Universal C. I. T. Credit Corp. v. Shepler

• Decision Date: 18 June 1975
• Docket Number: No. 1--574A82,1--574A82
• Parties: , 17 UCC Rep.Serv. 602 UNIVERSAL C.I.T. CREDIT CORPORATION (C.I.T. Financial Services Corporation), Appellant (Defendant Below), v. John SHEPLER, Appellee (Plaintiff Below).
• Court: Indiana Appellate Court

Page 620

329 N.E.2d 620

164 Ind.App. 516, 17 UCC Rep.Serv. 602

UNIVERSAL C.I.T. CREDIT CORPORATION (C.I.T. Financial Services Corporation), Appellant (Defendant Below), v. John SHEPLER, Appellee (Plaintiff Below).

No. 1--574A82.

Court of Appeals of Indiana, First District.

June 18, 1975.

Rehearing Denied Aug. 21, 1975.

James E. Hawes, Jr., G. Daniel Kelley, Jr., Ice, Miller, Donadio & Ryan, Indianapolis, George A. Brattain, Marshall, Batman, Day & Swango, Terre Haute, for appellant.

Raymond H. Modesitt, Dix, Patrick, Ratcliffe & Adamson, Terre Haute, for appellee.

LOWDERMILK, Judge.

This action was brought by plaintiff-appellee (Shepler) on the basis of an alleged tortious conversion committed by defendant-appellant (C.I.T.). From the verdict and judgment in favor of Shepler awarding compensatory and punitive damages, C.I.T. brings this appeal.

The facts most favorable to Shepler disclose that Shepler purchased a 1970 White Freightliner diesel tractor-truck from McCormick, Inc. of Vincennes, Indiana, on July 21, 1970. The truck had a purchase price of $26,000.00 and Shepler executed a retail installment contract and security agreement thereon after a down payment of $5,026.31. This contract was sold with recourse to C.I.T.

On May 22, 1971, Shepler leased the truck to Richard Earl Clough (Clough). The reason for this lease was the inability of Shepler to secure insurance on the truck and Clough immediately insured the truck in his own name on that date. Shepler had a history of tendering late payments to C.I.T. on the loan but all such late payments were accepted by C.I.T. when tendered.

Shepler endorsed a cashier's check and wrote a personal check, both of which were received by C.I.T. on May 28, 1971, to pay the May payment and the June payment.

On May 28, David Andrews, the local agent in Terre Haute, Indiana, for C.I.T., issued a repossession of the truck which was in Hastings, Florida where it was being loaded for a trip back to Indiana.

On June 1, 1971, Shepler contacted C.I.T. through its manager, Andrews, and demanded that the truck be returned to him. At that time Andrews informed Shepler that the truck had been picked up because of no insurance and because Shepler was behind on his payments.

Shepler has never regained possession of the truck.

Inasmuch as this court has determined that this cause must be reversed and remanded for a new trial we shall first write on what we have determined to be the reversible error.

C.I.T. timely tendered its Instruction No. 3, which reads as follows, to-wit:

'Under the contract between plaintiff and defendant, plaintiff agreed to deliver the tractor-truck collateral to defendant and agreed that defendant without notice or legal action, could peaceably enter any premises where the tractor-truck collateral may be found and take possession of it, if plaintiff in any way defaulted in performing any of his obligations under the contract or if defendant in good faith considered plaintiff's debt under the contract or the tractor-truck collateral to be insecure. Therefore, if you find from the evidence that plaintiff was in default of the contract, or that defendant in good faith considered the debt of the plaintiff to be insecure, or that defendant in good faith considered the tractor-truck collateral to be insecure, then you shall find that defendant lawfully took possession of the tractor-truck.' (Our emphasis.)

and requested the same be read to the jury. This instruction was by the court refused.

The instruction sets out and gives to the jury the theory of C.I.T.'s case. C.I.T. proceeded, at least in part, on this theory and introduced evidence to sustain that theory and the same was within the issues.

In the case of Lavengood v. Lavengood (1947), 225 Ind. 206, 73 N.E.2d 685, 687, our Supreme Court, in speaking on this subject said:

'A party who makes a proper request is entitled to have an instruction based upon his own theory of the case if within the issues and there is any evidence fairly tending to support it. . . .'

See also: Gamble v. Lewis (1949), 227 Ind. 455, 465, 85 N.E.2d 629, 634; Barnes v. Deville (1973), Ind.App., 293 N.E.2d 54; Jackman v. Montgomery (1974), Ind.App., 320 N.E.2d 770.

This court is constrained to hold that the trial court should have given C.I.T.'s tendered Instruction No. 3, and said Instruction No. 3 not being covered by any other instruction given by the court, reversible error was committed.

Although this is a case of tortious conversion the parties cannot, simply by bringing a suit in tort, ignore the fact that the contract here involved was one subject to the Uniform Commercial Code. The common law and the Code provisions supplement one another and should be construed together. See IC 1971, 26--1--1--203 (Burns Code Ed.) We note that Section 1--208 of the Uniform Commercial Code is particularly applicable here since the contract contained a clause which allowed C.I.T., as the secured party, to peaceably repossess the truck if it, in good faith, felt insecure as to the debt or collateral. Further, Section 9--503 of said Code specifically permits a secured party to repossess collateral upon default.

Under the Uniform Commercial Code, the burden was on Shepler to show a lack of good faith on the part of C.I.T. This question is one which must be decided in addition to whether or not Shepler was in default under the security agreement. Thus, although there may be a finding that Shepler was not in default as to his payments, that decision is not completely determinative of all the issues here involved. See IC 1971, 26--1--1--208 (Burns Code Ed.)

Inasmuch as the matter of the good faith of C.I.T. will necessarily be an issue in the retrial of this cause we will write on that issue in order to establish guidelines for the court.

The agreement entered into between the parties reveals the following:

'Time is of the essence . . . The full balance . . . shall become due and payable forthwith, without notice or demand . . . (2) at holder's option, if the Customer defaults in performing an obligation under this contract, or, if holder shall in good faith consider the indebtedness or the commodity insecure . . .' (Our emphasis.)

This, in substance, means that if the creditor feels insecure he may not only accelerate payment but may repossess the truck without demand or notice, solely upon C.I.T.'s determination, a subjective test of the creditor's belief.

We have determined that in Indiana our courts of appeal have not spoken to the test we should use and in effect the standard of good faith to be used has not been determined. If the good faith provision of IC 1971, 26--1--1--208, supra, in conjunction with the good faith definition of IC 1971, 26--1--1--201(19), Ind.Ann.Stat. § 19--1--201(19) (Burns 1964 Repl.), is to have any real effect, the subjective test will have to be modified. See, J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code, p. 959, § 26--3 (1972).

In the case at bar the trial court used the standard of the good faith definition of 'honesty in fact' IC 1971, 26--1--1--201(19), supra, which fitted into Shepler's tortious conversion theory that C.I.T. did not have the right to possession, resulting in the jury's determination that there was no default and C.I.T. was not justified in believing there had been.

Shepler contends C.I.T. did not act in good faith in coming to that fixation of the mind that their security was in jeopardy in that they could have made a further, more honest and more complete investigation as to the probability of loss through insecurity.

Mr. Shepler was never asked to assist C.I.T.'s agent in C.I.T.'s determination as to whether or not the security was in jeopardy.

In our opinion a question of fact has been raised as to whether C.I.T., through its agent, acted in good faith in determining with any of the mental processes whether the indebtedness was or was not secure.

The cases of Shepphard Federal Credit Union v. Palmer (1969), 5 Cir., 408 F.2d 1369, 1373; Fort Knox National Bank v. Gustafson (1964), Ky., 385 S.W.2d 196, 200; and Flynn v. Fredrickson (1911), 89 Neb. 563, 131 N.W. 934, have held that to be in good faith the creditor must make a diligent and honest effort to discover from all available sources that the security is greatly impaired. This standard will however, still permit the creditor to prevail if a subjective determination of good faith is shown and it is our opinion that the creditor should be held to a more objective standard. Therefore, the good faith should be further subject to the test that the determination thereof would have been one made by a 'reasonable man' under the same set of facts or circumstances.

Another problem which will confront the parties and the court on retrial in the event the jury finds for Shepler is the issue of damages.

The general rule as to damages in a conversion action is that the damages are measured by the value of the converted property at the time of the conversion, with interest from the date of conversion. Miller, et al. v. Long (1955), 126 Ind.App. 482, 131 N.E.2d 348; Sikora v. Barney, et al. (1965), 138 Ind.App. 686, 207 N.E.2d 846. This rule, however, may vary in some circumstances depending upon the particular facts of the case and the type of property involved. It is our opinion that the above stated general rule should be considered in light of the principle that the party whose goods were converted should be compensated for all actual losses or injuries sustained as a proximate result of the conversion. Johnson v. Culver (1888), 116 Ind. 278, 19 N.E. 129; Jeffersonville Silgas, Inc. v. Wilson (1972), Ind.App., 290 N.E.2d 113.

Therefore, in addition to the usual damages which may be awarded in a conversion action further special damages may be awarded if they are adequately proven by the plaintiff. Miller v. Long, supra; Jerry Alderman Ford Sales, Inc. v. Bailey (1972),...