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SOGELEASE CORP. v. MCGEHEE PUBL. CO.

August 25, 1988

SOGELEASE CORPORATION, PLAINTIFF,
v.
MCGEHEE PUBLISHING COMPANY, INC., d/b/a ONE HOUR PHOTO LAB; JAMES P. WHITE, SR.; and FIRST NATIONAL BANK OF MCGEHEE, DEFENDANTS



The opinion of the court was delivered by: HARRIS

 OREN HARRIS, SENIOR UNITED STATES DISTRICT JUDGE.

 Plaintiff brings this action for recovery of the unpaid balance it claims McGehee Publishing Company, Inc., owes under the terms of a Security Agreement and Conditional Sales Contract entered into by the parties on August 29, 1984. Upon agreement of the parties, this case was tried to the Court, without the intercession of a jury, on June 8, 1988, in Hot Springs, Arkansas. The Court now renders its decision in the matter.

 This is a diversity case. Plaintiff is a corporation organized under the laws of the state of Delaware, with its principal place of business in New York City, New York. It is a wholly-owned subsidiary of Societe Generale, a banking institution headquartered in Paris, France. Defendant McGehee Publishing Company, Inc., is an Arkansas corporation with its principal place of business in Desha County, Arkansas. Defendant James P. White, Sr., is a resident of Desha County, Arkansas. Defendant First National Bank of McGehee is a national banking association with its principal place of business in Desha County, Arkansas. The amount in controversy exceeds $ 10,000.00, so this Court has jurisdiction pursuant to 28 U.S.C. § 1332.

 On August 29, 1984, Jim Grahn, a sales representative for The KIS Corporation (KIS), contacted defendant White, president of McGehee Publishing Company, Inc. (McGehee), about purchasing a Photokis mini-lab. This product, manufactured by KIS, rapidly develops and processes rolls of film. Relying on representations made by Grahn concerning the profit-making ability of the equipment, White agreed to make the purchase. Grahn produced a "Security Agreement and Conditional Sales Contract" form which bore plaintiff's name and logo. White signed this document, along with a personal guaranty which also bore plaintiff's name and logo. In addition, White signed a KIS customer order form which purportedly contains contractual terms on the reverse side, but a copy of the reverse side was not introduced into evidence. McGehee made a down payment of $ 1816.60, leaving an unpaid balance of $ 34,589.08. McGehee's total obligation, or time balance payable, was $ 48,293.40, which was to be paid in sixty monthly installments beginning January 14, 1985.

 The equipment was delivered to McGehee in November 1984, but neither McGehee nor White made any of the installment payments. White testified that the equipment was in operation for four or five months, but McGehee stopped using it when it did not make enough money to meet expenses. Plaintiff took possession of the equipment in March 1986. By a letter dated October 3, 1986, plaintiff's counsel notified White and his counsel that the equipment would be sold at a private sale "at any time after November 3, 1986." On December 15, 1986, plaintiff sold the equipment to KIS for $ 14,412.80. This amount was credited to McGehee's balance payable, leaving an outstanding balance of $ 27,880.60. *fn1" Neither McGehee nor White have made any payments to plaintiff, so plaintiff brings this action seeking to recover $ 48,293.40, which is the full amount owed by McGehee.

 It appears that this case presents three basic issues for consideration: (1) whether plaintiff and KIS are related entities, (2) whether Grahn was acting as plaintiff's agent, and (3) whether the sale of the equipment was "commercially reasonable" under § 9-504(1)(c) of the Uniform Commercial Code (UCC). Under the terms of the Security Agreement and Conditional Sales Contract, the laws of the state of New York govern this action.

 I. THE RELATIONSHIP BETWEEN PLAINTIFF AND KIS

 Defendants, in their original answer, stated a belief that plaintiff and KIS are related entities. White continued to express this position in his testimony at trial. The bases for this belief seem to be (1) that Grahn was carrying plaintiff's financing forms when he contacted White, and that Grahn stated "my company will handle the financing;" (2) that the Security Agreement and Conditional Sales Contract refers to plaintiff as the "seller;" and (3) Grahn's testimony that, at the time he began working for KIS, he was told that the "owner" of KIS was on the board of directors of Societe Generale, plaintiff's parent organization, and that there was "a sort of brother-in-law relationship" between KIS and plaintiff.

 This relationship is important because if the two are so closely associated as to be, in effect, one entity, plaintiff would be in the position of a seller of goods, and Chapter 2 of the UCC would apply. If, on the other hand, plaintiff and KIS are not considered a single entity, and plaintiff is found to be only a secured party, Chapter 9 of the Code would apply to this case. The Court finds that the latter view is correct.

 The Court sees no significance in the fact that Grahn possessed plaintiff's forms. Grahn testified that he carried forms for several finance companies in order to expedite the financing of equipment he sold. Grahn also testified that he did not specifically remember saying "my company will handle the financing," but that if he did say it, he meant only that KIS had means of financing available through finance companies. The Court accepts this explanation as being true, and Grahn's alleged statement in no way establishes a connection between plaintiff and KIS other than a normal business relationship.

 Next, the Court must consider the designation of plaintiff as "seller" in the Security Agreement and Conditional Sales Contract. McGehee is designated as "buyer" in the agreement. Plaintiff contends that, under New York law, the designation of a finance agency as a "seller" in a security agreement does not affect its status under the UCC.

 Section 2-103 of the UCC defines "seller" as "a person who sells or contracts to sell goods." *fn2" Section 2-104 ...


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