445 N.E.2d 746 | Ohio Ct. App. | 1982
The primary issues in this appeal are (1) whether a consumer's defense against a retail seller may be asserted against the financial institution to which the retail installment contract was assigned, under a "Notice of Preservation of Claims and Defenses" inserted in the contract pursuant to a Federal Trade Commission (FTC) regulation; and (2) whether the financial institution's recovery against the consumer must be limited in amount by the doctrine of avoidable consequences (sometimes called the duty to mitigate damages).
Appellant's new car suffered from numerous defects which Westwood was unable to cure. After ten months of unsuccessful attempts to repair, appellant agreed to meet a Chrysler representative at Westwood to discuss settlement of her warranty claims. The Chrysler representative was absent when she arrived at Westwood, and appellant carried on negotiations with Westwood. Those negotiations resulted in what appellant labels an accord and satisfaction with respect to her warranty claims, whereby appellant agreed to buy a new 1979 vehicle in exchange for the trade-in of the 1978 car at a value equal to the unpaid balance of the 1978 contract. Westwood agreed to pay Provident the amount due under the 1978 obligation, and received appellant's new obligation for the 1979 vehicle. This will be called the 1979 transaction.
Westwood, however, failed to pay Provident any amount due on appellant's note, for reasons not apparent on the record. Westwood became insolvent, and the majority of its assets were seized by its creditors. The record fails to disclose what disposition was made of appellant's 1978 vehicle, but Provident conceded in oral argument that it retained title to that vehicle as security under the 1978 retail installment contract. The record is silent about Provident's attempt to obtain satisfaction of appellant's 1978 obligation by recourse against that vehicle, and the record fails to establish the market value of that vehicle.
Provident instituted this action against appellant for the entire balance due under the 1978 obligation. Appellant set up the affirmative defense of accord and satisfaction and then filed a third-party complaint against Chrysler Corporation, Westwood, the individual owner of Westwood, Larry Rigby, and the First National Bank.1 Provident was granted summary judgment against appellant for the balance due on the 1978 obligation. Chrysler won summary judgment dismissing it from the case. The court *318 finding no just reason for delay, this appeal ensued.
The 1978 transaction contained a Notice of Preservation of Claims and Defenses as follows:
FTC Regulation 16 C.F.R. 433.2 (1978) deems it an unfair or deceptive act or practice for a lender or seller to take or receive a consumer credit contract which fails to contain the preceding notice in at least ten point bold face type.2
Appellant and Provident agree that the 1978 retail installment contract was a consumer credit contract governed by 16 C.F.R. 433.2 (1978), and that Provident is subject to any claim or defense appellant could assert against Westwood, provided that the claim or defense is one "arising out of" the original 1978 transaction or "connected with [that] transaction." Federal Trade Commission Staff Guidelines (May 4, 1976). The parties *319 disagree on the character of the relationship between the 1978 and the 1979 transaction. Provident contends that the 1979 transaction was totally distinct and unrelated to the 1978 transaction. Contrary to appellant's contention that the 1979 transaction was one arising out of or connected with the 1978 transaction, Provident refers to the 1979 transaction as merely a purchase and trade-in, asserting that appellant's primary motivation for the 1979 transaction was to acquire a new car. We find nothing in the record to conclude the issue in that manner, as is required for summary judgment.
In her deposition, appellant states that on the day she negotiated for the purchase of the 1979 car, her original intention was to have the 1978 car fixed pursuant to the warranties arising under the 1978 transaction. She went to Westwood to discuss her warranty claims with a Chrysler representative, but in his absence, she was persuaded by Westwood's salespeople to agree to a settlement of those claims.
A summary judgment cannot be granted if the record, construed in the light most favorable to the party who opposes the motion, discloses any genuine issue of material fact remaining for trial. Civ. R. 56(C). Clearly, there is an unresolved factual dispute as to whether the 1979 transaction was (1) an attempt by Westwood to settle appellant's warranty claims and therefore arose out of or was connected to the 1978 transaction, or (2) a totally unrelated agreement to purchase a new car and trade in her old car. This dispute is material to the issues before the trial court.3 Provident was not entitled to summary judgment. *320
Provident was not entitled to a summary judgment in the amount of the balance facially due on the Barnhart note, because the record fails to demonstrate that Provident was entitled to that amount as a matter of law. Under the doctrine of avoidable consequences, sometimes called the duty to mitigate damages,4
Provident was not entitled to recover damages that it could reasonably have avoided by realizing on the value of the security held by it. F. Enterprises, Inc. v. Kentucky Fried Chicken Corp.
(1976),
Provident was not entitled to summary judgment. Appellant's first assignment is sustained.
The judgment of the trial court is reversed as to Provident and affirmed as to Chrysler. The cause is remanded for further proceedings.
Judgment accordingly.
SHANNON, P.J., and KEEFE, J., concur.
Under the common law of contracts when a buyer's obligation to pay was assigned by the seller to a third party, the assignee took the assignment subject to the defenses the buyer could assert against the seller-assignor. However, in an increasingly complex commercial world where quick circulation of commercial paper was to be encouraged, assignees desired to be insulated from the disputes between the original contracting parties. They sought to use the holder in due course doctrine to provide such protection. As codified in R.C.
For instance, R.C.
"(A) Notwithstanding section
For the purposes of this litigation we shall construe R.C.
In this appeal, it is not necessary for us to reach, and we do not now decide, the nature or the scope of the "claims and defenses" that appellant could assert against Provident. Nevertheless, it may be helpful to note that if the 1979 transaction was an accord and satisfaction of claims and defenses under the 1978 transaction, the failure of Westwood to pay Provident may have destroyed that accord and satisfaction, thereby reviving appellant's original claims and defenses against Westwood concerning the 1978 car. If revived against Westwood, these claims and defenses may be assertable against Provident under the FTC Notice and R.C.
"[T]he public policy determination that, as between an innocent consumer and a third-party financer, the latter is generally in a vastly superior position (1) to return the cost to the seller, where it properly belongs, (2) to exert an influence over the behavior of the seller in the first place, and (3) to the extent the bank cannot return the cost (as in the case of fly-by-night dealers), to 'internalize' the cost by spreading it among all consumers as an increase in the price of credit." Fonesca Teachout, 1 Handling Consumer Credit Cases 62, Section 2:18 (2 Ed. 1980); Kanwit, Federal Trade Commission Regulatory Manual, Section 19.08 (1979).
The FTC Notice allows the obligor to sue the assignee for the seller-assignor's faulty performance. Aillet v. Century FinanceCo. (La.App. 1980),
It may be that the appellant is entitled to no more than defensive measures against Provident's claim, under R.C.