ASSOCIATES FINANCIAL SERVICES CORPORATION
v.
Earl WELBORN, t/a Hillside Poultry Farm.
No. 442.
Supreme Court of North Carolina.
March 1, 1967.*8 Fairley, Hamrick, Hamilton & Monteith, by Laurence A. Cobb, Charlotte, for plaintiff.
McElwee & Hall, North Wilkesboro, for defendant.
SHARP, Justice:
In order to recover a deficiency judgment under a conditional sales contract as authorized by G.S. § 45-21.38, plaintiff must allege and prove facts showing (1) that defendant executed and delivered to him or his assignor the contract upon which he sues; (2) that defendant is in default under the terms of the contract; (3) lawful repossession and sale of the *9 property or facts establishing the impossibility of such repossession and sale; (4) the application of the proceeds of the sale; and (5) the amount of the deficiency.
In assaying a demurrer, the rule is that the pleader must be given "every reasonable intendment in his favor" and that a complaint will be upheld "unless the pleading is wholly insufficient or fatally defective." 3 Strong, N.C. Index, Pleadings § 12 (1960). Thus assessed, plaintiff's allegations that it repossessed the equipment under the terms of the conditional sales contract, and at defendant's request, coupled with the allegation that defendant owes a balance of $3,562.49 under the contract, justify an inference that defendant had defaulted in his payments at the time plaintiff repossessed the property, or that there had been an anticipatory breach of contract by defendant. Defendant contends, notwithstanding, that plaintiff has failed to allege that it advertised and sold the repossessed equipment as provided by G.S. § 45-21.16 et seq.; that, on the contrary, Exhibit B shows that plaintiff took possession of the property, treated it as its own, assigned an arbitrary value to it, and credited defendant with that amount. Upon this premise defendant argues that this case is controlled by Farmers Cooperative Exchange, Inc. v. Holder, 263 N.C. 494, 139 S.E.2d 726, and that the court's order sustaining the demurrer and dismissing the action should be upheld.
In Farmers Cooperative Exchange, Inc. v. Holder, supra, defendant voluntarily released to the plaintiff the tractor upon which he had executed a conditional sales agreement to secure the balance of the purchase price. In the event of a default, the contract authorized the plaintiff to sell the tractor only at public auction. The plaintiff, after repossessing it, kept and used the tractor as its own for nearly a year before selling it at a private sale. Thereafter, it sued for a deficiency judgment. The trial court nonsuited the case and, upon appeal, this Court affirmed its judgment under the rule that where the mortgagee "assumes to deal with the estate as absolute owner, and conveys it to another, it proves a merger." Id. at 496, 139 S.E.2d 728.
The allegations in the complaint in suit, standing alone, are not sufficient to establish that plaintiff dealt with the equipment as its absolute owner. Exhibit B, a statement of its account against defendant as of March 22, 1965, is not prima facie an admission that plaintiff had exercised absolute ownership over the property. On the contrary, it seems to indicate that at the time of repossession, for bookkeeping purposes, plaintiff gave the property a value of $5,000.00, a figure to be adjusted up or down when the property was finally sold. Exhibit B shows two such "adjusting entries" upon resales of the property. Presumably these sales were private sales; there is no suggestion that they were public. The conditional sales contract, however, authorized plaintiff to sell the equipment at either public or private sale upon defendant's default.
The Uniform Commercial Code, which becomes effective in this State on July 1, 1967, specifically authorizes the disposition of collateral by either public or private proceedings. G.S. § 25-9-504. As defendant points out, Article 2A, Chapter 45 of the General Statutes, which governs the sale in suit, makes no mention of a private sale of property under a conditional sales contract. Neither, however, does it declare void the parties' stipulation that upon the debtor-vendee's default, the creditor-vendor may sell the property at private sale. "In the absence of any statute to the contrary, a power of sale in a chattel mortgage may provide for either a private or public sale of the mortgaged chattel. * * *" 15 Am.Jur.2d, Chattel Mortgages § 219 (1964). A chattel mortgagee or his assignee authorized to sell at a private sale may not sell at any price he pleases. He must act promptly, in good faith, and use every reasonable means *10 to obtain the full value of the property. If he fails to do so, the mortgagor is entitled to credit for the deficiency. Id. § 223. "Of course, where the mortgage so stipulates, the sale must be a public one, unless the mortgagor subsequently waives the requirement. On the other hand, unless such agreement is violative of statute or public policy, or is fraudulent as to third persons, where authorized by the mortgagor, the property may be sold at private sale * * *." 14 C.J.S. Chattel Mortgages § 376 (1939). Accord, McInerney & Conway Finance Corporation v. Smith, 42 Wyo. 380, 295 P. 273, 73 A.L.R. 851; Harbour-Longmire Co. v. Reid, 124 Okl. 77, 254 P. 29; Campbell v. Eastern Seed & Grain Co., 109 S.W.2d 997 (Tex.Civ. App., 1937); Crocker v. Associate Investment Co., 56 Ohio App. 136, 10 N.E.2d 153; Ashley & Rumelin v. Lance, 88 Or. 109, 171 P. 561; Reynolds v. Thomas, 28 Kan. 810. See Annot., Conditional SaleResale, 49 A.L.R. 2d 15 at 54 (1956).
A stipulation in a conditional sales agreement that, upon the vendee's default, the holder may sell the property described therein at private sale violates no statute or public policy of this State. The statement in the North Carolina Comment to the Uniform Commercial Code appended to G.S. § 25-9-504 (Vol. 1D of the General Statutes of North Carolina at page 591) that "[u]nder prior law * * * a public sale had to be held," is not correct, and the authorities cited do not sustain this assertion.
After applying our rules of construction, we are constrained to hold that plaintiff has stated a cause of action for a deficiency judgment which withstands defendant's demurrer. Concededly, plaintiff has made a minimal statement, and we note that Exhibit B omits the date of the sales referred to therein. Defendant's present remedy, however, is a motion under G.S. § 1-153 that plaintiff be required to make its complaint more definite and certain, or under G.S. § 1-150 for a bill of particulars.
When the facts are all disclosed, by pleadings or evidence, they may defeat plaintiff's action, but plaintiff has not yet alleged or proved itself "out of court." The judgment of the court below is
Reversed.