Case Title: Ford Motor Cred. Co. v. Suburban Ford

Citation: 237 Kan. 195, 699 P.2d 992

Docket Number: 56,472

State: kansas

Court: Kansas Supreme Court

Date: 1985-05-10T00:00:00Z

Document:
237 Kan. 195 (1985)
699 P.2d 992
FORD MOTOR CREDIT COMPANY, Appellant/Cross-Appellee,
v.
SUBURBAN FORD, et al., Appellees/Cross-Appellants.
No. 56,472

Supreme Court of Kansas.
Opinion filed May 10, 1985.
Gerrit H. Wormhoudt, of Fleeson, Gooing, Coulson & Kitch, of Wichita, argued the cause, and Thomas D. Kitch and Rex G. Beasley, of the same firm, were with him on the briefs for appellant/cross-appellee.
Edward A. McConwell, of McConwell & Sullivan, of Overland Park, argued the cause, and Thomas Francis Sullivan, of the same firm, was with him on the brief for appellees/cross-appellants.
The opinion of the court was delivered by
McFARLAND, J.:
This complex action arises from the contractual relationships between an automobile dealership (Suburban Ford), its source of financing of inventory under a floor plan agreement (Ford Motor Credit Company), and its supplier of automobiles and parts (Ford Motor Company). The individuals named as parties to the action (Ben W. Young, Margaret C. Young, Don W. Hansard and Linda M. Hansard) are: (1) sued herein as guarantors of the contracts on behalf of Suburban Ford; and (2) seeking damages for themselves for claimed injury to Suburban Ford and for tortious interference with their contract which leased real estate to Suburban. The action between Ford Motor Credit and Suburban (Case No. 81-C-637) and the action between Ford Motor Company and Suburban (Case No. 81-C-1314) were consolidated for trial. The jury awarded the following: (1) in favor of Ford Motor Company  $194,000; (2) in favor of Ford Motor Credit Company  $214,000; (3) in favor of the individual defendants (against Ford Motor Credit)  $365,662; *196 and (4) in favor of Suburban Ford (against Ford Motor Credit)  $61,300 in actual damages and $1,750,000 in punitive damages. Ford Motor Credit appeals from the judgments entered against it and certain rulings of the trial court. The defendants (Suburban Ford and the named individuals) cross-appeal from certain adverse rulings of the trial court limiting their claims. No issues from Ford Motor Company v. Suburban Ford, et al. (Case No. 81-C-1314) are before us on appeal. We are concerned wholly with Ford Motor Credit Company (FMCC) v. Suburban Ford, et al. (Case No. 81-C-637).
At this point in an opinion it is customary to summarize the facts and then proceed to discuss and determine, individually, the issues presented. Such a format is, however, wholly inappropriate to this litigation. What was commenced in 1981 as a comparatively straightforward action had, by the conclusion of its 1983 jury trial, mutated into an amorphous mass of truly Amazonian proportions. From the perspective of an appellate court, which by its very nature views a case only in its entirety, the litigation herein is Amazonian in more respects than sheer bulk. The course of this litigation may be likened to the nature of the great river itself  a series of slow-moving streams meandering through unmapped lands, repeatedly dividing, rejoining and then ending in a many-channeled delta.
The trial of the action herein lasted ten weeks and, understandably, a vast amount of material is contained in the record. To include a summary of all of the evidence introduced at trial is neither desirable nor necessary for determination of the issues. The keystone to the issues before us is the legal significance of certain actions taken by Ford Motor Credit Company (Ford Credit) on March 11-13, 1981. What occurred on those dates is essentially uncontroverted. Before recounting those events, it is, however, necessary to establish the relationship of the parties as it existed at the time.
On March 19, 1976, Suburban Ford made application for a wholesale line of credit (a "floor plan" arrangement) from Ford Credit. The document, although designated "application," is agreed by the parties to be the contract under which the rights and duties of Ford Credit and Suburban, pertinent hereto, are contained. The contract, as it may properly be called, must be set forth in this opinion in some detail.
"1. Advances by Ford Credit
....
"4. Ford Credit's Security Interest
"5. Dealer's Possession and Sale of Merchandise
....
"7. Credits
"8. Information Concerning Dealer
"9. Default
"10. General
*200 ....
"11. Acceptance and Termination
The application was executed on behalf of Suburban by its president, defendant Don W. Hansard, and its secretary, defendant Ben W. Young, who also were guarantors thereon.
Suburban Ford operated on premises which were leased to it by said officers and their wives. The dealership initially flourished and received a high rating from Ford Credit. This was followed by a deterioration in the relationship with the resultant lowering of ratings from "B" to "C" and then to "D" (the lowest possible rating). The rating changes were the result of Suburban's worsening financial condition and unsatisfactory audits, as well as the dealership having exceeded its credit limit. On several occasions from 1976 to 1981, Suburban was placed on "finance hold," which resulted in Suburban having to obtain advance permission from Ford Credit before it would be allowed financing for additional cars. It also would not be issued the necessary document to transfer title to a purchaser (the Manufacturer's Statement of Origin) without first paying Ford Credit for the vehicle being sold. These restrictions were imposed on Suburban due to its weak financial condition and excessive inventory.
While on "finance hold" in 1980, Suburban obtained a Small Business Administration loan for $250,000 which it needed for additional working capital. Ford Credit then lifted its "finance hold," and fully reinstated Suburban's wholesale line of credit not to exceed $1,100,000. For several months prior to March 1981, Suburban was able to carry on business normally, selecting and ordering new cars and selling the same without first having to notify or pay Ford Credit.
We turn now to the critical events of March 11 and 12, 1981.
On March 11, 1981, Ford Credit conducted an on-site wholesale audit of Suburban's new vehicle inventory. The audit revealed that Suburban owed Ford Credit $90,240 for eleven *201 vehicles which had been sold by Suburban and for which Ford Credit had not been paid. Art Hatch, the Ford Credit employee conducting the audit, made demand for payment from Suburban immediately after completing the audit on the afternoon of March 11, 1981. This demand for payment was refused by Suburban. Ford Credit attempted to contact Don Hansard, president of Suburban, who was the individual in charge thereof, but he had left the premises shortly after the audit had begun. By his own admission at trial, Hansard intentionally had avoided making any contact with Ford Credit between March 11 and March 16, 1981 (his first day back on the job after leaving when the audit had been commenced). The inability to contact Hansard added to Ford Credit's growing concern. Mr. Hatch, while making the audit, observed unusual activity among Suburban's employees in that they did not remain at their desks. Rumors began circulating among the employees that Suburban was closing and going into bankruptcy. By the morning of March 12, 1981, such rumors had spread to customers of Suburban who called in to check on the dealership's status. After lunch on that day, Suburban mechanics gathered up their tools and personal effects and left the premises. As an employee (Hansard's son) testified, the dealership was "out of control" and in "complete chaos."
By noon, various officers of Ford Credit were conferring with each other concerning the difficulties at Suburban. One facet of their concern was the knowledge that Suburban was going to sell several used vehicles at an automobile auction that same day. Ford Credit, as will be recalled, had a security interest in all proceeds from the sale of new cars which included traded-in used cars or the proceeds from the sales thereof. Later that same afternoon (March 12), acting upon the advice of its legal counsel, Ford Credit filed this action seeking an accounting for the proceeds of both the new vehicles sold by Suburban for which Ford Credit had not been paid and the used vehicles in which Ford Credit had a security interest. At the same time, Ford Credit obtained a temporary restraining order which, while not preventing the sale of the used cars at the auction, did restrain the auction company from delivering the proceeds therefrom until March 17, when the hearing on the temporary injunction had been scheduled. The temporary restraining order was served on March 12. No bond was required for the temporary *202 restraining order. Ultimately, it was determined that the proceeds from the auction should be divided $85,100 to Suburban and $15,500 to Ford Credit. There is no dispute over this division.
Suburban Ford did not open for business the following morning (March 13, 1981). After learning the dealership had failed to open, Ford Credit applied for and received a second temporary restraining order. This TRO was issued against Suburban Ford and restrained it from selling any of its new or used car inventory. The dealership had closed its doors prior to the issuance of this second TRO. The order was served later the same day.
Ford Credit took possession of the 202 new car inventory under its contractual right to repossess upon default. Of these vehicles, 150 were disposed of by "repurchase" and "rebills" which, in essence, shunts them to other components of the Ford network. No deficiencies resulted from these "in house" transactions. An additional 46 vehicles were sold by wholesale automobile auctions  each of these sales resulted in a deficiency. The parties do not state what happened to the other six vehicles but no challenge is asserted relative thereto.
Ford Credit claimed that under its contract it was entitled to $402,768.28 in damages from the defendant Suburban Ford. The trial court determined that the liability of the guarantors was the same as Suburban Ford and that issue was, accordingly, not submitted to the jury. The jury awarded Ford Credit $214,400.00.
Suburban Ford and the named individuals counterclaimed on a panorama of tort theories which may be characterized as: (1) malicious prosecution; (2) wrongfully securing restraining orders; (3) wrongful attachment; (4) abuse of civil process; (5) conversion; (6) gross negligence; (7) ordinary negligence; (8) prima facie tort; (9) tortious interference with a contract; (10) tortious interference with employment; and (11) fraud. To complete this baker's dozen of theories, breach of contract and violation of the state antitrust laws are also asserted. The issues presented in the appeal and cross-appeal center on these counterclaim theories of liability. Ford Credit contends none of these theories should have been submitted to the jury; Suburban and the named individuals contend not enough of them were submitted. Ford Credit also complains that the instructions given *203 relative to the claims against it were so confusing and conflicting as to require reversal. This latter point appears to be well taken, but first it is necessary to determine what, if any, of the counterclaim theories should have been submitted to the jury. The main thrust of the various tort theories is that, by virtue of its tortious acts, Ford Credit caused the collapse of Suburban Ford.
It should be emphasized that all parties to this action were in a contractual relationship with each other, and their difficulties with each other arise directly from that contractual relationship. Isler v. Texas Oil & Gas Corp., 749 F.2d 22 (10th Cir.1984), is a well-reasoned opinion pointing out the impropriety of confusing contract and tort law. Isler involved a dispute over rental payments between the corporate owner of an oil and gas lease and the individual to whom it had farmed out the lease. The trial court entered judgment for plaintiff Isler on a negligence theory. In reversing the trial court, the Tenth Circuit held as follows:
Ford Credit had the contractual right to make the March 11, 1981, audit which triggered the collapse of Suburban Ford. The trial court's instructions provided, in part:
"INSTRUCTION NO. 22.
"INSTRUCTION NO. 23.
"INSTRUCTION NO. 21.
"INSTRUCTION NO. 24.
It should be noted that Instruction No. 24 finding no default on *205 March 12, 1981, relates solely to unsold vehicles. The "failure to pay" default of March 11, 1981, stated in Instruction No. 21, concerned sold vehicles.
"INSTRUCTION NO. 39.
These are correct statements of facts, are proper interpretations of Ford Credit's rights under the contract and are not challenged by any of the parties on appeal. The contract further provides that upon default Ford Credit had the right to take possession of the new car inventory it had financed even without legal process. Ford Credit resorted to legal process  but that can hardly be the basis of any tort liability.
The trial court, in its instructions, essentially held the acts of Ford Credit on March 11, 12 and 13, 1981, were authorized by the contract  a position with which we agree. However, the trial court then instructed the jury it could consider whether these same acts were actionable under various theories of tort liability. This was clearly erroneous.
Certainly the collapse of Suburban Ford caused financial loss to the individuals owning the corporation and guaranteeing its debt. These same individuals had leased real estate to the dealership and financial loss to them personally resulted from the dealership's collapse. This is unfortunate, but it creates no liability in Ford Credit any more than do creditors filing routine collection actions against debtors incur liability if their lawsuits result in the debtors' losing their businesses and having to take bankruptcy, thus causing losses to their landlords and suppliers.
Nothing would be added to this already lengthy opinion by individually discussing each tort theory and specifically finding each improper. It is sufficient to state we have reviewed each such theory and find that the trial court erred in submitting any tort theory to the jury. It follows, of course, that the trial court did not err in refusing to submit certain tort theories to the jury (as claimed in the cross-appeal). The awards of actual and punitive damages against Ford Credit were wholly based upon tort theories of liability and are, accordingly, reversed in toto.
The contractual claims raised by defendant are defensive in nature. That is, by these claims defendants sought to reduce or *206 eliminate the claim of Ford Credit against Suburban Ford (and the guarantors) through setoffs. The cross-appellants do not contend there was any trial court error relative to these defensive claims and the same are not issues before us, with the exception of the one such claim upon which Ford Credit predicates error. This issue relates to the propriety of the trial court's handling of the question of whether or not Ford Credit disposed of the collateral in a commercially reasonable manner. The court instructed:
"INSTRUCTION NO. 39.
"INSTRUCTION NO. 40.
"INSTRUCTION NO. 41.
The trial court then, in instruction Nos. 42, 43, 44, 45 and 46 *207 gave rambling, confusing and inconsistent instructions on the terms "manifestly unreasonable" and "commercial reasonableness."
Suburban appears to base its claim the sales were not made with "commercial reasonableness" on speculation that if it could have sold the vehicles at retail, the vehicles would have sold for more money. This contention lacks merit. The sales were made, as found by the trial court, in accordance with the contract terms. A secured creditor is not required to leave its security with the defaulting financially distressed debtor for the debtor to sell. Such a requirement could easily transform a secured creditor into an unsecured creditor. We conclude it was error for the trial court to submit the issue of "manifest unreasonableness" to the jury. As found by the trial court the sales were within the contractual provisions for sale of repossessed inventory and no legitimate basis appears from the record which would justify instructing the jury that it could, in effect, ignore the contractual provisions relative thereto.
The difficulty with this point is that the winner thereof (Ford Credit) has no place to go with its victory. The disposition of the collateral question came up as one of several claimed setoffs. The claim of Ford Credit was for $402,768.28. The jury awarded Ford Credit $214,400. The posture of the appeal is such that we do not know whether the $402,768.28 was controverted or not or whether specific amounts were claimed for particular setoffs. We do not know if the jury allowed anything in this claimed setoff. Under such circumstances this court cannot modify the award to Ford Credit as we are not shown what, if any, part of the difference between the claim and jury award may be attributable to the improper setoff being submitted to the jury.
The judgment entered in favor of Ford Credit is affirmed. All judgments against Ford Credit are reversed and the case is remanded with directions to enter judgment in favor of Ford Credit on all claims of defendants herein.
PRAGER, J., concurs in the result.
LOCKETT, J., concurring and dissenting:
I would dissent from the part of the majority decision which finds that the trial court erred when it instructed the jury to consider whether certain acts were actionable under various theories of tort liability. Based on all the facts presented to the jury, it is possible that the jury could *208 have found that Suburban had a cause of action for malicious prosecution against Ford Credit.
We have stated in Nelson v. Miller, 227 Kan. 271, 276, 607 P.2d 438 (1980), that the elements of a civil action for malicious prosecution are:
(e) That the plaintiff sustained damages."
The following facts, which the majority did not include in its decision, could establish an action for malicious prosecution.
On March 11, 1981, Suburban contacted its attorney who arranged for $500,000 in financing from a local bank and informed Ford Credit that arrangements were being made for payment, that funds were available up to $500,000, and that all negotiations should be conducted through him as Suburban's attorney.
During the afternoon of March 11, 1981, Ford Credit took possession of approximately 200 models of Suburban's new car inventory and four retail contracts totaling $27,198.64.
On March 12, 1981, Ford Credit took possession of all of Suburban's new vehicle inventory and posted its employees to secure the new vehicle inventory. On the same day, Ford Credit also notified the other Ford dealers in the Wichita area to acquire any stock available from Suburban's parts department.
The result of all these actions by Ford Credit was that Suburban could not open for business on March 13. Ford Credit had control of all of Suburban's new inventory and its parts. Due to the first restraining order, Suburban did not have access to the proceeds of the sale of its used inventory. Suburban could not carry on business when all of its cars, parts, and funds were under Ford Credit's control.
Suburban established that Ford Credit had initiated civil procedures against it even though there was not probable cause to do such. Suburban could not have sold the new cars or any parts since they were in Ford Credit's possession as of March 12. While Ford Credit had a contract claim against Suburban, the *209 second restraining order was not necessary for proper adjudication of that claim. The evidence, which shows that Suburban had funds available to make payment on its contract with Ford Credit, would indicate that Ford Credit was more interested in shutting Suburban down than allowing it to continue business. Because of Ford Credit's actions, Suburban suffered damages. The jury considered this evidence and found for Suburban. The trial court was correct in allowing an action and damages for malicious prosecution.