Paccar Financial Corp. v. Harnett Transfer, Inc.

275 S.E.2d 243 (1981)

PACCAR FINANCIAL CORPORATION
v.
HARNETT TRANSFER, INC., Donell Gordon Garris and Hard Times Transfer, Inc.

No. 8011SC613.

Court of Appeals of North Carolina.

March 3, 1981.

Bryan, Jones & Johnson by James M. Johnson, Dunn, for plaintiff-appellee.

L. Randolph Doffermyre, III, Dunn, for defendant-appellant Hard Times Transfer, Inc.

WHICHARD, Judge.

The sole contention presented by defendant Hard Times is that the trial court erred in granting plaintiff's motion pursuant to G.S. 1A-1, Rule 50(b), for judgment in accordance with its motion for a directed verdict on plaintiff's right to immediate possession of the truck. Rule 50(b), in pertinent part, provides:

Whenever a motion for directed verdict made at the close of all the evidence is denied or for any reason is not granted, the submission of the action to the jury shall be deemed to be subject to a later determination of the legal questions raised by the motion.... [I]f a verdict was not returned [a party who has moved for a directed verdict], within 10 days after the jury has been discharged, may move for judgment in accordance with his motion for a directed verdict.... [T]he motion shall be granted if it appears that the motion for directed verdict could properly have been granted. G.S. 1A-1, Rule 50(b)(1). While the court here initially granted plaintiff's motion for directed verdict on the issue of right to possession, its subsequent submission of the issue to the jury had the effect of withdrawing the initial grant. Although the jury, pursuant to the court's peremptory instruction, answered the possession issue in favor of plaintiff, its inability to reach agreement on all other issues submitted resulted in a mistrial of the case and therefore in no verdict with final effect. Consequently, the Rule 50(b) motion was made when a motion for directed verdict had been denied and there was no verdict with final effect; and it thus was a proper motion.

"A motion for directed verdict under Rule 50(a) of the North Carolina Rules of Civil Procedure ... present[s] the question whether the evidence was sufficient to entitle [the party against whom the motion is made] to have a jury pass on it." Hunt v. Montgomery Ward and Company, 49 N.C. App. 638, 640, 272 S.E.2d 357, 359 (1980), and cases cited. The same question is presented by a motion under Rule 50(b)(1), made "within 10 days after the jury has been discharged", for judgment in accordance with the motion for a directed verdict. G.S. 1A-1, Rule 50(b)(1); see, Odell v. Lipscomb, 12 N.C.App. 318, 183 S.E.2d 299 (1971). "Normally the motion for a directed verdict is made against the party who has the burden of proof." Shuford, N.C. Civil Practice and Procedure, § 50-6 at 411 (1975). "[T]he trial judge [cannot] direct a verdict in favor of the party having the burden of proof when his right to recover depends upon the credibility of his witnesses." Cutts v. Casey, 278 N.C. 390, 417, 180 S.E.2d 297, 311 (1971). A directed verdict for the party with the burden of proof, however, is not improper where his right to recover does not depend on the credibility of his witnesses and the pleadings, evidence, and stipulations show that there is no issue of genuine fact for jury consideration. Freeman v. Development Co., 25 N.C.App. 56, 212 S.E.2d 190 (1975), Hodge v. First Atlantic Corp., 10 N.C.App. 632, 179 S.E.2d 855 cert. denied 278 N.C. 701, 181 S.E.2d 602 (1971).

Applying these principles here, we find that the pleadings and evidence established the following uncontroverted facts:

Garris purchased the truck from plaintiff's assignor, Peterbilt Southern, Incorporated, and executed a note and security agreement to Peterbilt. The truck constituted the collateral described in the security agreement. Peterbilt assigned the note and security agreement to plaintiff for a valuable consideration. Thereafter Garris "lease-purchased" the truck to Hard Times in exchange for a pickup truck. The written agreement between Garris and Hard Times did not specify that Hard Times was assuming the obligation to pay the installments as they came due under the note. Garris testified, however, that he "thought [he] was out of it"; Hodges, President of Hard Times, testified, "[W]e agreed ... to make the payments to [plaintiff] for [Garris]"; and Daniel S. Stacks, an employee of plaintiff, testified that he telephoned Hodges and Hodges told him "he was going to make the payments." Hard Times also agreed to pay for all repairs, maintenance, licenses and costs of operation.

Hard Times in fact made four payments on the note. It then stopped making the payments. Hodges testified that the payments were stopped because the truck needed repairs, and Hard Times could not both make the monthly payments and pay for the repairs. Hodges and a representative of plaintiff negotiated regarding an extension of time to make the payments, but the extension was never approved. When a representative of plaintiff called Hodges to tell him the payments were past due and to threaten repossession, Hodges told him: "[Y]ou'll never get the truck back. I'll put a mechanic's lien on it for $12,000.00 and in North Carolina a mechanic's lien is superior to your security agreement."

Harnett Transfer performed the needed repairs on the truck and charged Hard Times the sum of $12,638.56 therefor. Hard Times did not pay the repair bill. On 27 February 1978, over a month after plaintiff filed this action against Garris and Harnett Transfer, "Harnett Transfer sold the truck at the courthouse door and Hard Times ... purchased the same for $12,758.56." Hard Times was subsequently joined as a party defendant in this action.

Hodges was a director, a stockholder, President and chief executive of both Harnett Transfer and Hard Times.

These facts are uncontroverted. They do not depend on the credibility of plaintiff's witnesses. The trial court thus properly granted plaintiff's motion for a directed verdict, even though plaintiff had the burden of proof, if under these uncontroverted facts plaintiff was entitled to possession of the truck as a matter of law. Whether plaintiff was so entitled, then, becomes the sole issue now before us.

Article Nine, Uniform Commercial Code—Secured Transactions, contains the following provision:

Secured party's right to take possession after default. —Unless otherwise agreed a secured party has on default the right to take the possession of the collateral.

G.S. 25-9-503. Proof of the following was required to establish that plaintiff had a valid and enforceable security interest in the truck: (1) that the debtor had signed a security agreement; (2) that the agreement contained a description of the collateral; (3) that value had been given for the agreement; and (4) that the debtor had rights in the collateral. G.S. 25-9-203. Plaintiff satisfied these requirements by introducing a signed security agreement between its assignor and Garris which described the collateral (the truck); showed that value had been given to the original creditor, its assignor; and showed that the debtor (Garris, and by virtue of the agreement with Garris, Hard Times) had rights in the collateral, namely, the right to possession and use so long as the note was not in default. Plaintiff also proved that it had given value to its assignor, the original creditor, by introducing the written assignment of the security agreement which showed that plaintiff had paid a valuable consideration for assignment of the original creditor's rights under the agreement. Plaintiff thus proved, by uncontroverted documentary evidence, its entitlement to a valid and enforceable security interest in the truck. Further, the agreement did not restrict the secured party's right to possession upon default. It thus did not fall within the "unless otherwise agreed" provision of G.S. 25-9-503. Finally, uncontroverted documentary evidence showed that the security interest had been perfected pursuant to the provisions of G.S. 25-9-302(3)(b) and G.S. 20-58 et seq.

Plaintiff, then, held a valid, enforceable, perfected security interest in the truck. Hard Times therefore, upon its trade with Garris, took the truck subject to plaintiff's security interest. G.S. 25-9-301(1)(c); see 25-9-307 Official Comment.^[1] By proving with uncontroverted evidence (1) that it held a valid, enforceable, perfected security interest in the truck; (2) that Hard Times took the truck under the agreement between Hard Times and Garris subject to its security interest; and (3) that a default existed in payments on the indebtedness secured, plaintiff had established its right to take possession of the truck as a matter of law. G.S. 25-9-503.

In avoidance of plaintiff's right to possession pursuant to its security interest, Hard Times has pled, offered evidence of and argued a claim of superior right to possession by virtue of its purchase of the truck upon foreclosure of the lien held by Harnett Transfer. It relies upon the following provisions of Chapter 44A of the North Carolina General Statutes:

Any person who repairs, services, tows or stores motor vehicles in the ordinary course of his business pursuant to an express or implied contract with an owner or legal possessor of the motor vehicle has a lien upon the motor vehicle for reasonable charges for such repairs, servicing, towing or storing. This lien shall have priority over perfected and unperfected security interests.

G.S. 44A-2(d) (1976) (emphasis supplied); and

A purchaser for value at a properly conducted sale, and a purchaser for value without constructive notice of a defect in the sale who is not the lienor or an agent of the lienor, acquires title to the property free of any interests over which the lienor was entitled to priority.

G.S. 44A-6 (1976) (emphasis supplied). It asserts that Harnett Transfer, having repaired the truck which was the subject of plaintiff's security interest, was entitled to a lien which had priority, by virtue of G.S. 44A-2(d), over that security interest; and that because it was "a purchaser for value" at the foreclosure sale conducted to satisfy Harnett Transfer's lien, it acquired title "free of any interests over which the lienor (Harnett Transfer) was entitled to priority" and thus free of plaintiff's security interest, pursuant to G.S. 44A-6.

We find Hard Times' contention commendable for its creativity, but otherwise without merit. "Equity regards substance, not form, and is not bound by names parties give their transactions." In re Will of Pendergrass, 251 N.C. 737, 743, 112 S.E.2d 562, 566 (1960); see also, Erickson v. Starling, 233 N.C. 539, 541-542, 64 S.E.2d 832, 834 (1951). Hard Times' account for repairs with Harnett Transfer was in the sum of $12,638.56. At Harnett Transfer's foreclosure sale Hard Times purchased the repaired property, the truck in which plaintiff had a security interest, for the sum of $12,758.56. The purchase price at the foreclosure sale was thus $120.00 in excess of the account for repairs. While the record is silent regarding the reason for the difference, the $120.00 almost certainly represented the costs of the sale, perhaps combined with carrying or storage charges.

The substance of the transaction, then, is that Hard Times simply satisfied its account for repairs with Harnett Transfer. To allow Hard Times to avoid plaintiff's valid, enforceable, perfected security interest by simply satisfying its account for repairs, but doing so under the guise of a foreclosure sale pursuant to the repairing entity's statutory lien, would be to regard form over substance. Payment by Hard Times to Harnett Transfer one minute prior to the foreclosure sale clearly would not have given Hard Times title to the property free and clear of plaintiff's security interest. G.S. 44A-3 (1976).^[2] Neither, in equity, should payment one minute later.

We thus hold that where the purchaser of personal property which is subject to a valid, enforceable, perfected security interest buys in the collateral at a foreclosure sale conducted pursuant to G.S. 44A-1 et seq. to satisfy an account for repairs which the purchaser has failed to pay, for a purchase price which essentially represents payment of the account, the purchaser does not thereby extinguish the security interest. The security property or collateral remains subject to the security interest; and if the indebtedness for payment of which the collateral was pledged remains in default, the right to possession continues to be with the holder of the security interest. G.S. 25-9-503. Equity and rationality in our commercial law permit no other conclusion.

Harnett Transfer's lien for repairs was extinguished by Hard Times' payment of its account. Upon payment of the account the right to possess the collateral reverted to Hard Times, subject to plaintiff's right as secured party to possession upon Hard Times' default in payments on the indebtedness which the collateral was pledged to secure. Default in payments by Hard Times having been established by uncontroverted evidence, the trial court correctly granted plaintiff's Rule 50(b) motion and entered judgment that plaintiff was entitled to immediate possession; and its judgment is

Affirmed.

WEBB and HARRY C. MARTIN, JJ., concur.

NOTES

[1] "After a financing statement has been filed or after compliance with the certificate of title law all subsequent buyers, under the rule of subsection (2), are subject to the security interest." G.S. 25-9-307 Official Comment (1965) (emphasis supplied).

[2] This statute provides:

Liens conferred under this Article ... terminate and become unenforceable when the lienor voluntarily relinquishes the possession of the property upon which a lien might be claimed, or when an owner, his agent, a legal possessor or any other person having a security or other interest in the property tenders prior to sale the amount secured by the lien plus reasonable storage, boarding and other expenses incurred by the lienor.

G.S. 44A-3 (1976) (emphasis supplied).