Mercantile Bank v. B & H Associated, Inc.

MERCANTILE BANK, n/k/a Union Planters Bank of
Northeast Arkansas v. B & H ASSOCIATED, INC.,
Fred Boling and Clara Boling

97-280                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
               Opinion delivered October 23, 1997


1.   New trial -- review of denial of motion for -- factors
     considered. -- The supreme court's review of the trial court's
     denial of a new-trial motion is whether there is any
     substantial evidence to support the jury's verdict; in
     examining whether substantial evidence exists, all evidence
     must be examined in the light most favorable to the party on
     whose behalf the judgment was entered and given its highest
     probative value, taking into consideration all reasonable
     inferences deducible from it; in such situations, the weight
     and value of testimony is a matter within the exclusive
     province of the jury.    

2.   Debtors & creditors -- creditor's right to dispose of
     collateral securing indebtedness -- law governing. -- 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, Ark. Code Ann.  4-9-504(1) (Repl. 1991), and the
     disposition of the collateral may be by public or private
     proceedings, but every aspect of the disposition including the
     method, manner, time, place, and terms must be commercially
     reasonable; while a creditor is given the right to a
     deficiency judgment under Ark. Code Ann.  4-9-504(2) (Repl.
     1991), the creditor's right to such judgment depends on
     whether he has complied with the statutory requirements
     concerning disposition and notice; when a debtor defends upon
     the ground that the secured creditor did not proceed in
     accordance with the provisions of the Uniform Commercial Code,
     the creditor has the burden of proving that he proceeded in a
     commercially reasonable manner.

3.   Debtors & creditors -- sale of collateral by secured party --
     what is commercially reasonable. -- Whether a sale of
     collateral was conducted in a commercially reasonable manner
     is essentially a factual question; if a secured party sells
     the collateral in a commercially unreasonable manner, a
     presumption arises that the value of the collateral is equal
     to the outstanding debt; however, the secured party can still
     recover a deficiency upon proving that the reasonable value of
     the collateral was less than the debt; when determining
     whether the sale of a collateral was handled in a commercially
     reasonable manner, a major consideration is the determination
     of the fair market value of the collateral.  


4.   Business & commercial law -- sales found not to have been
     commercially reasonable. -- Sales have been held not to have
     been commercially reasonable where there was minimal
     advertising of the sale and where there was a great disparity
     between the sale price and the fair market price.  

5.   Business & commercial law -- appellant's sale not commercially
     reasonable -- denial of request for new trial not abuse of
     discretion. -- Where the evidence showed that appellant, in
     trying to find potential buyers for the system, did not
     advertise in magazines, trade magazines, or newspapers, nor
     did it make a reasonable effort to obtain a fair market value
     when selling the system, there was substantial evidence to
     support the jury's decision that the appellant's sale was not
     commercially reasonable; the trial court did not abuse its
     discretion in denying the appellant's request for a new trial.

6.   Trial -- mistrial -- when proper. -- A mistrial is an extreme
     remedy to be taken only when it is apparent that justice
     cannot be served by continuing the trial; it is proper only
     when the error is beyond repair and cannot be corrected by any
     curative relief; the granting of a mistrial is within the
     sound discretion of the trial court, and the exercise of that
     discretion will not be disturbed on appeal absent a showing of
     abuse.

7.   Trial -- cautionary instruction cured potential prejudice --
     no reversible error found. -- Where considerable evidence was
     presented bearing on the system's worth or value, and some of
     that testimony offered figures well in excess of the $400,000
     offer which the appellee mentioned at trial, the supreme court
     found that the trial court's cautionary instruction to the
     jury cured any prejudice caused by appellee's offer statement;
     no reversible error was found.

8.   Witnesses -- expert testimony -- admissibility of. -- The
     admissibility of expert testimony rests largely within the
     broad discretion of the trial court, and the appellant bears
     the burden of demonstrating the trial court abused its
     discretion; generally, the tendency is to permit the jury to
     hear the testimony of the person having superior knowledge in
     a given field unless clearly lacking in either training or
     experience, and too rigid a standard should be avoided; if
     some reasonable basis from which it can be said the witness
     has knowledge of the subject beyond that of persons of
     ordinary knowledge, his evidence is admissible.  

9.   Witnesses -- expert testimony on value allowed -- proper
     foundation established. -- Where appellees established a
     proper foundation upon which the witness could offer an
     opinion in putting a market value on the system's software and
     given the witness's background and his intimate knowledge of
     the system, there was more than a sufficient basis to uphold
     the trial court's ruling allowing his testimony.


     Appeal from Craighead Circuit Court; David Burnett, Judge;
affirmed.
     Snellgrove, Laser, Langley , Lovett, & Culpepper, by:  Todd
Williams, for appellant.
     Larry Boling, for appellees.

     Tom Glaze, Justice.
     Appellee B & H Associates and Fred and Clara Boling owned
what is called the Uni-Banc System -- a complete in-house
processing system designed in 1979 to handle the accounting needs
of banks.  In February of 1992, B & H sold a copy of the Uni-Banc
System software program to Sparak Financial Systems, Inc., and it
is the 1992 sales contract that, in part, plays a role in the
litigation now before us involving Mercantile Bank and B & H
Associates.  Under the 1992 contract, Sparak acquired broad
authority to market, license, develop, and use the Uni-Bank System. 
Sparak could use the copy as if it were the original software
program, and was not required to pay B & H any royalties or
licensing fees.  The parties' contract provided that Sparak's and
B & H's interests in the system were exclusive except as to each
other's interest, and that neither Sparak nor B & H could transfer,
sell, assign, or encumber the system without the prior consent of
the other.  Moreover, each party had the right of first refusal on
any sale or any proposed sale of the system by the other, and in
the event B & H sold its interest, B & H was required to pay Sparak
$60,000.00 from the sale proceeds.  Significant to this present
suit between Mercantile Bank and B & H, the 1992 Sparak contract
provided that, in the event either B & H or Sparak went into
bankruptcy or had a judgment entered against it in excess of
$50,000.00, the obligated party would sell its interest in the Uni-
Banc system to the other for the sum of $25,000.00.  
     The present dispute between Mercantile Bank and B & H arose
from a September 22, 1993 loan that the Bank made to B & H and the
Bolings in the sum of $150,000.00.  The parties' promissory note
evidencing the loan was secured by B & H's Uni-Banc System.  When
B & H defaulted, the Bank sued, and subsequently took possession of
B & H's computer software identified as the Uni-Banc System. 
Afterwards, Mercantile Bank, at a private sale, sold the copy of
the system to Sparak for $25,000.00 and the Bank then sought a
deficiency judgment against B & H and the Bolings.  However, B & H
and the Bolings defended the Bank's action, claiming Mercantile
Bank's sale of the Uni-Banc System's software had not been
conducted in a commercially reasonable manner.  After a jury trial,
B & H and the Bolings were favored with a defendants' verdict, and
when the trial court denied the Bank's motion for a new trial or
judgment notwithstanding the verdict, the Bank brought this appeal.
     Mercantile Bank first contends the trial court erred in
denying its new-trial motion because there was no evidence from
which reasonable minds could conclude that its sale of the Uni-Banc
System to Sparak was not conducted in a commercially reasonable
manner.  The Bank's contention is largely based upon Mr. Boling's
earlier inability to obtain a purchaser for the Uni-Banc System. 
It submits the $150,000.00 loan was made essentially to give Mr.
Boling an opportunity to sell the system's software to pay off
B & H's indebtedness.  Although Mr. Boling had made a number of
contacts seeking buyers for the system, the Bank's Vice-President,
Brad Edwards, said Boling had been unable to obtain a purchaser. 
Edwards claimed the Bank had used Mr. Boling's contacts, but the
Bank, too, failed to find a buyer.  Bank officer Edwards related
the Bank further used the assistance of Tim Gibson, the president
of a local computer system business, and Gibson, among other
things, opined Sparak's purchase price of $25,000.00 was "quite a
bit."  Another witness, James V. Burnett, had a current interest in
Uni-Bank System which permitted him to re-market the system to
banks.  The Bank points out that, when Burnett was asked if he
would be interested in buying a copy of the system's software, he
responded no because Sparak's 1992 contract presented "too many
strings" attached to any sale.
     Mercantile Bank emphasizes the foregoing evidence to support
its argument that it had conducted a commercially reasonable sale
when obtaining $25,000.00 from Sparak for B & H's Uni-Banc System. 
However, this court's review of the trial court's denial of the
Bank's new-trial motion is whether there is any substantial
evidence to support the jury's verdict.  Fisher v. Valco Farms, 328
Ark. 741, 945 S.W.2d 369 (1997).  In examining whether substantial
evidence exists, all evidence must be examined in the light most
favorable to the party on whose behalf the judgment was entered and
given its highest probative value, taking into consideration all
reasonable inferences deducible from it.  Esry v. Cordin, 328 Ark.
153, 942 S.W.2d 846 (1977).  In such situations, the weight and
value [of testimony] is a matter within the exclusive province of
the jury.  Id.  
     Before reviewing the evidence in B & H's favor to determine if
the verdict should stand, we first discuss the law relevant to a
creditor's right to dispose of collateral securing an indebtedness. 
In this respect, 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, Ark. Code Ann.  4-9-504(1) (Repl. 1991), and the
disposition of the collateral may be by public or private
proceedings . . ., but every aspect of the disposition including
the method, manner, time, place, and terms must be commercially
reasonable.  Ark. Code Ann.  4-9-504(3) (Repl. 1991).  While a
creditor is given the right to a deficiency judgment under Ark.
Code Ann.  4-9-504(2) (Repl. 1991), the creditor's right to such
judgment depends on whether he has complied with the statutory
requirements concerning disposition and notice.  First State Bank
of Morrilton v. Hallett, 291 Ark. 37, 722 S.W.2d 555 (1987).  When
the debtor defends upon the ground that the secured creditor did
not proceed in accordance with the provisions of the Uniform
Commercial Code, the creditor has the burden of proving that he
proceeded in a commercially reasonable manner.  Farmers Equipment
Co. v. Miller, 252 Ark. 1092, 482 S.W.2d 805 (1972); Henry v.
Trickey, 9 Ark. App. 47, 653 S.W.2d 138 (1983).  Courts have held,
and we agree, that whether a sale of collateral was conducted in a
commercially reasonable manner is essentially a factual question. 
United States v. Conrad Publishing Co., 589 F.2d 949 (8th Cir.
1978); Cheshire v. Walt Bennett Ford, Inc., 31 Ark. App. 90. 788 S.W.2d 490 (1990); Henry, 9 Ark.App. 47, 653 S.W.2d 138.  And, if
a secured party sells the collateral in a commercially unreasonable
manner, a presumption arises that the value of the collateral is
equal to the outstanding debt; however, the secured party can still
recover a deficiency upon proving that the reasonable value of the
collateral was less than the debt.  Barker v. Horn, 245 Ark. 315,
432 S.W.2d 21 (1968); Henry, 9 Ark. App. 47, 653 S.W.2d 138; and J.
White & R. Summers, Uniform Commercial Code (2d ed. 1980).  Finally, when
determining whether the sale of a collateral was handled in a
commercially reasonable manner, this court has held that a major
consideration is the determination of the fair market value of the
collateral.  Thrower v. Union Lincoln-Mercury, Inc., 282 Ark. 585,
670 S.W.2d 430 (1984).
     After a careful review of the record, we conclude that
Mercantile Bank failed to overcome its legal burdens as set out
above and that there is substantial evidence to support the jury's
decision that the Bank's sale to Sparak was not commercially
reasonable.  We now allude to that evidence that favors B & H's
verdict.
     While Mr. Edwards testified that he had incurred in excess of
100 hours in trying to find potential buyers for the Uni-Banc
System, he conceded that, other than a company he had located named
Advance Data, the Bank essentially limited its contact to eight
persons or entities given it by Mr. Boling.  The Bank admitted that
it did not advertise in magazines, American Bankers' Journal, state
bank journals, banking computer trade magazines, or newspapers. 
Yet, a banker and financial consultant, Johnny Ray McFarland,
testified that, in locating potential buyers for Uni-Banc, he would
not have limited his contacts to Mr. Boling's prospects and would
have advertised in the most accessible market and utilized trade
publications sent to bankers.  We point out, as well, that sales
have been held not to have been commercially reasonable where there
was minimal advertising of the sale and where there was a great
disparity between the sale price and the fair market price.  United
States v. Conrad Publishing Co., 589 F.2d 949 (8th Cir. 1978).  
     Edwards also admitted Mercantile Bank had a duty to obtain a
fair market value when selling the system, but the Bank obtained no
such value.  The Bank's witness, Tim Gibson, who sells licenses for
computer software systems, stated that he was unable to place a
value on the Uni-Banc System.  In his opinion, Gibson said "there
was no way to determine whether the system was worth $25,000.00,
$1,000.00, $500,000.00, or $1,000,000.00."  In sum, there is
substantial evidence in the record that reflects the Bank made no
reasonable effort to determine the fair market value or identify
potential buyers.  
     On the other hand, the Bank was well aware that Sparak had
purchased its interest in the Uni-Banc System for $805,000.00, and
knew James V. Burnett had purchased an interest in the Uni-Banc
System in 1993, and his contract had resulted in payments to B & H
in the approximate annual amount of $25,000.00 in royalties. 
Concerning Sparak's purchase, Mr. Boling testified that Sparak had
licensed the Uni-Banc software to eighty banks and had earned $1.5
million on its $805,000.00 investment.  
     Because the foregoing reflects substantial evidence to support
the jury's decision that the Bank's sale to Sparak was not
commercially reasonable, we conclude the trial court did not abuse
its discretion in denying the Bank's request for a new trial.
     In its second point for reversal, Mercantile Bank argues value
testimony given over its objection at trial had prejudiced its case
and caused reversible error.  It first challenges Mr. Boling's
trial testimony concerning an offer that he had received in August
1994 from Oracle Corporation to buy B & H's Uni-Banc System.  The
Bank objected on hearsay grounds.  The trial court ruled Mr. Boling
could discuss the sale of the property to the people (Oracle), but
he could not mention the amount offered.  When Boling resumed
testifying, he was asked the purpose of Oracle's contacting him,
and he responded that Oracle wanted to make an offer.  Boling then
volunteered, "I asked [Mr. Smith] to contact Mercantile Bank and
also give Mercantile Bank the information about the price that he
was asking which was in excess of $400,000.00."  The Bank's counsel
approached the bench, renewed his objection, and requested a
mistrial.  The trial judge rejoined that a mistrial was too
drastic, but he would (and did) instruct the jury to disregard the
amount mentioned by Mr. Boling because it was hearsay.
     The rule is well settled that a mistrial is an extreme remedy
to be taken only when it is apparent that justice cannot be served
by continuing the trial.  Bull Shoals Community Hosp. v. Partee,
310 Ark. 98, 832 S.W.2d 829 (1992).  It is proper only when the
error is beyond repair and cannot be corrected by any curative
relief.  Nobles v. Casebier, 327 Ark. 440, 938 S.W.2d 849 (1997). 
The granting of a mistrial is within the sound discretion of the
trial court, and the exercise of that discretion will not be
disturbed on appeal absent a showing of abuse.
     As discussed in detail above, considerable evidence was
presented, bearing on Uni-Banc System's worth or value, and some of
that testimony offered figures well in excess of the $400,000.00
offer which Boling mentioned at trial.  Considering the
circumstances, we simply are unable to say the trial court's
cautionary instruction to the jury did not cure any prejudice
caused by Boling's offer statement.
     The Bank also questions the trial court's allowing Johnny Ray
McFarland to testify as an expert and specifically permitting him
to give value testimony concerning Uni-Banc System's software. 
First, in reviewing the abstract of record, we do not find a
definitive ruling on accepting or rejecting McFarland as an expert. 
However, the Bank did question whether B & H had established a
proper foundation upon which McFarland could offer an opinion in
putting a market value on the Uni-Banc System's software.  We
believe such foundation was sufficient.
     McFarland explained his long-standing experience with B & H's
software.  He had been a Senior Vice President with the Bank of
Wynne, and in that capacity, he became intimately familiar with the
Uni-Banc System.  During his thirteen years with the Bank of Wynne,
he worked with the system.  He testified in detail how the system
worked, compared it as being superior to others, and related that
the Wynne Bank had paid B & H $25,000.00 just for the right to use
B & H's software.  While McFarland admitted he had no college
course or education with respect to placing a market value on
software, he said that he had been involved in the purchase or sale
of source codes for software.  He said that his company, Alpha
Financial Services, evaluated properties and businesses, and he
mentioned the three appraisal approaches he utilized when
establishing a market value.  
     After giving the foregoing testimony, McFarland was asked if
he had an opinion concerning the Uni-Banc System, to which
Mercantile Bank objected.  And while McFarland started to mention
an offer he knew had been given to Mr. Boling, the trial court
interrupted, by instructing McFarland his opinion could not be
based on what somebody else told him.  McFarland then stated
without objection he valued the system at $1.2 million.  Later,
when the Bank and the trial court questioned McFarland's basis for
arriving at his value testimony, he assured them his opinion was
not based on someone else's opinion as to the software's worth, but
instead he reached his opinion by employing the hours that went
into developing the B & H software and using the knowledge that, in
1992, Sparak had paid more than $800,000.00 for a copy of the
software.
     This court has long recognized that the admissibility of
expert testimony rests largely within the broad discretion of the
trial court, and the appellant bears the burdensome task of
demonstrating the trial court abused its discretion.  Collins v.
Hinton, 327 Ark. 159, 937 S.W.2d 164 (1997).  Generally, the
tendency is to permit the jury to hear the testimony of the person
having superior knowledge in a given field unless clearly lacking
in either training or experience, and too rigid a standard should
be avoided.  Mine Creek Contractors, Inc. v. Grandstaff, 300 Ark.
516, 780 S.W.2d 543 (1989).  If some reasonable basis from which it
can be said the witness has knowledge of the subject beyond that of
persons of ordinary knowledge, his evidence is admissible.  Id.
     Here, given McFarland's background and his intimate knowledge
of the Uni-Banc System, there was more than a sufficient basis to
uphold the trial court's ruling allowing his value testimony.
     Affirmed.