Court Opinion

ID: 9572466
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:41:54.353991+00
Date Added: 2024-06-11T12:33:07.492833
License: Public Domain

Justice MEYER
dissenting.
I respectfully dissent from the majority for several reasons.
First, I find the majority’s reliance on prior North Carolina cases to be misplaced. It is true that prior decisions of this Court, such as Bynum v. Rogers, 49 N.C. 399 (1857), have said that if the purchaser of a note requires the endorsement of the seller as a guaranty of payment the transaction is, between the immediate parties, in effect, a loan. But Bynum and its companion cases involved settings far removed, both factually and temporally, from that found in the case at bar.
The controlling precedent so heavily relied on by the majority dates from 1857. Given the fact that the character of commercial transactions, particularly inventory financing, has changed so much since that time and the fact that negotiable instrument law in this State is now governed by the Uniform Commercial Code, I believe the majority’s reliance on such venerable case law is misguided. Furthermore, although the majority recognizes that Judge Craven’s opinion in Associated Stores has no precedential value for this Court, and apart from my finding it factually distinguishable, I would emphasize that the fact that Judge Craven was bound to apply North Carolina law meant that he could not rule contrary to the holding in Bynum. We are not so bound to rely blindly on prior decisions of this Court.
The majority is correct that this Court will look beyond form to the substance of the transaction involved. Thus in Bynum, where the factual record showed that the note was created solely so that one Murchison could raise necessary capital, this Court found a loan. In this case a consideration of either form or substance compels me to conclude that the majority has erred.
There is evidence in the record before us to support the trial court’s findings numbered 10 and 16 to the effect that when Vick *50was given credit on his account with plaintiff, whether by reason of a cash payment or by transferring chattel paper, an equivalent amount of his debt to plaintiff was considered by the parties to have been paid and the parties intended and viewed the transactions between them as a purchase and sale, not as a loan or forbearance. Finding of fact number 14, to which Vick did not except, states that both parties viewed the chattel paper as having inherent cash value equal to the amount credited to Vick’s account. At the time the payment or chattel paper was credited to Vick’s debt to the plaintiff, that portion of the debt was canceled and could not be revived. It is true that, as to the chattel paper, Vick continued to have certain obligations, but such obligations were based on the agreement to repurchase and not on Vick’s being a primary debtor. Under the written agreement between Vick and Western Auto and under the course of conduct between the parties pursuant to those agreements, the chattel paper was accepted and credited to Vick’s account as final payment.
This is a critical point. In reviewing the arrangement between the two parties, the majority says that “the net effect . . . would be that any funds or credit which would be extended by the transferee in return for the'document would be conditional in nature and depend upon the ultimate satisfaction of the underlying obligation.” That is simply not the case. The credit entries to Vick’s accounts upon his remitting chattel paper were absolute for the simple reason that he was then allowed to charge additional items to the now-cleared account. Western Auto’s internal bookkeeping reflected this; Mr. Gallimore, a witness for plaintiff, testified that Vick’s transmittal of sufficient chattel paper ended his obligation on his inventory account. This even the majority implicitly recognizes, because it casts defendant’s obligation as being “a continuing personal obligation in regard to the collection and payment of amounts due under the paper,” not an obligation on his inventory account.
Other elements of the majority’s characterization of the matter before us are equally troublesome. Apparently the majority finds a forbearance in the fact that plaintiff “[refrained] from collecting amounts due from defendant directly until such time as it became satisfied that the chattel paper transferred would not be otherwise paid off.” Actually, plaintiff had no reason to proceed against defendant directly until the defaulting obligors actually *51defaulted. The risk of default in turn was assigned to the defendant by a separate and distinct contract, the repurchase agreement, because defendant was in the best position to oversee the extension of credit and collections therefrom. Finally, the defendant’s obligation to repay credit extended cannot be characterized as absolute, when, as the majority says, it was “absolute in the event” that the consumers who executed the chattel paper in turn defaulted on their obligations.
Representative of what I feel to be the proper resolution of the issue before us is the Supreme Court of Tennessee’s opinion •in Lake Hiwassee Developing Co., Inc. v. Pioneer Bank, 535 S.W. 2d 323 (1976). There the unanimous opinion of that court characterized the single issue in the case as “whether the purchase of notes at a discount beyond the legal rate of interest, and guaranteed at face value by the indorser, constitutes a ‘loan’ rather than a ‘sale’ so as to bring the transaction within the operation of [the] usury statutes.” The court answered that question in the negative.
While the entire opinion of the court in Lake Hiwassee is, in my view, a correct interpretation of the law, I find two points made there especially relevant to the facts of our case. First, the court carefully considered and distinguished several older Tennessee cases where it was clear that the note was made “for the purpose of being sold, to raise money, or as an artifice to evade the usury laws . . . .” Second, the court there recognized that “commercial law shows that endorsement with recourse is standard procedure” in states which have adopted the Uniform Commercial Code. I fear the majority has not sufficiently evaluated its position in light of the substantive evolution of negotiable instruments’ law since 1857.
My misgivings about the majority opinion are not confined to the legal issues involved. The question before us is not just a matter of form over substance. It is a question of recognizing or not recognizing a rather commonly used business practice which, in this case, would allow a chain store operator to buy his business from the parent company when he might otherwise be unable to do so. Certainly there is in such a relationship the possibility of abuse, but Vick was free to buy his wholesale merchandise from other parties and he was free to sell his chattel paper to anyone *52he chose. I must assume he chose to deal with Western Auto because he found the terms there, including the amount of the chattel paper discount, the most advantageous. Rather than serving to create, in effect, a loan, Vick’s guaranty of the paper served to increase its value, to his benefit. Thus, if we say the usury laws forbid such a transaction, we must consider who will be most harmed. I submit it will not be the large wholesalers like Western Auto, because they will simply forego the requirement of guaranty and collection by the retailer and increase the discount of the paper accordingly. Rather, it will be retailers like Vick who suffer, because they will be unable to obtain the greatest value for the chattel paper they generate.
Justices EXUM and CARLTON join in this dissenting opinion.