582 P.2d
364 (Nev. 1978)
PER
CURIAM:
This is an appeal from a judgment of
$10,082.04, entered after a jury verdict awarding respondent Huff compensatory
and punitive damages for Nevada National Bank's (NNB) wrongful repossession of
his truck. NNB alleges four errors: 1)
that the jury erred in concluding that the repossession was wrongful; 2) that
there was insufficient evidence before the district court upon which to base an
instruction to the jury on the issue of punitive damages; 3) that Huff was
required specifically to plead waiver; and 4) that the district court erred in
excluding certain testimony by Huff's former counsel. We affirm.
On January 22, 1973, Huff entered into a
"lease" arrangement with NNB with respect to a 1973 GMC pick-up
truck. Monthly payments were set at
$122.14 for a period of 36 months. Huff was to insure the vehicle.
In the three years prior to this transaction,
Huff had engaged in two other commercial contracts with NNB: one, the
installment purchase of his mobile home, and two, another "lease"
arrangement concerning another truck.
Both transactions had proved Huff to be a less-than-ideal debtor: he had
paid late on a regular basis, often running several months in arrears, and his
insurance had been cancelled on at least three occasions. Upon receipt of each of the notifications of
cancellation, NNB had contacted both Huff and the insurer to arrange for
reinstatement. On two occasions, the
Bank had exercised the option reserved to itself under the contract and
purchased insurance itself, adding the costs to Huff's monthly payments. Huff was apparently well-known in the
collection department as one to be consistently behind in his payments.
Against this course-of-dealing background,
Huff and NNB entered into the January 1973 pick-up lease arrangement. As with the two prior contracts, NNB was
contractually entitled to declare the lease in default upon any late payment or
upon any interruption in insurance coverage.
Upon default, NNB was entitled to repossess the vehicle. However, as with the two prior contracts,
the Bank took no such action, even though Huff incurred late charges every
single month from the inception of the lease, twice ran two months behind
schedule, once ran three months behind schedule, and had his insurance cancelled for a period of ten months.
Rather, NNB simply attempted to nurse the
transaction along. Pursuant to official
bank policy, monthly notices of delinquent payments were sent to Huff, and bank
employees often telephoned or visited Huff at his home with requests for
payment. After such a telephone call or
visit, Huff would usually make payment as requested. In January 1975, when he had fallen three payments behind
schedule, Huff responded to a visit at his home by making three monthly
payments in a two-week period. Also
pursuant to official NNB policy, bank employees responded to receipt of
notification of cancellation of Huff's insurance on the truck with a written inquiry
to the insurer to ascertain whether the policy had been reinstated. After receipt of such a notification of
cancellation in July 1974, such an inquiry was made. However, even though no notice of reinstatement was received for
a period of ten months, the Bank took no steps toward repossession of the
vehicle.
In March 1975, collections agent Fitzgerald
became aware that the truck had been uninsured for ten months. Checking further, he found that Huff was
fifteen days late on his March payment.
Although not authorized to do so by any officer of the Bank, Fitzgerald
and another employee went to Huff's property and repossessed the truck. However they were quickly apprehended by
Huff who forcibly removed Fitzgerald from the truck, threatened both men with
bodily harm, and drove off with his vehicle.
Payment of the delinquent March installment
was made the following day and insurance on the vehicle was reinstated soon
after. This incident apparently
engendered some hostility toward Huff in the Collections Department of NNB.
Huff was late with his payments every month
after March 1975. In June 1975, he fell
two months behind, but made a double payment which brought him current through
July 1. On July 17, when he was
technically one payment behind again, Huff made another double payment, bringing
him current through September 1. Huff
made this last payment in an attempt to get ahead of schedule so that he could
take an extended vacation. He
apparently thought, erroneously, that the July 17 double payment would bring
him current through October 1, 1975.
On October 15, 1975, Huff's insurer notified
him that the insurance on the truck was about to be cancelled. On this same date, the insurer mailed
official notification of the impending cancellation to NNB as "owner"
of the vehicle. This notice stated that
coverage would expire ten days after receipt of the notice by the
"owner." This notice was
received by NNB on October 21, thus informing them that the insurance would
expire on October 31, ten days later.
On October 16, Huff personally visited the
insurer's Reno office, where he paid his past-due premium and averted the
impending cancellation of his insurance coverage. After payment, he requested the insurance agent to telephone NNB
informing them of the reinstatement. It
is not clear whether this call was actually
made, however a written notice of reinstatement was mailed to NNB from the
insurer's San Francisco office on November 3.
On October 21, five days after Huff had
forestalled cancellation of the insurance policy, NNB Assistant Branch Manager
Sharp received the cancellation notice sent on October 15 by the insurer,
informing NNB that coverage would lapse on October 31. Disregarding both the official bank policies
described above and the Bank's entire course of dealing with Huff, Sharp 1) did
not telephone or otherwise contact either Huff or the insurer to ascertain
whether the past-due premiums had been paid and cancellation averted (it had);
2) did not telephone or otherwise contact Huff regarding his arrearages on his
monthly payments, and 3) did not inform Huff that strict compliance with the
terms of the lease agreement would henceforth be required to avert
repossession. Rather, Sharp and another
NNB employee went on Huff's property at 1 a. m. on Saturday, October 25, and
repossessed the truck.
Because of the cold weather during the
night-time hours, Huff had equipped the truck with an electric heater,
connected to his near-by house trailer by an electrical cord, in order to keep
the water pipes in the truck and its camper from freezing. As Sharp and his companion drove away, this
electrical cord snapped, disconnecting the heater. The truck was then driven to the Washoe County Sheriff's Department
where, leaving the truck parked on a downtown street, both men entered the
building to report the repossession. Although
both knew the camper on the back of the truck to be unlocked, neither remained
to guard it. They then drove the truck
to a storage yard where again no precautions were taken to secure the camper. Further, no inventory was taken of the
camper. When Huff was allowed to
inspect the truck some five days later, four hunting rifles valued at $900, a
walkie-talkie radio, and a fishing tackle box were missing from the camper. When Huff finally regained possession of the
truck, it was discovered that all water pipes in the camper and truck had
frozen and burst. Further, the back
door of the camper unit had been "jimmied" open, and the rear end of
the truck had been damaged in a minor collision.
1. Did the Jury Err in Finding that the
Repossession was Wrongful?
In discussing
the propriety of NNB's conduct in this case, both parties have centered their
arguments exclusively around a collection of cases dealing with installment
purchases under Article 9 of the Uniform Commercial Code (NRS
104.901-9507). If it were in fact
necessary in this case to positively characterize the commercial agreement
between Huff and NNB as either a traditional lease or a security interest, it seems
clear that its characteristics as the latter would far outnumber any it
possessed as the former. [Footnote
omitted.] [Citations omitted.] However
we need not definitively characterize the commercial agreement in this case,
since we conclude that UCC-based statute and case law should govern this
commercial arrangement by analogy, to the extent it is not so governed
outright. In the recent case of Hiles
Co. v. Johnston Pump Co., 93 Nev. 73, 560 P.2d 154 (1977) we held that under
appropriate circumstances, the provisions of the Uniform Commercial Code (NRS
Chapter 104) would extend by analogy to lease transactions not technically
within the Code's scope. When, as here,
a lease arrangement "serve(s) a commercial function closely analogous to
such other common financing methods as conditional sales and chattel
mortgages," [citation omitted], we think the various parties involved
should become subject to both the duties imposed and the protections accorded
under the Uniform Commercial Code and its interpretive case law. [Citation omitted.]
Clearly
there is nothing unconscionable in a contract clause authorizing the
repossession of a chattel upon default. [Citation omitted.] Indeed, Article
9-503 of the UCC specifically authorizes such self-help remedies upon the
condition that they be carried out without breach of the peace. NRS 104.9503.
Further, an established course of dealing under which the debtor (lessee) makes
continual late payments and the secured party (lessor) accepts them does not
result in a waiver of the secured's party's right to rely upon a clause in the
agreement authorizing him to declare a default and repossess the chattel.
[Citations omitted.]
However, it is
clear that even though no outright waiver of a secured party's right to rely
upon such a clause occurs through a course of dealing involving the acceptance
of late payments, a secured party who has not insisted upon strict compliance
in the past, who has accepted late payments as a matter of course, Must, before
he may validly rely upon such a clause to declare a default and effect
repossession, Give notice to the debtor (lessee) that strict compliance with the terms of the contract will
be demanded henceforth if repossession is to be avoided. [Citations omitted.]
Assessing
NNB's conduct in this case, it must be noted as the outset that Huff
effectively forestalled any lapse in the insurance coverage on the truck, thus
precluding any declaration of default for this reason. Thus, the only ground upon which the Bank
could have declared a default under the contract was Huff's one and one-half
month arrearage in his payments: on October 21, Huff had paid only through
September 1, instead of through November 1 as required under the contract. This delinquency clearly would constitute
valid grounds for the declaration of a default under the contract. [Footnote
omitted.
However, analysis of the course of dealing
between Huff and NNB, both with respect to the specific transaction in question
and with respect to the two similar transactions during the same time period,
reveals that it was a common occurrence for Huff to be behind in his monthly
payments. In fact, Huff had been late
with every single payment under the truck lease. Further, he had been two payments behind on two occasions, and
three payments behind on one occasion. In spite of these delinquencies, NNB had never declared a default
or invoked its right to repossess. (The
March 1975 repossession attempt was based primarily upon Huff's failure to
insure the vehicle: at that time *514 he was only 15 days delinquent on
his March payment.) Rather, written and oral demands for payment had always
been made upon him, and payment had always quickly followed.
This course of conduct established between
Huff and NNB imposed upon NNB the duty, before it could properly rely upon the
default and repossession clauses in the lease agreement, to give notice to Huff
that strict compliance with the terms of the long-ignored contract would
henceforth be required in order to avert repossession of the vehicle. Upon NNB's failure to give such notice, the
jury could properly have concluded that NNB's repossession of the truck was
wrongful.
2.
Was the Jury Properly Instructed on Punitive Damages?
NNB next argues that even if the repossession
was improper, the record is devoid of evidence upon which the district court
could have based its instruction to the jury on punitive damages under NRS
42.010. This section reads, in
pertinent part:
"Cases in which exemplary, punitive damages may be
awarded. In an action for the breach of
an obligation not arising from contract, where the defendant has been guilty of
oppression, fraud or malice, express or implied, the plaintiff, in addition to
the actual damages, may recover damages for the sake of example and by way of
punishing the defendant."
In Caple v. Raynel Campers, Inc., 90 Nev.
341, 526 P.2d 334 (1974), we stated that "(t)he malice contemplated by NRS
42.010 is malice in fact . . . (which)
must be established by the evidence if it is the ground relied upon to support
an award of punitive damages. Malice in
fact sufficient to support an award of damages may be established by a showing
that the wrongful conduct was willful, intentional and done in reckless
disregard of its possible results." [Citation omitted.]
In Caple we approved the award of punitive
damages in a wrongful repossession case in which the buyer was not in default
or even alleged to be so by the creditor.
In that case, the repossessor acknowledged that its actions had been
completely in error; nonetheless the vehicle had never been returned to the debtor. In Nevada Credit Rating Bur. v. Williams, 88
Nev. 601, 503 P.2d 9 (1972), we approved an award of punitive damages following a
grossly excessive attachment of goods to satisfy an unrelated debt. In Ford Motor Credit Company v. Waters,
supra, a wrongful repossession involving a creditor's disregard without notice
of a pre-established course of conduct in accepting late payments was held to
support the award of punitive damages, when the repossessor's agent failed to
take proper precautions to insure the safety of personal property found in the
repossessed vehicle, and had disregarded established company policies with
respect to such property.
Analysis of the Bank's conduct in this case
reveals that there was ample evidence presented at trial of malice in fact,
upon which the district court could validly have based its instruction on
punitive damages. The repossession was based in large part upon the notice of
impending cancellation of insurance coverage received by Sharp on October
21. However, Sharp admitted at the
trial that, in complete violation of established bank policy, he took no steps
to ascertain whether the cancellation had been averted, which it in fact had
been five days before he received the notice. Sharp's repossession of the
vehicle in these circumstances could properly have been characterized by the
jury to be "wrongful conduct (that) was willful, intentional and done in
reckless disregard of its possible results." [Citation omitted.] As in Ford
Motor Credit Company v. Waters, supra, no care was taken to protect the
personal property found in the vehicle after repossession: the electrical cord
connecting the heater to an electrical socket in Huff's mobile home was ripped
out; the camper was left unlocked in downtown Reno at 2 a. m. on a Saturday;
the camper was left unlocked at the tow yard; no precautions were taken to
insure that the vehicle was protected against freezing. [FN 3]
Finally, the Bank's failure to protect Huff's personal property and the
property of others in the camper at the time of the repossession resulted in
the theft of valuable property and substantial freezing damage to the truck and
camper. Upon these facts, we find that
the trial court had sufficient evidence before it upon which to base an
instruction to the jury under NRS 42.010.
FN 3.
The "Repossession Report" filled out by Sharp and his fellow NNB
employee contains a blank to be checked by the repossessors reading:
"Antifreeze checked?" This
question was answered with a check in the box labeled "no."
3. Was Huff Required Specifically to Plead
Waiver?
NNB cites the
general rule that waiver or estoppel must be specifically pleaded. However, as stated by the court in [case
name omitted], in an identical context, " waiver is not the issue before us. The issue is the right of the buyer to rely
upon the prior dealings that had taken place and the buyer's right to be
notified of a modification of such conduct on the part of the (creditor)." [Citation omitted.]
4. The Testimony of Huff's Former Counsel.
Early on
in the course of the trial, Huff called Attorney Albright as a plaintiff's
witness, in order to have Albright verify the damage that had been done to the
door of the camper and the rear end of the truck. Albright had represented Huff
at the time of the repossession and the initial inspection of the vehicle, but
had ceased to do so by the time of the trial. NNB then sought on
cross-examination to question Albright as to the reasons for the termination of
his attorney-client relationship with Huff.
Upon objection, the Bank made an offer of proof to the effect that the
proposed testimony would show that Albright withdrew from the case because of
his difficulty in getting in touch with Huff.
This, according to the Bank, was relevant to "a course of conduct
by Mr. Huff that he simply does not communicate with people he doesn't want to
communicate with."
The trial court, relying on NRS 48.035,
[footnote omitted] found that the marginal relevance of this evidence was
substantially outweighed by the danger that the testimony of Huff's former
attorney as to the facts concerning the breakdown of the relationship could
cause "confusion . . . and
potential prejudice," and could inject
collateral issues which would divert the jury from the real issues in the
case. In light of the extremely
marginal relevance of this evidence, this conclusion was correct.
Affirmed.