Opinion ID: 389231
Heading Depth: 1
Heading Rank: 2

Heading: issues

Text: 7 Shelton challenges the grant of summary judgment against him on two grounds: (1) the district court lacked subject-matter jurisdiction because diversity was collusively created, and (2) Westinghouse was estopped from declaring default under the contract when it did. Shelton's counterclaim that Westinghouse's replevin constituted wrongful conversion flows from his second contention.Jurisdiction 8 Shelton argues that the assignment of Shelton's contract was made solely to permit collection of Shelton's debt by Westinghouse and was thus collusively made to create diversity jurisdiction in violation of 28 U.S.C. § 1359. That section provides: 9 A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court. 10 The district court correctly rejected this contention. Shelton's seller, Greenfield, assigned all its creditor's rights under Shelton's contract to Amcourt Systems, Inc. for value received. Rec., vol. I, at 5. Amcourt in turn assigned those rights to Westinghouse roughly four years before this suit commenced. Westinghouse paid $13,931.90. Shelton does not dispute these facts. Rather, he seizes upon language in the complaint, not found in either assignment to Amcourt or Westinghouse, that both assignees were authorized to do every act and thing necessary to collect and discharge Shelton's contract. Rec., vol. I, at 2. Westinghouse, Shelton thus contends, is like the collection agent in Kramer v. Carribean Mills, Inc., 394 U.S. 823, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969), whose assignment was found improperly or collusively made under 28 U.S.C. § 1359. There, a Texas attorney, for $1, obtained assignment of a legal claim held by a Panamian corporation against a Haitian corporation. The attorney promised in a separate agreement to pay the Panamian corporation a bonus of 95% of any recovery obtained on the assigned claim. The attorney then sued the Haitian corporation in the U. S. District Court for Texas' Northern District. The Supreme Court concluded that the attorney had been made a party merely to manufacture diversity jurisdiction and thereby to permit collection litigation in federal court of what remained essentially the Panamian corporation's cause of action. 11 The assignment to Westinghouse differs from that in Kramer. The undisputed circumstances indicate that it was a bona fide purchase for value of chattel paper made contemporaneously with an underlying installment sale of goods. Such transactions are typical in commercial practice. See generally 12A Okla.Stat.Ann. § 9-105 Oklahoma Code Comment & Official Comment 3. The assignee is usually a professional lender. In return for cash or its equivalent, the lender acquires the seller's right to receive or collect installments from the buyer, as well as the seller's security interest to secure the buyer's payments. The purpose behind such assignments is to leave the business of financing to the lender and to put the seller in a better working-capital position because he doesn't have to wait to realize the economic benefit from his sale of goods. But collection by the assignee-lender in this sense should not be confused with Kramer's limited sense of collection, that is, recovery on a money debt by litigation. For all that appears in the record, and Shelton has offered nothing in contradiction, the assignment to Westinghouse made four years before suit and for commercial purposes was neither improperly nor collusively made to permit diversity litigation in federal court. See also Bradbury v. Dennis, 310 F.2d 73, 76 (10th Cir. 1962), cert. denied, 372 U.S. 928, 83 S.Ct. 874, 9 L.Ed.2d 733 (1963); National Surety Corp. v. Inland Properties, Inc., 286 F.Supp. 173, 183-84 (E.D.Ark.1968), aff'd, 416 F.2d 457 (8th Cir. 1969). The district court properly invoked its diversity jurisdiction. Westinghouse's Declaration of Default 12 When Westinghouse filed suit in April 1978 and requested replevin relief, Shelton was indisputedly in default. Also not contested is the fact Westinghouse accepted all late payments in the course of the contract's performance from June 1974 to December 1977, and that almost all of the roughly 40 installments covering this period were paid late. This toleration, Shelton argues, precluded Westinghouse from suddenly declaring default without first apprising Shelton of its insistence on strict compliance with the contract's timeliness terms. Whether or to what extent Shelton was actually apprised of such insistence is a fact vigorously disputed by the parties. Shelton argues this dispute precluded the grant of summary judgment. We conclude that beyond just the question of notification to Shelton, the overall issue whether in this case the parties' course of performance worked a waiver of one or more terms in their contract is a question for the factfinder. Summary judgment was therefore inappropriate. See Fed.R.Civ.P. 56(c); Romero v. Union Pacific Railroad, 615 F.2d 1303, 1305 (10th Cir. 1980). Our conclusion is based upon substantive contract law that we as a diversity court must apply as Oklahoma state courts would do. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). 13 Section 2-208 in Oklahoma's version of the Uniform Commercial Code provides: 14 (1) Where the contract for sale involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection shall be relevant to determine the meaning of the agreement. 15 (2) The express terms of the agreement and any such course of performance, as well as any course of dealing and usage of trade, shall be construed whenever reasonable as consistent with each other; but when such construction is unreasonable, express terms shall control course of performance and course of performance shall control both course of dealing and usage of trade (Section 1-205). 16 (3) Subject to the provisions of (section 2-209) on modification and waiver, such course of performance shall be relevant to show a waiver or modification of any term inconsistent with such course of performance. 17 12A Okla.Stat.Ann. § 2-208. And section 2-209(5) says: 18 A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 19 Id. § 2-209(5). 20 Focusing on sections 2-208(1) and (2), the district court held in essence that the express anti-waiver clause in paragraph 6 of the contract governed over the parties' course of performance, and that therefore Westinghouse's pattern of accepting late payments could play no role in determin(ing) the meaning of the agreement. 12A Okla.Stat.Ann. § 2-208(1). 3 This holding obviated the need to resolve the question of notification to Shelton. However, what the parties originally meant by the language in their agreement is clear: failure by Shelton to make payments at certain times would constitute default, and toleration by Westinghouse of one or more defaults should not be taken to mean Westinghouse was giving up the right to not tolerate others. The rub is whether or to what extent the parties, by the way they performed their obligations, modified the effect of the otherwise clear terms of their written agreement or, to paraphrase section 2-208, did Westinghouse waive its right to strictly enforce the contract's terms, of which the anti-waiver clause is one, by accepting Shelton's late payments, a course of performance inconsistent with those terms. See 12A Okla.Stat.Ann. § 2-208(3). See also id. § 2-208 Official Comment 3. 4 If waiver by Westinghouse were found, the question of notification to Shelton would then bear upon whether Westinghouse properly retracted its waiver before seeking strict enforcement of the contract's terms. See id. § 2-209(5). 21 Absent an anti-waiver clause such as paragraph 6 in Shelton's contract, courts have uniformly held that a creditor may not fall into a pattern of accepting delinquent installments and then suddenly declare default, without first apprising the debtor of his insistence on strict compliance with the terms of the contract. See, e. g., Knittel v. Security State Bank, 593 P.2d 92, 95-96 (Okl.1979); Lee v. Wood Products Credit Union, 275 Or. 445, 551 P.2d 446, 448 (1976); Nevada National Bank v. Huff, 582 P.2d 364, 369 (Nev.1978). See also Ga.Code Ann. § 20-116 (where parties' course of performance departs from terms of contract, reasonable notice must be given of intention to rely on exact terms of agreement and until such notice departure deemed quasi new agreement). But courts have split over the significance of the parties' course of performance when the contract includes an anti-waiver provision, which in effect tells the debtor that the creditor's toleration of one or more defaults should not be taken to mean the creditor would indulge others. Some have construed the anti-waiver clause strictly according to its terms, thus conclusively precluding a creditor's pattern of accepting late payments from operating as a modification or waiver of the contract's default provisions. See Hale v. Ford Motor Credit Co., 374 So.2d 849, 853 (Ala.1979); Fair v. General Finance Corp., 147 Ga.App. 706, 250 S.E.2d 9 (1978); Universal C.I.T. Credit Corp. v. Middlesboro Motor Sales, Inc., 424 S.W.2d 409, 411 (Ct.App.Ky.1968); Home Finance Co. v. Frazier, 380 S.W.2d 91, 93 (Ky.1964). But the weight of authority, and the view we think Oklahoma state courts would follow, is that an anti-waiver clause, like any other term in the contract, is itself subject to waiver or modification by course of performance and that whether such waiver or modification has occurred is a question for the factfinder. See Smith v. General Finance Corp., 243 Ga. 500, 255 S.E.2d 14, 15 (1979) (disapproving of Fair v. General Finance Corp., 147 Ga.App. 706, 250 S.E.2d 9); Pierce v. Leasing International, Inc., 142 Ga.App. 371, 235 S.E.2d 752, 754-55 (1977); Van Bibber v. Norris, 404 N.E.2d 1365, 1373-74 (Ct.App.Ind.1980); Cobb v. Midwest Recovery Bureau Co., 295 N.W.2d 232, 237 (Minn.1980). Cf. 12A Okla.Stat.Ann. § 1-205 & Official Comment 2. 5 See also Wade v. Ford Motor Credit Co., 455 F.Supp. 147, 150 (E.D.Mo.1978) (pattern of accepting late payments operates as waiver of default as to previously accepted payments, but not as to yet unaccepted payments); Fontaine v. Industrial National Bank of Rhode Island, 111 R.I. 6, 298 A.2d 521, 523-24 (1973) (acceptance of late payments operates as absolute waiver of contract's default provision as to accepted payments and precludes creditor's declaration of default after timely payments have intervened); Ford Motor Credit Co. v. Waters, 273 So.2d 96, 100 (Ct.App.Fla.1973). 22 In Shelton's case the question is whether Westinghouse, by accepting late payments as it did, waived its right to strictly enforce not only the contract's time terms, but also the anti-waiver clause itself. Shelton should have the opportunity to prove, if he can, that Westinghouse's conduct in toto regarding timeliness was so pervasive that in the eyes of a reasonable debtor it spoke louder than (the) word, Van Bibber, 404 N.E.2d at 1374, of the anti-waiver clause, which in effect counseled against reliance on conduct indulging default. 6 If waiver by Westinghouse of the contract's timeliness and anti-waiver terms were found, the question whether or to what extent Westinghouse apprised Shelton, before taking him to court in April 1978, of its insistence upon strict adherence to the contract's terms would bear upon whether Westinghouse effectively retracted its waiver. See 12A Okla.Stat.Ann. § 2-209(5). In view of these fact questions, we must vacate the district court's summary judgment and the dismissal of Shelton's counterclaim, and remand for further proceedings. 23 Reversed and remanded.