitigating its damages. On July 14, 1988, the Court filed an opinion, construing the acceleration clause to provide for a penalty (as distinguished from "liquidated damages") by reason of which Hertz could recover only that amount reasonably necessary to make it whole. The Court found that

Hertz has proven a direct loss sustained by it in the amount of $668.12, being the monthly payments of $125.42 due Hertz by the defendant from September 1, 1984, through March 1, 1985, less one payment of $90.94 and a security deposit of $118.88.

The Court adjudged Hertz entitled to recover of Morrison $668.12, plus attorney fees of $222.71. plus costs, but denied Hertz any further relief. On appeal, the Circuit Court affirmed.

Hertz now appeals to this Court.

III.

Insofar as the record reflects, the legal concept of a contract penalty has its first mention in the County Court's dispositive opinion of July 14, 1988. Hertz charges on this appeal that the Court had no authority to consider the theory for the reason that, according to Hertz, penalty is in the nature of the affirmative defense of "illegality" which Rule 8(c), Miss.R.Civ.P., required that Morrison plead on pain of waiver. Morrison made no such affirmative pleading, nor has he tendered an amendment, which he may have done even after judgment. See Rule 15(b), Miss.R.Civ.P.; Queen v. Queen, 551 So.2d 197, 200-201 (Miss.1989).

Rule 8(c) provides, in pertinent part,

Affirmative Defenses. In pleading to a preceding pleading, a party shall set forth affirmatively ... duress, estoppel, failure of consideration, fraud, illegality, ..., statute of frauds, ..., and any other matter constituting an avoidance or affirmative defense.

If a matter is an affirmative defense, the defendant bears the burden of production and the risk of non-persuasion. McDaniel v. Ritter, 556 So.2d 303, 314 (Miss.1989); Smith v. Sanders, 485 So.2d 1051, 1053 (Miss.1986). Rule 8(c) saddles him with the burden of pleading as well, as a defense within that rule is waived if not timely and adequately pleaded. Bailey v. Georgia Cotton Goods Co., 543 So.2d 180, 182-83 (Miss.1989); Wholey v. Cal-Maine Foods, Inc., 530 So.2d 136, 138-39 (Miss.1988). The reason for the rule is familiar and goes to the point of fairness. If one such as Morrison is going to defend on the theory of penalty, he should be required to tell his plaintiff so that his plaintiff would have fair opportunity to study the matter and try persuading the trial court the defense ought not prevail. These truisms set our context but beg the question, whether the legal theory the lower court labeled penalty and thereupon declared Hertz's lease substantially legally unenforceable is one within the imperatives of Rule 8(c).

Our positive law declares some subjects off limits to parties who would contract. First National Bank of Vicksburg v. Caruthers, 443 So.2d 861, 864 n. 3 (Miss.1983) (contracts contrary to public policy); Walker v. Williams, 214 Miss. 34, 42, 58 So.2d 79, 81 (1952) (contract to surrender custody of child); Jones v. McFarland, 178 Miss. 282, 286, 173 So. 296, 297 (1937) (contracts contrary to public policy); Spinks v. Davis, 32 Miss. 152 (1856) (same); Odineal v. Barry, 24 Miss. 9 (1852) (same). Gambling contracts are similarly sans sanction. Such contracts are void ab initio and, if sued on, may be said subject to the affirmative defense of illegality within Rule 8(c).

Other functionally analogous defenses may be found within our law. Consider failure of consideration and the statute of frauds. If one party sues another on a contract, and if the defendant wishes to offer failure of consideration in defense, Rule 8(c) makes him assert the matter affirmatively in his answer or stay silent. If he wishes to charge that the statute of frauds renders the contract unenforceable in law, he must so plead affirmatively.

As defenses to a contract action, failure of consideration, illegality and statute of frauds are similar. Each assumes the contract on its face entitles plaintiff to prevail but then reaches into the bag of rules prescribing forms and limiting the power of persons to contract and pulls one out, saying, "See, this contract may not be enforced." Each finds a rule of law external to the...