Wohlfahrt v. Schneider

345 S.E.2d 448 (1986)

Douglas WOHLFAHRT and wife, Lynn Wohlfahrt v. Larry G. SCHNEIDER, M.D.

No. 855SC1326.

Court of Appeals of North Carolina.

July 15, 1986.

*450 Larrick & Mason by James K. Larrick, Wilmington, for plaintiffs-appellees.

Murchison, Taylor & Shell by Michael Murchison and Nancy M. Guyton, Wilmington, for defendant-appellant.

MARTIN, Judge.

Defendant's principal contention on appeal is that the trial court erred in finding and concluding that his conduct constituted an anticipatory breach of the promissory note, justifying an award for the full amount due thereon, without considering and applying provisions of the Uniform Commercial Code which govern the right of a buyer of goods to revoke his acceptance of those goods. We agree with defendant that the evidence at trial raised issues which may be resolved only by application of provisions of the Uniform Commercial Code and that the trial court's findings and conclusions do not fully determine those issues. Accordingly, we vacate the judgment and remand the case to the trial court.

As a preliminary matter, we deem it apposite to discuss briefly the issue of whether the substantive law of Texas or North Carolina governs the rights of the parties to this action. The note and security agreement at issue were executed simultaneously in the State of Texas. The security agreement specifically provided that the transaction would be governed by the law of Texas. The note specified that payment was due in North Carolina; the collateral was located in Texas. Both North Carolina and Texas have adopted the Uniform *451 Commercial Code (UCC). N.C.Gen. Stat. § 25-1-101 et seq. (1965 & Supp.1985); Texas Bus.Code Ann. § 1.101 et seq. (Vernon 1968 & Supp.1986). Where the transaction bears a reasonable relation to more than one state, the UCC permits the parties to agree with respect to which state's law shall govern their rights and duties. Texas Bus.Code Ann. § 1.105(a) (Vernon Supp. 1986); N.C.Gen.Stat. § 25-1-105(1)(1965). This section modifies traditional conflict of laws rules. Bernick v. Jurden, 306 N.C. 435, 293 S.E.2d 405 (1982). Since the goods are located in Texas and performance is due in this State, we hold, and the parties acknowledge, that the transaction bears a reasonable relationship to both states. Accordingly, the agreement of the parties requires that the substantive issues involved in this case be resolved by application of Texas law. Procedural issues, however, must be determined by application of the law of North Carolina. Tennessee Carolina Transp., Inc. v. Strick Corp., 283 N.C. 423, 196 S.E.2d 711 (1973).

Defendant initially contends that plaintiffs' own evidence defeats their right to recover on the promissory note because it affirmatively discloses that he was not in default at the time plaintiffs commenced this action. We disagree. The note called for monthly installments of $1,034.87 beginning 1 November 1981. The complaint was filed 9 December 1981; at that time, according to all the evidence, defendant had paid two monthly installments of $1,034.87. However, the trial court concluded, based upon its finding that defendant had notified plaintiffs in November of his intention to revoke the contract, that defendant had effected an anticipatory breach of the contract. Under Texas law, an anticipatory breach of contract may exist "if, in positive and unconditional terms, a party refuses to perform further thereunder." Barclaysamerican/Business Credit, Inc. v. E & E Enterprises, Inc., 697 S.W.2d 694, 701 (Tex.Ct.App.1985) (citing official commentary to Texas Bus.Code Ann. § 2.610 (1968), anticipatory repudiation "can result from action which reasonably indicates a rejection of the continuing obligation"). Accordingly, the fact that defendant had not defaulted in payment at the time the suit was commenced does not necessarily defeat plaintiffs' claim, in view of his notice to them demanding that they refund all payments and take possession of the goods.

However, the same evidence relied upon by the trial court to establish defendant's anticipatory breach of the contract also raises the issue of his right to timely revoke his acceptance of the goods, as provided by Texas Bus.Code Ann. § 2.608 (Vernon 1968). (See also N.C.Gen.Stat. § 25-2-608 (1965)). As provided by that section, a buyer, who has accepted goods, may revoke his acceptance and cancel the contract if the goods are nonconforming and the nonconformity substantially impairs the value of the goods. Freeman Oldsmobile Mazda Co. v. Pinson, 580 S.W.2d 112 (Tex.Civ.App.1979) (application for writ of error refused).

Although defendant's answer to the substantive allegations of the complaint consisted only of a general denial, and did not raise the issue of revocation of acceptance, that issue was raised by the evidence at trial. Defendant testified, without objection, that after he had accepted the equipment, he discovered that the x-ray machine was a 200 MA machine, unsuitable for his purposes, rather than a 500 MA machine as had been represented by plaintiffs. The copy machine required expensive repairs, and other items of equipment were not working properly. In addition, certain items which were to have been furnished by plaintiffs were not furnished. As a result, defendant, through his attorney, wrote to plaintiffs' advising them that the goods were nonconforming, which substantially impaired their value, that he was revoking his acceptance of them, demanding a refund, and requesting that they take possession of the equipment. According to his testimony, Mrs. Wohlfahrt notified him that she was coming to Texas to take possession of the goods, but that she did not do so.

*452 "When issues not raised by the pleadings are tried by the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." N.C.Gen.Stat. § 1A-1, Rule 15(b) (1983). Where no objection is raised at trial on the grounds that the profferred evidence is not within the scope of the pleadings no formal amendment is required and the pleadings are deemed amended by implication. Taylor v. Gillespie, 66 N.C. App. 302, 311 S.E.2d 362, disc. rev. denied, 310 N.C. 748, 315 S.E.2d 710 (1984). In addition, plaintiffs alleged in their complaint that defendant had notified them that he intended to revoke the contract.

In cases where the trial judge sits as the trier of facts, he is required to find facts upon all issues raised by the pleadings and evidence, declare the conclusions of law arising on the facts found, and enter judgment accordingly. N.C.Gen.Stat. § 1A-1, Rule 52(a)(1) (1983); Coggins v. City of Asheville, 278 N.C. 428, 180 S.E.2d 149 (1971). The requirement is designed to dispose of the issues raised and to permit "a reviewing court to determine from the record whether the judgmentand the legal conclusions which underlie itrepresent a correct application of the law." Coble v. Coble, 300 N.C. 708, 712, 268 S.E.2d 185, 189 (1980).

In the present case, the issue of whether or not defendant rightfully revoked his acceptance of the goods was raised by the evidence and by the pleadings as amended by implication. The issue required consideration and application of the UCC, as adopted in Texas, and findings of fact with respect to whether the equipment was nonconforming and if so, whether the nonconformity substantially impairs its value and whether defendant revoked his acceptance within a reasonable time after defendant discovered or should have discovered that grounds for revocation existed. In the event that defendant is found to have rightfully revoked acceptance, a determination must be made as to the remedy available to him under the Texas Business Code. On the other hand, should the court find that any nonconformity did not substantially impair the value of the contract, other issues arise upon defendant's testimony that certain of the items were not in proper working condition, as had been warranted by plaintiffs. Since the trial court failed to address these issues in its findings and conclusions, this Court has no means of determining whether the trial court's judgment, awarding plaintiffs full recovery on the note, was correct. Therefore, we deem it necessary that this case be reconsidered at the trial level.

Because we order a new trial, we consider it appropriate to briefly address defendant's assignment of error relating to the denial of his motion to abate this action. Although defendant asserts in his brief that "there is a pending action in the State of Texas involving the same parties, the same promissory note and security agreement, the same alleged collateral and the same transaction upon which plaintiffs have filed their complaint," the record is bereft of any evidence, other than a similar allegation in defendant's answer, to support this assertion. Even assuming, however, that an action was pending in the State of Texas of the nature and scope alleged by defendant, it would not support defendant's motion on abatement. The pendency of a prior action in the courts of another state, involving the same parties and subject matter, is not grounds for abatement of a subsequent action begun in this State. Lehrer v. Edgecombe Mfg. Co., Inc., 13 N.C.App. 412, 185 S.E.2d 727 (1972); 1 Strong's North Carolina Index 3d, Abatement and Revival § 3 (1976).

For the reasons stated, the judgment appealed from is vacated and this case is remanded to the Superior Court for a new trial in accordance with this opinion. The parties shall be permitted to amend their pleadings to conform them to the evidence, if they so desire.

Vacated and remanded.

PHILLIPS and PARKER, JJ., concur.