TENNESSEE STATE BANK v. LAY, Tenn. Ct. App., Judgment, Law, casemine.com

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Attorney(S)

Gary R. Wade, Sevierville, for plaintiff-appellee. Jerry K. Galyon and Dwight E. Stokes, Sevierville, for defendant-appellant.

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Smart Summary

Factual and Procedural Background

In 1977 defendant purchased an automobile under a 36-month retail installment sales contract that provided credit accident health insurance; the contract was assigned to plaintiff bank. Defendant made payments until September 1977, when she became disabled and moved to Oregon. She filed a claim under her disability insurance policy for payments on the contract. In January 1978 she received by mail a copy of the contract stamped "paid" with title attached. Plaintiff filed suit on March 3, 1978, alleging default. Process was served under the Long Arm Statute via the Secretary of State, with a return receipt allegedly signed "Amy Lay" and dated March 16, 1978, in Oregon. Plaintiff's agent repossessed the automobile in Oregon in April or early May 1978. Defendant did not answer the complaint and a default judgment for $4,546.42 was entered June 22, 1978. After discovering an execution levied on her certificate of deposit, defendant filed a Rule 60 motion to set aside the default judgment on January 2, 1979; the trial court overruled the motion and later denied a petition to set aside the judgment on November 28, 1979. Defendant appealed the denial of relief under T.R.C.P. Rule 60.

Legal Issues Presented

Whether the trial court applied the correct legal standard in denying relief under T.R.C.P. Rule 60.02 to set aside a default judgment.
Whether the facts alleged and affidavits established excusable neglect, lack of notice, or other grounds warranting vacatur of the default judgment.
Whether plaintiff would be prejudiced such that vacatur should be denied.

Arguments of the Parties

Plaintiff-Appellee's Arguments

Relied on a handwriting expert's affidavit opining the signature on the return receipt was defendant's.
Asserted prejudice if the default judgment were set aside because the automobile had been sold to a third party and the retail installment contract had been reduced to a satisfied judgment through execution and sale.
Noted plaintiff had obtained possession of the automobile prior to reducing the contract to judgment and executed on defendant's bank account, then levied on and sold the vehicle to satisfy the judgment.

Defendant-Appellant's Arguments

Asserted she did not receive a copy of the summons and complaint and had no notice of the suit until after judgment was entered.
Filed affidavits, including one from a friend stating defendant was out of Oregon March 4–22, 1978, supporting non-receipt of process.
Maintained she had a valid defense, acted diligently after discovering the repossession (contacted an Oregon attorney), and had reason to believe the insurance company had paid the contract because she received a copy stamped "paid."

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hopkins v. Hopkins, 572 S.W.2d 639 (Tenn. 1978)	Describes burden on movant under Rule 60 to set forth facts explaining why failure to avoid mistake, inadvertence, surprise or neglect was justified.	Cited for the proposition that the movant must allege and support facts explaining why the Rule 60 grounds were justified; the court applied this standard when reviewing the sufficiency of defendant's motion and affidavits.
Tate v. County of Monroe, 578 S.W.2d 642 (Tenn. App. 1978)	Holds that negligence of the moving party is the type of error Rule 60 is designed to relieve.	Used to support the view that negligence or omission by the movant does not automatically bar relief under Rule 60.02.
Keck v. Nationwide Systems, Inc., 499 S.W.2d 266 (Tenn. App. 1973)	States that mistake, inadvertence, surprise, or excusable neglect of the moving party's attorney may justify vacating a default judgment, and that when there is reasonable doubt the court should exercise discretion to permit determination on the merits.	Quoted and relied upon to explain the proper discretionary standard: where reasonable doubt exists, the court should favor granting relief to allow adjudication on the merits; court concluded the trial court applied an incorrect, stricter standard.

Court's Reasoning and Analysis

The court examined Rule 60.02 and stated the proper standards: the movant bears the burden of alleging and supporting facts explaining the justification for mistake, inadvertence, surprise, or excusable neglect (citing Hopkins). The court observed that Rule 60 is intended to relieve negligence in appropriate circumstances (citing Tate) and that attorney mistake may suffice; further, when reasonable doubt exists the trial court should ordinarily set aside a default to decide the case on the merits (citing Keck). The appellate court found the trial judge had applied an overly stringent standard—requiring "very clear, convincing, cogent evidence" and proof that the complaining party was "in no wise responsible"—which was erroneous. Reviewing the record, the court noted defendant's affidavits and circumstances: alleged nonreceipt of process, evidence suggesting absence from the state during the service period, receipt of a contract stamped "paid," prompt contact with counsel after repossession, and lack of record evidence showing lack of due diligence or unjustified neglect. The court also evaluated plaintiff's prejudice claim (sale of vehicle and satisfaction of judgment) and concluded those circumstances did not demonstrate prejudice sufficient to defeat vacatur. Based on these analyses the appellate court concluded the trial court applied the wrong standard and that relief should be granted.

Holding and Implications

The trial court's determination was reversed, the default judgment was set aside, and the cause was remanded to the Chancery Court of Sevier County for further proceedings in accordance with the Rules of Civil Procedure.

Direct effect: the default judgment entered June 22, 1978, was vacated and the case returned for further proceedings; costs of the appeal were assessed against the plaintiff. The opinion does not announce any new legal precedent beyond applying and clarifying existing Rule 60.02 principles.

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TENNESSEE STATE BANK, Plaintiff-Appellee, v. Amy Lucille Reagan LAY, Defendant-Appellant.

OPINION

FRANKS, Judge.

Defendant has appealed the trial court's overruling her T.R.C.P., Rule 60 motion to set aside a default judgment.

In 1977, defendant, then a resident of Sevier County, purchased an automobile executing a retail installment sales contract providing for 36 monthly payments. The contract provided credit accident health insurance and was assigned to plaintiff bank. Defendant began making the monthly payments pursuant to the contract but, in September, 1977, she became disabled as a result of injuries and moved to Oregon to live with her daughter. Pursuant to medical advice, she filed a claim on her disability insurance policy for payments on the installment contract during her disability. In January, 1978, she received by mail a copy of the retail installment sales contract, stamped "paid" by plaintiff, with title to the automobile attached.

This suit was filed on March 3, 1978, alleging defendant was in default on the sales contract. Process was issued under the Long Arm Statute through the Secretary of State, which was returned indicating the return receipt was signed "Amy Lay" with the delivery date in Oregon of March 16, 1978. In April or early May of 1978, plaintiff's agent took possession of defendant's automobile in the State of Oregon; defendant then contacted a legal aid attorney in Oregon to investigate the circumstances surrounding the repossession of the vehicle. Plaintiff's complaint was not answered and a default judgment was entered against the defendant in the amount of $4,546.42 on June 22, 1978.

Defendant returned temporarily to Sevier County in July of 1978 and states she contacted an officer of the bank but was not informed that a judgment had been entered against her and was told by the bank officer that the bank did not receive the October 1977 payment, or any subsequent payments, and that the bank had held funds deposited by her for the payment of the contractual obligation.

On returning to Oregon, she engaged the services of an attorney who contacted the Clerk and Master of Sevier County who informed, by letter dated August 10, 1978, that a default judgment had been entered against defendant with an execution levied upon defendant's certificate of deposit in the Bank of Sevierville. Sevier County counsel was then retained to represent defendant and, on January 2, 1979, defendant filed a motion pursuant to Rule 60 to set aside the default judgment. On March 9, 1979, the motion was overruled "without precluding supplemental motions on the part of the Defendant" and, on March 19, 1979, defendant's counsel filed a "petition" to set aside the default judgment pursuant to Rule 60.02(1), alleging in detail the facts and circumstances defendant contends entitled her to have the default judgment set aside, to the effect that she was not served with a copy of the summons and complaint in the case and received no notice of the suit until after judgment was obtained, and that she had a valid defense to the action.

An answer was filed to the petition and various affidavits and countervailing affidavits were filed. On November 28, 1979, the trial court entered an order denying defendant's petition to set aside the default judgment.

Defendant contends the chancellor applied an erroneous standard of proof for relief under Rule 60.02, T.R.C.P. An excerpt from the chancellor's bench comment, incorporated in the judgment, demonstrates the standard applied by the trial court:

Judgments of Courts of record are not to be lightly changed, altered, amended or set aside, but only done upon very clear, convincing, cogent evidence that a true injustice has been done to the complaining party and that the complaining party is in no wise responsible, or termed in another way, negligent in protecting that party's interest.

Rule 60.02 permits the court to relieve a party or his legal representative from a final judgment, order or proceeding due to a mistake, inadvertence, surprise or excusable neglect. The burden is upon the movant to set forth in a motion or petition and supporting affidavits facts explaining why the movant was justified in failing to avoid the mistake, inadvertence, surprise or neglect. Hopkins v. Hopkins, 572 S.W.2d 639 (Tenn. 1978). Negligence on the part of the moving party is precisely the type of error this rule is designed to relieve. Tate v. County of Monroe, 578 S.W.2d 642 (Tenn. App. 1978). And mistake, inadvertence, surprise, excusable neglect or misfortune of the moving party's attorney may be grounds for vacating a default judgment. Keck v. Nationwide Systems, Inc., 499 S.W.2d 266 (Tenn. App. 1973). The granting of the motion to set aside a default judgment is within the sound discretion of the trial court and the court should grant the application whenever there is reasonable doubt as to whether the default judgment should be set aside. In Keck, Presiding Judge Parrott, speaking for this court, stated:

It seems to be a universal rule that when there is a reasonable doubt as to whether a default judgment should be set aside upon proper application, the court should exercise its discretion in favor of granting the application so as to permit a determination of the cause upon the merits. 499 S.W.2d 266 at 267.

Accord: 46 Am.Jur.2d, Judgments, §§ 682, 686; 49 C.J.S. Judgments § 337j(4).

We conclude the trial judge applied the wrong standard in denying the application to set aside the default judgment.

Plaintiff relied upon an affidavit of a handwriting expert who was of the opinion that the signature on the return receipt was that of defendant. The defendant's affidavit stated she did not receive a copy of the summons and complaint and had no knowledge of the suit until after judgment had been entered and offered the affidavit of a friend and resident of Kansas who stated defendant was out of the State of Oregon between March 4 and March 22, 1978, on vacation with the affiant.

The record does not disclose defendant acted without due diligence or in a careless manner nor does it indicate that any neglect on her part was not excusable or justified by the circumstances of the case. When defendant became disabled she filed a claim with her insurance company, expecting payments to be made under the contract and, in January, she received a copy of the contract stamped "paid", with title to the automobile attached. She may have been led to believe the insurance company paid for the automobile. She contacted an attorney in Oregon soon after the automobile was repossessed. From this record it could be reasonably concluded that defendant was not informed of the chancery court proceeding until after judgment was rendered and that she thereafter acted diligently in attempting to protect her rights.

Finally, the plaintiff asserts it would be prejudiced if the default judgment is set aside, arguing that the automobile was sold to a third party and the retail installment contract reduced to a satisfied judgment prior to defendant's taking any action to set aside the default judgment. Plaintiff did not seek an attachment of the automobile at the time of filing suit but obtained possession of the automobile prior to reducing the installment contract to judgment. The judgment was satisfied by executing on defendant's bank account in Sevier County, which did not fully satisfy the judgment, and then levying upon the vehicle and selling the same at a sheriff's sale which satisfied the judgment. These circumstances do not demonstrate prejudice that would defeat defendant's right to set aside the default judgment.

The determination of the chancery court is reversed and the default judgment is set aside and the cause is remanded to the Chancery Court of Sevier County for further proceedings in accordance with the Rules of Civil Procedure. Costs incident to the appeal are assessed against plaintiff.

SANDERS and GODDARD, JJ., concur.

TENNESSEE STATE BANK v. LAY