Fred's Finance Co. v. Fred's of Dyersburg, Inc.

741 S.W.2d 903, 4 U.C.C. Rep. Serv. 2d (West) 1613, 1987 Tenn. App. LEXIS 3203
CourtCourt of Appeals of Tennessee
DecidedJuly 29, 1987
StatusPublished
Cited by7 cases

This text of 741 S.W.2d 903 (Fred's Finance Co. v. Fred's of Dyersburg, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals of Tennessee primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fred's Finance Co. v. Fred's of Dyersburg, Inc., 741 S.W.2d 903, 4 U.C.C. Rep. Serv. 2d (West) 1613, 1987 Tenn. App. LEXIS 3203 (Tenn. Ct. App. 1987).

Opinion

CRAWFORD, Judge.

This case involves creditor rights under a perfected security agreement. Defendants have appealed from the trial court’s order granting plaintiff summary judgments against them. Plaintiff has also presented issues for review which we will consider as necessary.

Defendant, Fred’s of Dyersburg, Inc., borrowed $800,000 from plaintiff, Fred’s Finance Company, evidenced by a promissory note in that amount dated April 13, 1983, and payable on demand. As security for the loan, Fred’s of Dyersburg executed, among other things, a security agreement and collateral pledge agreement granting Fred’s Finance Company a security interest in the following described property.

All inventory now or hereafter acquired and all store fixtures, furniture and equipment plus any additions, substitutions and replacements located in the Fred’s store located on Highway 78, Dyersburg, Tennessee.

The agreement also provided:

8. The above described property and all property held by Fred’s Finance Company as collateral under this agreement may, from time to time, with the consent of said Fred’s Finance Company be withdrawn or released or exchanged for other property which may likewise be successfully withdrawn, realeased [sic] or exchanged without prejudice to the rights of Fred’s Finance Company against any endorser or guarantor of any of the obligations of the undersigned held by Fred’s Finance Company. All collateral hereafter pledged either as addition to or in substitution for any of the property herein described shall be held by Fred’s Finance Company subject to all the terms of this agreement.

A financing statement containing the same description of property was executed and filed which specifically provided that the proceeds of collateral were also covered.

Demand for payment of the note was made on March 14,1984 and when payment was not forthcoming, Fred’s Finance Company filed its complaint on March 28, 1984, in the Circuit Court of Tennessee for the Thirtieth Judicial Circuit at Memphis. The complaint sought recovery of the personal property listed as security in the Security Agreement, and a money judgment for any deficiency resulting after disposal of the collateral. The complaint specifically alleged that the contract documents were executed in Shelby County, Tennessee, although the property sought was located in Dyer County, Tennessee. Fred’s of Dyers-burg filed a motion to quash the possesso-ry hearing, and by order entered April 4, 1984, the court denied the motion and ordered that a writ of possession issue to the Sheriff of Dyer County “directing said sheriff to take command of all inventory and/or proceeds thereof, all store fixtures, furniture, and equipment located in the Fred’s store at 805 Pennell Lane, Dyers-burg, Tennessee ...” The Writ of Possession was served April 5, 1984. Fred’s of Dyersburg then filed its answer April 30, 1984, and joined issue on the material allegations, denied that it was in default, and averred that Fred’s Finance Company wrongfully and prematurely accelerated the indebtedness. The answer further averred that the security for the loan was limited solely to that described in the loan documents and not as alleged in the complaint.

Through discovery proceedings, it was determined that Fred’s of Dyersburg, Inc., on March 29, 1984, shortly after it was served with the original complaint, held a [905]*905special meeting of the Board of Directors which authorized the following disbursements of corporate funds: bonus to Jeffrey Pike of $2,500; bonus to Victor Pike of $3,000; bonus to Nellie Pike of $7,000; salary for Nellie Pike from April 15, 1983, through December 31, 1983, of $34,000; salary for Nellie Pike for 1984 year to date $10,000; and a loan to Especially for You of $40,000.

Pursuant to order of court granting Fred’s Finance Company leave to amend and supplement its complaint, an amended and supplemental complaint for writ of possession and money judgment was filed on January 7, 1985, which in essence restated the original complaint and added Harvey Pike, Nellie Pike, Victor Pike, Jefferey Pike, and Especially for You, Inc., as supplemental defendants. The complaint essentially alleged that the funds distributed to the supplemental defendants by the Board on March 29,1984 were the proceeds of collateral described in the Security Agreement, that plaintiff had a security interest in these proceeds, and that defendants wrongfully converted them to their own use. The complaint also alleged that the transfer of the funds to these defendants constituted fraudulent conveyances. The amended and supplemental complaint specifically alleged that the additional defendants were residents and citizens of Dyer County, Tennessee, and that the acts complained of against them occurred in Dyer County. In response to the complaint the supplemental defendants filed a motion to dismiss for lack of venue which was overruled by the court. The supplemental defendants answered the complaint and joined issue on the material allegations, denied that they converted any of the plaintiffs property and denied that there were any fraudulent conveyances. Subsequently, on plaintiffs motion it was granted summary judgment against Fred’s of Dyersburg for $432,347, against Nellie Pike for $41,604.35, against Victor Pike for $4,552.61, against Jefferey Pike for $2,812.34, against Especially for You for $40,000. All defendants except Especially for You, Inc., have appealed.

We have rephrased the issues that defendants present for review as follows:

1. Whether the trial court erred in holding that Shelby County is proper venue for the actions against the supplemental defendants.

2. Whether there was a proper joinder of the supplemental defendants in the original suit filed against Fred’s of Dyersburg, Inc.

3. Whether the trial court erred in holding that Fred’s Finance Company obtained a security interest in the proceeds of the sale of collateral.

4. Whether the trial court erred in granting summary judgment for plaintiff against Fred’s of Dyersburg, Inc., Nellie Pike, Jeffrey Pike, and Victor Pike.

Victor Pike raises the additional issue of whether the summary judgment against him is erroneous on its face because it awards plaintiff more than it sought in the complaint.

Because the disposition of Issue 3 is essential in order to consider Issues 1 and 2, we will first consider Issue 3 which is as follows:

3. Whether the trial court erred in holding that Fred’s Finance Company obtained a security interest in the proceeds of the sale of collateral.

Fred’s of Dyersburg contends that prior to January 1, 1986, in order to have a security interest in the proceeds of collateral, there must be a specific provision to this effect in the security agreement. This contention is premised on T.C.A. § 47 — 9—203(l)(b) (1979), which states:

47-9-203. Enforceability of security interest — Proceeds, formal requisites.— (1) Subject to the provisions of § 47-4-208 on the security interest of a collecting bank and § 47-9-113 on a security interest arising under the chapter on sales, a security interest is not enforceable against the debtor or third parties unless:
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Bluebook (online)
741 S.W.2d 903, 4 U.C.C. Rep. Serv. 2d (West) 1613, 1987 Tenn. App. LEXIS 3203, Counsel Stack Legal Research, https://law.counselstack.com/opinion/freds-finance-co-v-freds-of-dyersburg-inc-tennctapp-1987.