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National Acceptance Co. v. Coal Producers Association Inc.

decided: August 24, 1979.

NATIONAL ACCEPTANCE COMPANY OF AMERICA, PLAINTIFF-APPELLEE, CROSS APPELLANT,
v.
COAL PRODUCERS ASSOCIATION, INC., A KENTUCKY CORPORATION, AND CARLTON KINCHEN, DEFENDANTS-APPELLANTS, CROSS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76-C-2167 -- John F. Grady, Judge .

Before Cummings, Bauer and Wood, Circuit Judges.

Author: Bauer

This case is before the Court on an appeal by Coal Producers Association, Inc., and a cross-appeal by National Acceptance Company of America. Coal Producers and its president Carlton Kinchen appeal from an order of the district court denying leave to file a counterclaim. NAC cross-appeals from the district court's judgment order of October 3, 1978, in favor of Coal Producers and Kinchen on NAC's complaint. We affirm the judgment in favor of Coal Producers and Kinchen, and reverse the order denying leave to file a counterclaim.

I

In reviewing the judgments below, we must begin by briefly sketching the relevant facts. Carlton Kinchen is the president of Coal Producers Association, Inc., a Kentucky corporation engaged in the business of strip-mining coal. In July, 1975, Kinchen contacted James A. Shackelford to inquire about the purchase of some heavy machinery. Shackelford agreed to sell Coal Producers two Caterpillar D8H Dozers and to make the necessary financing arrangements.

Later that same month, Coal Producers received a package of loan documents from Shackelford that had been prepared by NAC. The documents included: 1) a Promissory Note; 2) a Loan and Equipment Security Agreement; 3) a Corporation Solvency Affidavit; 4) a Secretary's Certificate as to Officers and Directors and Director's Resolutions; and 5) a Certificate of Completion and Delivery.

After reviewing the documents, Coal Producers sent a letter to NAC in which it offered to borrow the sum of $145,000. With the letter, Coal Producers enclosed all of the loan documents except the Certificate of Completion and Delivery. On July 24, 1975, NAC notified Coal Producers that it had accepted the latter's offer to borrow and had disbursed $145,000 to Shackelford Machinery & Equipment, Inc.

In August 1975, Coal Producers agreed to purchase a Hough Front End Loader from Shackelford. To finance the purchase, Coal Producers forwarded to NAC an offer to borrow an additional $50,000, and again enclosed all of the executed documents except the Certificate of Completion and Delivery. NAC again disbursed the proceeds of the loan to Shackelford after receiving Coal Producers' offer.

With the arrival of the Caterpillar Dozers and the Front End Loader, Coal Producers inspected the machinery and found some serious mechanical problems. Accordingly, it complained to NAC officer Jerome Gorchow when he called about delinquent payments on the loans. Gorchow assured Coal Producers that NAC would make Shackelford put the machinery in good working condition, and asked for an initial "good faith" payment on the notes. In October, November, and December of 1975, Coal Producers had further conversations with Gorchow, in which he again promised that Shackelford would repair the equipment. During these months, Coal Producers made some initial payments on the loans.

In February 1976, Kinchen wrote a letter to NAC stating that further payments would not be made on the loans until the machinery was repaired. Once the loans were in default, NAC repossessed the two Dozers and the Front End Loader. After selling the equipment and crediting Coal Producers' account with the purchase price, NAC brought this action to recover the balance of the loans.

II

In holding that NAC breached its contract with Coal Producers by disbursing the loan proceeds without prior authorization, the district court found that the Completion and Delivery Certificate was part of the loan agreement between the parties. The Certificate provided:

"The undersigned hereby acknowledges receipt of the equipment hereinafter described which is covered by our Exhibit "A' dated July 21, 1975 to our Security Agreement with your company dated July 21, 1975. Said equipment ...


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