Vern Klingbiel, Plaintiff and Appellee, v. Commercial Credit Corporation, Inc., Defendant and Appellant, 439 F.2d 1303 (10th Cir. 1971)

When Vern Klingbiel, (Purchaser), went outside his home in St. Louis, Missouri, on the morning of June 22, 1966 he found his brand new (1966) Ford Galaxie 500 gone. Later he was to learn that in the dark of night and with skillful stealth the car — despite its being fully locked — had been taken away, not by some modern auto rustler, but by an anonymous representative of the Automobile Recovery Bureau acting for Commercial,¹  the installment finance company, which was described with remarkable accuracy as a "professional firm". Little did he know that with this sudden, unexplained disappearance of an automobile, which — with all its chrome and large mortgage — was still his, so much had been unleashed. First, of course, was his anguish at his loss. More significant for us, time, tide, litigation, trial, victory and appeal was to instruct him in the intricacies of the fine print of the purchase mortgage contract he signed and, perhaps to his awe, the Uniform Commercial Code.

A Kansas jury, under the Judge's careful instructions, which we find to be unexceptionable, did not think much of this treatment and by its verdict awarded some small actual damages plus punitive damages in a sum almost twice the purchase price of the car.

Fleeing from this judgment as a matter of principle, if not principal, Commercial quite naturally and properly seeks a haven in the terms of the contract²  and, as an anchor to windward, the acceleration³  and good faith⁴  provisions of the Kansas Uniform Commercial Code. We find the attack unavailing and affirm.

The case was tried largely on stipulated facts. On May 26, 1966 Vern Klingbiel, a resident of St. Louis, Missouri, entered into an installment contract with Dealer⁵  for the purchase of a new Ford Galaxie automobile. This installment contract showed a time sales price of $4,907.56. Purchaser made a down payment of $400.00, tendering to Dealer a personal check in the amount of $300.00 and a second check in the amount of $100.00, the latter being signed in his wife's name. This left a time balance of $4,504.56, to be paid in 36 equal, successive monthly installments of $125.21, the payments to commence on June 26, 1966, under the mortgage contract containing the acceleration and enforcement provisions (see note 2, supra). Commercial shortly became the assignee, on a dealer recourse basis, for the consideration of $3,400.00.

Subsequently, but before Purchaser's first monthly installment became due, Commercial felt itself insecure,⁶  and it directed the Automobile Recovery Bureau of St. Louis, Missouri to repossess the automobile. On June 22, 1966 — four days before Purchaser's first monthly installment was due and at a time when he was not in default — the repossessing professionals, without notice, demand, communication, or correspondence with Purchaser, removed his locked automobile from the front of his house in the dead of night, and delivered it to Commercial⁷  along with Purchaser's personal property.⁸ 

Three sweeping contentions are made. First, the Trial Court erroneously instructed the jury to find for Purchaser on the illegality of the repossession. This was presented affirmatively and negatively by objections to the charge and refusal of a tendered instruction. Second, the Court erred in submitting to the jury the instruction on actual damages because (i) there was no evidence to support a verdict for actual damages, and (ii) it referred to actual, not market value. Third, the Court erred in submitting to the jury the issue of punitive damages because (i) none of the elements necessary for recovery of punitive damages were proved, and (ii) because the instruction was submitted under the law of Kansas rather than that of Missouri where the alleged wrong occurred.

The skillful Trial Judge having been aware that this contract (see note 2, supra) was not written for those who run to read discerned its true meaning by recognizing its true sequential structure. Unlike Commercial which assumes that the right to accelerate without notice or demand is synonymous with the right to repossess without notice or demand, the Judge carefully distinguished between the two. Acceleration, he charged, was permissible without notice or demand. But upon acceleration Commercial then had to make demand or give notice to Purchaser so that the admitted failure of notice/demand (see note 7, supra) made Commercial's repossession an unlawful conversion.⁹ 

The Court's instruction tracked the terms of the contract correctly. Though under clause [i] [b] (note 2, supra)¹⁰  "Time Balance" might from acceleration become due at any time without notice, if Commercial felt itself insecure, the very next provision in the contract provides " [ii] Purchaser agrees in any such case [a] to pay said amount to Seller, upon demand, or, [b] at the election of Seller, to deliver vehicle to Seller." (Emphasis added). Clause [ii] [a] [b] with its alternative stated in the disjunctive does not speak in terms of rights which Commercial has. Rather it speaks in terms of actions which Purchaser must take depending on the choice opted by Commercial. It could require Purchaser to pay off in full or it could require redelivery. But before Purchaser was bound to do either Commercial had first to indicate which course was required. The two words, "upon demand", are not only conspicuous, they are unavoidable.

Not yet overborne, Commercial would further have us construe the contract so as to declare that no notice was necessary prior to repossession by falling back on clause [iii] [b] which provides: " [iii] This mortgage may be foreclosed [a] * * * or [b] Seller may, without notice or demand for performance or legal process, * * * lawfully enter any premises where Vehicle may be found, and take possession of it."

This is equally unavailing. At the outset, this clause follows — does not precede — but follows clause [ii] which, [a] [b] as we have held, calls for notice/demand before Purchaser is required to act upon a declared acceleration. Equally important, in the sequential structure of the contract this refers only to a foreclosure. This means that there must be a default on the part of the Purchaser. This can take the form of Purchaser's failure to perform as in [i] [a] or an acceleration under [i] [b]. Certainly in the case of predefault acceleration, as a result of the manner in which this contract is constructed, clause [ii] [b] in effect calls for notice/demand to precipitate a default. The failure or refusal of Purchaser after such notice/demand would, of course, be a [i] [a] default, thus setting in train the foreclosure provisions of [iii] [a] or [b], including at that stage even the most stealthy repossession by night riders.¹¹  But this privilege is not available by skipping from [i] [b] to [iii] [b] over the head of [ii] [a] [b].

As a last ditch stand Commercial suggests that notice was not required because it had attempted to notify Purchaser on several occasions, each time in vain. This argument on this stipulated record is unimpressive. The contract called for notice/demand, not an effort toward it. This might, of course, be an element of "good faith" where relevant on damages, but not otherwise.

Nor can Commercial make error out of refusal to give its requested charge (No. 1). Technically the charge was defective since its adaptation of Kansas Uniform Commercial Code §§ 84-1-208 and 84-1-201(19) notes 3, 4, supra, was tied into the introductory peremptory instructions that Commercial, upon good faith acceleration, "had the right to take possession * * * without previous notice or demand" for payment or redelivery. This, we have held, was wrong. Apart from this, as a submission on good faith, there was no harmful error. Section 84-1-208 refers expressly and exclusively to acceleration of the contract, not to the manner, means or timing of repossession.

With respect to the claim that the Court erred in failing to submit the good faith instruction under § 84-1-201(19), we find it incomprehensible, since the Court tendered Instruction No. 12,¹²  in which "good faith" was defined exactly as Commercial would have had it stated in its proposed Instruction No. 1 (see note 4, supra).

Commercial contends the Court's application of Kansas law was incorrect because the alleged conversion occurred in Missouri. We find no error in the Court's application of Kansas law. See Vrooman v. Beech Aircraft Corp., 10 Cir., 1950, 183 F.2d 479; Roseberry v. Scott, 1926, 120 Kan. 576, 244 P. 1063; Cady v. Case, 1891, 45 Kan. 733, 26 P. 448. However, assuming without deciding, that the Court should have applied the law of Missouri, Commercial cannot show any harm. We are not here confronted with the classical situation where this Court must divine what a Kansas Court would think that a Missouri Court was thinking about a question on which a Missouri Court had not yet thought. Mutual of Omaha Insurance Company v. Russell, 10 Cir., 1968, 402 F.2d 339. The law of punitive damages in both Kansas and Missouri not only is well established, but it is virtually identical.

There are nuances in wording, but upon distilling the cases through the retort of analysis the standard of each state encompasses the notion of acts done in reckless indifference to the rights of others. In Kansas it is well established that before punitive damages may be awarded there must be actual damages, and then a right to a recovery of them further proved. Watkins v. Layton, 1958, 182 Kan. 702, 324 P.2d 130; Stoner v. Wilson, 1934, 140 Kan. 383, 36 P.2d 999; Schumock v. Meerian, 1953, 175 Kan. 8, 259 P.2d 173. As we later discuss, this requirement was fulfilled by the jury finding in response to Instruction No. 8. Under Kansas law recovery of punitive damages — also called exemplary or vindictive — is permitted whenever the elements of fraud, malice, gross negligence, or oppression are mingled into the controversy, Watkins v. Layton, supra; Malone v. Murphy, 1864, 2 Kan. 250; Wiley v. Keokuk, 1870, 6 Kan. 94; Cady v. Case, 1891, 45 Kan. 733, 26 P. 448, on the theory that the award of such damages is to punish the wrongdoer for malicious, vindictive, or wilful and wanton invasion of the injured party's rights, and to deter and restrain others from the commission of similar wrongs. Watkins v. Layton, supra; Stalker v. Drake, 1913, 91 Kan. 142, 136 P. 912.

Missouri law, although expressed at times in terms of a wrongful act intentionally done with an awareness of its wrongful nature, and with a purpose to inflict harm, is not nearly that categorical. These are descriptives for the shorthand "legal malice" which can arise from acts done in reckless disregard of the rights of others.¹³  This epitomizes the Kansas rule as well.

The law does not require a specific finding of an "intentional and ruthless desire to injure", Watkins v. Layton, supra, 324 P.2d at 135, in order to sustain an award of punitive damages. "The burden of proof is sustained once the injured party shows such gross neglect of duty as to evince a reckless indifference of the rights of others on the part of the wrongdoer * * * [and] an entire want of care so as to raise the presumption that the person at fault is conscious of the probable consequences of his carelessness." Id.

The charge given correctly set forth this synthesized Kansas-Missouri law,¹⁴  both as to the necessity for actual damages and the substantive standard of reckless disregard.¹⁵ 

We think there was evidence, if believed by the jury, to warrant the inference of more than simple inadvertence or a technical conversion. There was first the circumstance of the stealthy retaking without notice of any kind, although notice clearly was called for as we have held. At that time Purchaser was not in default.¹⁶  Further, Purchaser's own personal property was taken along with the automobile. This was never returned to him, nor did he receive recompense for it. In fact, Commercial never even contacted Purchaser to inform him of the repossession. He had to find it out through his own effort and investigation. There are many other factors unnecessary to catalogue which sustain the punitive damage finding.

This leaves only the objection to the Court's instruction on actual damages (see notes 9, 15, supra). Clearly there was sufficient evidence to cover the three elements submitted by the Court for the loss of value of the automobile, Purchaser's personal property, and the loss of use of the vehicle for an intervening period.

The objection is pointed at the term "actual value" rather than market value of the car. Assuming, but not deciding that it was error, such error was harmless. The "actual" damages awarded totalled $770.00. Of this sum $120.00 was for the loss of Purchaser's personal property, which Commercial fully concedes is correct. Purchaser's testimonial estimate of the loss from the loss of use of the car, which clearly is a permissible element of damages, was approximately $500.00. Thus this leaves only $150.00 for the loss of value of the automobile itself. This modest recovery does not demonstrate any harm.

Affirmed.