Lawson State Community College v. First Continental Leasing Corp.

• Citation: 529 So.2d 926
• Parties: 48 Ed. Law Rep. 1306, 6 UCC Rep.Serv.2d 847 LAWSON STATE COMMUNITY COLLEGE v. FIRST CONTINENTAL LEASING CORPORATION, et al. 86-583.
• Decision Date: 24 June 1988
• Court: Supreme Court of Alabama

Page 926

529 So.2d 926

48 Ed. Law Rep. 1306, 6 UCC Rep.Serv.2d 847

LAWSON STATE COMMUNITY COLLEGE v. FIRST CONTINENTAL LEASING CORPORATION, et al.

86-583.

Supreme Court of Alabama.

June 24, 1988.

Daniel J. Burnick of Sirote, Permutt, McDermott, Slepian, Friend, Friedman, Held & Apolinsky, Birmingham, for appellant.

Linda A. Friedman and Michael J. Brandt of Bradley, Arant, Rose & White, Birmingham, for appellees First Continental Leasing Corp. and Christopher Capital Corp.

Dennis G. Pantazis of Gordon, Silberman, Wiggins & Childs, Birmingham, for appellee First Westside Bank.

HOUSTON, Justice.

This case arises from an equipment leasing transaction and presents important questions concerning the interpretation and application of Article 9 of the Uniform Commercial Code as it applies to chattel paper and accounts receivable financing.

In late 1983, Lawson State Community College and Energy Recovery for Industry and Commerce, Inc., began negotiating the sale of a heating, ventilating, and air conditioning system to be installed at the College. In broad outline, this proposed sale was to the effect that Energy Recovery was to act as a dealer-consultant to the College--Energy Recovery was to select, install, and maintain the system to be used by the College. Importantly, as part of its service, Energy Recovery guaranteed the College that Energy Recovery's efforts would result in substantial energy savings.

The purchase price for the proposed equipment and services was $120,000. Instead of ordering this transaction in the form of an outright sale, however, the parties decided to finance the transaction by way of an equipment lease. Under the terms of this arrangement, Energy Recovery was given a lump-sum payment in full for the equipment and its services. Payment was made to Energy Recovery, however, not by the College, but by a financing lessor, First Continental Leasing Corporation, who took title to the equipment from Energy Recovery. First Continental then leased the equipment to the College. Under the terms of this lease, which is styled an "Equipment Lease-Purchase Agreement," the College was required to pay $2,618.68 per month for 60 months for equipment rentals. At the end of the 60-month payment period, the College had the right to purchase the equipment outright for a "concluding payment" of $1.00.

The lease agreement was subject to two subsequent assignments. In the first assignment, First Continental assigned the lease to Christopher Capital Corporation, which held its interest for less than three weeks. Christopher Capital subsequently reassigned the lease to First Westside Bank. First Westside still holds its interest in the lease.

All did not go well as to the underlying contract between the College and Energy Recovery. The College soon found itself dissatisfied, not only with the quality of the equipment itself, which, it is alleged, is defective, but also with the energy savings the College has achieved by hiring Energy Recovery and installing the equipment. The College consequently sued Energy Recovery for breach of warranty as to the quality of the equipment itself and also for fraud for allegedly overstating the energy savings to be gained from Energy Recovery's program for the College.

We are not, however, concerned on this appeal with the claims against Energy Recovery, which are still pending in the trial court. Rather, we are asked to determine whether similar claims for breach of warranty and fraud can also be asserted against the financing lessor, First Continental, and its subsequent assignees, Christopher Capital and First Westside Bank. The College asserted these claims in the trial court, which, on various pre-trial motions, held that such claims could not be asserted in the instant case. In addition, the current holder of the lease, First Westside, asserted a counterclaim for the monies due under the lease, and the trial court entered a judgment in favor of First Westside on this counterclaim. A final judgment pursuant to Rule 54(b), Ala.R.Civ.P., was rendered by the trial court on the disposition of these claims, from which judgment the College appeals. We affirm in part, reverse in part, and remand.

I. Preliminary Matters

Before proceeding to our analysis of the precise issues in this case, two preliminary matters must be discussed: 1) the applicable standard of review, and 2) the applicable law. We will address each of these matters in turn.

A. The Standard of Review

There is some confusion as to the applicable standard of review in this case, due to the fact that the claims against First Continental, Christopher Capital, and First Westside were originally challenged on motions to dismiss pursuant to Rule 12(b)(6), Ala.R.Civ.P. Although the 12(b)(6) motion by First Westside was clearly superseded by a subsequent motion for a summary judgment pursuant to Rule 56, the trial court continuously referred to the motions pending against First Continental and Christopher Capital as motions to dismiss, and, in fact, referred to them as such when it entered its judgment against the College. Consequently, the College argues that the standard of review applicable to 12(b)(6) motions to dismiss applies to this appeal as to these defendants. First Continental and Christopher Capital, however, argue that the trial court actually rendered summary judgment in favor of them, rather than 12(b)(6) dismissals, because matters outside the pleadings were presented to and not excluded by the court in its consideration of the motions.

According to the applicable rule of civil procedure, "[i]f, on a motion ... to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Rule 12(b), Ala.R.Civ.P. This Court has consistently adhered to this rule, and has accordingly treated ostensible 12(b)(6) dismissals as summary judgments on appeal, where, as here, it is clear that the trial court considered matters outside the pleadings, e.g., Boles v. Blackstock, 484 So.2d 1077 (Ala.1986), and where it is also clear that all parties had notice of the impending conversion of the motion and were given reasonable opportunity to present pertinent material, see Knowles v. Beatty, 484 So.2d 370 (Ala.1986) (reversing trial court's grant of summary judgment where no proper notice had been given); Hales v. First National Bank, 380 So.2d 797 (Ala.1980) (error for trial court to convert 12(b)(6) motion to motion for summary judgment and grant it without giving proper notice to the parties). In other words,

"a reviewing court should not automatically treat a dismissal where external materials were not excluded as a summary judgment, although such treatment may be the most common result of such a situation. Rather, the reviewing court must assure itself that summary judgment treatment would be fair to both parties in that the procedural requirements of the applicable rules were observed."

Tele-Communications of Key West, Inc. v. United States, 757 F.2d 1330, 1334 (D.C.Cir.1985) (applying the nearly identical federal rule of civil procedure).

In the instant case, treatment of the dismissals of the claims against First Continental and Christopher Capital as grants of summary judgment is appropriate. We think it clear from the record that the parties all recognized that substantial external evidence was before the trial court by the time it considered these motions. Therefore, it cannot now be contended that there was inadequate notice that the trial court's consideration of these external matters would in effect convert the motions. Moreover, as will become apparent in our subsequent discussion, it is also clear to us that the motion for a summary judgment filed by First Westside had the effect of bringing the issue of at least First Continental's liability into direct and undisputed controversy. In short, First Westside's motion also subsumed the evidentiary matters at issue in the pending motion to dismiss First Continental, and the non-moving party treated this motion as having this effect. In light of these facts, we will apply to this appeal the standard of review applicable to motions for summary judgment. That standard has been defined as follows:

"On appeal from a trial court's grant of summary judgment, this court must apply the same standard used by the trial court when ruling on the motion. Alabama Power Co. v. Blount Brothers Corp., 445 So.2d 250 (Ala.1983). In Jehle-Slauson Construction Co. v. Hood-Rich, Architects and Consulting Engineers, 435 So.2d 716 (Ala.1983), we summarized the standard as follows:

" 'Summary judgment is properly granted when there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Whatley v. Cardinal Pest Control, 388 So.2d 529 (Ala.1980); Wheeler v. First Alabama Bank of Birmingham, 364 So.2d 1190 (Ala.1978); Rule 56, ARCP. "If there is a scintilla of evidence supporting the position of the party against whom the motion for summary judgment is made, so that at trial he would be entitled to go to the jury, a summary judgment may not be granted." Campbell v. Alabama Power Co., 378 So.2d 718, 721 (Ala.1979); Chiniche v. Smith, 374 So.2d 872 (Ala.1979). Once a motion for summary judgment has been made, the adverse party ordinarily should not rest on his pleadings, but should respond by setting forth specific facts which show that a material issue of fact does exist. Whatley v. Cardinal Pest Control, 388 So.2d 529 (Ala.1980); Real Coal, Inc. v. Thompson Tractor Co., 379 So.2d 1249 (Ala.1980).' Id. at 718."

Wright v. Robinson, 468 So.2d 94, 97 (Ala.1985); Kemp Motor Sales, Inc. v. Lawrenz, 505 So.2d 377 (Ala....