ITT-Indus. Credit Co. v. Milo Concrete Co., Inc., ITT-INDUSTRIAL

• Decision Date: 17 November 1976
• Docket Number: ITT-INDUSTRIAL,No. 7626SC392,7626SC392
• Court: North Carolina Court of Appeals
• Parties: , 20 UCC Rep.Serv. 1067 CREDIT COMPANY, Plaintiff, v. MILO CONCRETE CO., INC., Defendant, v. J. I. CASE CO., Third-Party Defendant.

Page 814

229 S.E.2d 814

31 N.C.App. 450, 20 UCC Rep.Serv. 1067

ITT-INDUSTRIAL CREDIT COMPANY, Plaintiff, v. MILO CONCRETE CO., INC., Defendant, v. J. I. CASE CO., Third-Party Defendant.

No. 7626SC392.

Court of Appeals of North Carolina.

Nov. 17, 1976.

Richard A. Cohan, Charlotte, for plaintiff-appellee.

Mullen, Holland & Harrell, P.A., by Graham C. Mullen, Gastonia, for defendant-appellant and third-party plaintiff-appellee.

Mitchell & Matus by T. Patrick Matus, Charlotte, for third-party defendant-appellant.

BRITT, Judge.

APPEAL OF MILO

Milo contends that the trial court erred in directing a verdict with respect to its counterclaim against plaintiff based on breach of warranty and in instructing the jury that plaintiff was not subject to a defense based on breach of warranty. These contentions are without merit.

Plaintiff is the assignee of a retail installment sales contract entered into between seller Case and the buyer Milo. This contract contains a valid 'waiver of defenses' provision which provides that: 'Buyer agrees not to assert against the assignee any defense, offset or counterclaim which he may have against the Seller.' G.S. 25--9--206(1) permits a contractual waiver of certain defenses by the buyer by providing:

'Subject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under the article on commercial paper (article 3) . . ..'

We note first that the General Assembly has enacted Chapter 25A, entitled Retail Installment Sales Act, in which G.S. 25A--25 alters the rule as to waiver of defenses against an assignee of a contract in all consumer credit sales. That statute is not applicable in the present case (see G.S. 25A--2), therefore, G.S. 25--9--206(1) is controlling.

Milo argues that plaintiff was not a holder in due course since the contract involved did not meet the requisites of negotiability. Although this argument is correct, plaintiff was still free of all defenses (including breach of warranty) except those that may be asserted against a holder in due course, if plaintiff met the requirements of G.S. 25--9--206(1). In the instant case, the waiver of defenses clause is enforceable since all the evidence showed that plaintiff took the assignment for value, in good faith, and without notice of any claims or defenses.

Milo further argues that plaintiff, by its degree of involvement with the seller Case, was so 'inextricably intertwined' in the sales transaction that it is 'unfair' to foreclose Milo's defense based on breach of warranty. Milo supports this argument with the evidence that plaintiff supplied the contract form, that plaintiff was the assignee of twelve contracts from seller Case during 1973 and 1974, and that plaintiff approved the customer's credit and financing. We aware that the arguments made by Milo have been accepted by some courts, particularly in consumer transactions in holding that waiver of defense clauses may be unenforceable as against public policy. Commercial Credit Corp. v. Orange Co. Mach. Works, 34 Cal.2d 766, 214 P.2d 819 (1950); Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967); Rehurek v. Chrysler Credit Corp., 262 So.2d 452 (Fla.1972); Navin, Waiver of Defense Clauses in Consumer Contracts, 48 N.C.L.Rev. 505 (1970).

Nevertheless, we think that in the commercial setting of the instant case the waiver of defenses clause was effective in cutting off, as to plaintiff, the defense and counterclaim based on breach of warranty. The validity of the statutory provision (G.S. 25--9--206(1)) authorizing the inclusion of waiver of defense clauses has been upheld Milo next contends the trial court erred in refusing to submit to the jury an issue as to whether plaintiff disposed of the collateral in a commercially reasonable manner. We think this contention has merit.

many times. First Nat. Bank v. Husted, 57 Ill.App.2d 227, 205 N.E.2d 780 (1965); Beam v. John Deere Co., 240 Ark. 107, 398 S.W.2d 218 (1966); B. W. Acceptance Corp. v. Richmond, 46 Misc.2d 447, 259 N.Y.S.2d 965 (Sup.Ct.1965); Jennings v. Universal C.I.T. Credit Corp., 442 S.W.2d 565 (Ky.1969); Cox v. Galigher Motor Sales Co., 213 S.E.2d 475 (W.Va.1975); Westinghouse Credit Corp. v. Chapman, 129 Ga.App. 830, 201 S.E.2d 686 (1973). Milo's attempt to assert a breach of warranty against the plaintiff was effectively waived in the contract, therefore, this contention is rejected.

G.S. 25--9--504(3) provides in pertinent part:

'Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the Method, manner, time, place and Terms must be Commercially reasonable. . . .' (Emphasis added.)

To minimize difficulties arising from the quoted statute, our General Assembly has enacted part 6 of Article 9 of the North Carolina Uniform Commercial Code entitled 'Public Sale Procedures.' If the secured creditor disposes of the collateral in a manner in substantial compliance with G.S. 25--9--601, [31 N.C.App. 457] et seq., a conclusive presumption of commercial reasonableness is created. Graham v. Northwestern Bank, 16 N.C.App. 287, 192 S.E.2d 109, Cert. denied, 282 N.C. 426, 192 S.E.2d 836 (1972); Hodges v. Norton, 29 N.C.App. 193, 223 S.E.2d 848 (1976). These procedures provide for the contents of the notice of sale (G.S. 25--9--602), the posting and mailing of the notice of sale (G.S. 25--9--603), and the postponement of public sale (G.S. 25--9--605), among others. These procedures are not a part of the 'Official Text of the U.C.C.' and appear to be peculiar to this State. Hodges v. Norton, supra.

The evidence presented in this case is insufficient to establish the conclusive presumption of commercial reasonableness provided by G.S. 25--9--601, et seq. Plaintiff's evidence tends to show: The equipment was voluntarily surrendered; approximately $6,000 worth of repairs were made before it could be sold; there were advertising expenses of $8.94 on 4 February 1975, $10 on 31 March 1975, and $18.25 on 10 August 1975; it cost $792 to sell the equipment at auction; and the equipment sold for $9,900 at the auction. Plaintiff's sole witness stated that there were several contacts with Milo 'prior to the month of default, and subsequent to that date also.' On cross-examination, plaintiff's witness testified that the public sale was held at the Mecklenburg County Fairgrounds in July of 1975. It was shown that plaintiff advertised the sale on several dates and one notice of sale was produced that indicated that the sale would take place on 6 March 1975. On redirect examination plaintiff's witness identified a notice of sale sent by certified mail to Miles Hamrick (Milo's president) advertising a sale to be held on 19 July 1975 and received by Jane A. Hamrick on 8 July 1975. This notice of sale was not introduced into evidence and there is no evidence of its contents. The record does not indicate whether the contents of the notice of sale were in substantial compliance with G.S. 25--9--602, or whether a notice was posted at the courthouse as required by G.S. 25--9--603. The requirements of G.S. 25--9--601, et seq. are neither difficult to comply with nor to prove at trial. Substantial compliance is required and based on the lack of evidence presented in this case, we hold that no conclusive presumption of commercial reasonableness was established.

We recognize that a public sale may be commercially reasonable even though it does not substantially comply with G.S. 25--9--601, et seq. Hodges v. Norton, supra. However, absent the establishment of the conclusive presumption of commercial In the absence of the establishment of conclusive presumption, the issue of commercial reasonableness requires a factual determination in light of the relevant circumstances of each case. In the present case, a proper issue was raised for the jury as to whether the sale was conducted in a commercially reasonable manner as to 'method, manner, time, place and terms.' Clark Leasing Corp. v. White Sands Forest Prod., Inc., supra; Fort Knox Nat. Bank v. Gustafson, 385 S.W.2d 196 (Ky.1964); Ennis v. Atlas Finance Co., 120 Ga.App. 849, 172 S.E.2d 482 (1969); California Airmotive Corp. v. Jones, 415 F.2d 554 (6th Cir. 1969); Atlas Constr. Co. v. Dravo-Doyle Co., 3 UCC Rep.Serv. 124 (Pa.C.P.1965). The trial court, therefore, erred when it refused to submit this issue to the jury.

reasonableness, we think a question of fact remains as to whether the sale was conducted in a commercially reasonable manner under G.S. 25--9--504(3). We also think that under the greater weight of authority a creditor, when suing for a deficiency, has the burden of proving that the disposition of the collateral was conducted in a commercially reasonable manner. Clark Leasing Corp. v. White Sands Forest Prod., Inc., 87 N.M. 451, 535 P.2d 1077 (1975); Vic Hansen & Sons, Inc. v. Crowley, 57 Wis.2d 106, 203 N.W.2d 728 (1973); Mallicoat v. Volunteer Finance & Loan Corp., 57 Tenn.App. 106, 415 S.W.2d 347 (1966); First Nat. Bank v. Rose, 188 Neb. 362, 196 N.W.2d 507 (1972).

APPEAL OF CASE

Case contends first that the trial court erred in allowing Milo's president to testify that the value of the pump would have been $56,000 had it performed as warranted, and then excluding his testimony on cross-examination that the cash price of the pump was $46,800. Under the facts in this case, we find no merit in the contention.

We think that evidence showing...