ZORIN PROPERTIES, LLC APPELLANT v. DAVID DENNEY APPELLEE
NOT TO BE PUBLISHED
Appellant Zorin Properties, LLC appeals from the Clinton Circuit Court's entry of summary judgment in favor of Appellee David Denney. Zorin filed suit against Denney seeking to recover damages on a variety of claims – including fraud, deceit, and unlawful conversion – in connection with Denney's “self-help” repossession of certain property established as collateral in a security agreement between the parties. At issue is whether a letter from Denney to Zorin Properties indicating that Denney would repossess the property after February 18, 2008 constituted a waiver of his statutory and contractual right to take possession without notice and thereby rendered wrongful his taking of possession on February 13, 2008 without additional notice. The circuit court determined that it did not and granted Denney's motion for summary judgment. We agree and, therefore, affirm.
Facts and Procedural History
Denney owned a Dairy Queen restaurant in Albany, Kentucky and agreed to sell the restaurant to Zorin Properties for $752,000.00. Zorin Properties paid Denney $713,520.00 at the time of sale and gave Denney a promissory note for the remaining $38,480.00 plus interest. The note was due and payable in full on or before December 1, 2007, and provided that Zorin Properties would be considered in default if it “fail[ed] to make a payment of interest and/or principal when due under the terms of this Note.”
Of particular importance here, the note also provided, in a section entitled “Default Remedies,” that “[i]f an event of default exists, the outstanding unpaid principal balance of this Note is immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by [Zorin Properties].” In another section entitled, “Miscellaneous,” the note further provided:
No notice to or demand on the Maker in any case shall entitle the Maker to any other or further Notice or demand in the same, similar or other circumstances. Neither failure nor delay on the part of the holder in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of the same or the exercise of any other right, power or privilege. The Maker hereby waives presentment, demand, notice, protest, and all other demands and notices in connection with the delivery, acceptance, performance, default, or enforcement of this Note.
Thus, Zorin Properties explicitly waived any right to notice in the event of default or in connection with the enforcement of the note.
To secure the promissory note, the parties executed a “Loan and Security Agreement” giving Denney a security interest in various items of equipment, furnishings, and fixtures contained within the Dairy Queen, including refrigerators, deep fryers, freezers, and a computer. As to the remedies available to Denney in the event of default by Zorin Properties, Section 10.1.1 of the security agreement provided, in relevant part:
Secured Party may exercise such rights and remedies as are provided by the Uniform Commercial Code, including without limitation the right to enter any premises where any of the Collateral is located and take possession of the same and to sell all or any portion of the Collateral at public or private sale, after 10 days prior written notice, at such place or places and at such time or times and in such manner and upon such terms, whether for cash or on credit, as Secured Party in its sole discretion may determine.
Read together, then, these provisions gave Denney a right to repossess the subject collateral in the event of default without providing Zorin Properties with prior notice. The parties do not dispute this point.
On November 19, 2007, Denney gave Zorin Properties a 35–day extension to pay the loan in full after being advised by Ken Eversole, one of Zorin's owners, that the company would be unable to meet its obligation until the first week of January 2008. In an email to Eversole, Denney indicated that “[a] check for $41,654.83 Double will be expected by January 4, 2008.” According to Denney, this was the only extension provided to Zorin Properties. Double Despite the extension, Zorin was unable to pay the remaining balance of the note by the new deadline. Double Zorin does not dispute that it was in default at this point.
Consequently, on January 24, 2008, Denney sent the following letter to Christy Eversole, president of Zorin Properties, advising her of his intention to take possession of the subject collateral in light of Zorin's default:
Dear Ms. Eversole;
The Promissory Note dated March 26, 2007 that matured December 1, 2007 is now seriously past due. I will exercise my rights Monday afternoon on February 11, 2008 as set forth in the default remedies in Section 10.1.1 of the Loan & Security Agreement. I expect you will abide by these terms and also Section 10.1.2. Double I will begin removing the collateral, secured by the Loan and Security Agreement, UCC file # 2007–2238597–15, from the Dairy Queen premises at 2 PM.
Please notify your management team and have all food removed from the refrigerators and freezers. Please flush the ice cream machines. I will have my own Freon recovery units, so no need to evacuate the systems. The back office computer is an integral part of the cash register system which is secured, so be sure to copy your records.
This letter did not produce a response,Double so on February 4, 2008, Denney sent another letter to Eversole concerning Zorin Properties' default on the promissory note. This letter is the ultimate focus of this appeal and provides as follows:
Dear Ms. Eversole;
Attached is the Certified Letter that you never claimed. Consider this the ten day notification as set forth in the default remedies in Section 10.1.1 of the Loan & Security Agreement. I expect you will abide by these terms and also Section 10.1.2. I will begin removing the collateral, secured by the Loan and Security Agreement, UCC file # 2007–2238597–15, from the Dairy Queen premises after February 18, 2008.
I will leave the refrigerators and freezers for a couple days so you can have all food removed from the refrigerators and freezers. I will have my own Freon recovery units, so no need to evacuate the systems. The back office computer is an integral part of the cash register system which is secured, so be sure to copy your records daily starting the 18 th.
It should be noted that neither Kentucky's statutory version of the UCC (contained in KRS Chapter 355) nor the parties' promissory note or security agreement actually required notice to be given before self-help repossession of the collateral. Notice was only required to be given prior to a sale of the seized collateral – not the seizure itself. Again, this is not in dispute.
According to Denney, on February 13, 2008, he learned that both the store manager and the assistant store manager of the Dairy Queen planned to leave their employment. Denney believed that the Dairy Queen would be forced to close once this occurred and that he would consequently be unable to take possession of any of the collateral in the store. Because of this concern, Denney and his employees went to the Dairy Queen that same day and proceeded to remove a substantial amount of the restaurant equipment. The restaurant was forced to close because of the removal. It is undisputed that Denney did not give notice to Zorin Properties, the Eversoles, or any employee of Zorin Properties before entering the restaurant and removing the equipment.
On March 5, 2008, Zorin Properties filed a complaint against Denney Double alleging, among other claims, that Denney had wrongfully repossessed the equipment identified in the security agreement by means of fraud and deceit. Zorin specifically argued that Denney's actions were “in violation of his letter of February 4, 2008, advising that he would begin removing the collateral after February 18, 2008.” Denney denied Zorin's allegations and filed his own counterclaim seeking a judgment for the unpaid remainder of the promissory note plus interest and penalties.
Following discovery, both Denney and Zorin Properties moved for summary judgment. The focus of the motions was whether Denney's letter to Zorin Properties indicating that he would take possession of the secured property after February 18, 2008 constituted a waiver of his right to take possession without notice and thereby rendered wrongful his taking of possession on February 13, 2008 without additional notice. The circuit court granted Denney's motion for summary judgment after finding that Denney was not obligated either by statute or by the terms of the parties' promissory note or security agreement to give notice prior to repossession. The court then entered judgment in favor of Denney in the amount of $37,199.86 plus interest and any applicable penalties. The judgment also allowed Denney to sell any items seized in accordance with applicable law. This appeal followed.
On appeal, Zorin Properties again argues that Denney's letter indicating that he would take possession of the secured property after February 18, 2008 constituted a waiver of his right to take possession without notice and thereby rendered wrongful his taking of possession on February 13, 2008 without additional notice. Zorin Properties does not argue that summary judgment was improperly entered because of the existence of genuine issues of material fact. It instead contends that summary judgment should have been entered in its favor.
The standards for reviewing a trial court's entry of summary judgment are well-established and were concisely summarized by this Court in Lewis v. B & R Corp., 56 S.W.3d 432 (Ky.App.2001):
The standard of review on appeal when a trial court grants a motion for summary judgment is “whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law.” The trial court must view the evidence in the light most favorable to the nonmoving party, and summary judgment should be granted only if it appears impossible that the nonmoving party will be able to produce evidence at trial warranting a judgment in his favor. The moving party bears the initial burden of showing that no genuine issue of material fact exists, and then the burden shifts to the party opposing summary judgment to present “at least some affirmative evidence showing that there is a genuine issue of material fact for trial.”
Id. at 436 (Internal footnotes and citations omitted). Because summary judgments involve no fact finding, we review the trial court's decision de novo. 3D Enters. Contr. Corp. v. Louisville & Jefferson County Metro. Sewer Dist., 174 S.W.3d 440, 445 (Ky.2005); Blevins v. Moran, 12 S.W.3d 698, 700 (Ky.App.2000).
As noted above, it is undisputed that Zorin Properties was in default for nonpayment at the time of repossession. There is also no dispute that Denney had a perfected security interest in the Dairy Queen restaurant's equipment and fixtures. Consequently, Denney had a contractual and statutory right to repossess the subject collateral. KRS 355.9–609 clearly establishes that upon default of a debtor, a secured party has the right to repossess collateral without judicial process if the repossession can be carried out without a breach of the peace. See KRS 355.9–609(1) & (2). This is commonly referred to as “self-help” repossession.
The only question before us, then, is whether Denney had a duty to give Zorin Properties notice that he intended to repossess the collateral on February 13, 2008 – the parties' written agreements notwithstanding – in light of his letter indicating that he would not do so until after February 18, 2008. It is acknowledged that in the absence of this letter, Denney was under no obligation to give Zorin Properties notice prior to repossession given the terms of the parties' promissory note and security agreement. For example, the promissory note specifically provided that “[t]he Maker hereby waives presentment, demand, notice, protest, and all other demands and notices in connection with the delivery, acceptance, performance, default, or enforcement of this Note.” Moreover, Section 10.1.1 of the parties' security agreement allowed Denney to “exercise such rights and remedies as are provided by the Uniform Commercial Code, including without limitation the right to enter any premises where any of the Collateral is located and take possession of the same[.]”
However, Zorin Properties contends that Denney waived any right to repossess without notice by notifying Zorin that the collateral would not be seized until after February 18, 2008. Zorin Properties relies primarily upon the decision of the Georgia Court of Appeals in Pierce v. Leasing Int'l, Inc., 235 S.E.2d 752 (Ga.Ct.App.1977). In Pierce, the Georgia Court of Appeals held that although Georgia law “allow[s] self-help repossession, as long as it can be accomplished without a breach of the peace, and imposes no requirement of notice or demand, a creditor may impose such a requirement upon himself by pattern or course of conduct.” Id. at 754. The Court explained its reasoning as follows: “[I]f [the creditor] has given the debtor the reasonable impression that late payments will be accepted or that an arrearage need not be paid immediately, then the creditor may be estopped to engage in self-help repossession until he has given notice, demanded payment or otherwise indicated to the debtor that he is considered to be in default.” Id. Zorin Properties argues that this decision compels a judgment in its favor, but we are compelled to disagree.
We do not believe that the letter of February 4, 2008 can be reasonably viewed as granting Zorin Properties an additional extension of time to satisfy its delinquency or as waiving Denney's contractual right to take possession of the collateral without notice. First and foremost, Zorin Properties explicitly waived any right to notice by contractual agreement. The promissory note specifically provided that Zorin Properties “hereby waives presentment, demand, notice, protest, and all other demands and notices in connection with the delivery, acceptance, performance, default, or enforcement of this Note.” Moreover, Zorin Properties explicitly waived the right to additional notice even in instances where notice had previously been given by Denney, as reflected in the following language: “No notice to or demand on the Maker in any case shall entitle the Maker to any other or further Notice or demand in the same, similar or other circumstances.”
Furthermore, there is no evidence that could be construed as giving Zorin Properties the reasonable impression that late payments would be accepted or that its debt need not be paid immediately. Denney gave Zorin Properties a 35–day extension to pay the owed amount but made clear that “[a] check for $41,654.83 Double will be expected by January 4, 2008.” When payment was not forthcoming, Denney advised Zorin Properties via letter that the collateral would be removed and requested that the equipment be readied for removal. No further demand was made, and there was no indication that additional payments would be accepted. Given that much of the letter of February 4, 2008 is devoted to informing Zorin Properties of the manner in which the collateral would be removed and advising it to copy its records, we believe it can only be reasonably viewed as a courtesy. Consequently, the fact that Denney chose to carry out repossession on February 13, 2008 as opposed to February 18, 2008 is of no concern – particularly given that Zorin Properties has given no indication that it intended to satisfy the debt before Denney recovered the collateral.
We further note that Zorin Properties' argument that the “course of conduct” or “course of dealing” between the parties somehow modified their written agreements is not well-taken. Kentucky law clearly provides that “[i]n the event a course of dealing between the parties and the express terms of the agreement cannot be reasonably construed as consistent with each other, the express terms of the agreement control the course of dealing.” Catron v. Citizens Union Bank, 229 S.W.3d 54, 57 (Ky.App.2006); see also KRS 355.1–303(5)(a). Consequently, the terms of the promissory note and the security agreement are controlling. As noted, neither of these documents required notice prior to repossession. Indeed, they both – the promissory note, in particular – waive the right to such notice.
With this said, we also do not think it can be reasonably argued that the parties had a “course of dealing” that could be construed as creating inconsistencies with the promissory note or security agreement. Denney explicitly granted Zorin Properties one extension to satisfy its debt in writing and, when the debt was not paid, advised Zorin that the collateral would be seized. We further note that this is not an instance where Denney was dealing with a consumer who might be lacking in knowledge as to such matters. Ultimately, we do not feel compelled to extend the same degree of protection to a commercial transaction such as this one as we perhaps would to one involving a consumer. See K.B. Oil Co. v. Ford Motor Credit Co., Inc., 811 F.2d 310, 312–13 (6 th Cir.1987).
For the foregoing reasons, the judgment of the Clinton Circuit Court is affirmed.
LAMBERT, SPECIAL JUDGE: