United American State Bank & Trust Co. v. Wild West Chrysler Plymouth, Inc.

• Decision Date: 05 March 1977
• Docket Number: No. 48101,48101
• Citation: United American State Bank & Trust Co. v. Wild West Chrysler Plymouth, Inc., 561 P.2d 792, 221 Kan. 523 (Kan. 1977)
• Parties: , 21 UCC Rep.Serv. 744 UNITED AMERICAN STATE BANK AND TRUST COMPANY, Appellee, v. WILD WEST CHRYSLER PLYMOUTH, INC., Appellant.
• Court: Kansas Supreme Court

Page 792

561 P.2d 792

221 Kan. 523, 21 UCC Rep.Serv. 744

UNITED AMERICAN STATE BANK AND TRUST COMPANY, Appellee, v. WILD WEST CHRYSLER PLYMOUTH, INC., Appellant.

No. 48101.

Supreme Court of Kansas.

March 5, 1977.

Syllabus by the Court

1. The provisions of Article 2, of the Uniform Commercial Code relative to course of performance are not a defense to an action based on the warranty in an assignment clause of a security agreement under the provisions of Article 9.

2. Waiver in contract law implies that a party has voluntarily and intentionally renounced or given up a known right, or has caused or done some positive act or positive inaction which is inconsistent with the contractual right.

3. Equitable estoppel is the effect of the voluntary conduct of a person whereby he is precluded, both at law and in equity, from asserting rights against another person relying on such conduct.

4. In an action for breach of a warranty contained in the assignment clause of a security agreement, that the buyer of an automobile was twenty-one years of age and had the legal capacity to contract, the trial court did not err in entering judgment for plaintiff and in finding plaintiff did not waive its right to rely on the warranty and is not estopped to enforce it.

Herbert H. Hopper, of Hopper, Fuqua & Hopper, Wichita, argued the cause and was on the brief for appellant.

Ken M. Peterson, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, argued the cause and was on the brief for appellee.

OWSLEY, Justice.

This is a suit brought by United American State Bank and Trust Company (hereinafter referred to as United), against Wild West Chrysler Plymouth, Inc. (hereinafter referred to as Wild West), for breach of an express warranty contained within an assignment provision of a security agreement-retail installment note. The trial court, after hearing evidence, found Wild West had breached the warranty and awarded United $4,674.83. Wild West appeals.

The lawsuit arose from a transaction involving the purchase and financing of an automobile. On July 12, 1973, Wild West sold a new Plymouth Road Runner to Kathleen A. Lorg and Ronald J. Lorg. After trade-in credit and miscellaneous credits and charges, the sale price of the automobile was $5,315.25. In order to finance the car, the Lorgs executed a note and security agreement with Wild West. Wild West then assigned the note to United.

The assignment clause of the note and security agreement contained certain express warranties, including a warranty that 'the buyer(s) named is (are) over 21 years of age and has (have) the legal capacity to contract.' Breach of the warranty gave United the right to demand Wild West repurchase the note in cash for an amount equal to the entire unpaid balance due on the contract, with accrued interest. At the time the note was executed Wild West knew Ronald Lorg was only seventeen years of age. The trial court found that United did not know he was a minor when it accepted assignment of the note, but in fact thought he was forty-one years old.

The Lorgs made payments on the note totaling $192.06 and then defaulted. On February 28, 1974, United decided to replevy the car and found it had been demolished in an accident. It brought suit against the Lorgs for the unpaid balance. Kathleen Lorg responded by declaring bankruptcy. Counsel for Ronald Lorg notified United that Ronald was a minor and announced his intention to disaffirm the contract pursuant to K.S.A. 38-102.

The testimony disclosed the method of financing the sale of an automobile by Wild West. When Wild West sold an automobile, a customer could either pay cash or finance the purchase. If the automobile was to be financed, a customer could deal directly with a lending institution of his choice or he could borrow the money from Wild West. If the purchase was to be financed by Wild West, the customer would execute a note and security agreement which contained the price and type of vehicle and the terms of repayment of the loan. Thereupon, Wild West would telephone United and attempt to sell the note. In order to do this Wild West was required to give certain information on its customer to an employee of United. United's employee would record the information on a customer statement and call the Wichita Credit Bureau, recording information received therefrom on a second card.

After the two telephone calls were made the bank employee gave the two cards to United's loan officer, Duane Wilson. Based on the information on the cards, he would decide either to accept or reject the note. If United rejected the application Wild West would attempt to sell the note elsewhere. At the time the instant note was executed and assigned, Wild West was executing and assigning from one hundred to three hundred notes and security agreements per month.

When United agreed to purchase a note and security agreement it would so notify Wild West by telephone. Wild West would then prepare an sign a sight draft envelope for the amount of the note on a form previously provided by United. Wild West would put the note and security agreement, the purchaser's statement, and credit inquiry authorization into the envelope and mail it to the Fourth National Bank. Fourth National automatically transferred the amount of the sight draft from United's account to Wild West's account.

About a week after United agreed to purchase a note and security agreement, it would receive the sight draft envelope and its contents from the Fourth National Bank. A United employee would open the envelope and verify the amount of the sight draft. The note had already been purchased; therefore, none of the other documents in the envelope were examined.

Because United did not deal directly with the automobile purchaser, Wild West was required to minimize United's risk in two ways. First, Wild West was required to guarantee a set payment to United in the event a customer defaulted. The amount to be paid...