Poling v. Morgan

• Decision Date: 07 October 1987
• Docket Number: E-Z,No. 85-2711,85-2711
• Parties: 4 UCC Rep.Serv.2d 974, 23 Fed. R. Evid. Serv. 1095 Orris POLING and Ruth Poling, husband and wife, Plaintiffs-Appellants, v. Max T. MORGAN and O.D. Morgan, husband and wife; Mobile Discount Corporation; Wheel Estates Corporation; Delta Service Corporation; Gulf Homes, Inc.; Western Coach Corp.; Delta Investment Corp.;Livin' Mobile Sales, Inc.; and Mobileservice Corp., AZ Corp.; Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 882

829 F.2d 882

4 UCC Rep.Serv.2d 974, 23 Fed. R. Evid. Serv. 1095

Orris POLING and Ruth Poling, husband and wife, Plaintiffs-Appellants, v. Max T. MORGAN and O.D. Morgan, husband and wife; Mobile

Discount Corporation; Wheel Estates Corporation; Delta

Service Corporation; Gulf Homes, Inc.; Western Coach

Corp.; Delta Investment Corp.; E-Z Livin' Mobile Sales,

Inc.; and Mobileservice Corp., AZ Corp.; Defendants-Appellees.

No. 85-2711.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 15, 1987.

Decided Oct. 7, 1987.

L. Anthony Fines, Tucson, Ariz., for plaintiffs-appellants.

Richard J. Hertzberg, Phoenix, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before ANDERSON, SKOPIL and CANBY, Circuit Judges.

SKOPIL, Circuit Judge:

This action arises from the sale of a mobile home, a subsequent default, and the eventual repossession and sale of the home. The district court granted partial summary judgment and entered a judgment on a jury's verdict in favor of defendants. We affirm in part, reverse in part, and remand.

FACTS AND PROCEEDINGS BELOW

Orris and Ruth Poling (the Polings) purchased a mobile home from Jackson's Mobile Homes (Jackson's) in 1973. Jackson took a security interest in the mobile home which it immediately assigned to Mobile Discount Corporation (Mobile Discount), one of several corporations owned by Max Morgan. Mobile Discount thereupon assigned its rights in the security agreement to the United Bank of Arizona (Bank). In that assignment, Mobile Discount guaranteed the loan.

After making payments for fifteen months, Mr. Poling advised the Bank that he was unable to make the payments. The Polings then stopped making payments on the home and stored it on the lot of a dealer who is not a party to the case. Mobile Discount took possession of the mobile home in January 1975, removed it from the lot, and began making payments to the Bank.

In April 1975 Mobile Discount obtained a state court judgment against the Polings for two payments Mobile Discount had made to the Bank. Subsequently, the County Sheriff took and sold the Polings' automobile to satisfy a portion of the judgment.

Although title to the mobile home remained in the Polings' name, neither Morgan nor any of his corporations (defendants) notified the Polings of their actions with the mobile home. Mobile Discount first transferred the possession of mobile home to another Morgan corporation, Gulf Homes. In August 1976 Gulf Homes sold the mobile home on a contract for title to the Fletchers. After the Fletchers defaulted on their payments, Gulf Homes repossessed the mobile home and sold it in a similar manner to the Kennings. The Kennings moved the mobile home to Bouse, Arizona, near the California border. The Kennings were still living in the home and making payments to Gulf Homes at the time of trial.

In July 1981 another Morgan corporation, defendant Wheel Estate, purchased the Poling contract, including the security interest, from the Bank. Although the mobile home remained in Bouse, Wheel Estate published notice of a public repossession sale which specified the location of the mobile home as Phoenix, Arizona. The Polings were notified of the sale but did not attend. On December 11, 1981 Gulf Homes purchased the mobile home.

The Polings filed this action against Morgan and his corporations, alleging violations of the Arizona and federal RICO statutes, the Arizona Uniform Commercial Code, and the federal Fair Debt Collection Practices Act. In December 1984 the district court granted partial summary judgment, holding that Mobile Discount was not a secured party under the Arizona Uniform Commercial Code and therefore not subject to the restrictions of Ariz.Rev.Stat. Secs. 47-9501--47-9507 (West Supp.1986) at the time it took possession of the mobile home. Poling v. Morgan, 598 F.Supp. 686 (D.Ariz.1984).

The next month the Polings moved to amend the pleadings to allege conversion. The court denied the motion. It later rejected the federal claims, and trial was held in September 1985 on the state law claims. The court denied the Polings' motion for directed verdict on whether the repossession and sale conducted by Wheel Estate violated the Polings' rights as debtors. See Ariz.Rev.Stat. Secs. 47-2706(D)(3), 47-9503, 47-9504 (West Supp.1986). After being instructed that Morgan repossessed the mobile home legally, the jury returned a verdict in favor of the defendants on all counts. The district court denied the Polings' motion for a new trial and for a judgment notwithstanding the verdict.

The Polings contend on appeal that the district court (1) erred in ruling that Mobile Discount was not subject to the restrictions of Ariz.Rev.Stat. Secs. 47-9501--47-9507 at the time it took possession of the mobile home; (2) erroneously instructed the jury that a guarantor has the right to repossess collateral and be reimbursed for repossession and refurbishing costs; (3) abused its discretion in denying their motion to amend the complaint to add a claim for conversion; (4) erroneously denied their motion for a directed verdict; and (5) abused its discretion

in excluding proof of other fraudulent acts of the defendants as evidence of a scheme or artifice to defraud.

DISCUSSION

I.

The district court held that Mobile Discount was not acting as a secured party when it took possession of the mobile home. We review a grant of summary judgment de novo. See Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986).

At the time of the Polings' default on the loan, the Bank had a secured interest in the mobile home. Mobile Discount, under the terms of the guarantee, was obligated on demand to pay the balance of the loan to the Bank. As guarantor, Mobile Discount could become a secured party if it received a transfer of the collateral from the Bank or if it was subrogated to the secured party's rights. See Ariz.Rev.Stat.Ann. Sec. 47-9504(E) (1986). Neither of these requirements was met. Mobile Discount took the collateral directly from the Polings instead of waiting for the Bank to repossess the mobile home. Mobile Discount was not subrogated to the rights and duties of the Bank because it had not paid off the entire balance of the debt. See Western Coach Corp. v. Rexrode, 130 Ariz. 93, 96-97, 634 P.2d 20, 24 (Ct.App.1981). The district court was correct in holding that Mobile Discount was not a secured party at the time the Polings defaulted on the loan.

II.

The Polings object to two of the instructions submitted to the jury. One instruction stated that "[a] guarantor such as Mobile Discount who acquires the collateral, the mobile home, before paying off the entire debt is not a secured party under Arizona law and cannot hold a repossession sale." The second instruction stated that "[u]nder the facts of this case, the guarantor, Mobile Discount, had the right to take possession of the mobile home and attempt to preserve and protect it. The guarantor is entitled to be reimbursed for any expenses incurred in preserving the mobile home...." The Polings argue that the instructions set out the law incorrectly by inferring that the guarantor here could repossess a mobile home and be reimbursed for the costs of taking possession, storage, and refurbishment. The propriety of a jury instruction is a question of law that we review de novo. 999 v. C.I.T. Corp., 776 F.2d 866, 871 (9th Cir.1985).

When Mobile Discount assigned the security interest to the Bank it guaranteed full payment of the debt. Because the Polings were bound to pay the debt, Mobile Discount had an obligation to pay the debt if called upon to do so. See Howard v. Associated Grocers, 123 Ariz. 593, 595, 601 P.2d 593, 595 (1979) ("unless the debtor himself is bound to pay, the guarantor is not bound"); Dykes v. Clem Lumber Co., 58 Ariz. 176, 181, 118 P.2d 454, 455 (1941) ("If there is no primary liability ..., there can be no contract of guaranty."). Mobile Discount was therefore a guarantor of the Polings' contract.

We find no Arizona law which indicates that a guarantor has a right to take possession of the collateral before it has made full payment and become subrogated to the rights of the secured party under Ariz.Rev.Stat. Sec. 47-9504(D). The defendants' reliance on Western Coach v. Roscoe, 133 Ariz. 147, 650 P.2d 449 (1982), is misplaced. In Roscoe the guarantor repossessed a mobile home at the request of the possessor and then sued to recover the sums it paid on the principal's behalf. Id., 133 Ariz. at 150, 650 P.2d at 452. These sums included the guarantor's costs in refurbishing the mobile home. Id. Because the guarantor's right to take possession of the mobile home was not at issue in the case, Roscoe is not helpful.

The law is clear that a guarantor who becomes liable for the debt of a principal has three options to recover the amount paid under the guaranty. See Howco Leasing Corp. v. Alexander Dispos-Haul Systems, Inc., 36 B.R. 612, 616 (D.Or.1983). The guarantor may sue for exoneration or reimbursement. See J. Elder Stearns Law

                of Suretyship Sec. 11.35 at 505 (5th ed. 1951).  These causes of action arise immediately upon payment of the principal's obligation.   Dykes, 58 Ariz. at 180, 118 P.2d at 455.  Alternatively, the guarantor may pay the debt in full and thereby become subrogated to the rights of the creditor.  See Howco Leasing Corp., 36 B.R. at 616.  Once subrogated to the rights of the creditor, the guarantor may take possession subject to the restrictions imposed on secured parties.  See Ariz.Rev.Stat. Sec. 47-9504(E).  Full payment by the guarantor is required to protect the creditor from having its rights against the debtor impaired by the guarantor's exercise of its rights.   Rexrode, 130 Ariz. at 97, 634 P.2d at 24.  If the guarantor could take possession without paying off the debt, the creditor's right of repossession would be impaired
                

III.

The Polings contend that the...