Leasing Associates, Inc. v. Slaughter & Son, Inc.

• Citation: 450 F.2d 174
• Decision Date: 21 October 1971
• Docket Number: No. 71-1076.,71-1076.
• Parties: LEASING ASSOCIATES, INC., Plaintiff-Appellee, v. SLAUGHTER & SON, INC., and F. E. Slaughter, as Guarantor, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

450 F.2d 174 (1971)

LEASING ASSOCIATES, INC., Plaintiff-Appellee, v. SLAUGHTER & SON, INC., and F. E. Slaughter, as Guarantor, Defendants-Appellants.

No. 71-1076.

United States Court of Appeals, Eighth Circuit.

October 21, 1971.

Don Gillaspie, El Dorado, Ark., for defendants-appellants.

W. J. Walker, Little Rock, Ark., for plaintiff-appellee.

Before MATTHES, Chief Judge, and BRIGHT and STEPHENSON, Circuit Judges.

MATTHES, Chief Judge.

Negotiations between Leasing Associates, Inc., a Texas corporation, hereinafter referred to as plaintiff, and Slaughter & Son, Inc., an Arkansas corporation, and F. E. Slaughter, as guarantor, hereinafter sometimes referred to as defendants,¹ culminated in the execution of a leasing agreement dated May 10, 1967. Under the terms of the lease, Slaughter obligated itself to make certain payments to plaintiff and F. E. Slaughter guaranteed payment of all sums due under the instrument. Slaughter, as lessee under the agreement, took possession of a 1967 Chevrolet truck and a 1964 GMC Barco Log Loader.

A controversy developed between plaintiff and defendants over the fitness of the Chevrolet truck. Defendants repeatedly complained that the truck was defective and not fit for its intended use in hauling logs. Eventually, they discontinued making payments due under the lease. They returned the truck to plaintiff and thereafter, pursuant to proper notice from plaintiff to the defendants, the truck was sold by plaintiff.

The complaint in this action was filed on October 21, 1968, in the United States District Court for the Western District of Arkansas. Plaintiff sought a judgment for $10,001.42, representing the accrued and unpaid rent due on the truck, the amount expended by plaintiff for repairs, and the deficiency after giving credit for proceeds of sale. Defendants, on October 10, 1969, answered and counter-claimed for damages allegedly sustained because of the unfitness of the truck.

Defendants also defaulted in payments due on the log loader. In June, 1969, possession of that equipment was taken from defendants in a replevin proceeding filed in an Arkansas state court. The plaintiff obtained possession of the log loader on June 11, 1969. Pursuant to a notice to the defendants, the reasonableness of which is an issue on appeal, the log loader was sold for $500 on or about October 16, 1969.

On August 31, 1970, nearly two years after the filing of the original complaint, plaintiff filed its first amended complaint to recover, in addition to the amount allegedly due on the truck transaction, the amount it claimed to be due on the log loader transaction.

A jury trial resulted in a verdict in favor of plaintiff and against both defendants for $18,508.73, being the full amount prayed for.

Two issues are presented for our determination.

I

Defendants first assert that it was error to deny their motion made at the close of plaintiff's evidence and renewed at the close of all the evidence for a directed verdict on plaintiff's entire cause of action. This motion was premised on the concession by plaintiff that it had not qualified to do business in Arkansas and some evidence showing that the contract was made in Arkansas. Consequently, it is argued that Ark.Stat. 64-1202 (the Wingo Act) rendered the contract void ab initio, Pacific National Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966).

The short and decisive answer to defendants' contention is that the defense which it asserts here was an affirmative one, which had to be pleaded. Rule 8(c), Fed.R.Civ.P. provides in pertinent part:

"In pleading to a preceding pleading, a party shall set forth affirmatively * * * illegality * * * and any other matter constituting an avoidance or affirmative defense." (Emphasis supplied.)

As indicated by the Arkansas court in the Pacific National Bank case, supra, the Wingo Act is a "penal statute" which punishes doing business without certification by creating an absolute defense against recovery on contracts which are deemed illegal if made in contravention thereof.

We are mindful that under Rule 15(b), Fed.R.Civ.P., when an issue not raised by the pleading is tried by express or implied consent of the parties, it shall be treated in all respects as if it had been raised in the pleadings. See Farm Bureau Co-op Mill & Supply v. Blue Star Foods, 238 F.2d 326, 332-333 (8th Cir. 1956). The record before us fails, however, to furnish sufficient basis to warrant a holding that the illegality defense was tried by implied consent. While it was conceded without objection that plaintiff had failed to qualify to do business in Arkansas, that fact alone is not conclusive of the defense. The Wingo Act only provides that an unqualified corporation "cannot make any contract in the State which can be enforced * * *" (Emphasis supplied), and Arkansas caselaw construes that language to make the statute inapplicable to contracts "made" extraterritorially even if they are to be performed in Arkansas. United Press International v. Hernreich, 241 Ark. 36, 406 S.W.2d 317, 320-322 (1966). But see Hogan v. Intertype Corp., 136 Ark. 52, 206 S.W. 58 (1918). Therefore, the place of the making of this contract was an essential element to the issue which the defendants now urge upon us. But, as observed, this issue was not sufficiently litigated to justify us in reversing and directing a judgment for the defendants.²

II

Defendants' second point relates to that part of the judgment for $8,507.31, the amount due on the Barco log loader. Specifically, defendants' contention is that the court erred in admitting into evidence over their objection an exhibit purported to be a copy of a letter dated October 6, 1969, claimed to have been sent by plaintiff's credit manager to "Mr. F. E. Slaughter, F. E. Slaughter & Sons, Inc., Junction City, Arkansas." The argument is advanced that the proper foundation was not laid for admission of the exhibit, i. e., that the evidence was insufficient to support a finding that the original of the letter had been sent to the above-named addressee via the United States mails.

Before we review the factual foundation bearing upon this question, we turn to the applicable provisions of the Uniform Commercial Code, as adopted in Arkansas, and caselaw pertinent to the issue. Section 85-9-504(3) Arkansas Commercial Code provides in relevant part:

"Disposition of the collateral may be by public or private proceedings * * * every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable * * * reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor * * *" (Emphasis supplied.)

The sanction which makes the foregoing requirement viable is a rebuttable presumption that the value of any collateral sold without notice is equal to the debt. Therefore, as a prerequisite to the recovery of a deficiency judgment in Arkansas, the secured party has the burden of proving either the actual value of the collateral at the time of its sale after repossession, or proving that reasonable notice was sent (receipt need not be proven). Barker v. Horn, 245 Ark. 315, 432 S.W.2d 21, 22 (1968); Norton v. National Bank of Commerce of Pine Bluff, 240 Ark. 143, 398 S.W.2d 538, 540-541 (1966).

In the present case, however, the plaintiff offered no proof that the $500 realized from the sale of the log loader was the fair and reasonable market value of that equipment. Therefore, if plaintiff failed to discharge its burden of proving that it gave reasonable notice as required, it would be precluded from recovering the deficiency under attack.

There are two prongs to the notice question: (1) whether the mailing of a notice through regular mail channels will suffice to support a finding that reasonable notice was sent to the debtor; (2) whether the evidence here was sufficient to show as implicitly found by the jury that the letter of October 6 was in fact mailed.

Turning to the first of these, the Arkansas Supreme Court has been confronted with the identical question, that is, whether a notice in the form of a letter sent by regular United States mail was "reasonable notification," as required by Ark.Stat.Ann. § 85-9-504, supra. In reversing the trial judge, who had ruled that the letter constituted reasonable notice as a matter of law, the Supreme Court held that the evidence was sufficient to present a question of fact for the jury to resolve. Baber v. Williams Ford Co., 239 Ark. 1054, 396 S.W.2d 302 (1965). Thus, it appears that the Baber case definitely resolves the first phase of the notice issue in favor of the plaintiff.³

We turn then to the more troublesome problem of whether the evidence was sufficient to say that the letter of October 6, 1969 was sent by placing the same in the mails. On this question, the evidence is sketchy and far from satisfactory.

The notice issue first entered the case near the end of the trial. Larry Slaughter, son of F. E. Slaughter, when asked on cross-examination by plaintiff's counsel whether he had received the letter of October 9, replied:

"Not that I can remember.

Q. You have any knowledge of anyone in your company receiving this letter?

A. Well, I don\'t know about it if they did."

The foregoing is the only evidence pertaining to receipt of the letter. F. E. Slaughter, to whom the letter was addressed, and who testified, was not interrogated as to receipt by him of the notice.

Following Larry Slaughter's testimony, plaintiff's counsel, apparently realizing plaintiff had the burden of proving that the notice had been sent, called Ernest M. Dillinger as a rebuttal witness.

The substance of this witness' testimony was that Exhibit 11 was a copy of the letter which he had written to Slaughter & Son, and that it was sent by regular mail. On cross-examination,...