ITT-Indus. Credit Co. v. Milo Concrete Co.

229 S.E.2d 814 (1976)

ITT-INDUSTRIAL CREDIT COMPANY, Plaintiff, v. MILO CONCRETE CO., INC., Defendant, v. J. I. CASE CO., Third-Party Defendant.

No. 7626SC392.

Court of Appeals of North Carolina.

November 17, 1976.

*818 Richard A. Cohan, Charlotte, for plaintiff-appellee.

Mullen, Holland & Harrell, P.A., by Graham C. Mullen, Gastonia, for defendant-appellant and third-party plaintiff-appellee.

Mitchell & Matus by T. Patrick Matus, Charlotte, for third-party defendant-appellant.

BRITT, Judge.

APPEAL OF MILO

Milo contends that the trial court erred in directing a verdict with respect to its counterclaim against plaintiff based on breach of warranty and in instructing the jury that plaintiff was not subject to a defense based on breach of warranty. These contentions are without merit.

Plaintiff is the assignee of a retail installment sales contract entered into between seller Case and the buyer Milo. This contract contains a valid "waiver of defenses" provision which provides that: "Buyer agrees not to assert against the assignee any defense, offset or counterclaim which he may have against the Seller." G.S. 25-9-206(1) permits a contractual waiver of certain defenses by the buyer by providing:

"Subject to any statute or decision which establishes a different rule for buyers or lessees of consumer goods, an agreement by a buyer or lessee that he will not assert against an assignee any claim or defense which he may have against the seller or lessor is enforceable by an assignee who takes his assignment for value, in good faith and without notice of a claim or defense, except as to defenses of a type which may be asserted against a holder in due course of a negotiable instrument under the article on commercial paper (article 3) . . . ."

We note first that the General Assembly has enacted Chapter 25A, entitled Retail Installment Sales Act, in which G.S. 25A-25 alters the rule as to waiver of defenses against an assignee of a contract in all consumer credit sales. That statute is not applicable in the present case (see G.S. 25A-2), therefore, G.S. 25-9-206(1) is controlling.

Milo argues that plaintiff was not a holder in due course since the contract involved did not meet the requisites of negotiability. Although this argument is correct, plaintiff was still free of all defenses (including breach of warranty) except those that may be asserted against a holder in due course, if plaintiff met the requirements of G.S. 25-9-206(1). In the instant case, the waiver of defenses clause is enforceable since all the evidence showed that plaintiff took the assignment for value, in good faith, and without notice of any claims or defenses.

Milo further argues that plaintiff, by its degree of involvement with the seller Case, was so "inextricably intertwined" in the sales transaction that it is "unfair" to foreclose Milo's defense based on breach of warranty. Milo supports this argument with the evidence that plaintiff supplied the contract form, that plaintiff was the assignee of twelve contracts from seller Case during 1973 and 1974, and that plaintiff approved the customer's credit and financing. We aware that the arguments made by Milo have been accepted by some courts, particularly in consumer transactions in holding that waiver of defense clauses may be unenforceable as against public policy. Commercial Credit Corp. v. Orange Co. Mach. Works, 34 Cal. 2d 766, 214 P.2d 819 (1950); Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967); Rehurek v. Chrysler Credit Corp., 262 So. 2d 452 (Fla.1972); Navin, Waiver of Defense Clauses in Consumer Contracts, 48 N.C.L.Rev. 505 (1970).

Nevertheless, we think that in the commercial setting of the instant case the waiver of defenses clause was effective in cutting off, as to plaintiff, the defense and counterclaim based on breach of warranty. The validity of the statutory provision [G.S. 25-9-206(1)] authorizing the inclusion of waiver of defense clauses has been upheld *819 many times. First Nat. Bank v. Husted, 57 Ill.App.2d 227, 205 N.E.2d 780 (1965); Beam v. John Deere Co., 240 Ark. 107, 398 S.W.2d 218 (1966); B. W. Acceptance Corp. v. Richmond, 46 Misc.2d 447, 259 N.Y.S.2d 965 (Sup.Ct.1965); Jennings v. Universal C.I.T. Credit Corp., 442 S.W.2d 565 (Ky.1969); Cox v. Galigher Motor Sales Co., 213 S.E.2d 475 (W.Va.1975); Westinghouse Credit Corp. v. Chapman, 129 Ga.App. 830, 201 S.E.2d 686 (1973). Milo's attempt to assert a breach of warranty against the plaintiff was effectively waived in the contract, therefore, this contention is rejected.

Milo next contends the trial court erred in refusing to submit to the jury an issue as to whether plaintiff disposed of the collateral in a commercially reasonable manner. We think this contention has merit.

G.S. 25-9-504(3) provides in pertinent part:

"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. . . ." (Emphasis added.)

To minimize difficulties arising from the quoted statute, our General Assembly has enacted part 6 of Article 9 of the North Carolina Uniform Commercial Code entitled "Public Sale Procedures." If the secured creditor disposes of the collateral in a manner in substantial compliance with G.S. 25-9-601, et seq., a conclusive presumption of commercial reasonableness is created. Graham v. Northwestern Bank, 16 N.C.App. 287, 192 S.E.2d 109, cert. denied, 282 N.C. 426, 192 S.E.2d 836 (1972); Hodges v. Norton, 29 N.C.App. 193, 223 S.E.2d 848 (1976). These procedures provide for the contents of the notice of sale (G.S. 25-9-602), the posting and mailing of the notice of sale (G.S. 25-9-603), and the postponement of public sale (G.S. 25-9-605), among others. These procedures are not a part of the "Official Text of the U.C.C." and appear to be peculiar to this State. Hodges v. Norton, supra.

The evidence presented in this case is insufficient to establish the conclusive presumption of commercial reasonableness provided by G.S. 25-9-601, et seq. Plaintiff's evidence tends to show: The equipment was voluntarily surrendered; approximately $6,000 worth of repairs were made before it could be sold; there were advertising expenses of $8.94 on 4 February 1975, $10 on 31 March 1975, and $18.25 on 10 August 1975; it cost $792 to sell the equipment at auction; and the equipment sold for $9,900 at the auction. Plaintiff's sole witness stated that there were several contacts with Milo "prior to the month of default, and subsequent to that date also." On cross-examination, plaintiff's witness testified that the public sale was held at the Mecklenburg County Fairgrounds in July of 1975. It was shown that plaintiff advertised the sale on several dates and one notice of sale was produced that indicated that the sale would take place on 6 March 1975. On redirect examination plaintiff's witness identified a notice of sale sent by certified mail to Miles Hamrick (Milo's president) advertising a sale to be held on 19 July 1975 and received by Jane A. Hamrick on 8 July 1975. This notice of sale was not introduced into evidence and there is no evidence of its contents. The record does not indicate whether the contents of the notice of sale were in substantial compliance with G.S. 25-9-602, or whether a notice was posted at the courthouse as required by G.S. 25-9-603. The requirements of G.S. 25-9-601, et seq. are neither difficult to comply with nor to prove at trial. Substantial compliance is required and based on the lack of evidence presented in this case, we hold that no conclusive presumption of commercial reasonableness was established.

We recognize that a public sale may be commercially reasonable even though it does not substantially comply with G.S. 25-9-601, et seq. Hodges v. Norton, supra. However, absent the establishment of the conclusive presumption of commercial *820 reasonableness, we think a question of fact remains as to whether the sale was conducted in a commercially reasonable manner under G.S. 25-9-504(3). We also think that under the greater weight of authority a creditor, when suing for a deficiency, has the burden of proving that the disposition of the collateral was conducted in a commercially reasonable manner. Clark Leasing Corp. v. White Sands Forest Prod., Inc., 87 N.M. 451, 535 P.2d 1077 (1975); Vic Hansen & Sons, Inc. v. Crowley, 57 Wis.2d 106, 203 N.W.2d 728 (1973); Mallicoat v. Volunteer Finance & Loan Corp., 57 Tenn.App. 106, 415 S.W.2d 347 (1966); First Nat. Bank v. Rose, 188 Neb. 362, 196 N.W.2d 507 (1972).

In the absence of the establishment of conclusive presumption, the issue of commercial reasonableness requires a factual determination in light of the relevant circumstances of each case. In the present case, a proper issue was raised for the jury as to whether the sale was conducted in a commercially reasonable manner as to "method, manner, time, place and terms." Clark Leasing Corp. v. White Sands Forest Prod., Inc., supra; Fort Knox Nat. Bank v. Gustafson, 385 S.W.2d 196 (Ky.1964); Ennis v. Atlas Finance Co., 120 Ga.App. 849, 172 S.E.2d 482 (1969); California Airmotive Corp. v. Jones, 415 F.2d 554 (6th Cir. 1969); Atlas Constr. Co. v. Dravo-Doyle Co., 3 UCC Rep.Serv. 124 (Pa.C.P.1965). The trial court, therefore, erred when it refused to submit this issue to the jury.

APPEAL OF CASE

Case contends first that the trial court erred in allowing Milo's president to testify that the value of the pump would have been $56,000 had it performed as warranted, and then excluding his testimony on cross-examination that the cash price of the pump was $46,800. Under the facts in this case, we find no merit in the contention.

We think that evidence showing the cash price was competent on the question as to the value of the equipment as warranted. Nevertheless, any error committed by the court in refusing to allow the testimony was cured by the previous introduction of plaintiff's exhibit # 1 which was a copy of the sales contract. This contract, which was properly before the jury, showed the cash price of $46,800 and the total time price of $56,293.23. Moreover, plaintiff's first witness had already testified as to the cash price and the time price. The prior introduction of this evidence rendered harmless any error in excluding the testimony of Milo's president as to the cash price. 1 Strong, N.C.Index 3d, Appeal and Error § 49.2.

Case next contends the court erred in excluding the testimony of Fred Williams, an employee of Case, with respect to his background and qualifications and in refusing to accept Mr. Williams as an expert witness. We think this contention has merit.

In Cogdill v. Highway Comm., 279 N.C. 313, 321, 182 S.E.2d 373, 378 (1971), our Supreme Court said:

. . . An expert witness is one better qualified than the jury to draw appropriate inferences from the facts. Stansbury § 132 states: "The question, then, in every case involving expert testimony, ought to be, Is this witness better qualified than this jury to form an opinion from these facts? If the answer is Yes, his opinion is admissible whether he is called a `true expert' or is mildly disparaged by being classified as a `witness specially qualified as to facts,' or an `expert on the facts,' or `not strictly an expert.'"

We note the general rule that the competency of a witness to testify as an expert is a question addressed primarily to the sound discretion of the trial court. Utilities Comm. v. Telephone Co., 281 N.C. 318, 189 S.E.2d 705 (1972). An expert witness is one who through study or experience, or both, has acquired skill that makes him better qualified than the jury to form an opinion on the subject in question. In the instant case, Mr. Williams was the area manager for the marketing division of Case. He had previously been the regional *821 manager of the concrete division and was responsible for all sales and service of Case's concrete machinery in thirteen southeastern states. He had spent time on the assembly line of the pump in question, observing it in fabrication and in testing. He had presented lectures on the sales and service of this equipment. Outside the presence of the jury he testified that he was familiar with all types of pumps and that he was trained in the procedures outlined in the service manual of this pump. Furthermore, during a normal week, he sees at least one pump a day.

We hold that this evidence was sufficient to qualify Mr. Williams as an expert and the exclusion of this testimony based on the facts in question constituted prejudicial error. The trial court abused its discretion in failing to qualify this witness as an expert. As stated in Utilities Comm. v. Telephone Co., supra: ". . . The fact that the witness is an officer or employee, or a consultant specially retained by a party to the litigation, does not disqualify him as an expert. The effect of this circumstance upon the weight to be given his opinion is for the trial body to determine." We think the testimony of Mr. Williams, as an expert, would have been not only proper but also helpful as an aid to the jury in understanding the mechanics and possible malfunctions of the concrete pump in question.

Case next assigns as error the exclusion of certain testimony offered by its witness Mr. Williams relating to declarations of Mr. Kesler, an alleged agent of Milo. This assignment is without merit.

Mr. Williams, as a witness for Case, testified that he was at the Case office in Charlotte when Mr. Kesler, an employee of Milo, came into the office and stated that he was interested in buying a concrete pump. An objection was then interposed and sustained. The jury was excused and Williams testified that Kesler said he wanted a TB80 pump rather than a TB336 pump "because he sold concrete pumps, he had pumped against a TB80 on demonstration, he knew what it would do and he wanted a tandem truck . . . ." Objection was again interposed and sustained. We think the court properly excluded this testimony.

On their face, these statements indicate that Kesler personally wanted this concrete pump and, in fact, Kesler later purchased the pump in question from Milo. Case's argument that the statements were made while Kesler was an agent of Milo and acting within the scope of his authority is not supported by the record. Conceding that Kesler was the agent of Milo, there was no showing that the statements sought to be introduced were within the scope of authority of the declarant and the burden of so showing is on the party who seeks to introduce the testimony. Williams v. Highway Commission, 252 N.C. 514, 114 S.E.2d 340 (1960). Since there was no showing that these declarations were within the scope of Kesler's authority, the evidence was properly excluded.

Case next contends that the trial court erred in allowing Milo to amend its pleadings to conform to the evidence and thereby pray for damages greater than asked for in the complaint. This contention is without merit and since Case is being awarded a new trial on other grounds, we deem it unnecessary to discuss this contention. Suffice it to say, the amendment was fully authorized by G.S. 1A-1, Rule 15(b).

Case next contends the trial court erred in failing to submit an issue to the jury regarding acceptance and revocation of acceptance of the concrete pump by Milo. This contention is without merit.

G.S. 25-2-606(1) provides:

Acceptance of goods occurs when the buyer (a) after a reasonable opportunity to inspect the goods signifies to the seller that the goods are conforming or that he will take or retain them in spite of their nonconformity; or (b) fails to make an effective rejection (subsection (1) of § 25-2-602), but such acceptance does not occur until the buyer has had a reasonable opportunity to inspect them; or (c) does any act inconsistent with the seller's ownership; but if such act is *822 wrongful as against the seller it is an acceptance only if ratified by him.

Milo seeks to assert its claim for breach of warranty under G.S. 25-2-714 after acceptance of the goods. The evidence established that Milo retained the pump for more than five months and had ample time to effectively reject the goods, particularly since the pump's defects were observed at the beginning of its operation. We conclude that Milo's failure to make an effective rejection within the five-month period constituted an acceptance. Moreover, Milo's attempt to sell the pump, after five-months operation, to Kesler constituted an act under G.S. 25-2-606(1)(c) which was inconsistent with the seller's ownership. Furthermore, a revocation of acceptance was not available to Milo after this five-month period of use since, under G.S. 25-2-608(2), "revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it . . . ."

Milo duly notified Case of the defect, therefore, we think Milo has properly brought this action for breach of warranty after an acceptance of the goods. G.S. 25-2-607(3). The pleadings nor the evidence raised any issue as to acceptance or revocation of acceptance.

Case's next contention is that the trial court erred in its jury instructions relating to the measure of damages recoverable in a breach of warranty action. This contention is without merit.

G.S. 25-2-714(2) provides:

"The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount."

Although, as noted by the comments to the statute, this is not exclusive measure of damages for breach of warranty, the jury in the instant case was properly charged according to the statute. Case argues that the court should have instructed the jury, as requested, that the value of the goods at acceptance must be controlled by the price received by Milo from its sale of the pump to Kesler. The determination of the amount of damages recoverable was properly a question for the jury upon consideration of all the evidence presented. We recognize that the price received for the pump was some evidence of its value and this was properly presented to the jury.

Case contends that the trial court improperly charged the jury with respect to the creation of an express warranty. We think this contention has merit.

It is conceded that what the court charged was correct. However, Case contends that the failure to include in the charge the substance of the last section of G.S. 25-2-313(2) precluded the jury from finding that statements made by Case did not create an express warranty but were merely the seller's opinion or a commendation of the goods.

The court properly instructed the jury under G.S. 25-2-313(1) and concluded by charging under subsection (2) of that statute that: "No particular word or form of expression is necessary to create an express warranty. Nor is it necessary that the seller use formal words such as warrant or guarantee or that he have a specific intention to make a warranty." Case contends that the court should have charged on the last section of G.S. 25-2-313(2) which states that ". . . an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty." We agree with this contention.

Although we recognize that the inclusion of this statement may not be required in all instances, in the present case a factual question was raised as to what was said by Case concerning the performance of the pump. The issue revolved around whether a warranty was created as to the ability of the pump to handle a particular type of concrete. We think the jury could have reasonably determined that the seller's purported *823 statement was merely the seller's opinion or a commendation of the goods under the statute. We hold that a proper charge to the jury under the evidence in this case should have recognized this possibility and included the second portion of the statute quoted above.

We have considered the other assignments of error argued in Case's brief but, finding them to be without merit, they are overruled.

* * *

We conclude that the errors in the trial which we have discussed in Milo's appeal and in Case's appeal were sufficiently prejudicial to require a new trial on all issues and it is so ordered.

New trial.

PARKER and CLARK, JJ., concur.