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Brown v. AVEMCO Investment Corp.

United States Court of Appeals, Ninth Circuit
603 F.2d 1367 (9th Cir. 1979)


On September 22, 1972, Robert Herriford obtained a loan from AVEMCO Investment Corp. (AVEMCO) (defendant). As security for the loan, Herriford agreed to grant AVEMCO an interest in an airplane. The security agreement between Herriford and AVEMCO stated that if Herriford sold, leased, transferred, mortgaged, or otherwise encumbered the interest in the airplane at any time, the full amount of the loan would immediately become due to AVEMCO. On July 4, 1973, Herriford entered into a lease and option agreement with Brown (plaintiff) and two others (plaintiffs). Under the agreement, Brown agreed to pay hourly rentals to Herriford for the plane and to make additional payments toward reducing Herriford’s debt to AVEMCO. The agreement also stated that upon full payment of Herriford’s mortgage with AVEMCO, Brown and the other plaintiffs would have the option to purchase the plane. On July 9, 1975, Brown and the other plaintiffs tendered the entire remaining balance on Herriford’s mortgage to AVEMCO. Brown informed AVEMCO that he and the other plaintiffs were exercising their option to purchase the plane. AVEMCO refused to accept Brown’s offer and informed Herriford that it was accelerating the payments on Herriford’s loan. AVEMCO stated that because Herriford leased the plane to Brown, the entire amount of Herriford’s loan plus interest and an insurance fee ($5,078.97 total) was immediately due to AVEMCO. On July 25, 1975, Brown and the other plaintiffs informed AVEMCO that they did not accept AVEMCO’s rejection of their offer to purchase the plane. On July 29, 1975, AVEMCO repossessed the plane from Herriford. On September 22, 1975, AVEMCO sold the plane to another party for $7,000. Brown and the other plaintiffs filed an action for conversion in federal district court against AVEMCO. At trial, the district court refused to instruct the jury that acceleration by AVEMCO could only be done if AVEMCO believed in good faith that its security interest in the plane was impaired by Herriford’s breach of the security agreement. The jury returned a verdict for AVEMCO, and Brown and the other plaintiffs appealed.

Rule of Law


Holding and Reasoning (Ferguson, J.)

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