J.M. Smith Corp. v. Matthews

• Decision Date: 17 September 1996
• Docket Number: A-B,No. COA95-1159,COA95-1159
• Citation: 474 S.E.2d 798,123 N.C. App. 771
• Court: North Carolina Court of Appeals
• Parties: J.M. SMITH CORPORATION d/b/a Smith Drug Company, Plaintiff, v. Mildred Fields MATTHEWS, Individually and d/b/aPharmacy, Medical Associates Pharmacy of Asheville LP, Medical Associates of America, Inc., Defendants.

Page 798

474 S.E.2d 798

123 N.C.App. 771

J.M. SMITH CORPORATION d/b/a Smith Drug Company, Plaintiff, v.Mildred Fields MATTHEWS, Individually and d/b/a A-B Pharmacy, Medical Associates Pharmacy of Asheville LP, Medical Associates of America, Inc.Defendants.

No. COA95-1159.

Court of Appeals of North Carolina.

Sept. 17, 1996.

McGuire, Wood & Bissette, P.A. by T. Douglas Wilson, Jr., Asheville, for plaintiff.

Devere Lentz & Associates by John M. Olesiuk, Asheville, for defendants.

SMITH, Judge.

Defendant Matthews owned A-B Pharmacy in Asheville, North Carolina.In the course of operating A-B Pharmacy, defendant established an account to purchase pharmaceutical supplies from plaintiff.Pursuant to such account, the parties entered into a security agreement granting plaintiff a security interest in defendant's inventory, accounts receivable, furniture, fixtures and equipment and in all proceeds from the sale of any of the collateral named in the agreement.The security agreement further provided that it could not be modified or amended except in writing by the parties.The account that plaintiff and defendant set up was otherwise an open account.Defendant, or one of her employees placed orders with plaintiff on a daily basis.It was the parties' custom and practice for defendant to make weekly payments for the outstanding balance to plaintiff's sales representative.This custom of frequent orders and weekly payments continued for more than three-and-one-half years while defendant owned the pharmacy.Additional facts necessary to the disposition of this case are discussed later in this opinion.

On 13 February 1995, plaintiff filed this action against Medical Associates and defendant Matthews.Plaintiff and defendant Matthews both moved for summary judgment with supporting affidavits.On 21 June 1995, the trial judge granted plaintiff's motion and entered judgment against defendant Matthews in the amount of $20,170.79, plus pre- and post-judgment interest.The trial court further denied defendant Matthews' motion for summary judgment.Defendant Matthews subsequently voluntarily dismissed her cross claims against codefendants in this action.From the summary judgment order, defendant Matthews appeals.

A motion for summary judgment should be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.In passing upon a motion for summary judgment, the court must view the evidence presented by both parties in the light most favorable to the nonmoving party.N.C. Gen.Stat. § 1A-1,Rule 56(c)(1990);Davis v. Town of Southern Pines, 116 N.C.App. 663, 665-66, 449 S.E.2d 240, 242(1994), disc. review denied, 339 N.C. 737, 454 S.E.2d 648(1995).After reviewing the forecast of evidence of record, we disagree with the trial court and determine that summary judgment should have been granted in favor of defendant.

As a preliminary matter, we note that the security agreement between the parties contains the following provision: "6.Governing Law.This agreement is being executed and delivered in the State of South Carolina and shall be construed in accordance with and governed by the laws of said State."When the security agreement is construed in accordance with South Carolina law, it is obvious that the obligation to pay for the pharmaceutical supplies arose under the open account between the parties and not under the security agreement."The debt was not created by the security agreement nor [is] its validity dependent on the existence or enforceability of the security agreement."Hyload, Inc. v. Pre-Engineered Products, Inc., 308 S.C. 277, 282, 417 S.E.2d 622, 625(App.1992)."This [is] not an action to enforce rights in collateral, but an action for a money judgment against the debtor."Id.Though the security agreement is governed by South Carolina law, there is nothing in the record indicating any agreement as to the controlling law on the open account.Where the transaction bears a reasonable relation to more than one state, the U.C.C. permits the parties to agree with respect to which state's law shall govern their rights and duties.Wohlfahrt v. Schneider, 82 N.C.App. 69, 74, 345 S.E.2d 448, 451(1986);N.C. Gen.Stat. § 25-1-105(1)(1995).South Carolina has also adopted the U.C.C. Draffin v. Chrysler Motors Co., 252 S.C. 348, 166 S.E.2d 305, 306 n. 1(1969).However, "[w]here there is no agreement as to the governing law, the Act is applicable to any transaction having an 'appropriate' relation to any state which enacts it.Of course, the Act applies to any transaction which takes place in its entirety in a state which has enacted the Act."SeeN.C. Gen.Stat. § 25-1-105 Amended Official Comment.Our Courts have interpreted "appropriate relation" to mean "most significant relationship."Boudreau v. Baughman, 322 N.C. 331, 338, 368 S.E.2d 849, 855(1988).Therefore, because the pharmaceutical supplies were ordered in North Carolina, delivered in North Carolina, paid for in North Carolina and sold in North Carolina, we hold that the transaction bears an appropriate relation to North Carolina.Accordingly, resolution of the substantive issues in this case in the action on the account is controlled by North Carolina law.

"[North Carolina] follows the generally accepted view that a contract of indefinite duration may be terminated by either party on giving reasonable notice."City of Gastonia v. Duke Power Co., 19 N.C.App. 315, 317, 199 S.E.2d 27, 29(citations omitted), cert. denied, 284 N.C. 252, 200 S.E.2d 652(1973)."To avoid injustice, however, this rule is subject to the qualification that such a contract may not be unilaterally terminated until it has been in effect for a reasonable time, taking into account the purposes the parties intended to accomplish."Id. at 318, 199 S.E.2d at 29-30.Succinctly stated, the North Carolina rule is as follows:

"As a general rule, where no time is fixed for the termination of a contract it will continue for a reasonable time, taking into account the purposes that the parties intended to accomplish; and where the duration of the contract cannot be implied from its nature and the circumstances surrounding its execution, the contract is terminable at will by either party on reasonable notice to the other."

Id. at 318, 199 S.E.2d at 30(citation omitted).

The open account established between the parties appears to be the result of an oral agreement.There is no evidence that any time limitation was put on the account by the parties.The account was in existence for over three-and-one-half years while defendant owned A-B Pharmacy.An ordinary open account results where the parties intend for individual transactions to be considered as a connected series rather than as independent of each other, and a balance is kept by adjustment of debits and credits and further dealings between the parties are contemplated.Whitley's Electric Service, Inc. v. Sherrod, 293 N.C. 498, 503, 238 S.E.2d 607, 611(1977)(citingMcKinnie Bros. v. Wester, 188 N.C. 514, 125 S.E. 1(1924)).

From the record it is obvious that defendant terminated her open account to purchase pharmaceuticals and that she revoked any authority pl...