Court Opinion

ID: 9792045
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:22:20.895703+00
Date Added: 2024-06-11T07:37:40.260035
License: Public Domain

UDALL, Justice
(dissenting).
The court below, in finding in favor of the plaintiff in this case, treated the situation as a simple matter of a holder in due course of a negotiable instrument bringing an action against an unconditional endorser thereon. The majority herein has arrived *237at the same result, on a somewhat conflicting assortment of grounds. Both courts have failed to recognize the true nature of the action as one by a conditional seller to recover a deficiency judgment upon conditional sales contracts.
The judgment of the trial court in this matter should be reversed, and judgment entered for the defendant, for two reasons :
First: The plaintiff has brought suit based on conditional sales contracts without complying with the terms of the Conditional Sales Act (A.R.S. §§ 44-301 to 44-330) governing suits upon such contracts;
Second: Even if the Conditional Sales Act did not apply to this transaction, the plaintiff should not recover, since it has failed to bear its burden of proving that the resale of the merchandise was fairly conducted.
The Conditional Sales Act
At the outset it should be noted that the fact that the action is nominally upon notes secured by conditional sales contracts— rather than upon the contracts themselves— does not remove the case from the provisions of the Conditional Sales Act. The notes and the contracts, being part of the same transaction, are not separable. They must be taken together to determine the legal effect of either. See, First Prize, Inc. v. Fireman’s Fund Ins. Co., Tex.Civ.App., 269 S.W.2d 939; Friendly Consumer Discount Co. v. Foell, 39 N.J.Super. 410, 121 A.2d 434, 437, expressly overruling Superior Finance Corp. v. John A. McCrane Motors, 115 N.J.L. 401, 180 A. 842; Restatement, Contracts, § 235(c). The note is founded upon the obligation created by the contracts and the extent of that obligation must be determined in the light of the governing principles of the Conditional Sales Act. With this in mind, we shall apply the relevant provisions of that Act to the facts of this case.
On the central point of the case the law of this state is clear: In order for a conditional seller who has repossessed and resold the goods to perfect his right to recover a deficiency judgment, he must comply with the statutory resale provisions, viz., notice, publicity, sale at public auction, etc. A.R.S. §§ 44—319 and 44—322. Unless these procedures are followed, “the obligation of the buyer is discharged.” A.R.S. § 44—323. Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., 33 Ariz. 56, 262 P. 1; Kolehouse v. Conn. Fire Ins. Co., 267 Wis. 120, 65 N.W.2d 28, 46 A.L.R.2d 983; Capitol District L. A. W. Corp. v. Blake, 136 Misc. 651, 241 N.Y.S. 476; Mack International Motor Truck Corp. v. Thelen Trucking Co., 205 Wis. 434, 237 N.W. 75, 83 A.L.R. 952
The majority gives three reasons why the plaintiff herein, who admittedly stands in the position of a conditional seller, should be allowed to circumvent the statutory policy in this case:
*2381. The action was not brought against the “buyer” under the conditional sales contract, but against a guarantor thereon. The Conditional Sales Act does not expressly afford protection to a guarantor. Therefore, the majority reason, no one had a right to “enforce” the statutory duties of the seller in respect to the resale provisions, since the right is personal with the buyer, and the buyer has been released.
2. The resale requirements were fully waived by the buyer, who had the power legally to waive them.
3. Maestro expressly consented to remain liable to Wurlitzer even though Wurlitzer, by its failure to obey the statutory mandate, had effected a discharge of the contractual obligations sued upon.
Each of these propositions is erroneous. They will be considered separately in the order presented.
1. Applicability of Conditioned Sales Act to action against a guarantor. To deny that the protection of A.R.S. § 44—323 is available to a guarantor of a buyer’s obligations to ignore the holding of this Court in Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., 33 Ariz. 56, 262 P. 1, wherein the Court said:
“ * * * Plaintiff having pleaded that it had parted with automobile to another for a valuable consideration, under circumstances inconsistent with a statutory resale, it was in effect an allegation that it had elected to deal with the goods as its own property, and in such case, by the terms of section 23 [A.R.S. § 44-323], supra, the buyer was discharged of any obligation under the contract. Such being true, the guarantor was discharged from its: original obligation to pay the debt of the buyer. * * * ” 33 Ariz. 61, 262, P. 3.
See, also, to the same effect, Commercial Credit Corp. v. Byerly, 131 Misc. 872, 229 N.Y.S. 283; Ulster Finance Corp. v. Schroeder, 230 App.Div. 146, 243 N.Y.S. 682; Central Acceptance Corp. v. Frye, 103 W.Va. 689, 138 S.E. 369; Central Acceptance Corp. v. Massey, 107 W.Va. 503, 148 S.E. 864; Commerce Union Bank v. Jackson, 21 Tenn.App. 412, 111 S.W.2d 870; and see Britton, Bills and Notes, 1092.
It is manifest that this Court, in the Commercial Credit case, supra, considered that the limitation imposed by the statute upon the seller’s action for a deficiency judgment applied to any action to recover upon the obligation created by the conditional sales contract. Compliance with the statutory resale terms is a condition precedent to the recovery of a deficiency by the seller from either the buyer or the guarantor—in the words of the statute (A.R.S. § 44-322), “* * * from the buyer, or from anyone who has succeeded to the obligations of the buyer.”
*239The majority state that the seller’s duty to comply with the statutory procedures can only be “enforced” by the buyer, and that since in this case the buyer has been removed from the picture by mutual consent of the parties, that duty has become a nullity. A duty which cannot be enforced, they say, is illusory. In taking this position the majority lose sight of the nature of the duty involved. This is not a duty which needs to be “enforced”. In regard to a conditional sale such as this, the statute does not speak in terms of compulsion. Rather the seller is given an election. He may either keep the goods or he “may voluntarily resell the goods for account of the buyer on compliance with [the resale] requirements.” A.R.S. § 44-320. The seller is not required to obey the statute. However, his right to recover a deficiency is conditioned upon his following the statutory steps. A.R.S. §§ 44-322 and 44—323. If he fails to do as the statute directs, it is not necessary that he be compelled to do so; he simply loses his right to sue upon the contracts for a deficiency. This statutory mandate is entirely self-executing; it does not require “enforcement” beyond the establishment of the affirmative defense that the plaintiff seller failed to do what the statute directed.
The majority opinion declares that the sole intention of the Conditional Sales Act is to protect the buyer from the seller, and that all the provisions must be considered from the buyer’s point of view only. Comparison of the statutory scheme with the law as it existed prior to the enactment of the Conditional Sales Act indicates that this is an over-simplification of the legislative intent. One very significant effect of the Act has been to establish a reasonable means by which a conditional seller can repossess and resell the goods while still preserving the right to sue the buyer of the contract. Under the general common law the seller, upon the default of the buyer, was often faced by an election whereby he had to choose between pursuing the security or asserting his contractual rights. Baer v. General Motors Acceptance Corp., 101 Fla. 913, 132 So. 817; Russell v. Martin, 232 Mass. 379, 122 N.E. 447; State Bank of Black Diamond v. Johnson, 104 Wash. 550, 177 P. 340, 3 A.L.R. 235; Beck v. Shepherd Fruit Co., 19 Cal.App.2d 590, 66 P.2d 188; Frankel v. Rosenfield, 95 Cal.App. 647, 273 P. 122; I. X. L. Stores Co. v. Moon, 49 Utah 262, 162 P. 622; Crute v. La Porte Discount Corp., 89 Ind.App. 573, 167 N.E. 542; and see Williston, Sales, § 579(b); 78 C.J.S. Sales § 600(b). The Act affords protection to the seller by allowing him to do both, but only upon compliance with the statutory resale requirements. West Virginia Mack Sales Co. v. Brown, 139 W.Va. 667, 81 S.E.2d 103, 108. The seller’s failure so to comply results inevitably in the loss of his cause of action.
*2402. Waiver of rights by the buyer. Contrary to the majority opinion, it is our feeling that the buyer (Stevenson) could not and did not effectively waive the statutory requirements. The majority has shown that, by the release agreement between Stevenson and Wurlitzer, the buyer was freed from all obligations on the contracts. They also emphasize that the necessary result of this release was to deprive the buyer of any rights whatever in the security. Yet the clear import of the majority holding on this point is that the buyer may waive rights which he does not possess, to the detriment of his guarantor. Thus the buyer, who has no remaining liability, is allowed to enlarge the liability of the surety. The law, as we understand it, is that no waiver of legal rights by one party to a transaction can be effective to deprive another party of protection which may accrue to him. See, Gholson v. Savin, 137 Ohio St. 551, 31 N.E.2d 858, 139 A.L.R. 75. This must be so, particularly where the waiver can have no effect upon the party who purports to release the right, for one may not waive a right which he does not possess. Arizona Title Guarantee & Trust Co. v. Modern Homes, Inc., 84 Ariz. 399, 330 P.2d 113.
But even assuming that Stevenson could validly waive the legal protection as far as the defendant was concerned, it is clear upon the facts of this case that he did not do so. It is well settled that, in spite of the statutory prohibition against such waivers by the buyer (A.R.S. § 44—326), it is possible for the buyer to agree to a resale procedure which varies from the statutory plan. Adler v. Weis & Fisher Co., 218 N.Y. 295, 112 N.E. 1049; Waverly, Sayre & Athens Transp. Co. v. General Motors Truck Co., D.C., 36 F.Supp. 285. However, in order for such a waiver to be effective, certain requirements must be met—the waiver of statutory conditions must come after default, it must be clearly intended, and it must be given for adequate new consideration running from the seller to the buyer. Waverly, Sayre & Athens Transp. Co. v. General Motors Truck Co., supra. Here the alleged waiver did occur after default, but it was not express, nor was there any consideration which could support such agreement.
The terms of the release agreement, which are said to constitute the waiver, make no mention of any such waiver—nor do they indicate just what is being waived. It does appear that Stevenson was willing to forego at least one of the statutory requirements—that which calls for the repossessed merchandise being physically present at the site of the sale. Such a waiver may be valid. Bulldog Concrete Forms Sales Corp. v. Taylor, 7 Cir., 195 F.2d 417, 49 A.L.R.2d 1. However, there is no reason to believe that his willingness to overlook this particular defect imported an intention to forego all the statutory pro*241tections. The law of Arizona is firmly established that a waiver is “a voluntary * * * relinquishment of a known right.” In re Brandt’s Estate, 67 Ariz. 42, 190 P.2d 497, 501; Yuma County v. Arizona Edison Co., 65 Ariz. 332, 180 P.2d 868. No such relinquishment appears on the face of this document, and an implication of such a waiver is not justified.
If any waiver was intended by Stevenson, it could only be valid if given for valuable consideration running from the seller to the buyer. Waverly, Sayre & Athens Transp. Co. v. General Motors Truck Co., supra. There was no such consideration in this case. The majority rely upon the fact that, at the time of the release agreement, $5,000 was paid to Stevenson. This, they say supplies the requisite consideration. This analysis fails for two reasons: First, the parties did not treat the payment as consideration for a waiver; they expressly stated that the purpose of the payment was to induce Stevenson to disclose the locations of the machines. No mention of a waiver appears in connection with this payment. A payment bargained for and made for one purpose cannot supply the consideration lacking in an entirely separate aspect of the transaction. Yuma National Bank of Yuma v. Balsz, 28 Ariz. 336, 237 P. 198; and see generally, Annotation, 139 A.L.R. 1036. Second, the $5,000 did not come from Wurlitzer, to which the waiver was allegedly given, but from Maestro and another distributor-guarantor. In charging the payment against these accounts, Wurlitzer treated it as a “collection cost.” It cannot now contend that the money thus expended was in reality consideration given for a waiver which was directly opposed to the interests of the parties against whom it was charged.
3. Consent of defendant to continuing liability. Reference has previously been made to Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., 33 Ariz. 56, 262 P. 1. That case involved a fact situation quite similar to that now before us. There the guarantor had consented to remain liable on the original contract to its full extent, in spite of known defects in the resale practices of the plaintiff. When action was brought against the guarantor upon the endorsement of the conditional sales contract, the defendant demurred on grounds that the obligation sued upon had been extinguished through noncompliance with the statutory resale provisions. The demurrer was sustained, and on appeal this Court affirmed that judgment. This decision is clear authority for the proposition that no action upon a conditional sales contract can be maintained without compliance with the Conditional Sales Act—even though the defendant is a guarantor who has consented to the defective performance by the plaintiff.
In Pacific Finance Corp. of California v. Burkhart, 56 Ariz. 383, 108 P.2d 380, *242relied upon heavily by the majority, this Court based its reversal of a judgment in favor of the defendant guarantor upon a factual distinction which removed that case from the rule set down in Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., supra. In the earlier case, the defendant had promised to assume the obligation of the buyer. In the latter case, the defendant’s undertaking was much broader: the defendant promised that he himself would purchase the repossessed merchandise from the plaintiff, for the full amount then owed under the contract, if delivery were made to him within a designated period after default. Of this agreement, the Court said:
“ * * * This is more than a guaranty; it is an independent agreement to become the principal debtor under the circumstances set forth in the assignment. * * * We are of the opinion the complaint sets up an independent agreement by the defendant to assume liability as a principal debtor, and not as a guarantor or surety, under the circumstances alleged therein of repossession and delivery to him, * * * ” 56 Ariz. 391, 392, 108 P.2d 383.
It is clear that the distinction upon which the decision rested was that the defendant in that case actually agreed to become a purchaser of the merchandise, rather than, as in the Commercial Credit case, merely guaranteeing the contractual performance by the buyer. The defendant’s liability was not based upon the conditional sales contract which he guaranteed, but upon his own contract of purchase.
In the instant case, any liability of the defendant must arise from the conditional sales contracts themselves. There was no independent undertaking by the guarantor to become the principal debtor through actual purchase and delivery of the merchandise. In fact, Maestro was offered a chance after the default to repurchase the machines on its own account for some $50,-000, thus cancelling the conditional sales obligations, and it refused the offer. Maestro’s sole promise was to “guarantee the payment promptly when due of the amount of each and every installment payable thereunder and the payment on demand of the entire unpaid balance in the event of any default by the buyer * * The fact that the endorsement of the contracts also contained a broad waiver of defenses is not sufficient to transform what is clearly a guaranty into an “independent agreement”, in the terms of the Pacific Finance case. The distinction drawn in that case is inapplicable to the facts before us.
The principle of law is beyond dispute that a guarantor is entitled to stand on the terms of its contract. Bank of Italy v. Merchants’ National Bank, 236 N.Y. 106, 140 N.E. 211; Chozen Confections, Inc. v. *243Johnson, 221 N.C. 224, 19 S.E.2d 866; Kidd-Scruggs Co. v. Tyler Hotel Co., Tex. Civ.App., 270 S.W. 566. It is equally clear that the liability of a guarantor is delimited by the obligation arising under the contract which he guarantees and does not survive the discharge of that contractual debt. Valley National Bank of Phoenix v. Shumway, 63 Ariz. 490, 163 P.2d 676; Merchants National Bank v. Stone, 296 Mass. 243, 5 N.E.2d 430; Baer v. General Motors Acceptance Corp., supra; Commercial Credit Co. v. Phoenix Hudson-Essex, Inc., supra. Thus, when the buyer’s obligation under the sales contract was extinguished, in accordance with A.R.S. § 44-323, it necessarily follows that the liability of the guarantor is also discharged. This result is required by our holding in the Commercial Credit case, supra.
Fairness of Resale
The majority, having determined that the clear provisions of the Conditional Sales Act do not apply to this transaction, maintain that the only protection available to the defendant herein is its right to demand that the plaintiff, in reselling the goods, “ * * * deal fairly so as to secure the best price reasonably possible.” Citing Annotation, 49 A.L.R.2d 15, 57. Although we do not agree that the sole duty of the plaintiff in this regard was to deal fairly with the security, we do feel that even upon this basis the record before us requires a reversal.
The majority concede that Wurlitzer did have the duty and obligation, at the time of the sale of the property, to make it bring the fair market value and to account to Maestro for the difference between the amount owed it and the fair market value of the property. However, the plaintiff herein has been allowed to recover without having made any affirmative showing that this duty has been obeyed. If such duty is owed to defendant, then that party should be allowed to enforce the performance thereof. Otherwise, to use the language of the majority, “[i]t is an illusory ‘duty’ and therefore no duty at all.”
The sale in this case was made at private sale without notice, and all of the facts surrounding said sale were peculiarly within the knowledge of Wurlitzer. Defendant was not informed of the time or place of the sale, nor was it told to whom the goods had been sold. There is nothing in the record to show that the property was sold for its fair market value or that Maestro was given credit on its account for the fair market value of the property. The duty was upon Wurlitzer to affirmatively plead and prove that it had met its obligation under the law to sell the property for the fair market value and to account for the same. While it is often presumed that the price received at a sale fairly conducted according to reasonable business methods is a fair price, the burden is properly upon the seller under such circumstances to make a prima *244facie showing that the security has been reasonably disposed of. (Cf., Obrecht v. Crawford, 175 Md. 385, 2 A.2d 1, 119 A.L.R. 1129; Wisconsin & Arkansas Lumber Co. v. Buschow Lumber Co., Mo.App., 236 S.W. 410; Derami, Inc. v. John B. Cabot, Inc., 273 App.Div. 717, 79 N.Y.S.2d 664; Texas & Louisiana Lumber Co. v. Rose, Tex.Civ.App., 103 S.W. 444; 3 Williston, Sales, § 547; all dealing with resale of goods after a refusal by the buyer to accept them; compare also, Knudsen Music Co. v. Masterson, 121 Utah 252, 240 P.2d 973, in which a proper showing of good faith was made in a situation very similar to the instant case.) This is particularly so when, as here, the means of knowing and of proving the reasonable fairness of the sale is peculiarly within the knowledge of the plaintiff seller. Wilson v. Moline, 229 Minn. 164, 38 N.W.2d 201; Lake v. Callis, 202 Md. 581, 97 A.2d 316. The finding of the lower court that the proceeds of the sale were applied to reduce the amount due on the notes gives no indication one way or the other that the sale was fairly conducted and that the property sold for its fair market value.
These fundamental facts being true, it is our opinion that the judgment of the trial court should be reversed with directions to dismiss plaintiff’s complaint.
PHELPS, J., concurs and joins in this dissent,