S.E. 2d
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Edward P. Brockbank, Respondent,
v.
Best Capital Corp., Petitioner.
ON WRIT OF CERTIORARI TO THE COURT OF
APPEALS
Appeal From Richland County
Joseph M. Strickland, Special Circuit Court Judge
Opinion No. 25162
Heard June 7, 2000 - Filed June 29, 2000
AFFIRMED AS MODIFIED
James R. Allen and Andrea C. Pope of Barnes, Alford,
Stork & Johnson, LLP, of Columbia, for petitioner.
Thomas W. Bunch, II of Robinson, McFadden &
Moore, of Columbia, for respondent.
JUSTICE WALLER: Edward P. Brockbank (Debtor) sued Best
Capital Corp. (Creditor) after the repossession and sale of his mobile home,
alleging, among other things, violation of the notice provision contained in
p.351
BROCKBANK v. BEST CAPITAL CORP.
Article 9 of the Uniform Commercial Code (UCC). 1 The trial judge granted
Creditor's motion for summary judgment. The Court of Appeals reversed and
remanded. Brockbank v. Best Capital Corp., Op. No. 99-UP-098 (S.C. Ct. App.
filed February 18, 1999). We granted Creditor's petition for a writ of certiorari
following the denial by the Court of Appeals of Creditor's petition for rehearing.
We affirm the Court of Appeals' opinion as modified.
FACTS
Brockbank and his wife, Sharon K. Brockbank, purchased a double
wide mobile home from Kahn Development Company in February 1995. Kahn
assigned the contract to Creditor. 2
The Agreement for Sale of Manufactured Home (Agreement) states
that Debtor "may take possession of the property, live in it, and continue in
possession while this Agreement remains in effect." Debtor agreed to pay taxes
and maintain fire insurance coverage, with Creditor named as the loss payee on
the insurance policy. Debtor agreed not to transfer or assign his rights under
the Agreement without Creditor's prior written permission. Debtor agreed not
to move the mobile home from the location specified in the Agreement until the
loan was paid in full. Debtor agreed to maintain the home in good repair, and
Creditor retained the right to inspect it at any reasonable time upon reasonable
notice to Debtor.
The Agreement further provides that
[i]f you fail to make payment when due, if you break
any promise under this Agreement, or if the prospect of
payment is impaired, the seller ("we") may declare this
Agreement in default and demand that the entire
balance be paid in full. If we institute suit against you
to enforce our rights and obtain a valid judgment
1 S.C. Code Ann. §§ 36-9-101 to -607 (Supp. 1999).
2 To purchase the eight-year-old mobile home, the Brockbanks financed
$20,607.70 and agreed to pay $35,170.70 in interest, at a rate of 16.5 percent,
during the fifteen-year loan. The total sales price, including the $2,200
downpayment, was $57,978.40. Monthly payments were $309.88.
p.352
BROCKBANK v. BEST CAPITAL CORP.
against you, you shall pay all of our expenses of suit
and reasonable attorney's fees, not to exceed 15% of the
balance owing under this Agreement.
Under a section titled "Seller's remedies," the Agreement states:
Except as provided by law, if you default in making any
payment or in performing any other obligation
hereunder, we may either bring an action against you
for specific performance, or enforce a forfeiture of your
interest in the manufactured home. If a forfeiture is
enforced, you will forfeit all rights and interests in and
to the property and appurtenances, and shall
immediately surrender to us peaceable possession of the
property and forfeit to us, as liquidated damages, all
payments made hereunder together with all
improvements placed on or in the property. In no event
shall the provisions of this paragraph affect our other
lawful rights or remedies against you.
Finally, the Agreement states that "[u] pon your performance of all requirements
under this Agreement, including payment of all sums due, we will convey to you
good and marketable title free of all liens to this manufactured home."
Debtor left the marital home in August 1995, but continued to make
the payments until January 1996. The next month, Debtor sued his wife for
divorce and stopped making payments on the marital home. Mrs. Brockbank
could not afford to make the payments on the home and moved out in March
1996. Debtor stated in an affidavit that
[s] ometime in January 1996, I received [Creditor's]
demand letter dated January 18, 1996, wherein
[Creditor] demanded payment of the entire outstanding
balance under the sales agreement. I telephoned
[Creditor] about the payments on the mobile home. I
told [Creditor] that I would not make monthly
payments if I did not have use of the home. I was told
that [Creditor] and my wife were discussing payment
arrangements.
p.353
BROCKBANK v. BEST CAPITAL CORP.
I did not receive any other information or have any
other contact with [Creditor] until after April 28, 1996.
On April 28, 1996, I returned to the mobile home to
visit my family and a stranger appeared at the door.
The stranger told me that she had purchased this
mobile home approximately two weeks earlier.
Creditor had resold the home for $19,500.
Debtor alleged that Creditor was required, pursuant to Article 9 of
the UCC, to provide him with notice of the sale of the mobile home. See S.C.
Code Ann. § 36-9-504(3) (Supp. 1999). Debtor moved for partial summary
judgment on the issue of liability, asserting a hearing was necessary only to
determine damages under the formula established in S.C. Code Ann. § 36-9
507(1) (Supp. 1999).
Creditor counterclaimed, requesting a deficiency judgment and
sanctions under the South Carolina Frivolous Civil Proceedings Sanctions Act.
Creditor admitted it had not sent Debtor or his estranged wife notice of the sale,
but argued that Article 9 applies only to secured transactions and there was no
security interest created by the Agreement. Creditor also contended that Debtor
was not entitled to notice because he had abandoned the home and his estranged
wife voluntarily had surrendered it to Creditor.
The trial judge granted summary judgment to Creditor. The judge
ruled the Agreement constituted an unsecured loan and so the default and
penalty provisions of Article 9 did not apply to the transaction. The Court of
Appeals reversed, finding that the transaction between Debtor and Creditor falls
squarely within the statutory definition of a secured transaction. Based on that
determination, the Court of Appeals remanded the case for the trial judge to
determine whether Brockbank's alleged abandonment of the home divested him
of his rights under Article 9, including the right to notice of the sale.
ISSUES
1. Did the Court of Appeals err in finding that the
p.354
BROCKBANK v. BEST CAPITAL CORP.
Agreement created a security interest in the
mobile home?
2. Did the Court of Appeals err in remanding to the
lower court the issue of whether Debtor's
departure from the home divested him of his
rights under Article 9?
3. Did the trial judge err in finding that Debtor's
departure from the home divested him of his
rights under Article 9?
STANDARD OF REVIEW
A trial court may properly grant a motion for summary judgment
when "the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as
to any material fact and that the moving party is entitled to a judgment as a
matter of law." Rule 56(c), SCRCP. Summary judgment is not appropriate when
further inquiry into the facts of the case is desirable to clarify the application of
the law. Tupper v. Dorchester County, 326 S.C. 318, 487 S.E.2d 187 (1997).
Summary judgment should not be granted even when there is no dispute as to
evidentiary facts if there is dispute as to the conclusion to be drawn from those
facts. Id. In determining whether any triable issues of fact-exist, the court must
view the evidence and all reasonable inferences that may be drawn from the
evidence in the light most favorable to the non-moving party. Manning v.
Quinn, 294 S.C. 383, 365 S.E.2d 24 (1988). An appellate court reviews the
granting of summary judgment under the same standard applied by the trial
court pursuant to Rule 56, SCRCP. Williams v. Chesterfield Lumber Co., 267
S.C. 607, 230 S.E.2d 447 (1976); Wells v. City of Lynchburg, 331 S.C. 296, 501
S.E.2d 746 (Ct. App. 1998).
DISCUSSION
p.355
BROCKBANK v. BEST CAPITAL CORP.
1. CREATION OF SECURITY INTEREST 3
A mobile home usually is classified as personal property. See City
of North Charleston v. Claxton, 315 S.C. 56, 431 S.E.2d 610 (Ct. App. 1993)
(finding that mobile homes were personal property because they had no
significant attachments to the property such as permanent foundations or
additions). A security interest in a mobile home is perfected by listing the
interest on the certificate of title. See S.C. Code Ann. § 36-9-302(3)(b) (Supp.
1999) and Note 1 of South Carolina Reporter's Notes; S.C. Code Ann. §§ 56-19-
210, 56-19-290(3), and 56-19-340 (1991 & Supp.1999). However, the "certificate
of title statutes only govern the issue of whether or not the security interest in
the collateral in question has been duly perfected. All other aspects of such
transactions are governed by the Article 9 rules." Note 1 of South Carolina
Reporter's Notes to S.C. Code Ann. § 36-9-302 (Supp. 1999).
Article 9 of the UCC applies to "any transaction (regardless of its
form) which is intended to create a security interest in personal property or
fixtures including goods, documents, instruments, general intangibles, chattel
paper, or accounts." S.C. Code Ann. § 36-9-102(1)(a) (Supp. 1999). The
"fundamental objective of Article 9 of the Uniform Code [is to] provid[e] uniform
and simplified rules governing chattel security which meet modern commercial
needs .... Article 9 rejects any distinction based on form or designation of the
device employed." In re Berry, 189 B.R. 82, 86 (Bankr. D.S.C. 1995) (quoting
S.C. Code Ann. Title 36, Commercial Code, Background and Introduction, p.14)
(internal quotes omitted).
No magic words or precise form are necessary to create a security
interest so long as the minimum formal requirements regarding perfection,
attachment and enforceability are met. In re CFLC, Inc., 166 F.3d 1012, 1016
(9th Cir. 1999) (citing In re Amex-Protein Dev. Corp,, 504 F.2d 1056, 1058-59
(9th Cir. 1974)); accord United Virginia Bank/Seaboard Natl. v. B.F. Saul Real
Estate Inv. Trust, 641 F.2d 185, 189 (4th Cir. 1981); Mitchell v. Shepherd Mall
3 We did not grant certiorari on this issue because the Court of Appeals
correctly decided in its unpublished opinion that Agreement created a security
interest in the mobile home. Nevertheless, we find it necessary to explain the
nature of this secured transaction because the notice provision of Article 9 would
not apply in the absence of a security interest.
p.356
BROCKBANK v. BEST CAPITAL CORP.
State Bank, 458 F.2d 700, 703 (10th Cir. 1972). "The court must find both
language in a written agreement that objectively indicates the parties' intent to
create a security interest and the presence of a subjective intent by the parties
to create a security interest." In re CFLC, 166 F.3d at 1016.
The UCC defines a "security interest" as "an interest in personal
property or fixtures which secures payment or performance of an obligation. The
retention or reservation of title by a seller of goods notwithstanding shipment
or delivery to the buyer . . . is limited in effect to a reservation of a security
interest." S.C. Code Ann. §36-1-201(37) (Supp. 1999); accord S.C. Code Ann. §
36-2-401(1) (1976). Furthermore, Article 9 explicitly "applies to security
interests created by contract including . . . [a] conditional sale." S.C. Code Ann.
§ 36-9-102(2) (Supp. 1999); see also S.C. Code Ann. § 36-9-107 (Supp. 1999)
(defining purchase money security interest, which reporter noted is the rough
equivalent of a conditional sales device).
The Court of Appeals correctly concluded that the Agreement in this
case is a conditional sales contract. The Agreement expressly provides for title
to remain in the seller until payment of the purchase price. Because such a
contract "actually is a security device, the interest in the parties are governed
by Article 9 from the time the buyer takes possession ...." Reporter's Comments
to S.C. Code Ann. § Section 36-2-401; see also Black's Law Dictionary 295 (1990)
(defining conditional sales contract).
The Agreement required that Debtor surrender the mobile home to
Creditor in the event of default, that Debtor name Creditor as the loss payee in
the fire insurance policy, that Debtor could not assign his rights in the home
without Creditor's prior written permission, that Debtor could not move the
home until repaying the loan in full, that Debtor maintain the home, and that
Creditor could inspect it at any reasonable time. These provisions indicate, both
objectively and subjectively, the parties' intent to create a security interest in the
mobile home.
2. NECESSITY OF REMAND
The trial judge ruled that even if the Agreement created a security
interest, thereby triggering Article 9, Debtor was divested of the Article 9 rights
and remedies when he purportedly abandoned the home.
p.357
BROCKBANK v. BEST CAPITAL CORP.
We agree with the parties that the issue of whether Debtor's alleged
abandonment of the home divested him of his Article 9 rights was raised to and
ruled on by the trial judge. The Court of Appeals erred in remanding the case
for lower court to decide the issue. See Hudson v. Hudson, 290 S.C. 215, 349
S.E.2d 341 (1986) (remand is unnecessary where trial court properly found it
had jurisdiction and already had ruled on post-trial motions). Consequently, we
directed the parties to brief the final issue.
3. NECESSITY OF NOTICE AFTER DEBTOR'S DEPARTURE
As just explained, the trial judge ruled that even if the Agreement
created a security interest, thereby triggering Article 9, Debtor was divested of
the Article 9 rights and remedies when he "abandoned" the mobile home. The
judge further ruled that the sale of the home was a consequence of Debtor's
"abandonment" of the home, and was not pursuant to Debtor's default.
It is undisputed that Creditor, after taking possession of the mobile
home, did not notify Debtor or his estranged wife before selling the home to
another person. Creditor, however, contends the home was not sold pursuant
to Debtor's default because Creditor never exercised its option under the
Agreement to declare Debtor to be in default. Article 9's default and damage
provision's were not triggered because the home "was abandoned by Debtor to
Mrs. Brockbank, and Mrs. Brockbank voluntarily turned the home over to
[Creditor]." Creditor further asserts notice is not required because Debtor had
no equitable financial interest (equity) in the home. We disagree.
Article 9 provides that
[w]hen a debtor is in default under a security
agreement, a secured party has the rights and remedies
provided in this part and except as limited by
subsection (3) those provided in the security agreement.
He may reduce his claim to judgment, foreclosure or
otherwise enforce the security interest by any available
judicial procedure.
S.C. Code Ann. § 36-9-501(1) (Supp. 1999). A secured party "has on default the
right to take possession of the collateral," either by judicial action or without
judicial process if it can be done without breaching the peace. S.C. Code Ann.
p.358
BROCKBANK v. BEST CAPITAL CORP.
§ 36-9-503 (Supp. 1999). A secured party "may sell, lease, or otherwise dispose
of any or all of the collateral in its then condition or following any commercially
reasonable preparation or processing." S.C. Code Ann. § 36-9-504(1) (Supp.
1999).
These provisions make no distinction between abandonment and
default. They make no distinction between whether the creditor acquired
possession of the collateral before or after default, or by the debtor's voluntary
return of the collateral, or by a declaration of default and repossession, or by
abandonment, or otherwise. Similarly, the provisions make no distinction
between situations in which a debtor has equity in the collateral and when he
or she does not.
The UCC does not define "default." In a typical secured transaction
such as this one, "default" is a state of being as defined under the terms of the
parties' agreement. Debtor, in failing to make the payments when due, was in
default under the plain terms of the Agreement. Creditor at that point could
exercise the rights and remedies available to it under Article 9, absent a
contrary provision in the parties' agreement. It was not necessary for Creditor
to expressly "declare" Debtor to be in default in order to bring the Article 9 rights
and remedies into play. See McGrady v. Nissan Motor Acceptance Corp., 40 F.
Supp. 2d 1323,1331(M.D. Ala. 1998) (plaintiff was in default on automobile loan
where plaintiff had failed to make monthly payment and contract stated that a
default occurs when a party fails to make payment when due); Chrysler Credit
Corp. v. B.J.M., Jr., Inc., 834 F. Supp. 813, 831-32 (E.D. Pa. 1993) (noting that
UCC is silent on what constitutes default; generally speaking, upon default of
the debtor, Article 9 allows the secured party who acts in good faith to obtain a
judgment on the debt, repossess and sell the collateral, or repossess and retain
the collateral in satisfaction of the debt). We decline to interpret Article 9 in a
manner that would allow a creditor to sidestep the applicability of the notice
provision by asserting it has the unilateral power to declare a state of default.
In exercising its rights, Creditor was required to scrupulously
adhere to procedures contained in Article 9. See, e.g., C.F. Garcia Enterprises
v. Enterprise Ford Tractor, 480 S.E.2d 497, 500 (Va. 1997) ("when a default
occurs, a secured creditor is required to comply with Article 9 of the UCC in
taking possession and selling the secured property"); Comer v. Green Tree
Acceptance, Inc., 858 P.2d 560, 563 (Wyo. 1993) ("[u]nder the UCC, default does
not divest a debtor of all right and interest in the secured property, nor is the
p.359
BROCKBANK v. BEST CAPITAL CORP.
secured party, the creditor, vested with the unlimited power to deal with the
property as it wishes").
South Carolina Code Ann. § 36-9-504(3) (Supp. 1999) provides, in
pertinent part:
Sale or other disposition may be as a unit or in parcels
and at any time and place and on any terms but every
aspect of the disposition including the method, manner,
time, place, and terms must be commercially
reasonable. Unless collateral is perishable or threatens
to decline speedily in value or is of a type customarily
sold on a recognized market, reasonable notification of
the time and place of any public sale or reasonable
notification of the time after which any private sale or
other intended disposition is to be made must be sent
by the secured party to the debtor, if he has not signed
after default a statement renouncing or modifying his
right to notification of sale. (Emphasis added.)
The 1988 amendment to this subsection "makes it explicitly clear
that the right of a debtor to renounce or modify his right to notice can only be
made after, but not before, default." Note 1 of South Carolina Reporter's Notes
to section 36-9-504; Act No. 494, Part 5, 1988 S.C. Acts 4449. This Article 9
provision allows a debtor to waive his right to notice only by executing a written
statement after default which is signed by the debtor. It "has been strictly
construed to require a specific, knowing waiver of the right to notice, in writing
and actually bearing the signature of the debtor." All-Valley Acceptance Co. v.
Durfey, 800 S.W.2d 672, 674-75 (Tex. Ct. App. 1990).
We conclude the outcome in this case is largely dictated by Crane v.
Citicorp Nat'l Servs., Inc., 313 S.C. 70, 437 S.E.2d 50 (1993). In Crane, we held
that co-obligators or guarantors in an installment sales contract for a mobile
home are entitled to notice. "The purpose of the notice is to allow the debtor to
discharge the debt and redeem the collateral, produce another purchaser, or see
that the sale is conducted in a commercially reasonable manner." Id. at 73, 43 7
S.E.2d at 52. Accord SMS Fin., Ltd. Liability Co. v.ABCO Homes, Inc., 167 F.3d
235, 242 (5th Cir. 1999); Friendly Fin. Corp. v. Bovee, 702 A.2d 1225,1227 (Del.
1997); Thong v. My River Home Harbour, Inc., 3 S.W.3d 373, 377 (Mo. Ct. App.
p.360
BROCKBANK v. BEST CAPITAL CORP.
1999); Bank One, Texas, N.A. v. Stewart, 967 S.W.2d 419, 450 (Tex. Ct. App.
1998); James J. White & Robert S. Summers, Uniform Commercial Code, § 34-13
(1995).
Even if we assume, without deciding, that Debtor abandoned the
mobile home, notice is still required. Abandonment or voluntary surrender of
the collateral by the debtor to the creditor does not waive the debtor's right to
notice of resale of the collateral, and the statutory notice provision may not be
waived or varied except in writing after default. Executive Fin. Servs.. Inc. v.
Garrison, 722 F.2d 417, 419-20 (8th Cir. 1983) (applying Missouri statute);
Gavin v Washington Post Employees Federal Credit Union, 397 A.2d 968, 971
72 (D.C. 1979); Rock Rapids State Bank v. Gray, 366 N.W.2d 570, 574 (Iowa
1985); Citizens State Bank v. Sparks, 276 N.W.2d 661, 663-64 (Neb. 1979);
Lindberg v. Williston Indus. Supply Co., 411 N.W.2d 368, 373-74 (N.D. 1987);
Western Nat'l Bank of Casper v. Harrison, 577 P.2d 635, 638 (Wyo. 1978); RWR,
Inc. v. DFT Trucking,Inc., 899 S.W.2d 875, 878 (Mo. Ct. App. 1995); All-Valley
Acceptance Co., 800 S.W.2d at 674-75.
If a secured party fails to give the required notice, a debtor may seek
to recover the statutory penalty under Article 9. 4 "[T]he statutory penalty is
evidence of the legislature's recognition that the small amount of compensatory
damages that may be proven in a consumer goods repossession and sale would
be insufficient to ensure creditor compliance with the Code's provisions." Crane,
4 South Carolina Code Ann. § 36-9-507(1) (Supp. 1999) provides:
If it is established that the secured party is not proceeding in
accordance with the provisions of this part disposition may be
ordered or restrained on appropriate terms and conditions. If the
disposition has occurred the debtor or any person entitled to
notification or whose security interest has been made known to the
secured party prior to the disposition has a right to recover from the
secured party any loss caused by a failure to comply with the
provisions of this part. If the collateral is consumer goods, the
debtor has a right to recover in any event an amount not less than
the credit service charge plus ten percent of the principal amount of
the debt or the time price differential plus ten percent of the cash
price.
p.361
BROCKBANK v. BEST CAPITAL CORP.
313 S.C. at 74-75, 437 S.E.2d at 53.
In sum, we hold that Debtor was in default under the Agreement
when he failed to make the payments when due. Both parties at that point could
exercise the rights and remedies contained in Article 9, regardless of whether
Creditor expressly had declared Debtor to be in default.
CONCLUSION
We affirm as modified the opinion of the Court of Appeals and hold
that (1) the parties created a security interest in the mobile home under Article
9; (2) remand for consideration of the abandonment issue was not necessary
because the trial judge already had ruled on it; and (3) a creditor must give a
debtor the notice required by Article 9 even when the creditor believes the debtor
has abandoned or voluntarily surrendered the collateral. In light of the
undisputed fact that Creditor failed to give the required notice to Debtor, the
trial judge erred in denying Debtor's motion for partial summary judgment on
liability in the Article 9 cause of action. We remand this case to the circuit court
for a determination of the statutory damages and for further proceedings
regarding Debtor's remaining causes of action.
AFFIRMED AS MODIFIED.
TOAL, C.J., MOORE, BURNETT, and PLEICONES, JJ., concur.
p.362