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HomeMy WebLinkAbout94-5626 civilFEDERAL FINANCIAL COMPANY, IN THE COURT OF COMMON PLEAS OF PLAINTIFF : CUMBERLAND COUNTY, PENNSYLVANIA V. RUSSELL L. DUGAN, DEFENDANT 94-5626 CIVIL TERM IN RE: MOTION OF DEFENDANT FOR POST-TRIAL RELIEF BEFORE BAYLEY, J. OPINION AND ORDER OF COURT Bayley, J., December 22, '1999:-- Plaintiff, Federal Financial Company, filed a complaint against defendant, Russell L. Dugan, seeking damages for the breach of an Equipment Lease Agreement. On July 13, 1999, a jury found in favor of plaintiff and awarded damages of $40,175.49 less an offset of $10,000, plus interest. Defendant filed a motion for post-trial relief that has been briefed and is ready for disposition. The facts in a light most favorable to plaintiff, the verdict winner, are as follows.~ On February 27, 1989, Homestead Savings Association entered into an Equipment Lease Agreement with Johansen & Dugan, Inc., d/b/a Gettys Builders. Under the agreement, Homestead purchased computer equipment from BSI Systems which it leased for sixty months to Johansen & Dugan, Inc. The shareholders and officers of the corporation, Stephen R. Johansen, his wife, and defendant herein Russell L. Wilkinson v. Reitnauer, 421 Pa. Super. 345 (1992). 94-5626 CIVIL TERM Dugan, who was single, executed a GUARANTY c,f the obligation of the corporation to Homestead. The Equipment Lease Agreement provided that Homestead was not a manufacturer or dealer of the leased equipment, nor an agent of either. The equipment was assigned a residual value of $1.00 and was to be returned to Homestead at the expiration of the sixty month period of the lease. There was a down payment of $2,122.36 and the monthly payments were $1,038.68. In 1990, Johansen & Dugan, Inc. was in default of the monthly payments required under the Equipment Lease Agreement. Notices of default were sent to the corporation and the guarantors. In January, 1991, Johansen & Dugan, Inc., voluntarily relinquished to Homestead the equipment that was the subject of the Equipment Lease Agreement. Homestead solicited bids in an attempt to sell the equipment. Only BSI Systems Inc., showed any interest. Notwithstanding, Homestead retained the equipment. Johansen & Dugan, Inc., never sought redemption. Homestead's business subsequently failed and it came under the control of the Resolution Trust Corporation (RTC). In April, 1994, the RTC assigned its rights under the Equipment Lease Agreement to plaintiff, Federal Financial Company. Plaintiff could not locate the equipment. It made a demand for payment of the balances due which went unheeded and thereafter instituted this suit against Johansen & Dugan, Inc., and all of the guarantors of the Equipment Lease Agreement. Johansen & Dugan, Inc., went out of business and Stephen R. Johansen and Crystal Y. Johansen filed for -2- 94-5626 CIVIL TERM bankruptcy. The case went to trial and the jury er~tered a verdict only on the claim of plaintiff against the guarantor, Russell L. Dugan. In its post-trial motion, defendant argues that the court erred in refusing to instruct the jury that (1) "they should determine whether Defendant Dugan was given reasonable notice or received notice of the ultimate default and the intended disposition of the collateral and if not they should find for the Defendant Dugan in that the notice requirement of the UCC cannot be waived," and (2) "Plaintiff had the burden of proving that it or its predecessor in interest had the burden of disposing of the collateral in a commercially reasonable manner." The GUARANTY in the Equipment Lease Agreement that defendant signed contained a waiver and provided: Each of us guarantees and promises to make all of the payments and perform all of the Lessee's obligations as specified in the above lease. Each of our liabilities is primary and joint and several and will not be affected by (a) any settlement, extension, renewal or modification of the lease, by (b) the discharge, waiver, assignment or release of the Lessee's obligations under the lease for any reason, including the Lessee's bankruptcy, and anti-deficiency laws which may apply or the failure to file any document or give any notice or (c) by the taking or release of additional guarantors or security for the performance of the lease. Each of us waives any rights we may have to (d) presentment, demand, protest, notice of protest, notice of dishonor, notice of default under the lease and any other notices related to this guaranty or the lease, (e) require the Lessor to proceed against the Lessee or to pursue any other remedy in the Lessor's power and (f) subrogation under performance in full of the lease. Each of us agrees that we are liable for attorneys fees and costs in enforcing this guaranty, whether or not suit is filed. If this guaranty is secured by one of our community properties, that guarantor agrees that recourse may be had against the guarantor's separate property. Each of us acknowledges that this guaranty may be -3- 94-5626 CIVIL TERM assigned by the Lessor only and inures to the benefit of the Lessor's assigns. (Emphasis added.) Under a clause titled REMEDIES, the Equipment Lease Agreement allowed the lessor to taken possession and retain the equipment upon default and provided: Upon the occurrence of a default Lessor may at its option, do any one or more of the following: (a) take possession of any items, without demand or notice, wherever located, without any court order or other process of law and without thereby terminating this lease; (b) sell or otherwise dispose of any items, whether or not in Lessor's possession, at public or private sale, with or without notice to Lessee, without advertising and without any obligation to account to Lessee for any proceeds thereof, or otherwise dispose of, hold, use, release or keep idle any item, as Lessor in its sole discretion may determine; (c) terminate this lease as to any items on notice to Lessee; (d) recover from Lessee all accrued and unpaid rents and other amounts then due and owing hereunder, plus as reasonable liquidated damages for loss of a bargain and not as a penalty, at Lessor's election (i) the Casualty Value, upon the payment of which Lessee will become entitled to the Equipment AS-IS, WHERE-IS without any warranty whatsoever; (ii) if Lessor has sold an item, the difference between the Casualty Value of the item and the net sales price (net of all costs and expenses of sale) or (iii) if Lessor has not sold an item (and will not exercise the remedy in clause (i) or (ii), the difference between (A) the remaining rents as to such item under this lease discounted at ten percent (10%) per annum simple interest from the date due to the date of payment and (B) the then anticipated net rentals (net of all costs and expenses of re-leasing) to be received from re-leasing the item to another party or parties over the period covering the unexpired term of the lease, similarly discounted or (e) utilize any other remedy available to Lessor at law or in equity. All such remedies are cumulative of every other remedy legally available to Lessor and may be exercised concurrently or separately from time to time. Lessee will pay Lessor, in addition to other amounts payable to Lessor; all costs and expenses, including repossession and court costs and reasonable legal fees incurred by Lessor in exercising any of its remedies hereunder or otherwise enforcing this lease. This obligation includes any amounts expended by Lessor prior to filing of an action as well as amounts expended in connection with an action which is dismissed. Any waiver by LessOr of a provision of this lease must be in 94-5626 CIVIL TERM writing, and forbearance by Lessor will not constitute a waiver. (Emphasis added.) The Uniform Commercial Code, 13 Pa.C.S. Section 9101 et. seq., applies to secured transactions. Section 9102(b) makes the section applicable to security interests created by a lease. Section 9105 defines a debtor as: The person who owes payment or other performance of the obligation secured, whether or not he owns or has rights in the collateral, including the seller of accounts or chattel paper. Where the debtor and the owner of the collateral are not the same person, the term 'debtor' means the owner of the collateral in any provision of the division dealing with the collateral, the obligor in any provision dealing with the obligation, and may include both where the context so requires. (Emphasis added.) Section 9503(a) allows for the taking possession of collateral and provides: General rule.--Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. If the security agreement so provides the secured party may require the debtor to assemble the collateral and make it available to the secured party at a place to be designated by the secured party which is reasonably convenient to both parties. Without removal a secured party may render equipment unusable, and may dispose of collateral on the premises of the debtor under section 9504 (relating to right of secured party to dispose of collateral after default). (Emphasis added.) Section 9501(b) provides: Rights and remedies of debtor.--After default, the debtor has the rights and remedies provided in this chapter, those provided in the security agreement and those provided in section 9207. (Emphasis added .) -5- 94-5626 CIVIL TERM Section 9207 titled "Rights and duties when collateral in possession of secured party," provides: Duty of secured party to use reasonable care.--A secured party must use reasonable care in the custody and preservation of collateral in his possession .... Use of collateral by secured party.--A secured party may use or operate the collateral for the purpose of preserving the collateral or its value or pursuant to the order of a court of appropriate jurisdiction or, except in the case of consumer goods, in the manner and to the extent provided in the security agreement. As to the disposition of collateral and the liability of the debtor for any deficiency, Section 9504 provides: (a) Disposition of collateral and application of proceeds.--A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing .... (Emphasis added .) (b) Rights of parties in case of surplus or deficiency.--If the security interest secures an indebtedness, the secured party must account to the debtor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency. But if the underlying transaction was a sale of accounts or chattel paper, the debtor is entitled to any surplus or is liable for any deficiency only if the security agreement so. provides. (c) Manner of disposition.--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. Unless collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized -6- 94-5626 CIVIL TERM market, reasonable notification of the time and place of any public sale or reasop, able notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor, if he has not signed after default a statement renouncing or modifying his right to notification of sale. In the case of consumer goods, no other notification need be sent. In other cases notification shall be sent to any other secured party from whom the secured party has received (before sending his notification to the debtor or before renunciation by the debtor of his rights) written notice of a claim of an interest in the collateral. The secured party may buy at any public sale and if the collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations he may but at private sale. (Emphasis added.) Section 9505(b) provides: Acceptance of collateral as discharge of obligation.--In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation. Written notice of such proposal shall be sent to the debtor if he has not signed, after default, a statement renouncing or modifying his rights under this subsection. In the case of consumer goods, no other notice need be given. In other cases notice shall be sent to any other secured party from whom the secured party has received (before sending his notice to the debtor or before renunciation by the debtor of his rights) written notice of a claim of an interest in the collateral. If the secured party receives objection in writing from a person entitled to receive notification within 21 days after the notice was sent, the secured party must dispose of the collateral under section 9504. In the absence of such written objection the secured party may retain the collateral in satisfaction of the obligation of the debtor. (Emphasis added.) As to the right of a debtor to redeem collateral, Section 9506 of the UCC provides: At any time before the secured party has disposed of collateral or entered into a contract for its disposition under section 9504 (relating to right of secured party to dispose of collateral after default) or before the obligation has been discharged under section 9505(b) (relating to -7- 94-5626 CIVIL TERM acceptance of collateral as discharge of obligation) the debtor or any other secured party may unless othervvise agreed in writing after default re,::]e~n~ the collateral by tendering fulfillment of all obligations secured by the collateral as well as the expenses reasonably incurred by the secured party in retaking, holding and preparing the collateral for disposition, in arranging for the sale, and to the extent provided in the agreement and not prohibited by law, his reasonable attorneys' fees and legal expenses. In the case sub judice, the remedies clause in the Equipment Lease allowed Homestead, upon default, to take possession of the equipment without notice, to sell or dispose of it without notice, and to otherwise "dispose of, hold, use, release or keep idle" the equipment. The GUARANTY that defendant signed obligates him to the performance of the terms and conditions of the lease and provides that his liability will not be affected by any anti-deficiency laws which may apply, or the failure to file any document or to give any notice. Defendant waived any rights to notice of default or to any other notices related to the guaranty or the lease. As to waiver, Section 9501(c) of the UCC provides: Limitation on waiver of certain provisions.--To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the following provisions of this title may not be waived or varied except as provided with respect to compulsory disposition of collateral (sections 9504(c) and 9505) and with respect to redemption of collateral (section 9506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable: (1) Section 9502(b) and section 9404(b) insofar as they require accounting for surplus proceeds of collateral. (2) Section 9504(c) and section 9505(a) which deal with disposition of collateral. (3) Section 9505(b) which deals with acceptance of collateral as discharge of obligation. -8- 94-5626 CIVIL TERM (4) Section 9506 which deals with redemption of collateral. (5) Section 9507(a) which deals with the liability of secu~c: party for failure to comply with this chapter. (Emphasis added.) Defendant, while acknowledging that the law is unsettled in Pennsylvania, states that the majority rule is that failure to give notice of sale or other disposition of repossessed collateral precludes a secured creditor from obtaining a deficiency judgment against a debtor. See Skeels v. Universal ClT Credit Corp., 222 F.Supp. 696 (VV.D.Pa. 1963), reversed on other grounds 335 F.2d 846 (3r~ Cir. 1964). We need not analyze the authorities because the validity of the waivers in the Equipment Lease Agreement are governed by the specific waiver provision in Section 9501(c) of the UCC. Under Section 9504(b), when collateral is sold, leased or otherwise disposed of pursuant to the authority in Section 9504(a), the debtor is liable for any deficiency unless otherwise agreed. Section 9504(c) sets forth the commercially reasonable requirement for the disposition of collateral by public or private proceedings; however, under Section 9501(c), Section 9504(c) can be waived as it was in the Equipment Lease Agreement. Under Section 9505(b), the secured party after default may retain the collateral in satisfaction of the obligation, i.e., not subject to a deficiency judgment, if the secured party gives the debtor notice of that intent and the debtor does not take certain action; however, this Section can be waived pursuant to Section 9501(c), which it was in the Equipment Lease Agreement. The validity of a valid waiver under Section 9501(c) is subject to the provision that "[t]he parties may by agreement determine the standards by which the fulfillment of -9- 94-5626 CIVIL TERM thesa rights and duties is to be measured if such standards are not manifestly unreasonable." The provision in the REMEDIES section of the Equipment Lease Agreement providing that upon the occurrence of a default lessor at its option may take possession of ti~e collateral and "otherwise dispose of, hold, use, release or keep idle any item, as Lessor in sole discretion may determine," is not manifestly unreasonable as the debtor may setoff against a deficiency judgment the value of the equipment. Here, Johansen and Dugan, Inc., voluntarily relinquished the equipment to Homestead and did not seek redemption. Then Homestead retained the equipment and chose not to notify it that it was accepting the collateral in discharge of the debtor's obligations under the Equipment Lease. Under the specific terms of the lease plaintiff sought payment of the debt due (deficiency), and it does not challenge the charge to the jury that defendant was entitled to a setoff for the value of the equipment as of the date it was voluntarily relinquished following Homestead's default. Plaintiff claimed that value did not exceed $3,100 which was contested by defendant. The jury resolved the issue by determining a settoff of $10,000 against the debt. The waiver provisions in the Equipment Lease Agreement entered into between two business corporations, which lease was guaranteed by defendant, are not manifestly unreasonable and therefore, under Section 9501(c), not prohibited by the Uniform Commercial Code. Accordingly it was not error to charge the jury that the waiver provisions in the Equipment Lease were applicable, and that plaintiff could recover any of the debt still owed (the deficiency) -10- 94-5626 CIVIL TERM even though Homestead retained the collateral (equipment) subject to a setoff for the value of that equipment on the date it was voluntarily relinquished to Homestead. Lastly, defendant maintains that the court committed reversible error in refusing to allow him to be examined by his own counsel after he was examined by plaintiff's counsel as if under cross-examination as allowed by the Judicial Code at 42 Pa.C.S. Section 5935. As a general rule, a witness examined as if under cross-examination may then be questioned by his own counsel as to anything legitimately growing out of or related to matters inquired into in his cross-examination by opposing counsel; however, it is proper for the trial court to then deny the witness's counsel permission to examine him as to matters designated to be introduced in the main defense. Rogan Estate, 404 Pa. 205 (1961). Defendant argues in his brief that had he not been denied the opportunity to be examined by his own counsel after plaintiff's counsel had questioned him as if under cross-examination "[t]he posture for a non-suit would have been greatly enhanced." Defendant offers no argument in his brief to support this position which is wholly untenable. During his defense, defendant was questioned by his counsel on direct examination and was allowed to present his main defense. He was not denied any substantive right. Even if he would have been in a better position to seek a non-suit had he been allowed to be examined by his own counsel after he was questioned as if under cross-examination, which he would not have been, that still would not provide a basis for a new trial. Kline v. Kachmar, 360 Pa. 396 (1948). For the foregoing reasons the following order is entered. -11- 94-5626 CIVIL TERM ORDER OF COURT AND NOW, this '~-"~day of December, 1999, the motion of defendant, Russell L. Dugan, for post-trial relief, IS DENIED. W. Scott Henning, Esquire For Plaintiff By the Court, Law Office of Adler & Claraval For Defendant :saa -12-