Moe v. John Deere Co.
25 U.C.C. Rep. Serv. 2d (West) 997, 1994 S.D. LEXIS 74, 516 N.W.2d 332 (1994)
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Rule of Law:
When a creditor repeatedly accepts late payments from a debtor, it waives its right to declare a default and repossess the collateral for subsequent late payments unless it first gives the debtor notice that strict compliance with the payment terms will be required in the future.
Facts:
- On September 29, 1983, Ted Moe purchased a tractor from Day County Implement, financed through a contract later assigned to John Deere Company (Deere), with five annual installments due on October 1st.
- Moe paid his first installment, due October 1, 1984, over two months late, and Deere accepted the payment.
- Moe failed to make his second payment on time on October 1, 1985. Deere waived full payment and extended the time, accepting a partial payment over three months late on January 13, 1986.
- After Moe missed a subsequent deadline of March 20, 1986, a Deere representative and Moe orally agreed in May or June 1986 that Moe would pay $2,000 of the overdue amount, with the balance due when he began his harvest.
- No specific due date was set for the $2,000 payment as part of this oral agreement.
- On July 30, 1986, without any prior notice or demand for payment, Deere repossessed the tractor while Moe was out of state.
Procedural Posture:
- Ted Moe sued John Deere Company and Day County Implement Company in the Third Judicial Circuit Court (trial court) for wrongful repossession and other claims.
- Deere moved for partial summary judgment on the claims of commercially unreasonable sale and failure to account for surplus, which the trial court granted.
- Deere then moved for summary judgment on the remaining claims of wrongful and fraudulent repossession.
- The trial court granted Deere's summary judgment motion on all remaining issues, dismissing Moe's case.
- Moe (appellant) appealed the grant of summary judgment to the Supreme Court of South Dakota (the state's highest court).
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Issue:
Does a creditor's repeated acceptance of late payments create a factual issue as to whether the creditor has waived its right to repossess collateral without first notifying the debtor that strict compliance with the contract terms will be required going forward?
Opinions:
Majority - Moses, Circuit Judge
Yes. A creditor's repeated acceptance of late payments creates a genuine issue of material fact as to whether the written contract was modified by the parties' course of conduct, thereby waiving the creditor's right to repossess without notice. The court held that the question of whether a debtor is in 'default' is a question of fact, not law, and can be affected by oral agreements and a pattern of accepting late payments. The court adopted the majority rule that a secured party who has not insisted upon strict compliance in the past must give notice to the debtor that strict compliance will be demanded henceforth before repossession can be rightfully exercised. This rule is based on the principle of estoppel, as the creditor's conduct induces the debtor's justified reliance that late payments are acceptable. A 'non-waiver' clause in the contract does not automatically preclude such a finding of waiver through course of performance.
Concurring - Wuest, Justice
Yes. Justice Wuest concurred with the result, writing separately to emphasize that existing South Dakota precedent already established that the question of whether a breach of contract has occurred is a question of fact for the jury. He suggests the court did not need to rely as heavily on case law from other jurisdictions to reach its conclusion.
Analysis:
This decision aligns South Dakota with the majority of jurisdictions that hold a creditor's course of dealing, specifically the acceptance of late payments, can waive the right to strictly enforce contract terms like repossession. It establishes that a standard 'non-waiver' clause is not absolute and can be overcome by conduct that induces a debtor's reliance. The ruling provides protection for debtors against surprise repossessions by requiring creditors who have been lenient to provide clear notice before reverting to strict enforcement. For creditors, it clarifies that they can reinstate their right to repossess by sending a simple letter demanding future compliance.
