Skeels v. Universal CIT Credit Corporation

• Decision Date: 10 August 1964
• Docket Number: No. 14719.,14719.
• Parties: John W. SKEELS v. UNIVERSAL C. I. T. CREDIT CORPORATION, Appellant, v. Estelle A. SKEELS, Third-Party Defendant.
• Court: U.S. Court of Appeals — Third Circuit

335 F.2d 846 (1964)

John W. SKEELS v. UNIVERSAL C. I. T. CREDIT CORPORATION, Appellant, v. Estelle A. SKEELS, Third-Party Defendant.

No. 14719.

United States Court of Appeals Third Circuit.

Argued June 2, 1964.

Decided August 10, 1964.

Bernard G. Segal, Philadelphia, Pa., for appellant (Samuel D. Slade, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Attys., on the brief).

Thomas H. Cauley, Elmer G. Klaber, Pittsburgh, Pa., for appellee (Cauley, Birsic & Clarke, Pittsburgh, Pa., Frank & Klaber, Pittsburgh, Pa., Attys., on the brief).

Before BIGGS, Chief Judge, and HASTIE and GANEY, Circuit Judges.

HASTIE, Circuit Judge.

This is an appeal from a judgment entered on a verdict for $55,000 actual damages and $50,000 punitive damages in favor of the plaintiff Skeels, a franchised Chrysler automobile dealer in the Pittsburgh area, against Universal C. I. T. Credit Corporation, hereinafter abbreviated "UCIT", the financing agency which served the Skeels dealership. Skeels alleged and, in the view of the jury, proved that willful tortious conduct of UCIT had destroyed his business.¹ The only question presented by this appeal is whether the district court erred at the conclusion of the trial in refusing to enter judgment for UCIT generally, or at least on the claim for punitive damages, in accordance with UCIT's earlier motions for a directed verdict and for dismissal of the complaint.

The record shows that the business of UCIT as a lending agency included the financing of dealers' purchases of new cars from automobile manufacturers and of installment sales from dealers to retail automobile purchasers. Under a 1959 agreement UCIT loaned Skeels $25,000 for operating capital and became his sole source of wholesale financing for new cars that became his stock in trade. The agreed procedure was that UCIT would pay the manufacturer, Chrysler, for cars delivered to Skeels and take trust receipts as evidence of its security interest in the cars. The financing documents empowered Skeels to sell such cars free of encumbrance, or "out of trust", to retail purchasers and required that after each such retail sale Skeels should hold in trust for and pay to UCIT "forthwith" the amount it had advanced to finance Skeels' purchase of that vehicle. UCIT was also authorized to take possession of all trusted cars held by Skeels whenever Skeels should fail to pay for any car as required.

It was the custom of UCIT to send a representative to make frequent "car checks" at each dealership to determine whether payments were being made promptly to the financing agency as cars were sold. If a car check showed that any car or cars had been sold out of trust without the required reimbursement to UCIT, payment or a safeguarding arrangement acceptable to UCIT was required and obtained without further delay.

On Friday, November 25, 1960, a car check showed that within the preceding week or two Skeels had sold 4 or 5 cars for which he had not made the required payments to UCIT. Continuation of the check through Monday, November 28, established that 9 cars had been thus sold out of trust and that Skeels was unable to pay UCIT almost $25,000 due it on account of these sales. Neither had Skeels made or tendered any satisfactory arrangement covering that delinquent obligation, though he was trying to borrow more money.

Accordingly, on November 28, UCIT took possession of Skeels' place of business for the time being, made a detailed examination of his records, and seized and removed trusted cars constituting his entire stock in trade. The seized cars were removed to the neighboring streets and the entire matter was handled in a way that created considerable confusion and attracted public attention around Skeels' place of business.² Late the following day, the UCIT representatives, having completed their mission, turned the premises back to Skeels. On November 30, the parties and counsel discussed at length the matter of possible additional loans from UCIT to Skeels, but these talks were unproductive. Thereafter, although he was still a franchised Chrysler dealer, Skeels had no stock in trade, and the rather sensational repossession of his recent stock may well have so damaged his good will and his credit standing as to make his franchise of little value. In any event, he was unable to finance new acquisitions. In the circumstances, the Skeels dealership never reopened.

If this were the entire story, it would be clear that injury to Skeels' business resulting from repossession of his stock in trade would not be actionable. For the sale of 9 cars out of trust, followed by inability to pay UCIT some $25,000 owed on account of those vehicles, was a serious breach of the financing agreement. And under the terms of the agreement it was entirely proper that upon such default UCIT protect itself by seizing all cars in Skeels' possession in which it had a security interest.

However, Skeels claims that two additional factors in this case made the seizure of his stock a willful wrong. First, he argues that his delay of a week or two in paying for the cars sold out of trust in November was not such a default as would justify seizure of his remaining stock of cars because UCIT had repeatedly acquiesced in similar delays in payment, contrary to the strict terms of the financing agreement. In this connection, we have examined all of the evidence concerning the conduct of UCIT in other cases where a car check disclosed that cars covered by trust receipts were not on the premises and had not been paid for. In each such case, however, UCIT required Skeels either to pay at once as then demanded, or to establish the whereabouts and continuing availability of the vehicle, or to provide forthwith a satisfactory arrangement or security for payment. At most, these cases showed a willingness to permit Skeels to delay payment or an equivalent arrangement satisfactory to UCIT until the next car check after a retail sale. In no case where a car check had established that a car had in fact been sold out of trust to a retail purchaser did UCIT agree that Skeels have more time to work out some arrangement that would provide or secure the sum due UCIT on account of that sale. Here, 9 cars had been sold out of trust within a two-week period and Skeels admittedly could not pay UCIT for them. Indeed, he was asking UCIT to lend him more money. No comparable situation had arisen in the past and there was nothing in the course of past dealing between the parties which could have created a reasonable expectation that in such circumstances payment would be deferred. The record does not support Skeels on this point.

There is another reason, in the appellee's view, why the action of UCIT was unjustified and a willful wrong. The record clearly shows that during the weeks immediately preceding the default in controversy Skeels had been negotiating with UCIT for additional financing. The Skeels agency was within the territorial jurisdiction of UCIT's Pittsburgh North Hills branch office. Skeels dealt for the most part with John Modrak, the manager of that branch office. In late August or early September, Skeels and Modrak first discussed the need for and desirability of increasing UCIT's outstanding capital loan to Skeels, less than half of which had been repaid, by about $15,000. Subsequently, an application for this new financing was formalized and, during the second week in November, was transmitted to the UCIT home office in New York, with approval recommended by Modrak and by his superior in charge of the divisional office with jurisdiction over the Pittsburgh area.

This application was rejected by the home office on November 22, but with the recommendation that $4,000 be advanced to Skeels on the security of used cars, and Modrak was so advised. However, when Skeels' stock in trade was seized a week later, he had still not been informed of this rejection.

In the meantime, beginning November 10, frequently thereafter and as late as November 28, according to Skeels' testimony, Modrak had assured him that the additional capital loan as originally requested would be forthcoming very soon. Modrak denied giving such assurance, although he conceded that he may not have told Skeels that the home office had rejected his loan application. In any event, Modrak and Skeels both testified that on November 25, the day that a car check showed 4 or 5 units out of trust, Modrak went to Skeels to discuss just such a loan on the security of used cars as the home office had suggested in lieu of the rejected new capital loan. Skeels, however, uninformed of the home office action, viewed the used car loan as a source of urgently needed operating funds in addition to the anticipated proceeds of the requested capital loan. Accordingly, appropriate documents,...