Sherrill v. Frank Morris Pontiac-Buick-GMC, Inc.
| Decision Date | 01 December 1978 |
| Docket Number | INC,PONTIAC-BUICK-GM |
| Citation | 366 So.2d 251 |
| Parties | 25 UCC Rep.Serv. 757 John D. SHERRILL, Jr. v. FRANK MORRIS, a corporation, et al. 77-334. |
| Court | Alabama Supreme Court |
John W. Cooper of Cooper & Huey, Birmingham, for appellant.
Stephen R. Arnold of Jones, Arnold & Roden, Birmingham, for appellee, Frank Morris Pontiac-Buick-GMC, Inc.
C. Lee Reeves of Sirote, Permutt, Friend, Friedman, Held & Apolinsky, Birmingham, for appellee, Bank of the Southeast.
C. John Holditch, Birmingham, for appellee, First Ala. Bank of Birmingham.
This is an appeal from final judgment and from denial of a motion for new trial in a suit for declaratory judgment and other relief brought by appellant, Dr. Sherrill. We affirm in part, reverse in part and remand.
Dr. Sherrill entered into an agreement with United Motorists Association (UMA), called a "Fleet Plan." UMA would locate automobiles and have them delivered to its customers. The customers would then execute a security agreement and note to UMA, and the note would be discounted to a bank, in this case appellee Bank of the Southeast. The bank would credit UMA's account in payment for the note. UMA would then pay the car dealer by check or draft which, when presented by the dealer, would be paid by the bank. The customer-buyer would make payments on the note to the bank and would later deliver the used car to UMA which could then keep it by making a final "balloon" payment equal to the "residual" value of the car. Alternatively, the customer could keep the car by making the final payment to the bank. The plan purportedly had tax advantages and enabled customers to purchase automobiles at a "fleet discount."
Two transactions are involved in this suit. In the first, Dr. Sherrill obtained a Buick Skyhawk and made eight or nine payments on his note to the Bank of the Southeast. The dealer was paid by UMA. The Skyhawk had defective brakes, so Dr. Sherrill turned it in to UMA for a new car, a Buick Skylark. The dealer in this second transaction, appellee Frank Morris Pontiac-Buick-GMC, Inc. (Morris), was given a draft by UMA in payment. This draft was dishonored by Bank of the Southeast due to insufficient funds. Two weeks after delivery of the Skylark, UMA went bankrupt. Bank of the Southeast sold the Skyhawk, which had been turned in to UMA, but there was still a deficiency remaining on Dr. Sherrill's first note. No payments were made on the second (Skylark) note. Morris demanded payment or return of the Skylark from Dr. Sherrill, so he paid Morris by check drawn on appellee First Alabama Bank of Birmingham. The next day, after consulting a lawyer, Dr. Sherrill attempted to stop payment, but the check was paid anyway.
Dr. Sherrill then brought suit to determine his rights and obligations under the two notes and for a return of his money from Morris or First Alabama Bank. Bank of the Southeast counterclaimed on the two notes. The court found Dr. Sherrill liable on both notes and further held that neither Morris nor First Alabama Bank was liable to Dr. Sherrill.
Dr. Sherrill contends that Bank of the Southeast is not a Holder in due course of the two notes and that the cars are consumer goods subject to the Mini-Code, § 5-19-1 et seq. (Code 1975). If these contentions are correct, Bank of the Southeast would be simply a Holder, subject to defenses which Dr. Sherrill would have against UMA.
Holder in due course is defined in § 7-3-302 (Code 1975) as follows:
Dr. Sherrill challenges each one of these elements.
First, he contends that Bank of the Southeast did not give value for the notes because it did not see that the entire consideration was paid to the sellers, the automobile dealers. Dr. Sherrill apparently equates "value" and "consideration" with the purchase price of the automobile. However, UMA's discounting of the notes to Bank of the Southeast was not done in exchange for payment to the car dealers. Bank of the Southeast gave value for the notes by crediting UMA's account. UMA was responsible for paying the car dealers, and Bank of the Southeast was under no duty to police UMA in the payment of its obligations. Further, the value given in exchange for the notes is not the money paid in installments by Dr. Sherrill to Bank of the Southeast after the notes were assigned. Dr. Sherrill's payments do not determine whether Bank of the Southeast took the notes for value.
Next, Dr. Sherrill contends that Bank of the Southeast did not act in good faith and violated the terms of a special deposit. He alleges that Bank of the Southeast paid Dr. Sherrill's funds to UMA when it was supposed to hold the funds for payment to the car dealer. This contention lacks merit. Dr. Sherrill had no funds in Bank of the Southeast; he merely made installment payments on the assigned notes. There was no special deposit, and if there had been one, it would not have been Dr. Sherrill's, but UMA's. The only funds given UMA were given in the form of a credit to UMA's account in exchange for the notes. Bank of the Southeast was not to hold funds to pay the car dealers, since that was UMA's responsibility.
Third, Dr. Sherrill insists that Bank of the Southeast had notice of a "scheme to sell and finance vehicles . . . on a pseudo lease proposition" and had notice that UMA breached a fiduciary obligation by negotiating the notes for its own benefit and commingling the proceeds with its other funds. These contentions also lack merit, if for no other reason, for the reason that, assuming their truth, Dr. Sherrill himself was a participant therein. Moreover, UMA breached no fiduciary duty by negotiating the notes, and the proceeds from negotiation belonged to UMA, not Dr. Sherrill.
As another factor bearing on good faith and notice, Dr. Sherrill contends that UMA was an agent of Bank of the Southeast, citing United States Finance Co. v. Jones, 285 Ala. 105, 229 So.2d 495 (1969). That case is not an authority in point, since there was no finding in Jones that the mortgagee-assignor was an agent of the assignee, the finance company.
As we held in Wood Chevrolet Co. v. Bank of Southeast, 352 So.2d 1350 (Ala.1977), agency is a question of fact subject to the ore tenus rule. Here, although there is some evidence in Dr. Sherrill's favor, we do not think the great weight of the evidence supports a finding of agency.
In support of his assertion that any defenses to the notes which he might have against UMA may be asserted against Bank of the Southeast, Dr. Sherrill offers the Mini-Code, § 5-19-1, et seq. (Code 1975), which states as follows in § 5-19-5
Assuming arguendo that these transactions were consumer credit sales or consumer leases, Bank of the Southeast is still not subject to Dr. Sherrill's defenses since it was not shown that the bank took the notes with notice of a violation of the Mini-Code. See Jefferson v. Mitchell Select Furniture Co., 56 Ala.App. 259, 321 So.2d 216 (1975). The security agreements executed in conjunction with the notes indicate that the vehicles were to be used for "business" purposes, not for "pleasure", as Dr. Sherrill contends was their use. While it is true that actual use determines the character of the transaction, there is no evidence that Bank of the Southeast knew, or should have known, the actual use to which these cars were put. Evidence on this point was heard ore tenus, or partly so, and we do not find that the great weight of the evidence supports the conclusion that Bank of the Southeast had notice of any violation of the Mini-Code or of the actual use to which the vehicles were to be put so that the transactions fell within the Mini-Code.
This section is inapplicable. The bank's suit for collection is in the form of a Counterclaim, so that subsection (2) is not applicable. Moreover, as we have already stated, the evidence shows Bank of the Southeast is a Holder in due course without notice of any violations of the Mini-Code. A violation of the Mini-Code by the original creditor is no defense against such a holder in due course, so that subsection (1) is inapplicable.
Dr. Sherrill finally contends that the bank has violated the provisions of the federal Truth in Lending Act. We do not reach this issue. The applicability of this Act was not raised during the trial, nor was it presented on motion for new trial. Dr. Sherrill made no claim for damages under this Act other than a general claim for further relief in addition to a declaration of rights.
An issue not raised in the trial court cannot be raised for the first time on appeal. Brown v. Robinson, 354 So.2d 272 (Ala.1977). Nor will this Court review a case on a theory different from that on which it was tried in the trial court. Bailey v. City of Mobile, 292 Ala. 436, 296 So.2d 149 (1974).
Dr. Sherrill claims the sum of...
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