Kennard v. Reliance, Inc.

Smith, J., delivered the opinion of the Court. We here consider the interrelationship between the provisions of subtitle 3 of the Uniform Commercial Code, Code (1964 Repl. Vol.), Art. 95B (UCC), and the Maryland Retail Installment Sales Act, Code (1957, 1969 Repl. Vol.), Art. 83, §§ 128-153, with particular reference to § 147 of the Retail Installment Sales Act which provides in pertinent part: “If, as part of an installment transaction, a ⁶⁵⁶ note is taken by the seller * * *, such note shall refer to the installment agreement out of which it arises and, in the hands of any subsequent holder, such note shall be subject to all defenses which the buyer might have asserted against the seller * * Appellee, Reliance, Inc. (Reliance), does business as Raub Credit Corporation.

It sued the appellants, Clark E. Kennard and Elsie Kennard, his wife, on their promissory note. Reliance was the assignee of the note. It is interesting to note that prior to the introduction into evidence by Mr. and Mrs. Kennard of the installment sale agreement, the Reliance vice-president said, “I haven’t the least idea.” in response to a question as to whether he knew that the seller “took a contract with the Kennards in this case”. The note contained authority for confession of judgment.

Nevertheless, there was no attempt made to obtain judgment by confession. This may have been tacit recognition by Reliance that under §§ 130 (b) and 149 (b) such provision would have been “absolutely void” if the Retail Installment Sales Act were applicable to the transaction. The matter ultimately was removed to the Circuit Court for Talbot County where it came on for trial without a jury. Judgment was entered in favor of Reliance.

We shall remand without affirmance or reversal for further proceedings under Maryland Rule 871. The series of events giving rise to this litigation began on Thursday, June 23, 1966, when a representative of Meadowbrook Company of Middletown, Delaware, came to the Kennard home to sell a water softener. An agreement was entered into on that day to purchase the water softener. The trial judge found, correctly, that the agreement signed at that time by Mr. and Mrs. Kennard was an installment sale agreement within the purview of the Retail Installment Sales Act.

The agreement did not contain the disclosures required by § 129'. Counsel for Mr. and Mrs. Kennard advised the trial judge that there ⁶⁵⁷ was delivered to the buyer a copy of the agreement signed by the seller as required by § 128 (b). The agreement had on it no provision for acknowledging receipt of a copy signed by the seller. Reliance says that on Thursday credit data was taken which was transmitted to Reliance by telephone.

After investigation by Reliance, Meadowbrook was notified of the approval by Reliance of Mr. and Mrs. Kennard from a credit standpoint. On Friday, June 24, the Meadowbrook representative or representatives returned to the Kennard home. At that time a note was signed which became the subject of this litigation. At the same time a completion certificate was signed.

Meadowbrook then proceeded with the installation of the water softener. The note and completion certificate were on forms provided by Reliance. The completion certificate was attached to the note, there being perforations to facilitate removal. The completion certificate read as follows: “I/we the undersigned hereby certify that all materials and/or labor in connection with the note arranged through RELIANCE, INC., have been furnished as agreed and accepted as satisfactory and the company is authorized and directed to pay the proceeds of said note to the CONTRACTOR DEALER named in my signed Credit Application.

I/we the undersigned also authorize detachment of my/our note from this certificate and if said note is undated hereby authorize any of the parties interested in this transaction to insert the date hereof as the date of said note. “NOTICE Do not sign this Certificate until the work or materials have been satisfactorily completed or delivered. The selection of a dealer, the acceptance of materials used and work performed is YOUR responsibility. RELIANCE, INC. does NOT guarantee the material or work ⁶⁵⁸ manship or inspect the work performed.” (emphasis added) The completion certificate was signed only by Mr. Kennard. The testimony is undisputed that there was no signed credit application.

The office from which this transaction was handled by Reliance is at Lancaster, Pennsylvania. The corporation is described by its vice-president as a sales finance company purchasing notes from dealers and contractors throughout a five-state area (Pennsylvania, Maryland, Virginia, New York and Delaware) covered by that office. The vice-president of Reliance testified that the note of Mr. and Mrs. Kennard was received by it on Monday, June 27, and that on the same day Reliance mailed the check to Meadowbrook. He quite obviously is mistaken on the latter point.

Middletown, Delaware, the home of Meadowbrook, is a town approximately three miles east of the Maryland-Delaware line, about 70-75 miles by road from the office of Reliance at Lancaster, Pennsylvania. The check in question was dated June 27, was deposited to the account of Meadowbrook in Industrial Valley Bank and Trust Company at Jenkintown, Pennsylvania, on June 27, and was paid by the Philadelphia bank on which it was drawn on June 28. The distance from Lancaster to Jenkintown is between 75 and 80 miles and the distance from Jenkintown to Middletown about 70 miles. Jenkintown is one of the northern suburbs of Philadelphia.

It would be manifestly impossible for the check to have been mailed out on the 27th to Meadowbrook at Middletown, deposited by it on the same day at Jenkintown, and then paid the following day in Philadelphia. Mr. and Mrs. Kennard made four payments on the note. They ceased payment when, according to them, they were unable to obtain satisfaction relative to their complaint as to the operation of the water softener. They said it worked satisfactorily for about 30 days.

They ultimately disconnected it from their water system because, accord ⁶⁵⁹ ing to them, it kept their well dry by failing to stop regenerating itself. The note in question was assigned by Meadowbrook to Reliance without recourse. The assignment form was printed on the back of the note. The exact language is: “Pay to the Order of Reliance, Inc., without recourse except the endorser hereby warrants and represents that all articles and materials have been furnished and installed and all work satisfactorily completed, which constitutes the entire consideration for which this note was executed and delivered by maker.” Nothing appears in the record to indicate whether Meadowbrook was a corporation, a partnership or an individual trading under that name.

The vice-president of Reliance testified that in a two-year period his company purchased approximately 200 or 225 notes from Meadow-brook, indicative of reasonable familiarity by the officials of Reliance with Meadowbrook and its operations. The exact financial basis of the note does not clearly appear. It called for payments of $19.21 per month beginning October 25, 1966. It is clear from the testimony that Reliance actually paid Meadowbrook $839.00, which is the amount which was due from Mr. and Mrs. Kennard to Meadowbrook on the water softener, the original purchase price having been $849.00 and they having paid $10.00 down.

The note was in the amount of $1,152.60. The Reliance vice-president testified that the rate in effect at that time was 6that one would multiply that by five years and then take that percentage of $839.00. Even if allowance is made for the fact that, although the note was payable over a five-year period, the first payment was not due until four months after the date of the note, the matter does not work out mathematically on this formula. The explanation may well be in the life insurance that was provided by Reliance for Mr. Kennard.

The above serves to demonstrate the wisdom of the disclosure provisions of § 129. ⁶⁶⁰ The trial judge found Reliance to be a holder in due course, although counsel for Kennard specifically raised the question of the applicability of the Retail Installment Sales Act with particular reference to § 147. In this Court the parties devoted their argument primarily to the question of whether Reliánce was in fact a holder in due course. The holder in due course provisions of the Uniform Negotiable Instruments Law in effect in Maryland prior to the adoption of the UCC were found in Code (1957), Art. 18, § 73. The UCC holder in due course provisions are found in Code (1964 Repl.

Vol.), Art. 95B, § 3-302. Discontent has existed in many parts of the country relative to dealings where finance companies provide, as here, the printed forms of notes for sellers and have become the assignees of the notes. See 11 Am.Jur.2d, Bills and Notes, § 440 (1963), with reference to “Close business association of payee and holder”. Although, as is indicated in the comment in American Jurisprudence 2d, it probably is the minority point of view, it is a very respectable minority that has held in such situations that the