Surety Sav. & Loan Co. v. Kanzig, 77-350

• Decision Date: 15 February 1978
• Docket Number: No. 77-350,77-350
• Citation: 53 Ohio St.2d 108,372 N.E.2d 602,7 O.O.3d 187
• Parties: , 7 O.O.3d 187, 23 UCC Rep.Serv. 804 SURETY SAVINGS & LOAN COMPANY, Appellee, v. KANZIG et al., Wayne Savings & Loan Association, Appellant.
• Court: Ohio Supreme Court

Page 108

53 Ohio St.2d 108

372 N.E.2d 602, 7 O.O.3d 187, 23 UCC Rep.Serv. 804

SURETY SAVINGS & LOAN COMPANY, Appellee, v. KANZIG et al., Wayne Savings & Loan Association, Appellant.

No. 77-350.

Supreme Court of Ohio.

Feb. 15, 1978.

Syllabus by the Court

In order for a secured party to exercise its collection rights under R.C. 1309.45(A), it must, pursuant to R.C. 1309.37(C), give the account debtor notification which sets forth: (1) that the account has been assigned; (2) that payment is to be made directly to the secured party; and (3) a reasonable identification of the rights assigned.

On April 9, 1973, Starling and Carolyn Kanzig purchased a Fairfax modular house from Glatt's Mobile Home Sales and Service, Inc. (Glatt's), whose name was subsequently changed to Holmes Housing, Inc. (Holmes), for a total price, including tax, of $10,972.50. The modular home was to be installed by Glatt's on a basement foundation on the Kanzigs' lot when the basement was completed. The Kanzigs applied for a construction loan from appellant, Wayne Savings & Loan Company (Wayne), to cover the cost of the home, the construction of the basement, and other construction work. The loan was granted, and a mortgage deed and mortgage note in the amount of $14,500 were executed by the Kanzigs to Wayne Savings on August 6, 1973.

Having been advised that Wayne was financing the purchase of the modular home, appellee, Surety Savings & Loan Company (Surety), by letter dated July 30, 1973 sent Wayne the statement of origin for the modular home enclosed with a letter stating: "The floor plan due on this unit is $9,204.30. Interest will be billed directly to Glatts."

After some telephone conversation between them, Surety sent Wayne another letter dated October 24, 1973, stating: "May we please have a reply by return mail either with the check for the balance due of $7,908.60 or a firm date when the money will be mailed our Company?" Wayne responded to Surety by letter dated November 23, 1973, stating: "We can not disburse any more money until the house has been put on the foundation. We have been waiting for more work to be done, but as yet nothing has been done."

The delivery of the modular house being delayed, no disbursement was made by Wayne until March 8, 1974, when it disbursed the sum of $8,778 by check payable to Starling Kanzig. Wayne had typed on the check a restrictive endorsement, which was signed by Starling Kanzig, making the check payable to Holmes Housing, Inc. Either Holmes or Glatt's cashed the check, but paid no part of the proceeds thereof to Surety. At no time did Wayne or Surety advise the Kanzigs that Glatt's had a floor-plan financing arrangement with Surety with a balance due attributable to the modular home in question.

Thereafter, in June 1975, appellee Surety commenced this action, seeking to recover from Wayne and the Kanzigs the balance due on the floor plan in the amount of $5,865.48. The Kanzigs filed a cross-claim seeking indemnification from Wayne in the event Surety obtained a judgment against them.

Surety and Glatt's entered into a floor-plan financing arrangement in 1972 with respect to mobile homes to be sold by Glatt's and defined in the agreement as "a moveable dwelling constructed to be towed on its own chassis and under carriage, having minimum dimensions of 40 feet in length by 10 feet in width and containing living facilities suitable for year-round occupancy by one family," and also with respect to all inventory of Glatt's and all proceeds of such inventory. The financing statement was filed both with the Secretary of State and the Holmes County Recorder.

The Court of Common Pleas of Ashland County rendered judgment for Surety against both the Kanzigs and Wayne and judgment for the Kanzigs for indemnification from Wayne. The court found that Surety has an enforceable security interest in the modular home and, accordingly, that Surety was entitled to judgment since the parties had treated the modular home as a motor vehicle.

An appeal was taken to the Court of Appeals which affirmed that judgment and held "that by reason of the provisions of the Uniform Commercial Code, specifically R.C. 1309.25(C), R.C. 1309.37(C), and R.C. 1309.45, that once Wayne became subjectively aware that Surety had a recorded security interest in the inventory and proceeds of sale of the business from which Kanzigs purchased the modular home, that thereafter Wayne paid out at its peril and is by reason of its failure to protect Surety liable to Surety for the unpaid amount due on that particular modular home and is likewise liable in law to reimburse the Kanzigs for any amount that they may have to pay by reason of the same claim."

The cause is now before this court pursuant to the allowance of Wayne's motion to certify the record.

Wilson & Murray and Joseph Murray, Ashland, for appellee.

Kauffman, Eberhart, Cicconetti & Kennedy Co., L. P. A., and Charles A. Kennedy, Wooster, for appellant.

WHITESIDE, Judge.

The issue in this cause is whether Surety can enforce its financing agreement with Glatt's as against Wayne and the Kanzigs. Wayne has raised no issue with respect to indemnification of the Kanzigs, acceding thereto, and thus essentially stands in place of the Kanzigs.

The modular home in question, not having wheels or runners, is not a motor vehicle as defined by R.C. 4505.01 since it does not appear to be a vehicle as defined by R.C 4511.01(A), and thus not a house trailer as defined by ...