Maxwell v. Fidelity Financial Services, Inc.

Decision Date21 November 1995
Docket NumberNo. CV-94-0060-PR,CV-94-0060-PR
Parties, 28 UCC Rep.Serv.2d 806 Elizabeth A. MAXWELL, Plaintiff-Appellant, v. FIDELITY FINANCIAL SERVICES, INC., an Arizona corporation, Defendant-Appellee.
CourtArizona Supreme Court

FELDMAN, Chief Justice.

Elizabeth Maxwell petitions us to review a court of appeals opinion affirming a trial court ruling that the doctrine of novation barred Maxwell's claim that a contract was unconscionable and therefore unenforceable. See Maxwell v. Fidelity Fin. Servs., Inc., 179 Ariz. 544, 880 P.2d 1090 (Ct.App.1993). We granted review to examine the law dealing with grounds for novation and unconscionability and to determine whether the principles of contract interpretation announced in Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134 (1993), are applicable to these issues.


The facts, taken in the light most favorable to Maxwell, against whom summary judgment was granted, are that in December 1984, Elizabeth Maxwell and her then husband, Charles, were approached by Steve Lasica, a door-to-door salesman representing the now defunct National Solar Corporation (National). Lasica sold the Maxwells a solar home water heater for a total purchase price of $6,512. Although National was responsible for installation, the unit was never installed properly, never functioned properly, and was eventually declared a hazard, condemned, and ordered disconnected by the City of Phoenix. Thus, although the unit may have been intrinsically worthless, the question of unconscionability is determined as of the time the contract was made. A.R.S. § 47-2302.

Financing for the purchase was accomplished through a loan to the Maxwells from Fidelity Financial Services, Inc. (Fidelity). The sale price was financed for a ten-year period at 19.5 percent interest, making the total cost nearly $15,000.

At the time of the transaction, Elizabeth Maxwell earned approximately $400 per month working part-time as a hotel maid and her husband earned approximately $1,800 per month working for the local paper. At Fidelity's request, an appraisal was made of the Maxwells' South Phoenix home, where they had resided for the preceding twelve years. The appraisal showed that the Maxwells lived in a modest neighborhood, that their 1,539 square foot home was in need of a significant amount of general repair and maintenance, and that its market value was approximately $40,000.

In connection with the financing transaction, Elizabeth Maxwell signed numerous documents, including a loan contract, a deed of trust, a truth-in-lending disclosure form, and a promissory note and security agreement. The effect of these documents was not only to secure the deferred purchase price with a lien on the merchandise sold, but also to place a lien on Maxwell's house as additional security for payment on the water heater contract. The forms and their terms were unambiguous and clearly indicated that Maxwell was placing a lien on her house. Included in the consumer credit contract between Maxwell and Fidelity was a clause expressly stating that Fidelity was subject to all claims by and defenses that Maxwell could assert against National.

Despite the fact that the water heater was never installed or working properly, Maxwell made payments on it for approximately three and one-half years, reducing the deferred purchase balance to $5,733. In 1988, Maxwell approached Fidelity to borrow an additional $800 for purposes unrelated to the original loan. In making this second loan, Fidelity required Maxwell to again sign a bundle of documents essentially identical to those she signed in 1984. Instead of simply adding $800 to Maxwell's outstanding balance on the 1984 contract, Fidelity created a new contract that included the unpaid balance of $5,733 on the 1984 loan, a term life insurance charge of $313, as well as the new $800 loan. In all, Maxwell financed the sum of $6,976 with this second loan. The terms of this latest loan also included interest at 19.5 interest and payments for a period of six years, making Maxwell's new payments, including interest, total nearly $12,000. The combined amount Maxwell would pay under the two contracts for a non-functioning water heater and the additional $800 loan thus totals approximately $17,000, or nearly one-half the value of her home.

Maxwell continued to make payments until 1990, when she brought this declaratory judgment action seeking, inter alia, a declaration that the 1984 contract was unenforceable on the grounds that it was unconscionable.

Following discovery, Fidelity moved for summary judgment asserting, among other things, that the statute of limitations had run on Maxwell's claim of unconscionability and, if not, that the 1988 contract worked a novation, thereby barring any action by Maxwell on the 1984 contract. Maxwell filed a memorandum in opposition to this motion and pointed to sworn testimony in her deposition, which Fidelity submitted with its motion, as raising genuine issues of material fact.

In a brief order, the trial court granted Fidelity's motion on the theory of novation:

The court has had under advisement [Fidelity's] motion for summary judgment. The court has considered the pleadings, the argument, and the authorities. It is ordered granting the motion. By way of explanation, the court is of the opinion that although the statute of limitations does not bar this action, the doctrine of novation does.

Minute Entry, May 31, 1991.

The court of appeals affirmed. Maxwell, 179 Ariz. 544, 880 P.2d 1090. In doing so, the court found that Maxwell did not properly respond to Fidelity's motion for summary judgment and did not present any controverting evidence. The court also found that Maxwell failed to present evidence raising a genuine issue of material fact that there was an agency relationship between National and Fidelity, that the 1984 contract was valid, and that Maxwell possessed the requisite intent to have the 1988 contract constitute a novation.

On review from summary judgment, the appellate court views the record in a light most favorable to the party opposing summary judgment (Maxwell) and will affirm only if no genuine issue of material fact exists. We therefore review this record to determine whether it could support a finding that Maxwell's claim of unconscionability was barred by the 1988 loan.


Before discussing the merits of Maxwell's petition, we must address two collateral issues that arose during the course of the proceedings below: (1) Was Maxwell's response to Fidelity's motion for summary judgment proper, and (2) Must there be an agency relationship between Fidelity and National. Additionally, we find it necessary to provide a brief preface to the discussion of the issues in this case and the order in which it is necessary to address them.

A. Maxwell's response to Fidelity's motion for summary judgment

We believe it necessary to correct an erroneous application of Rule 56 of the Rules of Civil Procedure in the "General Considerations" section of the court of appeals' opinion. Id. at 547, 880 P.2d at 1093.

The court asserts that Maxwell's response to Fidelity's motion for summary judgment was deficient because she "did not file any separate affidavits" but rather "relied on her deposition ..., documents attached to Fidelity's motion ..., and her unverified complaint." Id. However, Arizona Civil Rule 56(c) provides, in relevant part:

A party opposing the motion must file affidavits, memoranda or both.... The judgment sought shall be rendered forthwith if the pleadings, deposition [sic], 1 answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

(Emphasis added.) Rule 56(e) provides:

[A]n adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial.

(Emphasis added.)

Thus, Rule 56(c) requires a response by the party opposing the motion but does not by its terms mandate the inclusion of affidavits. Similarly, Rule 56(e) mandates that the adverse party support its opposition either by affidavits or as otherwise provided in the rule. An opposing party can respond by memorandum, but the memorandum must reference depositions, answers to interrogatories, or admissions on file to comply with the rule.

In her response to Fidelity's motion for summary judgment, Maxwell pointed to specific testimony in her sworn deposition, which was submitted with Fidelity's motion and was therefore on file. Because Rule 56(c) contemplates just such a memorandum, Maxwell's response was not improper. If the responding party demonstrates by way of the other listed items in Rule 56(c) that there exists a genuine issue of material fact, then no affidavits are necessary and summary judgment is inappropriate. Accordingly, the court of appeals erred in finding Maxwell's response to the summary judgment motion deficient. The rule permits an opposing party to point out and rely on specific portions of a deposition on file. Maxwell did just that.

B. Must there be an agency relationship between National and Fidelity?

The court of appeals found that Maxwell failed to establish an agency relationship between National and Fidelity. The court reasoned that, absent such a relationship, Maxwell could not defeat...

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