IN THE FLORIDA SUPREME COURT GENERAL MOTORS ACCEPTANCE CORP., a Delaware corporation authorized to do business in Florida, Petitioner, CASE NO. SC06-1522 vs. CASE NO. 2D05-3583 HONEST AIR CONDITIONING & HEATING, INC., CORY BABCOCK, and WILLIAM STEVENSON, Respondents. / BRIEF ON JURISDICTION OF PETITIONER GENERAL MOTORS ACCEPTANCE CORP. On Review from the District Court of Appeal Second District, State of Florida KATHERINE E. GIDDINGS (949396) THOMAS A. RANGE (568651) AKERMAN SENTERFITT 106 East College Avenue, Suite 1200 Post Office Box 1877 Tallahassee, FL 32302-1877 Phone: (850) 425-1626 Fax: (850) 222-0103 Email: katherine.giddings@akerman.com Attorneys for GMAC
TABLE OF CONTENTS Page Table of Authorities... ii Statement of the Case and Facts... 1 Summary of the Argument... 3 Argument... 4 THE DISTRICT COURT S OPINION DIRECTLY CONFLICTS WITH THIS COURT'S OPINION IN CITIZENS NATIONAL BANK OF ORLANDO V. BORNSTEIN, WHICH HELD THAT AN EXPLICIT UCC DEFENSE APPLICABLE TO A NEGOTIABLE INSTRUMENT UNDER CHAPTER 673 IS NOT OTHERWISE AVAILABLE FOR APPLICATION TO NON-NEGOTIABLE INSTRUMENTS GOVERNED BY CHAPTER 679... 4 Standard of Review... 4 Argument... 5 Conclusion... 10 Certificate of Service... 11 Certificate of Font Compliance... 11 Appendix: Second District Court of Appeal's Decision...Tab
Cases TABLE OF AUTHORITIES Page Beaty v. State, 701 So. 2d 856 (Fla. 1997)... 4 Citizens National Bank of Orlando v. Bornstein, 374 So. 2d 6 (Fla. 1979)..Passim Fed. Deposit Ins. Corp. v. Hardt, 646 F. Supp. 209 (C.D. Ill. 1986)... 9 Gen. Motors Acceptance Corp. v. Honest Air Conditioning & Heating, Inc., 933 So. 2d 34 (Fla. 2d DCA 2006)...Passim Statutes 671.102(2)(a), (c), Fla. Stat... 9 Chapter 673, Fla. Stat....Passim 673.306, Fla. Stat.... 8 673.1041, Fla. Stat.... 6 673.1041(1), Fla. Stat.... 5 673.1041(1)(c), Fla. Stat... 5 673.6051, Fla. Stat....2, 6, 7 673.6051(6), Fla. Stat.... 6 673.6051(9)(b), Fla. Stat... 7 Chapter 679, Fla. Stat....Passim 679.1021(k), Fla. Stat.... 5 679.601(1), Fla. Stat... 9 ii
Constitutional Provisions Art. V, 3(b)(3), Fla. Const... 4 Court Rules Rule 9.020(g), Fla. R. App. P... 2 Rule 9.030(a)(2)(A)(iv), Fla. R. App. P... 4 Rule 9.210(a)(2), Fla. R. App. P... 11 Other Authorities Fla. Stat. Ann. 673.1041, V. 19B, Comment 2 (West 1993 and Supp. 2006).... 7 iii
STATEMENT OF THE CASE AND FACTS In September 2001, Cory Babcock and Honest Air Conditioning & Heating, Inc. ( Respondents ) contracted with Cox Chevrolet to purchase a Chevrolet Corvette through a retail installment sales contract (the Contract ). Gen. Motors Accept. Corp. v. Honest Air Cond. & Heating, Inc., 933 So. 2d 34 (Fla. 2d DCA 2006). Cox Chevrolet assigned the Contract, which was secured by the Corvette, to General Motors Acceptance Corp. ( GMAC ). Id. at 35. In September 2002, GMAC telephoned Respondents regarding their failure to make the required monthly payment. Respondent Babcock informed GMAC that he traded the vehicle in August to Florida Auto Brokers ( Auto Brokers ) and would contact them regarding the payoff amount due GMAC. Three months later, Babcock finally informed GMAC that Auto Brokers would send the payoff on the Corvette with instructions as to the vehicle s title. Id. at 35-36. Auto Brokers sent GMAC a check to pay off the amount due. GMAC then released the lien and forwarded the title to Auto Brokers. Subsequently, the check from Auto Brokers was dishonored for insufficient funds. Id. at 36. In July 2003, GMAC sued Respondents for damages arising from their breach of the terms of the Contract. 1 1 GMAC also sued William Stevenson, the salesman for Auto Brokers who handled the Corvette transaction. Stevenson entered a stipulation for settlement with GMAC but subsequently defaulted under the terms of the settlement and final judgment was entered against him. Id. 36, n.4. Stevenson was a named party in the appeal before the Second District (and in this proceeding) only for purposes of
In defending the claim, Respondents asserted the Contract was a negotiable instrument governed by the Uniform Commercial Code ( UCC ) and, thus, they were entitled to the UCC impairment of collateral defense in 673.6051, Florida Statutes. That defense, which only applies to negotiable instruments, provides that the failure to maintain perfection of interest in collateral or to preserve the value of collateral discharges debtors to the extent the impairment would cause the debtors to pay more than they would have had to pay if the impairment had not occurred. Id. The trial court issued judgment in favor of Respondents, finding: (1) the Contract is a negotiable instrument under Chapter 673; (2) the impairment of collateral defense in 673.6051 applied; (3) GMAC impaired the collateral by releasing the lien before the dealer s check cleared; and (4) the collateral s value exceeded the amount claimed by GMAC, so no damages were due GMAC. Id. On appeal, the Second District held that the UCC impairment of collateral defense contained in Chapter 673 did not apply because the Contract is not a negotiable instrument governed by the UCC. Unlike a negotiable instrument, which is solely for the payment of money, the Contract here created a series of obligations on the parties. Even though the UCC defense of impairment of collateral did not compliance with Rule 9.020(g), which provides that an appellee is [e]very party in the lower tribunal other than an appellant. 2
apply, the district court concluded the defense was otherwise available and affirmed the trial court s judgment in favor of Respondents. Id. at 37-38. SUMMARY OF THE ARGUMENT In this case, the district court held that the non-negotiable Contract at issue is not governed by Chapter 673 of the UCC and, consequently, that the UCC defense of impairment of collateral in Chapter 673 does not apply. The district court nevertheless concluded that the defense was otherwise available to bar GMAC s recovery of monies the Respondents unquestionably owed to GMAC under the terms of the Contract. The district court s decision expressly and directly conflicts with this Court s decision in Citizens National Bank of Orlando v. Bornstein, 374 So. 2d 6 (Fla. 1979). In Bornstein, this Court held that a UCC defense applicable to a negotiable contract under Chapter 673 (in that case the simple contract defense ) is not otherwise available for application to a non-negotiable contract governed by other sections of the UCC unless specifically incorporated by statute. Bornstein is consistent with federal case law, which recognizes that unique UCC defenses, such as the impairment of collateral defense, are not available under the circumstances here. The proper analysis would have been for the district court to determine whether another defense, if pleaded, was available under general contract or common law principles. If left to stand, the Second District s decision will have a tremendous impact on the commercial finance industry and may significantly delay vehicle transfer 3
transactions. Equally as important, the decision will void clear contractual obligations where, as here, the creditor has done nothing more than release a lien at the request of the debtor who had already released possession of the collateral. When a debtor voluntarily releases collateral to a third party, the creditor s release of a lien for whatever reason does not mean that valid obligations under the Contract are not enforceable. The UCC is intended to simplify the law governing commercial transactions and make the law uniform among the various jurisdictions. The district court s decision undermines this policy by creating a special rule that only applies to Florida transactions. ARGUMENT THE DISTRICT COURT S OPINION DIRECTLY CONFLICTS WITH THIS COURT'S OPINION IN CITIZENS NATIONAL BANK OF ORLANDO V. BORNSTEIN, WHICH HELD THAT AN EXPLICIT UCC DEFENSE APPLICABLE TO A NEGOTIABLE INSTRUMENT UNDER CHAPTER 673 IS NOT OTHERWISE AVAILABLE FOR APPLICATION TO NON-NEGOTIABLE INSTRUMENTS GOVERNED BY CHAPTER 679. Standard of Review. This Court has discretionary jurisdiction to review a decision of a district court of appeal that expressly and directly conflicts with a decision from this Court on the same point of law. Art. V, 3(b)(3), Fla. Const.; Rule 9.030(a)(2)(A)(iv), Fla. R. App. P. The basis for conflict must appear within the four corners of the district court's decision. Beaty v. State, 701 So. 2d 856, 857 (Fla. 1997). 4
Argument. Chapter 673, which is the Florida equivalent of Article 3 of the UCC, governs negotiable instruments. Negotiable instruments are unconditional promises to pay a fixed amount of money and are payable on demand at a definite time. 673.1041(1). A negotiable instrument does not state any other undertaking in addition to the payment of money. 673.1041(1)(c). Chapter 679, which is the Florida equivalent of Article 9 of the UCC, governs chattel paper. A chattel paper is a document that evidences both a monetary obligation and a security interest granted in specific goods. 679.1021(k). As the district court correctly recognized in this case, typical retail installment sales contracts for vehicles, such as the Contract at issue, are not negotiable instruments because they create a series of obligations on the vehicle purchaser. 2 General Mtrs. Accept. Corp., 933 So. 2d at 36-37. Instead, such contracts are chattel paper because they create a monetary obligation and a security interest in a vehicle. In this case, after GMAC brought suit to enforce payment pursuant to the terms of the Contract, the Respondents asserted the Contract was a negotiable instrument and, as such, they were entitled to the impairment of collateral defense 2 Among other things, the Contract required the buyer to buy the vehicle on credit under the agreement, to pay the creditor the amount financed and finance charge according to the payment schedule, to give the creditor a security interest in the vehicle, to not move the vehicle from the United States, to reimburse advances made by the creditor in payment of repair or storage bills, and required the creditor to agree to dispose of the collateral in certain ways following repossession. 5
in 673.6051(6). Under that defense, if a person entitled to enforce an obligation under a negotiable instrument impairs the value of the interest in collateral securing the obligation, the debtor is discharged to the extent the impairment causes the debtor to pay more than the debtor would have been obliged to pay had the impairment not occurred. 673.6051(6). Because the Contract at issue is not a negotiable instrument governed by Chapter 673, the district court held that Respondents were not entitled to relief under 673.6051 s impairment of collateral defense. The court nevertheless concluded the defense was otherwise available. The court based that conclusion on a selected portion of a general UCC comment under 673.1041, which defines the term negotiable instrument. The district court quoted as follows: Words making a promise or order payable to bearer or to order are the most distinguishing feature of a negotiable instrument and such words are frequently referred to as words of negotiability. Article 3 is not meant to apply to contracts for the sale of goods or services or the sale or lease of real property or similar writings that may contain a promise to pay money. The use of words of negotiability in such contracts would be an aberration.... Although such a writing cannot be made a negotiable instrument within Article 3 by contract or conduct of its parties, nothing in Section 3-104 or in Section 3-102 is intended to mean that in a particular case involving such a writing a court could not arrive at a result similar to the result that would follow if the writing were a negotiable instrument. Gen. Motors Accept. Corp., 933 So. 2d at 37. Without citing to any authority other than this portion of the comment, the district court concluded that the impairment of collateral defense was otherwise available here because the result would be 6
similar to the result that would follow if the [Contract] were a negotiable instrument. In making this finding, the district court failed to quote the rest of the paragraph, which clarifies that the similar result envisioned by the comment is a result arising from defenses not pleaded here such as estoppel or ordinary principles of contract. The remainder of the paragraph provides: For example, a court might find that the obligor with respect to a promise that does not fall within Section 3-104(a) is precluded from asserting a defense against a bona fide purchaser. The preclusion could be based on estoppel or ordinary principles of contract. It does not depend upon the law of negotiable instruments. Fla. Stat. Ann. 673.1041, V. 19B at 29, Cmt. 2 (West 1993 and Supp. 2006)(emphasis added). At bottom, the district court incorrectly applied a defense that does not exist under principles of contract law or common law. Importantly, 673.6051 specifically allows the impairment of collateral defense to be waived by the parties. 673.6051(9)(b). Were it envisioned that the impairment of collateral defense in Chapter 673 was meant to apply to non-negotiable instruments such as the Contract at issue, the parties to such instruments would have had the option of including a waiver provision in the Contract. Obviously until now since Chapter 673 defenses did not apply to instruments governed by other provisions of the UCC unless those provisions explicitly provided otherwise, no such waiver provision was thought to be necessary. In addition to being wrong on the merits, the district court s application of the impairment of collateral defense to the Contract is in direct conflict with this 7
Court s decision with Citizens Nat l Bank of Orlando v. Bornstein, 374 So. 2d 6 (Fla. 1979). In Bornstein, this Court addressed several questions from the Eleventh Circuit Court of Appeals concerning the set-off rights and defenses available to an obligor against the assignee of a non-negotiable certificate of deposit. The final question addressed by this Court was whether the UCC should be liberally construed to allow the simple contract defense in Chapter 673 to be otherwise available to a transaction governed by Chapter 679. This Court held that the Chapter 673 defense was not otherwise available because, among other things, the transaction did not meet the definition of a negotiable instrument or of a nonnegotiable instrument meeting all of the requirements of negotiability. Further, the Court concluded that neither by incorporation through section 673.306 nor by the express terms of article 9 is the Chapter 673 defense available under Chapter 679. Id. at 13. Effectively, this Court concluded that, if the framers had meant for the defense to apply to Chapter 679 transactions, they would have said so. Although federal cases cannot be the basis for conflict, at least one federal decision illustrates that not only is the decision under review in conflict with this Court s decision in Bornstein; but it is also in conflict with general principles governing application of the UCC impairment of collateral defense. Consistent with Bornstein, in Fed. Deposit Ins. Corp. v. Hardt, 646 F. Supp. 209 (C.D. Ill. 1986), the federal court held that the impairment of collateral defense in Article 3 is not available to non-negotiable instruments under which a vehicle has been used as 8
collateral. Both Bornstein and Hardt are consistent with 679.601(1), which reminds that a creditor like GMAC retains its right to seek a judgment on the debt itself without foreclosing on the collateral. GMAC s lien release, issued at the request of Respondents, impaired nothing other than GMAC s ability to use proceeds to reduce the debt owed it did not eliminate GMAC s cumulative right to collect on the debt itself. Through legislative mandate, the UCC is to be construed to, among other things, simplify the law governing commercial transactions and make uniform the law among the various jurisdictions. 671.102(2)(a), (c). Rather than creating uniformity, the Second District s decision creates a new defense unique to Florida. Such a result will compel an individualized analysis of a uniform law depending on the location of the transaction. Moreover, as mentioned above, the UCC allows parties to insert contractual waivers of defenses. It is telling that no such waiver was part of the transaction at issue because the uniform law, as evidenced by the Hardt decision, does not include an impairment of collateral defense for transactions governed by Chapter 679. Since the law is supposed to be uniform, inclusion of a contractual waiver of a defense that does not apply to the instant transaction should be unnecessary. If left to stand, the Second District s decision will have a tremendous impact on the commercial finance industry and may significantly delay vehicle transactions. The decision could be devastating to the ability of consumers to secure title to 9
vehicles. Banks clear checks on vastly different schedules, and as a result of the district court s decision, creditors may begin requiring certified funds, which would result in increased costs to consumers, as well as delaying transactions and the titling of vehicles. Consumers would have to make additional trips to dealers to obtain their vehicles. Rather than facilitating commercial transactions, the district court s decision will complicate and delay one of the most common consumer transactions and interject an additional requirement into Chapter 679 not included nor intended by its drafters. In this case, Respondents voluntarily transferred title and released the collateral to a third party. Only after that, and upon Respondents request, did GMAC release the lien. The district court s decision allows parties to void clear contractual obligations where, as here, the creditor has done nothing more than release a lien at the request of the debtor who had already released possession of the collateral. The fact GMAC released a lien does not mean that valid obligations under the Contract are not enforceable. CONCLUSION For the reasons expressed, GMAC respectfully submits that this Court should accept jurisdiction to review the Second District s decision in this case. CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true copy of the foregoing has been furnished by United States Mail this day of, 2006, to George R. McLain 10
and Daniel Joy, 1800 Second Street, Suite 717, Sarasota, Florida 34236 (counsel for Respondents), and Marie P. Montefusco, 1333 S. University Drive, Suite 201, Plantation, FL 33324 (counsel for Petitioner in the Second District appellate proceeding). Respectfully submitted, KATHERINE E. GIDDINGS (949396) THOMAS A. RANGE (568651) AKERMAN SENTERFITT 106 East College Avenue, Suite 1200 Post Office Box 1877 Tallahassee, FL 32302-1877 Phone: (850) 425-1626 Fax: (850) 222-0103 Email: katherine.giddings@akerman.com Attorneys for GMAC CERTIFICATE OF FONT COMPLIANCE I HEREBY CERTIFY that the font used in this brief is the Times New Roman 14-point font and that the brief complies with the font requirements of Rule 9.210(a)(2). KATHERINE E. GIDDINGS 11