Northside Properties, Inc. v. Ko-Ko Mart, Inc.

222 S.E.2d 267 (1976)

28 N.C. App. 532

NORTHSIDE PROPERTIES, INC. v. KO-KO MART, INC., and Gerald E. Stephen.

No. 751SC753.

Court of Appeals of North Carolina.

February 18, 1976.

Certiorari Denied April 6, 1976.

*271 Wolff, Harrell & Mann by Andrew S. Martin, Raleigh, for plaintiff-appellee.

Smith, Patterson, Follin, Curtis & James by J. David James, Greensboro, for defendants-appellants.

Certiorari Denied by Supreme Court April 6, 1976.

MORRIS, Judge.

Defendants first contend that the court erred when it denied their motion to amend their answer.

Amendments to pleadings are governed by G.S. 1A-1, Rule 15(a):

"A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 30 days after it is served. Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires. A party shall plead in response to an amended pleading within 30 days after service of the amended pleading, unless the court otherwise orders."

In this case, defendants were entitled to amend their answer only by leave of court. The motion to amend was addressed to Judge Cowper's discretion, "to be exercised as justice requires `in view of the attendant circumstances'". Calloway v. Motor Co., 281 N.C. 496, 501, 189 S.E.2d 484, 488 (1972) (Citation omitted.)

Here the court considered the attendant circumstances. He had before him the proposed amendment, the original answer, the affidavit of the individual defendant which reiterated the averments contained in the original and proposed amended answer, and was obviously aware of a suit brought by defendants against plaintiff based upon the identical claims sought to be incorporated by answer in this suit. The court properly held that the counterclaims were not compulsory counterclaims and noted in his judgment that they constituted proper subject matter to be heard in the other action then pending, to wit: Gerald E. Stephen and Ko-Ko Mart, Inc. v. Northside Properties, Inc., et al.

An order denying a motion to amend pleadings is an interlocutory order. We are unable to see anything in this record which would require review of the court's denial. Certainly there is no abuse of discretion, nor have defendants been deprived of a substantial right. This assignment of error is overruled.

Defendants contend that even though the proposed amendment be not allowed, the original answer and affidavit of the individual defendant raise issues of fact with respect to impairment of collateral by the bank. First defendants take the position that the bank had no right to require defendants to turn over to the bank for application on the note the proceeds of a check issued for damages to machinery rather than allowing defendants to use the proceeds to repair the machinery. This was raised by the affidavit appearing in the record but bearing no filing date. G.S. 25-9-306(2) provides that a ". . . security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his actions was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds *272 including collections received by the debtor." It seems clear that the bank had a right to require the proceeds of the insurance check to be applied to the amount due. Defendants also take the position that the bank impaired the collateral when it refused to allow them to sell a part of the equipment. The security agreement provides that "Debtor is not to, and will not attempt to, transfer . . . the collateral." Any sale or transfer of collateral would have to be with the bank's consent. The decision must be the creditor's, applying its own business judgment. The risk is the bank's and its decision either way would not constitute an impairment of collateral.

We agree that the original answer is sufficient to aver that defendants had no notice or opportunity to be heard prior to the attachment. Although the answer is very inartfully drawn, we are of the opinion that it also raises the question of whether plaintiff was entitled to attachment. The answer denies all "allegations of fraud in any manner" and avers that "this process is not being handled by due process of law". The complaint contains no allegations of fraud. The affidavit in attachment does, however, state that the grounds are that defendants, with intent to defraud their creditors, have, or are about to, assign, dispose of or secrete the property. In North Georgia Finishing v. Di-Chem, 419 U.S. 601, 95 S. Ct. 719, 42 L. Ed. 2d 751 (1975), the Court, in a five-to-three decision, held the Georgia statutes under which plaintiff had garnished defendant's bank account unconstitutional. The Court reviewed Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972), and Mitchell v. W. T. Grant Co., 416 U.S. 600, 94 S. Ct. 1895, 40 L. Ed. 2d 406 (1974). In Fuentes the Court held that the Florida and Pennsylvania replevin statutes were in violation of the Fourteenth Amendment, because seizure of the property could be had without notice and without the opportunity of a hearing or other safeguard against mistaken repossession. In Mitchell, the Court upheld the Louisiana sequestration statute which permits the seller creditor holding a vendor's lien to secure a writ of sequestration and, having filed a bond, to cause the sheriff to take possession of the property. However, the writ was issuable only by a judge and upon an affidavit which must set out facts entitling the creditor to sequestration as opposed to mere conclusory allegations. The debtor is also entitled to an immediate hearing after seizure and to dissolution of the writ if creditor is not able to prove the grounds on which the writ was issued. However, the Court said the Georgia statute was vulnerable for some of the reasons the Florida and Pennsylvania replevin statutes were invalid and did not have the saving characteristics of the Louisiana statute. The Georgia statute provided that the clerk, without participation of a judge, could issue the order upon the affidavit of the creditor or his attorney and need contain only conclusory allegations. The Court said:

"There is no provision for an early hearing at which the creditor would be required to demonstrate at least probable cause for the garnishment. Indeed, it would appear that without the filing of a bond the defendant debtor's challenge to the garnishment will not be entertained, whatever the grounds may be." North Georgia Finishing v. Di-Chem, 419 U.S. 607, 95 S. Ct. 723, 42 L. Ed. 2d 751, at 757-758.

In his concurring opinion Mr. Justice Powell said:

"In my view, procedural due process would be satisfied where state law requires that the garnishment be preceded by the garnishor's provision of adequate security and by his establishment before a neutral officer of a factual basis of the need to resort to the remedy as a means of preventing removal or dissipation of assets required to satisfy the claim. Due process further requires that the State afford an opportunity for a prompt post-garnishment judicial hearing in which the garnishor has the burden of showing probable cause to believe there is a need to continue the garnishment for a sufficient *273 period of time to allow proof and satisfaction of the alleged debt. Since the garnished assets may bear no relation to the controversy giving rise to the alleged debt, the State also should provide the debtor an opportunity to free those assets by posting adequate security in their place." Id. at 611, 95 S. Ct. at 725, 42 L. Ed. 2d at 760.

We are of the opinion that our attachment statute meets the tests set out by Mr. Justice Powell and does not suffer the disability of the Florida, Pennsylvania and Georgia statutes held invalid. The order of attachment may be issued by the clerk of the superior court in which the main action has been commenced or by a judge of the appropriate trial division. G.S. 1-440.5. The issuance of the order by the clerk is consistent with due process since the clerk is a judicial officer and not a mere administrative functionary. Hutchinson v. Bank of North Carolina, 392 F. Supp. 888 (M.D.N.C.1975). The order may be issued upon the affidavit of the plaintiff, or his agent or attorney in his behalf. The affidavit must contain a statement that plaintiff has instituted or is about to institute an action for a money judgment and the amount thereof, the nature of the action, and the grounds for attachment. G.S. 1-440.11. The grounds for attachment are set forth in G.S. 1-440.3 as follows:

". . . when the defendant is (1) A nonresident, or (2) A foreign corporation, or (3) A domestic corporation, whose president, vice-president, secretary or treasurer cannot be found in the State after due diligence, or (4) A resident of the State who, with intent to defraud his creditors or to avoid service of summons, a. Has departed, or is about to depart, from the State, or b. Keeps himself concealed therein, or (5) A person or domestic corporation which, with intent to defraud his or its creditors, a. Has removed, or is about to remove, property from this State, or b. Has assigned, disposed of, or secreted, or is about to assign, dispose of, or secrete, property."

The defendant has the right, at any time before judgment in the principal action to appear specially or generally and move, either before the clerk or the judge, to dissolve the order of attachment G.S. 1-440.36. When defendant contests the grounds upon which the writ was issued, he need not move for dissolution but, at his option, ". . . may make the necessary allegations in his answer by way of defense and await the trial." Whitaker v. Wade, 229 N.C. 327, 328, 49 S.E.2d 627, 628 (1948). G.S. 1-440.39 provides for discharge of attachment upon giving bond. We do not interpret North Georgia Finishing, Fuentes, or Mitchell as requiring notice and opportunity of hearing prior to attachment as contended for by defendants.

In this case, we are of the opinion that defendants have followed the procedure suggested by Whitaker v. Wade, supra, and have, by way of their inartfully drawn answer, contested the grounds upon which the attachment was issued. We, therefore, hold that upon this issue of material fact, defendants are entitled to be heard. Plaintiff may well be able to prove the averments of its affidavit. Even if it cannot, defendants may not be able to show any damages. They are, nevertheless, entitled to be heard on that issue.

The summary judgment for the amount due upon the note will not be disturbed. A partial summary judgment is expressly provided for by G.S. 1A-1, Rule 56(d).

The cause must be remanded for a hearing in accordance with this opinion.

Affirmed in part and remanded.

BROCK, C.J., and BRITT, J., concur.