479 N.E.2d 293 | Ohio Ct. App. | 1984
Lead Opinion
This cause came on to be heard upon appeal from the Court of Common Pleas of Brown County, Ohio.
On March 22, 1977, appellant, Ross Herbolt, ordered a combine from appellee, Hillsboro Farmers Exchange (hereinafter "Hillsboro"), which was manufactured by appellee, Allis-Chalmers Corporation (hereinafter "Allis-Chalmers"). The various blanks on the order form were filled in by him and the form was signed by both Herbolt and a sales representative from Hillsboro.
On April 19, 1977, a contract of purchase was entered by Hillsboro and Herbolt. Herbolt bought an F-2 Gleaner Combine with a 13-foot "grain head" which contained a "floating cutter bar." Herbolt made a down payment of nearly $14,000 and financed the unpaid balance of $23,403. The total cost of the combine, including the finance charge, was $45,417.75. The contract provided that delivery of the combine was to be made as "soon as possible."
In order to secure the amount financed, Herbolt granted Hillsboro a security interest in the combine. Immediately after the contract and security agreement were executed, Hillsboro assigned both to appellee, Allis-Chalmers Credit Corporation (hereinafter "Allis-Chalmers Credit"), which filed a financing statement on April 21, 1977.
On September 5, 1978, Herbolt purchased a "mud hog rear wheel drive system" for the combine from Hillsboro which was manufactured by Mud Hog Drive Systems ("Mud Hog"). The sale of the mud hog system was evidenced by a contract signed by Herbolt and Hillsboro. Again, part of the purchase price was financed and Herbolt granted a security interest in the unit to Hillsboro to secure compliance with the contract. Hillsboro assigned the contract and its security interest in the unit to Allis-Chalmers Credit, which filed a financing statement in September 1977.
The record reveals that since September 30, 1977, Herbolt has had considerable difficulty with various parts of the equipment and that he has met with representatives from Hillsboro, Mud Hog, Allis-Chalmers Credit, and Allis-Chalmers to try to have the equipment repaired.
On April 27, 1981, Allis-Chalmers Credit filed an action for replevin and money against Herbolt. In Count I of its amended complaint, Allis-Chalmers Credit alleged that it was entitled to immediate possession of the combine and grain head by virtue of its being the holder of a contract and a security interest relative to the items which provide that it was entitled to possession upon default, that Herbolt was in default and that Herbolt's refusal to relinquish possession of the equipment had caused Allis-Chalmers Credit $150 in damages. In Count III, Allis-Chalmers Credit made similar allegations with regard to the mud hog system. Herbolt's answer raised several defenses including failure of consideration, breach of warranty, unconscionability, Truth-In-Lending Act violations, and violations of Ohio's Retail Installment Sales Act.
Allis-Chalmers Credit eventually filed a motion for summary judgment on Counts I and III, which the trial court granted in an entry dated September 27, 1980. The court also determined that there was no just cause for delay. Herbolt initiated a timely appeal from this order.
On May 8, 1981, shortly after Allis-Chalmers Credit filed the action discussed above, Herbolt filed a complaint against Allis-Chalmers, the manufacturer of the combine and grain heads, alleging that the items were negligently designed and manufactured. Herbolt amended his complaint to add Hillsboro as a defendant and further alleged the breach of various express and implied *232 warranties. Herbolt again amended his complaint to include Mud Hog as an additional defendant and similar claims made with regard to the unit which it manufactured.
Hillsboro and Mud Hog filed motions for summary judgment and Allis-Chalmers filed a motion to dismiss. Each alleged that appellant's claims were barred by the operation of R.C.
This court, sua sponte, ordered the consolidation of the two appeals on November 4, 1983, and Herbolt now raises four assignments of error, discussed below, with regard to the two cases.
Allis-Chalmers argues, for the first time on appeal, that the two-year limitation period in R.C.
Allis-Chalmers then argues that Herbolt's claim for breach ofimplied warranty must fail because all implied warranties were excluded with an appropriate disclaimer of warranty in the sales contract.
Allis-Chalmers further argues that, though R.C.
Article 2 has several sections dealing with the various warranties which may exist in contracts for the sale of goods. See, generally, R.C.
Unless it is excluded or modified, a warranty that goods sold are merchantable arises by operation of law in every contract for their sale where the seller is a "merchant"5 who deals in goods of the kind sold. R.C.
R.C.
The warranty made by Allis-Chalmers includes the following language:
"ALLIS-CHALMERS CORPORATION (the Company) warrants new products sold by it to be merchantable and free from defects in workmanship and material at the time of shipment from the Company's factory. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY STATED HEREIN."
The word "merchantable" occurs in the express warranty but is not found in the disclaiming language. Where the express mandate of the statute requires the inclusion of the word "merchantability" in the language disclaiming that implied warranty, we must conclude, as a matter of law, that the language quoted above does not effectively disclaim the implied warranty of merchantability. See Nordstrom, Handbook of the Law of Sales (1970) 273, Section 88; White Summers, Handbook of the Law under the Uniform Commercial Code (2 Ed. 1980) 438, Section 12-5 (hereinafter cited as "White Summers").
This conclusion is further supported by R.C.
Now we must determine when the four-year statute of limitations provided in R.C.
R.C.
"Tender of delivery" is a term of art in the U.C.C. "Tender" is defined to require that the seller "* * * put and hold conforming goods at the buyer's disposition and give the buyer any notification reasonably necessary to enable him to take delivery." R.C.
"Tender," as used in the statute of limitations relating to an action for breach of a contract for the sale of goods, refers to an offer as if in fulfillment of contractual obligations even though a defect in the goods may exist when measured against the contract. See Standard Alliance Indus. v. Back Clawson Co. (C.A. 6, 1978),
Next, we note that, though most aspects of a contract for the sale of goods may be negotiated to include, exclude or modify pertinent U.C.C. provisions,8 the code states that "[t]he obligation of the seller is to transfer and deliver * * *." We emphasize this obvious point as Allis-Chalmers argues strenuously that the statute of limitations began to run in this case on April 19, 1977, the day the contract was executed. However, the contract itself provided that delivery was to be made as "soon as possible," clearly indicating that some further action of the seller was required before the buyer could obtain the equipment.
In an affidavit which appellees admit was timely filed and part of the record when the trial court considered their respective motions for summary judgment and dismissal, Herbolt alleged that the combine was not delivered "* * * until June or July, 1977." While Herbolt filed an untimely affidavit which the trial court quite properly refused to consider, the avernment that delivery was not made until June or July 1977, coupled with a contractual duty to deliver, is sufficient to raise a material question of fact as to how delivery was to occur and when it did, in fact, occur. Since Herbolt's complaint against Allis-Chalmers was filed in May 1981, within four years after June 1977, we must conclude that Allis-Chalmers' motion to dismiss based on the statute of limitations was improperly granted.
Civ. R. 3(A) provides that "[a] civil action is commenced by the filing of a complaint with the court, if service is obtained within one year from such filing." For the purpose of the statute of limitations, this rule determines when an action is commenced where service is timely. If service is not obtained within one year after the filing of the complaint against a defendant, the action "commences," for purposes of applying the statute of limitations, on the date service *236
is obtained or the party submits to the court's jurisdiction. See, e.g., St. Thomas Hospital v. Beal (1981),
However, as we noted above, appellant's affidavit alleged that delivery did not occur until "June or July, 1977." (Emphasis added.) The party seeking summary judgment bears the burden of showing that no material factual questions exist and that he is entitled to summary judgment as a matter of law. Civ. R. 56. The allegation that delivery occurred in June or July 1977 is sufficient to create a factual question as to the date of delivery and, since the action as to Hillsboro commenced on July 23, 1981, it cannot be said that Hillsboro is entitled to judgment as a matter of law.
Accordingly, the trial court erroneously granted Hillsboro's motion for summary judgment and Allis-Chalmers' motion to dismiss. Appellant's first and fourth assignments of error are well-taken and sustained.
The contract for the sale of the combine provides that new products sold by Allis-Chalmers are "* * * merchantable and free from defects in workmanship and material at the time of shipment from the Company's [Allis-Chalmers'] factory." If a product fails to conform to this warranty, Allis-Chalmers promises to "* * * repair, or at its option replace * * *" any such part, except normal maintenance items, provided that the part is returned to the company's factory or to an authorized dealer within twelve months. The following clause is also found:
"THE COMPANY'S LIABILITY, WHETHER IN CONTRACT OR IN TORT, ARISING OUT OF WARRANTIES, REPRESENTATIONS, INSTRUCTIONS OR DEFECTS FROM ANY CAUSE SHALL BE LIMITED EXCLUSIVELY TO REPAIRING AND REPLACING PARTS UNDER THE CONDITIONS AS AFORESAID, AND IN NO EVENT WILL THE COMPANY BE LIABLE FOR CONSEQUENTIAL DAMAGES."
The question of whether the "repair or replace" language is a warranty or a limitation of available remedies is not a new one. See Standard Alliance Indus., supra, at 818. In this case, Herbolt insists that Allis-Chalmers "warranted" that it would repair or replace defective parts for one year, and that such "warranty" extends to the future performance of the product. We feel that this analysis is incorrect.
The U.C.C. has distinguished between "remedies" and "warranties" or obligations. R.C.
R.C.
As noted in Standard Alliance Indus., supra, the repair or replace language would appear to meet the definition of an express warranty as it is a "* * * promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain * * *." R.C.
Accordingly, we find that the repair or replace language is not a warranty extending to future performance under R.C.
Thus, the court's refusal to apply the discovery rule found in R.C.
Appellant's second assignment of error is overruled.
Clearly, an assignee taking a note with notice of a defense on the part of any person is not a holder in due course. R.C.
"A transferee does not take an instrument in good faith and is therefore *238 not a holder in due course when there are sufficient facts toindicate the transferee, by virtue of its unusually close relationship with the transferor, had reason to know or should have known of infirmities in the underlying transaction from which the instrument originated." (Emphasis added.)
The "close-connectedness" doctrine was established in 1967 by the Supreme Court of New Jersey in Unico v. Owen (1967),
The following five factors are indicative of a close connection between the transferee and transferor: (1) the transferee's drafting of the forms used by the transferor; (2) approval and/or establishment of the transferor's procedures by the transferee (e.g., setting the interest rate, approval of a referral sales plan); (3) a direct contact between the transferee and the debtor, such as an independent check on the debtor's credit worthiness by the transferee; (4) heavy financial reliance upon the transferee by the transferor (e.g., the transfer of all or most of the transferor's paper to the transferee); and (5) common or connected ownership or management of the transferor and transferee. Arcanum, supra, at 555.
There is no evidence in the record relating to any of these factors. Rather, appellant would have this court adopt a per se rule which would do away with holder-in-due-course status on the basis of a similarity in the names of a transferee and transferor. This we decline to do. Since appellant has not presented sufficient evidentiary material to create a question of fact relative to the close-connectedness theory, we find his argument in this regard to be without merit.
RISA was originally established as a method of regulating retail installment sales. In 1973, R.C.
R.C.
A "retail installment sale" includes "* * * every retail sale of specific goods to any person in which the cash price may be paid in installments over a period of time." R.C.
A "consumer transaction" includes a sale of goods to an individual "* * * for purposes that are primarily personal, family, or household." R.C.
The key issue in the cause sub judice is whether Herbolt's use of the combine was primarily for personal, family or household purposes. This court has thoroughly reviewed all of the evidentiary matter which was before the trial court on Allis-Chalmers Credit's motion for summary judgment including the affidavits, responses to interrogatories, admissions and pleadings, and it is simply impossible to determine whether Herbolt's use of the combine was for primarily personal orprimarily commercial use.
Of course, the party seeking summary judgment bears the burden of showing that there is "* * * no genuine issue as to any material fact * * *" and that it is entitled to judgment as a matter of law. Civ. R. 56(C). In addition, a party asserting holder-in-due-course status has the burden of establishing that he is entitled to take advantage of the rights attendant to that status. See R.C.
In the case at bar, Herbolt was never asked what he did for a living or for what purposes the combine was used. The interrogatories propounded by the plaintiff do establish that between 1977 and 1983 the combine was used for approximately 1093 hours (an average of 182 hours per year) to harvest between 1850 and 1900 acres, but the purpose of the work was neither requested nor exposed.
Perhaps such information appeared obvious to the parties and the court below, but, as an appellate court, we must base our decision solely upon what is properly in the record before us and we cannot speculate as to Herbolt's occupation or his purpose for using the combine. The record herein could just as easily support the conclusion that Herbolt was a philanthropist who gave away all that he harvested, or one who consumed all that he grew, as it would the conclusion that Herbolt was a commercial farmer who used the combine primarily for commercial, not personal, purposes.
This case should be contrasted with the situation in Mid-Wood,Inc. v. Digby (1982),
The evidentiary matter before the trial court in the case at bar simply gives no hint as to the purposes, commercial or personal, for which the equipment was purchased. Accordingly, as there is an unresolved question of fact as to whether or not a consumer transaction *240 occurred, we must conclude that summary judgment was erroneously granted to Allis-Chalmers Credit.
Appellant's third assignment of error is, therefore, sustained.
It is the order of this court that the judgment herein appealed from be, and the same hereby is, reversed and the cause is remanded for further proceedings not inconsistent with this decision.
Judgment reversed.
HENDRICKSON, P.J., and KOEHLER, J., concur.
JONES, J., concurs in part and dissents in part.
"(A) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.
"(B) A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance, the cause of action accrues when the breach is or should have been discovered."
"(B) Subject to division (C) of this section, to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of awriting must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states for example, that `There are no warranties which extend beyond the description on the face hereof.'
"(C) Notwithstanding division (B) of this section:
"(1) unless the circumstances indicate otherwise all implied warranties are excluded by expressions like `as is,' `with all faults,' or other language which in common understanding calls the buyer's attention to the exclusion of warranties and makes plain that there is no implied warranty; and
"(2) when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods there is no implied warranty with regard to defects which an examination ought in the circumstances to have revealed to him; and
"(3) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade." (Emphasis added.)
"* * * The term `tender' is used in this Chapter in two different senses. In one sense it refers to `due tender' which contemplates an offer coupled with a present ability to fulfill all the conditions resting on the tendering party and must be followed by actual performance if the other party shows himself ready to proceed. Unless the context unmistakably indicates otherwise this is the meaning of `tender' in this Chapter and the occasional addition of the word `due' is only for clarity and emphasis. At other times it is used to refer to an offer of goods or documents under a contract as if in fulfillment of its conditions eventhough there is a defect when measured against the contract obligation * * *." (Emphasis added.)
"Exemption from holder in due course doctrine.
"Notwithstanding section
Dissenting Opinion
I concur with my colleagues in reversing this case on the first and fourth assignments of error, for the reasons stated, namely that summary judgment was improper because there were questions of fact with respect to the date when the four-year statute of limitations began to run. I also concur that the second assignment of error has no merit.
I dissent with the majority which finds that the third assignment of error is well-taken with respect to the granting of summary judgment to Allis-Chalmers Credit Corporation. I cannot accept the majority's view that the Retail Installment Sales Act (RISA), R.C. Chapter 1317, is applicable to the sale of the farming equipment which is the subject of this action. It defies logic to believe that the sale of a combine for over $45,000 could be a consumer transaction as defined in R.C.
"`Consumer transaction' means a sale, * * * to an individual for purposes that are primarily personal, family, or household." (Emphasis added.)
The majority decision observes that the combine was used for a total of 1,093 hours (182 hours per year) to harvest between 1,850 and 1,900 acres. The majority then concludes, however, that since "Herbolt was never asked what he did for a living or for what purposes the combine was used," there was a question of fact as to whether or not the combine was used primarily for commercial uses rather than personal purposes. Clearly one does not pay over $45,000 for a combine and use it in such an extensive manner unless he is involved in commercial farming. Such is readily apparent, and it was totally unnecessary for there to be testimony that appellant was a commercial farmer. There is an old adage which may well be applicable. "If it walks like a duck and quacks like a duck and swims like a duck, it's probably a duck." There was no legitimate question of fact before the trial court with respect to the use of the combine, and the trial court was correct in granting summary judgment to Allis-Chalmers Credit Corporation. As observed in Mid-Wood, Inc.
v. Digby (1982),