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NOVEMBER 02, 1983




Security Mutual Finance Corporation (Security) sued Jerry Willis and Leon Willis, d/b/a Valley Motors (Valley), in the Circuit Court of Lee County for breach of contract. Security had purchased retail installment

sales contracts from Valley and sought repayment for the deficiency caused by a customer's default. The jury verdict did not include a deficiency but rather awarded Valley $9100 as sought in its counterclaim. Security appeals.

 Security is a finance corporation which regularly purchases retail installment sales contracts. It had done business with the Willises beginning in 1976 by the purchase of contracts from Willis Brothers Motor Company, Inc., in Tupelo and when Valley was opened in Water Valley in 1978, they purchased retail installment contracts from the business in that location as well. This relationship continued until Valley closed its business on October 31, 1979.

 The contract leading to this dispute concerned the sale of a 1974 Ford Mustang to Beulah Potts by Valley on June 8, 1979. The price of this automobile was $2,729.00 of which Potts made a down payment of $329.50 and arranged financing over 24 monthly payments of $129.25 each.

 Valley sold this contract to Security for $2350.00 and it then became Security's responsibility to collect the installment payments. The contract was assigned with recourse inasmuch as it contained a limited repurchase clause which provided that payment was guaranteed by Valley for six months. This provision meant that Valley was to pay Security the unpaid balance on the account and repurchase the car if Potts defaulted during the first six months.

 The July, August, September and October, 1979 payments were made but the November and December payments fell into arrears and Security repossessed the automobile in January of 1980.

 The Mustang was inoperable because of engine problems when repossessed. It was transported to the site of Willises' automobile operation in Tupelo where it was presented to Jerry Willis with a request by Security that the balance, $1711.22, be paid in accord with the contract. Willis declined to pay but offered to sell the car and apply the proceeds on the balance. Security believing the contract required payment in full, refused Valley's offer. The Mustang was then taken back to Grenada where it was sold for $488.00.

 The Mustang was not appraised before sale, neither

 was it cleaned nor vacuumed. Security merely took three bids (from parties with whom they had business relations), and accepted the highest bid. The testimony elicited by the defendant was that the sale price was unreasonably low. There was evidence by the Willises and Jerry Nolan, another automobile dealer, that the reasonable value of the car, with the bad engine, was between $1300.00 and $1800.00.

 Additionally, Valley objected to Security's request for the deficiency which resulted after the $488.00 from the sale was credited to the account. In its counterclaim Valley alleged that Security maintained a loss reserve account and a deferred advance account to offset losses incurred upon repossession of merchandise. Valley contends the loss reserve account was financed by deducting 10% of the finance charge on each loan and the deferred advance account deducted $50.00 from each transaction. It further alleged these monies came from the sum the sellers would have received but for the accounts and was intended to protect both parties in the event of default.

 Security argued that Potts' contract specifically required Valley to pay the balance due if there was a default before the first six payments were made, maintaining that the loss reserve and deferred advance accounts were available only after that time. Security therefore objected to evidence concerning these accounts, because the specific recourse agreement was in effect at the time of default.

 Although Jerry Willis testified for Valley that the reserve accounts applied to a default within the first six months after a contract was assigned, he nevertheless admitted there was no such contractual provision having application to this sale. Leon Willis corroborated his brother in testifying that this use of funds was merely an understanding. He acknowledged that loss by default was Valley's responsibility during the first six months after a loan was made but added that it was his impression that the revenue accounts would be used on such things as the Potts' default. He felt the business in Water Valley would be done as he asserted it had been done in the Tupelo business. This meant, as we comprehend his testimony, that Leon Willis expected the repossessed automobiles to be sold for the highest sum possible and that the reserve accounts would then cover the deficit, whereby Valley would never be liable for any deficiency. He acknowledged, however,

 that the contract did not have such provision and reiterated that it was only his impression the reserve accounts ...

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