Snow v. C.I.T. Corp. of the South, Inc., 82-232

• Decision Date: 14 March 1983
• Docket Number: No. 82-232,82-232
• Citation: 278 Ark. 554,647 S.W.2d 465
• Parties: , 36 UCC Rep.Serv. 145 Bub SNOW et al., Appellant, v. C.I.T. CORPORATION OF THE SOUTH, INC. et al., Appellees.
• Court: Arkansas Supreme Court

Page 465

647 S.W.2d 465

278 Ark. 554, 36 UCC Rep.Serv. 145

Bub SNOW et al., Appellant, v. C.I.T. CORPORATION OF THE SOUTH, INC. et al., Appellees.

No. 82-232.

Supreme Court of Arkansas.

March 14, 1983.

Meadows & Elcan by Frank C. Elcan, II and Steve B. Davis, Harrison, for appellant.

Friday, Eldredge & Clark by George Pike, Jr., Little Rock, for Schramm, Inc.

Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., and Wright, Lindsey & Jennings, Little Rock, for C.I.T. Corp. of the South, Inc.

Richard L. Peel, Russellville, for Tennessee Well Supply Co. and Southeastern Drilling Supply Co.

GEORGE ROSE SMITH, Justice.

In January, 1980, the appellant Snow, engaged in the business of drilling water wells, purchased a drilling rig under an installment contract reciting a cash price of $283,500 and finance charges of $118,786.20, the total being payable in 60 equal monthly installments. Snow had difficulties with the rig's performance from the outset. Two months after the purchase Snow had his attorney send a letter to the sellers electing to revoke his acceptance of the rig and demanding the return of his $40,228.62 down payment. The sellers refused to recognize Snow's right to revoke his acceptance. On April 1 Snow brought this suit in equity to obtain revocation of the sale, recovery of the down payment, and substantial damages for loss of profits during the two months he used the rig.

After an extended trial the chancellor held that the contract was not usurious as alleged, that Snow was not entitled to revoke his acceptance, that Snow's $10,000 note for part of the down payment should be canceled, that Snow should recover $6,015 for breach of the implied warranty of merchantability, and that Snow is liable for a deficiency judgment of $62,293.89 resulting from a sale of the rig during the pendency of the case. We can best state the pertinent facts as we discuss the points argued on direct and cross appeal.

Snow first argues that the contract, embracing an interest rate of more than 10%, was usurious because the recitation that it was to be governed by Georgia law was a subterfuge to avoid Arkansas usury laws.

We find no merit in this argument. The Uniform Commercial Code provides that when a transaction bears a reasonable relationship to the particular enacting state and also to another state, the parties may agree that the law of either state shall govern. Ark.Stat.Ann. § 85-1-105(1) (Add.1961). Here four states were directly involved: Arkansas, where the contract of sale was negotiated between Jack Wilkes, the president of an Arkansas drilling supply company, and Snow, a resident of Everton, Arkansas; Tennessee, where the actual seller, Tennessee Well Supply Company, a dealer, had the rig for sale, and where Snow and Wilkes went to sign the contract documents; Georgia, where the finance company C.I.T. Corporation, had its principal office and completed the sale by signing the documents; and Kansas, where the rig was delivered and used by Snow as best he could before he sought revocation of his acceptance.

The whole transaction was contingent upon C.I.T.'s willingness to finance it. C.I.T. insisted that the contract be governed by Georgia law, a provision that in C.I.T.'s words was "not negotiable." All the parties agreed to it. With the transaction having a direct connection with four states, we cannot say that the choice of Georgia law was not a reasonable one. We may refer to our discussion in Cooper v. Cherokee Village Develop. Co., 236 Ark. 37, 364 S.W.2d 158 (1963), where, as here, we found that the selection of another state's law was not a cloak to avoid Arkansas's usury laws.

We must, however, sustain Snow's principal argument, that the chancellor was mistaken in refusing to give effect to Snow's revocation of his acceptance of the rig. In reaching his conclusion the chancellor relied, in part, upon Snow's failure to tender the return of the rig when he filed his complaint and his continued refusal to return 1,500 feet of pipe and other accessories, valued at a total of $47,485.

A tender of goods purchased was a condition to the right of rescission under our earlier law, but the Uniform Commercial Code dropped that requirement. We quote from one treatise on the Code:

A tender of the goods by the buyer to the seller is not an essential element of a revocation. All that is required by the Code is a notification of revocation. The Code declares that notification is not effective until notice is given and by necessary implication states that there is a sufficient revocation of acceptance when a "notice" is given even though the buyer still has possession of the goods and even though he does not make any tender of the goods to the seller. The concept of revocation of acceptance is not to be confused with rescission.

* * *

* * *

If the buyer has paid for the goods in advance or has incurred any expense or damages for which the seller is liable, the buyer, upon making a rightful revocation of acceptance is entitled to hold the goods until he has been paid. That is, the Code in such a case gives the buyer a security interest in the goods.

Anderson, Uniform Commercial Code, § 2-608.18 (2d ed. 1971); Ark.Stat.Ann. § 85-2-608.

The chancellor's alternative and principal ground for his decision was that the defects in the rig were not sufficient to substantially impair its value...