Stroud v. BW ACCEPTANCE CORPORATION, 8560.

• Decision Date: 25 January 1967
• Docket Number: No. 8560.,8560.
• Citation: 372 F.2d 185
• Parties: L. L. STROUD and John A. Gillies, Appellants, v. B-W ACCEPTANCE CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

372 F.2d 185 (1967)

L. L. STROUD and John A. Gillies, Appellants, v. B-W ACCEPTANCE CORPORATION, Appellee.

No. 8560.

United States Court of Appeals Tenth Circuit.

January 25, 1967.

William Hedges Robinson, Jr., Denver, Colo. (Robinson, Tilton & Robinson, Denver, Colo., with him on the brief), for appellants.

Paul S. Goldman, Denver, Colo. (Henry & Adams, Denver, Colo., with him on the brief), for appellee.

Before PICKETT and SETH, Circuit Judges, and STANLEY, District Judge.

SETH, Circuit Judge.

After trial to the court, judgment was entered against the appellants, defendants below, for $334,277.64, plus attorney's fees of $10,000.00. The appellants have taken this appeal. The facts may be summarized briefly as follows:

The appellants were sole shareholders in the Medalion Apartment Hotel, Inc. (hereinafter Medalion). Medalion built and operated an apartment hotel in Colorado Springs, Colorado, and the first tenants, some of whom were business firms, apparently took possession in early 1962. It appears that Medalion's apartments were of the "luxury" type, and that established rental charges were approximately fifty per cent higher than for existing facilities in Colorado Springs. Medalion contracted with the York Corporation (hereinafter York) for the purchase and installation of air conditioning and heating equipment in the building. Medalion also purchased kitchen appliances for the building from Allied Appliances, Inc. (hereinafter Allied). Medalion secured payment for the heating and air conditioning equipment by executing a chattel mortgage to York in the sum of $309,324.77, of which $223,421.36 is shown as the "cash selling price" and $85,903.41 is shown as the "credit service charge." Medalion executed a similar chattel mortgage on the kitchen appliances to Allied for the sum of $39,756.70, of which $28,705.20 is shown as the "cash selling price" and $11,051.50 is shown as the "credit service charge." Medalion also executed promissory notes in conjunction with the foregoing chattel mortgages by which it agreed to pay the total of each chattel mortgage, i. e., the sum of "cash selling price" and "credit service charge," in equal monthly installments for seven years, the first installments being due on December 15, 1962.

Shortly after the foregoing chattel mortgages and promissory notes were executed they were all assigned to the appellee, B-W Acceptance Corporation, plaintiff below (hereinafter B-W). B-W and York are both subsidiaries of Borg-Warner Corporation. By appropriate instruments, the appellants each personally guaranteed payment of the chattel mortgages and promissory notes. Each guaranty agreement provided that the guarantor should pay fifteen per cent of the obligations so guaranteed as attorney's fees if collection were necessary. The total face amount of the chattel mortgages and promissory notes was $349,081.47, and it appears that Medalion had paid $14,803.83 before suit was brought by the appellee. The record discloses that Medalion's apartment hotel was placed in receivership for the benefit of creditors in March 1965.

Upon its findings that Medalion was indebted to the appellee for the balance due on the two promissory notes, and that the individual appellants were similarly liable under the guaranty agreements, the District Court concluded that the appellee should have a several and joint judgment against Medalion and the appellants for $334,277.64, and that the appellee have a several judgment against each appellant for $5,000.00 for attorney's fees, as provided in the guaranty agreements.

Failure of consideration was the sole defense raised by the appellants in their initial pleadings to the appellee's suit on the promissory notes and guaranty agreements. The appellants in these pleadings claimed they were relieved of their obligations because York had breached its contract relative to installation and performance of the heating and air conditioning equipment, which was the consideration for the larger of the two chattel mortgages and promissory notes. The appellants alleged the equipment was improperly installed and operated unsatisfactorily, thus causing tenants to complain, move out of the building, or move from higher rent "corner apartments" to less expensive apartments. The appellants also alleged that the appellee was not a holder in due course and that any defenses they might assert against York could be asserted against the appellee B-W because both were subsidiaries of Borg-Warner Corporation.

The record discloses that the pretrial conference resulted in an order which framed the contested issues as York's alleged breach of contract and the status of the appellee as a holder in due course. The record before us on appeal reveals that the trial proceeded along the lines established in the pretrial conference; the appellee offered evidence showing that any persistent difficulties with the heating and air conditioning equipment, after an initial "shake down" period, were due to the design of the building, and not to improper installation or operation of the equipment. The appellants offered evidence showing that the building was either too hot or too cold, that air in the apartments failed to circulate and became stale and close, that tenants complained, and that the building developed a bad reputation in Colorado Springs because of the heating and cooling difficulties.

The District Court found that Medalion had at no time intended or attempted to rescind the contract with York; that there was little difficulty with the heating and cooling systems after 1963; that considerable work was done by York to make the heating and...