Womack v. First State Bank of Calico Rock, CA

• Decision Date: 22 April 1987
• Docket Number: No. CA,CA
• Parties: Ray WOMACK, Appellant, v. FIRST STATE BANK OF CALICO ROCK, Appellee. 86-277.
• Court: Arkansas Court of Appeals

Page 194

728 S.W.2d 194

21 Ark.App. 33

Ray WOMACK, Appellant, v. FIRST STATE BANK OF CALICO ROCK, Appellee.

No. CA 86-277.

Court of Appeals of Arkansas,

Division I.

April 22, 1987.

Hilburn, Bethune, Calhoon, Harper & Pruniski, N. Little Rock by Greg Stephens, Gary Vinson, Batesville, for appellant.

Barrett, Wheatley, Smith & Deacon by John V. Phelps, Jonesboro, for appellee.

MAYFIELD, Judge.

This is an appeal from a deficiency judgment of $16,384.80 entered against appellant Ray Womack. On January 13, 1984, appellant's son, Coy Womack, obtained a $31,301.00 loan from appellee First State Bank of Calico Rock (Bank). As security for the loan, he pledged a used 1974 Wilson trailer, a used 1973 White truck, a used 1974 Challenger mobile home, and another used 1974 Wilson trailer. Appellant Ray Womack also signed the note. Subsequently, the Bank and Coy agreed to substitute a used 1979 Ford tractor for the last listed Wilson trailer. Coy Womack defaulted on the note, the collateral was repossessed and sold, and suit was filed against both Coy and Ray Womack for the deficiency. When Coy filed for bankruptcy and moved to Texas, the Bank proceeded against Ray Womack.

Appellant first argues that the trial court erred in admitting into evidence a handwritten note purporting to establish that the sale of the collateral was conducted in a commercially reasonable manner. Appellee's only witness was Danny Moser, vice-president of the Bank, who testified to the making of the note, the default, the repossession, the demand for payment, and the notice of sale published in a local newspaper. When Moser attempted to testify about the parties present at the sale, the bids made and the terms of the sale, appellant objected and, on voir dire examination, the witness disclosed that he had not been present at the sale and had learned everything he knew about the sale from the bank president, Davey Wyatt. Appellant's objection to Moser's testimony about what took place at the sale was sustained as inadmissible hearsay. Appellee then introduced two pieces of paper containing the bank logo at the top on which were notations handwritten in ink. Moser identified these as being written by Wyatt, who had been present at the sale, and contended they showed who attended the sale and what prices had been bid for each item. These two memos were admitted, under the business records exception to the hearsay rule, as evidence that the sale was commercially reasonable. Appellant argues that admission of this evidence was error and that without it there was no proof that the sale was conducted in a commercially reasonable manner. We agree with appellant that these notations did not meet the criteria necessary to be admissible under the business records exception to the hearsay rule.

A.R.E. Rule 801 defines hearsay as a statement, other than one made by the declarant while testifying at the trial, offered in evidence to prove the truth of the matter asserted. Rule 802 provides that hearsay is not admissible. Rule 803 sets out numerous exceptions to the hearsay rule where evidence is held admissible because of its innate reliability. One of these exceptions is known as the "business records exception."

In Cates v. State, 267 Ark. 726, 589 S.W.2d 598 (Ark.App.1979), it was explained that under the business records exception seven factors must be present for a record to be admissible. The document must be: (1) a record or other compilation (2) of acts or events (3) made at or near the time the acts occurred (4) by a person with knowledge (or from information transmitted by such a person) (5) kept in the course of a regularly conducted business (6) which has a regular practice of recording such information (7) all as shown by the testimony of the custodian or other qualified witness.

When we apply the facts of the case at bar to these criteria, the memos fail to qualify as a business record for at least two reasons. Even if we accept the Bank's assertion that these notes, jotted down on what appear to be loose pages taken from a memo or scratch pad, were intended by the president of the bank to preserve the terms of a sale of collateral which the Bank would later be required to prove was conducted in a commercially reasonable manner in order to collect a deficiency judgment, there is no evidence in the record to indicate that these notations were made at or near the time the sale took place. Moser simply testified that the notes were written on stationery from one of the bank's note pads and that he recognized the handwriting as Wyatt's. And, in the second place, the record is devoid of any evidence from which we can conclude that Moser was the custodian of the records or otherwise a qualified witness through which these papers could be introduced.

When these notes are excluded, the only evidence that the sale was conducted in a commercially reasonable manner is the notice published in the newspaper and that alone is insufficient to support a proper sale. Therefore, we reverse the award of a deficiency judgment. However, our ruling does not require dismissal. The general rule is to remand common law cases for new trial; it is only when the record affirmatively shows that there can be no recovery on remand that we dismiss. St. Louis Southwestern Railway Co. v. Clemons, 242 Ark. 707, 415 S.W.2d 332 (1967). Where there is a simple failure of proof, justice would demand that the case be remanded to allow the appellee an opportunity to supply the defect. Pennington v. Underwood, 56 Ark. 53, 19 S.W. 108 (1892). See also Follett v. Jones, 252 Ark. 950, 481 S.W.2d 713 (1972); Colonial Life & Accident Insurance Co. v. Whitley, 10 Ark.App. 304, 664 S.W.2d 488 (1984).

Because we are remanding this case, other issues that may arise on retrial will be discussed. First, we examine what constitutes a commercially reasonable sale. Ark.Stat. Ann. § 85-9-504(3) (Supp.1985) of the Uniform Commercial Code provides:

Disposition of the collateral may be by public or private proceedings and may be made by way of one or more contracts. Sale or other disposition may be as a unit or in parcels and at any time and place and on any terms but every aspect of the disposition including the method, manner, time, place and terms must be commercially reasonable.

At this point, we call attention to the recent case of First State Bank of Morrilton v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987), where the Arkansas Supreme Court held that if collateral is not disposed of according to the Code, the creditor is not entitled to a deficiency judgment. This case should be remembered while considering the rulings in previous cases dealing with this subject.

Whether a sale was conducted in a commercially reasonable manner is a fact question to be determined from the facts of the particular case under consideration. Becknell v. Quinn, 592 F.Supp. 102 (E.D.Ark.1983). It seems to be generally understood that when the debtor was not given written notice of the time and place of the sale, the sale was not conducted according to the provisions of the Code. See Hallett, supra; Rhodes v. Oaklawn Bank, 279 Ark. 51, 648 S.W.2d 470 (1983); Universal C.I.T. Credit Co. v. Rone, 248 Ark. 665, 453 S.W.2d 37 (1970); Barker v. Horn, 245 Ark. 315, 432 S.W.2d 21 (1968); and Norton v. National Bank of Commerce, 240 Ark. 143, 398 S.W.2d 538 (1966).

Other situations in which a sale has been held not to have been commercially reasonable include when the creditor removed the motor from a repossessed combine and lent it to another customer for several months, thus rendering the combine unsalable for that period of time, Henry v. Trickey, 9 Ark.App. 47, 653 S.W.2d 138 (1983); when the sale was conducted after a short advertising period, the equipment was complex and the auctioneer was given no technical assistance, and there was a great disparity between the price received and the estimated value of the collateral, United States v. Conrad Publishing Co., 589 F.2d 949 (8th Cir.1978); when there was minimal publicizing of the sale, short notice, no preparation of the collateral, and a large discrepancy between the sale price and the fair market value, Connex Press, Inc. v. International Airmotive, Inc., 436 F.Supp. 51 (D.D.C.1977); see also Farmers and Merchants Bank v. Barnes, 17 Ark.App. 139, 705 S.W.2d 450 (1986); and when there was an absence of any notice to the public, the sale was conducted at the creditor's office with only the creditor's employees present, and the creditor purchased the collateral, Benton v. General Mobile Homes, Inc., 13 Ark.App. 8, 678 S.W.2d 774 (1984).

While a low price is not conclusive proof that a sale has not been commercially reasonable, a large discrepancy between sales price and fair market value "signals a need for close scrutiny" of the sale procedures. Connex Press, supra; Ark.Stat.Ann. § 85-9-507(2) (Supp.1985). In White & Summers, Uniform Commercial Code, § 26-11 (2d ed. 1980), the authors suggest that even in cases which cite the failure to give proper notice as the reason for holding that a sale was not commercially reasonable, the true, though unarticulated reason, may be an insufficiency of the sale price. Footnote 117 states:

Although courts frequently rely on lack of notice, they seldom mention any causal connection between the debtor's injury and his failure to receive notice; there is no suggestion that he would have redeemed or have been otherwise moved to action by receipt of a notice. Hidden among the facts are some interesting data on the resale prices. See, e.g., Norton v. National Bank of Commerce, 240 Ark. 143, 398 S.W.2d 538, 3 UCC 119 (1966) (car purchased for more than $350 in September resold for $75 in January); Baber v. Williams Ford Co., 239 Ark. 1054, 396 S.W.2d 302, 3 UCC 83 (1965) (car purchased in August for at least $882, including interest but not including downpayment, and resold, apparently in December, for $210); Braswell...