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368 N.J.Super. 587
Page 1
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
333 Mont. 169, 142 P.3d 797
Mark DENTON and Verna R. Denton, Plaintiffs and Appellants,
v.
FIRST INTERSTATE BANK OF COMMERCE, n/k/a First Interstate Bank, Defendant
and Respondent.
No. 05-215.
Submitted on Briefs Feb. 8, 2006.
identified in the Denton loan?
request had been denied. Denton contacted the Bank and offered to co-sign a loan for
368 N.J.Super. 587
Page 2
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
November 1997, Anderson petitioned for a Chapter 7 bankruptcy proceeding. On
December 9, 1997, FIB was allowed to sell the logging equipment. The proceeds from
the public auction totaled $160,000.00. FIB applied the net amount of $137,870.85 to
Anderson's SBA loan. Anderson was granted a complete discharge of indebtedness
on March 16, 1998.
property that served as collateral for the Denton loan. On July 15, 1998, Denton
initiated the underlying action, seeking declaratory relief and a ruling that his loan took
priority over the SBA loan. Eventually, on March 26, 2002, the District Court
determined that Denton was a debtor, not a creditor, and therefore was not entitled to
protection as a purchase money secured creditor. While a determination of
District Court issued its Findings of Fact, Conclusions of Law and Judgment. The court
found that Denton knew at the time he signed the Promissory Note that, in the event
Anderson defaulted and the Bank repossessed the collateral, the sale proceeds would
be applied first to the SBA loan and thereafter, if any proceeds remained, to the Denton
loan. Moreover, the court found that under the express terms of the promissory
promissory agreement that expressly allowed impairment. Additionally, the court
determined that FIB did not fail to comply with any applicable laws pertaining to
disposing of collateral and had met all the requirements **801 of the Uniform
Commercial Code (UCC). The court also held that because Denton had no ownership
interest in the collateral, he had no basis for his theory of conversion. Lastly, the court
368 N.J.Super. 587
Page 3
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
¶ 16 Additional facts will be discussed as needed for our analysis.
STANDARD OF REVIEW
evidence; and third, if substantial evidence exists and the effect of the evidence has not
been misapprehended, the Court may still conclude that a finding is clearly erroneous
when a review of the record leaves the Court with the definite and firm conviction that a
mistake has been made. We review a district court's conclusions of law to determine
whether the district court correctly interpreted the applicable law. (citations omitted).
¶ 21 In accordance with the District Court's Scheduling Order, both parties filed
proposed findings of fact and conclusions of law by November 25, 2003, one week
before trial. FIB failed to include in its November 25 original proposed findings
reference to the “General Provisions” language in the Promissory Note which expressly
stated that the Bank may “release any party ... or collateral; or impair, fail to realize
¶ 22 At the start of the trial, Denton moved to quash the Bank's amended proposed
findings and conclusions on the ground that the filing was untimely. Denton also
requested that he be allowed to amend his findings in the event the District Court
accepted the Bank's *174 amended proposed findings and conclusions. The court
allowed the Bank's amended findings to be received and instructed Denton to file his
raised waiver as an affirmative defense. The Bank refutes Denton's claim, pointing out
that it raised the issue of “waiver” as an affirmative defense in its initial and amended
answers to Denton's complaint and attached a copy of the Promissory Note containing
the “waiver” language to its Answer. The Bank further **802 argues that Denton was
not prejudiced by FIB's amended proposed findings and conclusions because the
368 N.J.Super. 587
Page 4
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
District Court granted Denton's request to amend his own proposed findings and
conclusions in response to the Bank's amended pleading.
¶ 24 An abuse of discretion occurs when the district court judge acts arbitrarily without
employment of conscientious judgment or exceeds the bounds of reasoning resulting in
¶ 25 FIB having adequately put Denton on notice of its intention to assert a waiver
defense early in this litigation, the District Court's decision to allow the Bank to amend
its proposed findings and conclusions to amplify its previously-claimed defense on the
eve of trial was not an abuse of discretion, especially in light of the court's agreement to
allow Denton to amend his proposed findings and conclusions. Therefore, we find no
defense of impairment. Denton argued in his Objection and Response to the Bank's
amended proposed findings that this waiver provision “falls directly under the definition
of a contract of adhesion, and is therefore unenforceable.” The District Court did not
make a finding nor render a specific legal conclusion on whether the Promissory Note
was, or was not, a contract of adhesion; however, given the District Court's findings and
General Provisions clause was difficult to find in the Promissory Note; 4) the terms of
the General Provisions clause were unconscionable; 5) he did not voluntarily and
intentionally relinquish the rights contained in the General Provisions clause and,
therefore his waiver was invalid; and 6) the General Provisions clause was inapplicable
because the Bank changed the actual terms of the Note without Denton's consent.
if the accommodation party signed a contract containing a waiver of such a defense. It
also asserts that because Denton acknowledged that he had studied the Promissory
Note before signing it, he cannot now claim that he was unaware of the existence of the
368 N.J.Super. 587
Page 5
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
to execute the Note “with the prudence and care of a reasonable businessman” and that
he cannot avoid the effects of the Note by failing to exercise such care or to read the
document in its entirety before signing it.
**803 ¶ 30 A contract of adhesion is a contract whose terms are dictated by one
contracting party to another who has no voice in its formulation. Contracts of adhesion
constituted contracts of adhesion and, therefore, the challenged mandatory arbitration
provision could not be enforced. Kloss, ¶ ¶ 27, 32. We explained:
Contracts of adhesion arise when a standardized form of agreement, usually drafted by
the party having superior bargaining power, is presented to a party, whose choice is
either to accept or reject the contract without the opportunity to negotiate its terms....
reasonable expectations of the party, but, when considered in its context, is unduly
oppressive, unconscionable, or against public policy.
Kloss, ¶ 24.
¶ 32 We determined that the contracts in Kloss were adhesion contracts based on the
following facts and reasons, among others: 1) they were standardized form contracts
investors but did not explain the arbitration clause to Kloss; and 5) Kloss did not read
the contract but relied on Husted to explain it to her (routine practice between Kloss and
Husted); therefore, she was unaware of the arbitration provision.
¶ 33 The analysis in Kloss is relevant to the case at bar, but it favors the Bank and not
Denton. As argued by FIB, inequality in bargaining *177 power does not equate to
unsuccessful in such attempt given his standing as a “valued FIB client.”
368 N.J.Super. 587
Page 6
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
368 N.J.Super. 587
Page 7
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
¶ 41 The Bank also asserts that substantial credible evidence was presented at trial to
support the District Court's conclusion that Denton “was fully informed of the structure of
the loan, and the requirement that FIB grant a prior lien ‘position’ to the SBA on the
collateral,” and that he consented to such loan structure. FIB argues that in the face of
disputed evidence such as was presented in this case, it is the province of the District
Court to weigh the credibility of the witnesses and the evidence presented, and absent
clearly erroneous findings and legally incorrect conclusions, the District Court's
determination of this issue must be affirmed.
¶ 42 The District Court specifically found based on the trial testimony of Bank loan
officer Dean Gillmore that Gillmore had explained to Denton that his loan was junior to
¶ 43 Our review of the record confirms that significant evidence was presented that
would allow the District Court to conclude that Denton knew his loan would hold a
second position lien to the SBA loan. While Denton's testimony conflicts with that of
the Bank's loan officer, it is the District Court's province to weigh conflicting evidence.
Therefore, we will not second-guess the District Court's determination regarding the
¶ 45 Did the District Court err in ruling that the Bank properly distributed the foreclosure
sale proceeds?
¶ 46 The District Court concluded that FIB did not breach its duty to preserve the value
of the collateral as required by , nor did it fail to comply with any applicable law when it
disposed of the collateral. The court also concluded that the requirements of the UCC
concluded that FIB had distributed the collateral funds in a legally correct and
commercially reasonable manner.
¶ 48 , addressed a secured party's right to dispose of collateral after default and the
effect of disposition. It provided in relevant part that:
(1) A secured party after default may sell, lease, or otherwise dispose of any or all of the
368 N.J.Super. 587
Page 8
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
leasing, and the like and, to the extent provided for in the agreement and not prohibited
proceeds is complete....
(3)(a) Disposition of the collateral may be by public or private proceedings and may be
made by way of one or more contracts. Sale or other disposition may be as a unit or in
parcels and at any time and place and on any terms, but every aspect of the disposition
including the method, manner, time, place, and terms must be commercially
accordance with the Bankruptcy Code. This, in conjunction with additional credible
testimony by bank officials, supports the District Court's conclusion that the Bank
complied with applicable laws regarding the repossession**806 and sale of the
collateral and the disbursement of proceeds.
¶ 50 Denton also challenges the District Court's decision regarding attorney's fees, and
seeks fees and costs on appeal. Having ruled in favor of FIB, we need not address this
claim.
CONCLUSION
¶ 51 For the foregoing reasons we affirm the District Court.
368 N.J.Super. 587
Page 2
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
November 1997, Anderson petitioned for a Chapter 7 bankruptcy proceeding. On
December 9, 1997, FIB was allowed to sell the logging equipment. The proceeds from
the public auction totaled $160,000.00. FIB applied the net amount of $137,870.85 to
Anderson's SBA loan. Anderson was granted a complete discharge of indebtedness
on March 16, 1998.
property that served as collateral for the Denton loan. On July 15, 1998, Denton
initiated the underlying action, seeking declaratory relief and a ruling that his loan took
priority over the SBA loan. Eventually, on March 26, 2002, the District Court
determined that Denton was a debtor, not a creditor, and therefore was not entitled to
protection as a purchase money secured creditor. While a determination of
District Court issued its Findings of Fact, Conclusions of Law and Judgment. The court
found that Denton knew at the time he signed the Promissory Note that, in the event
Anderson defaulted and the Bank repossessed the collateral, the sale proceeds would
be applied first to the SBA loan and thereafter, if any proceeds remained, to the Denton
loan. Moreover, the court found that under the express terms of the promissory
promissory agreement that expressly allowed impairment. Additionally, the court
determined that FIB did not fail to comply with any applicable laws pertaining to
disposing of collateral and had met all the requirements **801 of the Uniform
Commercial Code (UCC). The court also held that because Denton had no ownership
interest in the collateral, he had no basis for his theory of conversion. Lastly, the court
368 N.J.Super. 587
Page 3
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
¶ 16 Additional facts will be discussed as needed for our analysis.
STANDARD OF REVIEW
evidence; and third, if substantial evidence exists and the effect of the evidence has not
been misapprehended, the Court may still conclude that a finding is clearly erroneous
when a review of the record leaves the Court with the definite and firm conviction that a
mistake has been made. We review a district court's conclusions of law to determine
whether the district court correctly interpreted the applicable law. (citations omitted).
¶ 21 In accordance with the District Court's Scheduling Order, both parties filed
proposed findings of fact and conclusions of law by November 25, 2003, one week
before trial. FIB failed to include in its November 25 original proposed findings
reference to the “General Provisions” language in the Promissory Note which expressly
stated that the Bank may “release any party ... or collateral; or impair, fail to realize
¶ 22 At the start of the trial, Denton moved to quash the Bank's amended proposed
findings and conclusions on the ground that the filing was untimely. Denton also
requested that he be allowed to amend his findings in the event the District Court
accepted the Bank's *174 amended proposed findings and conclusions. The court
allowed the Bank's amended findings to be received and instructed Denton to file his
raised waiver as an affirmative defense. The Bank refutes Denton's claim, pointing out
that it raised the issue of “waiver” as an affirmative defense in its initial and amended
answers to Denton's complaint and attached a copy of the Promissory Note containing
the “waiver” language to its Answer. The Bank further **802 argues that Denton was
not prejudiced by FIB's amended proposed findings and conclusions because the
368 N.J.Super. 587
Page 4
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
District Court granted Denton's request to amend his own proposed findings and
conclusions in response to the Bank's amended pleading.
¶ 24 An abuse of discretion occurs when the district court judge acts arbitrarily without
employment of conscientious judgment or exceeds the bounds of reasoning resulting in
¶ 25 FIB having adequately put Denton on notice of its intention to assert a waiver
defense early in this litigation, the District Court's decision to allow the Bank to amend
its proposed findings and conclusions to amplify its previously-claimed defense on the
eve of trial was not an abuse of discretion, especially in light of the court's agreement to
allow Denton to amend his proposed findings and conclusions. Therefore, we find no
defense of impairment. Denton argued in his Objection and Response to the Bank's
amended proposed findings that this waiver provision “falls directly under the definition
of a contract of adhesion, and is therefore unenforceable.” The District Court did not
make a finding nor render a specific legal conclusion on whether the Promissory Note
was, or was not, a contract of adhesion; however, given the District Court's findings and
General Provisions clause was difficult to find in the Promissory Note; 4) the terms of
the General Provisions clause were unconscionable; 5) he did not voluntarily and
intentionally relinquish the rights contained in the General Provisions clause and,
therefore his waiver was invalid; and 6) the General Provisions clause was inapplicable
because the Bank changed the actual terms of the Note without Denton's consent.
if the accommodation party signed a contract containing a waiver of such a defense. It
also asserts that because Denton acknowledged that he had studied the Promissory
Note before signing it, he cannot now claim that he was unaware of the existence of the
368 N.J.Super. 587
Page 5
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
© 2005 Thomson/West. No Claim to Orig. U.S. Govt. Works.
to execute the Note “with the prudence and care of a reasonable businessman” and that
he cannot avoid the effects of the Note by failing to exercise such care or to read the
document in its entirety before signing it.
**803 ¶ 30 A contract of adhesion is a contract whose terms are dictated by one
contracting party to another who has no voice in its formulation. Contracts of adhesion
constituted contracts of adhesion and, therefore, the challenged mandatory arbitration
provision could not be enforced. Kloss, ¶ ¶ 27, 32. We explained:
Contracts of adhesion arise when a standardized form of agreement, usually drafted by
the party having superior bargaining power, is presented to a party, whose choice is
either to accept or reject the contract without the opportunity to negotiate its terms....
reasonable expectations of the party, but, when considered in its context, is unduly
oppressive, unconscionable, or against public policy.
Kloss, ¶ 24.
¶ 32 We determined that the contracts in Kloss were adhesion contracts based on the
following facts and reasons, among others: 1) they were standardized form contracts
investors but did not explain the arbitration clause to Kloss; and 5) Kloss did not read
the contract but relied on Husted to explain it to her (routine practice between Kloss and
Husted); therefore, she was unaware of the arbitration provision.
¶ 33 The analysis in Kloss is relevant to the case at bar, but it favors the Bank and not
Denton. As argued by FIB, inequality in bargaining *177 power does not equate to
unsuccessful in such attempt given his standing as a “valued FIB client.”
368 N.J.Super. 587
Page 6
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
368 N.J.Super. 587
Page 7
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
¶ 41 The Bank also asserts that substantial credible evidence was presented at trial to
support the District Court's conclusion that Denton “was fully informed of the structure of
the loan, and the requirement that FIB grant a prior lien ‘position’ to the SBA on the
collateral,” and that he consented to such loan structure. FIB argues that in the face of
disputed evidence such as was presented in this case, it is the province of the District
Court to weigh the credibility of the witnesses and the evidence presented, and absent
clearly erroneous findings and legally incorrect conclusions, the District Court's
determination of this issue must be affirmed.
¶ 42 The District Court specifically found based on the trial testimony of Bank loan
officer Dean Gillmore that Gillmore had explained to Denton that his loan was junior to
¶ 43 Our review of the record confirms that significant evidence was presented that
would allow the District Court to conclude that Denton knew his loan would hold a
second position lien to the SBA loan. While Denton's testimony conflicts with that of
the Bank's loan officer, it is the District Court's province to weigh conflicting evidence.
Therefore, we will not second-guess the District Court's determination regarding the
¶ 45 Did the District Court err in ruling that the Bank properly distributed the foreclosure
sale proceeds?
¶ 46 The District Court concluded that FIB did not breach its duty to preserve the value
of the collateral as required by , nor did it fail to comply with any applicable law when it
disposed of the collateral. The court also concluded that the requirements of the UCC
concluded that FIB had distributed the collateral funds in a legally correct and
commercially reasonable manner.
¶ 48 , addressed a secured party's right to dispose of collateral after default and the
effect of disposition. It provided in relevant part that:
(1) A secured party after default may sell, lease, or otherwise dispose of any or all of the
368 N.J.Super. 587
Page 8
368 N.J.Super. 587, 847 A.2d 628, 53 UCC Rep.Serv.2d 573
(Cite as: 368 N.J.Super. 587)
leasing, and the like and, to the extent provided for in the agreement and not prohibited
proceeds is complete....
(3)(a) Disposition of the collateral may be by public or private proceedings and may be
made by way of one or more contracts. Sale or other disposition may be as a unit or in
parcels and at any time and place and on any terms, but every aspect of the disposition
including the method, manner, time, place, and terms must be commercially
accordance with the Bankruptcy Code. This, in conjunction with additional credible
testimony by bank officials, supports the District Court's conclusion that the Bank
complied with applicable laws regarding the repossession**806 and sale of the
collateral and the disbursement of proceeds.
¶ 50 Denton also challenges the District Court's decision regarding attorney's fees, and
seeks fees and costs on appeal. Having ruled in favor of FIB, we need not address this
claim.
CONCLUSION
¶ 51 For the foregoing reasons we affirm the District Court.
