Barton v. Chemical Bank
| Decision Date | 14 August 1978 |
| Docket Number | No. 76-4335,76-4335 |
| Citation | 577 F.2d 1329 |
| Parties | 24 UCC Rep.Serv. 497 Charles C. BARTON, Plaintiff-Appellant, v. CHEMICAL BANK, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Edward T. M. Garland, O. Jackson Cook, Atlanta, Ga., for plaintiff-appellant.
Kent E. Mast, L. Trammell Newton, Trammell E. Vickery, Atlanta, Ga., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before COLEMAN, AINSWORTH and VANCE, Circuit Judges.
In this Georgia diversity case plaintiff Charles C. Barton brought suit for actual and exemplary damages against defendant Chemical Bank, alleging that the bank converted a certificate of deposit in the principal amount of $200,000 issued by the bank in Barton's name. Chemical Bank filed a motion to dismiss for failure to state a claim, which was opposed by Barton who moved for summary judgment in his favor. The district court, treating Chemical Bank's motion as a motion for summary judgment, entered judgment in its favor and against Barton. Barton then brought this appeal.
On July 19, 1973, a real estate development loan in the amount of $8,000,000 was made by Chemical Realty Corporation, an affiliate of defendant Chemical Bank, 1 to Charles Barton and closed in Atlanta, Georgia. In connection with the loan Barton signed a note in the amount of the loan and a "Deed to Secure Debt and Security Agreement." Paragraph 1.02 of the "Deed to Secure Debt and Security Agreement" provided that Chemical Realty Corporation would withhold a reserve of $2,324,500 from the $8,000,000 loan to pay current interest on the note and any taxes, fees or other assessments on the property as they accrue and are payable. The paragraph further provided that if the reserve became insufficient to pay such interest, taxes and assessments in full Barton will deposit with Chemical Realty such sums as may be required to cover these charges. 2 At the closing Chemical Realty Corporation determined that the $2,324,500 reserve may not be sufficient and therefore requested that from the funds advanced in connection with the loan Barton purchase a $200,000 certificate of deposit from Chemical Bank and pledge it with Chemical Realty Corporation to supplement the reserve. Accordingly, that same day Barton directed Chemical Bank by letter to purchase a one-year certificate of deposit for $200,000 and to deliver it to Chemical Realty Corporation "to hold under a pledge agreement which is being prepared by counsel for Chemical Realty Corporation." 3 Pursuant to these instructions, Chemical Bank issued a certificate of deposit in Barton's name for that amount and delivered it to Chemical Realty Corporation. Subsequently, on July 27, 1973, Caroline Muccio, the Mortgage Loan Administrator for Chemical Realty Corporation, sent Barton a receipt for the certificate of deposit. 4 Though Barton's and Muccio's letters indicated that Chemical Realty Corporation's attorneys were preparing a pledge agreement covering the $200,000 certificate of deposit, no written pledge agreement was ever executed.
Shortly before the one-year certificate of deposit matured, Chemical Realty Corporation on July 10, 1974 wrote Barton confirming that proceeds of the certificate of deposit, "pledged by you to Chemical Realty Corporation," would be applied to the purchase of a new certificate in the same amount with a maturity of sixty to ninety days depending upon whichever maturity has the highest prevailing interest rate. The letter requested that Barton sign and return the attached copy. Barton signed and returned the copy of the letter after editing it to indicate that new certificates with a sixty-day maturity should be purchased. 5 However, Barton did not edit that portion of the same sentence which referred to the certificate of deposit as being pledged to Chemical Realty Corporation. During the next two years, whenever Barton's certificate of deposit matured, Chemical Realty Corporation delivered the maturing certificate to Chemical Bank directing Chemical Bank to deposit the interest in Barton's account, to purchase a new certificate of deposit and to deliver it to Chemical Realty Corporation. 6
During this three-year period Barton repeatedly received letters and documents from Chemical Realty Corporation stating that the certificate of deposit was pledged to Chemical Realty Corporation. Chemical Realty Corporation regularly sent Barton receipts for the certificates as issued, indicating that the certificates were "held to cover any deficiency in the Reserve for Interest, Taxes, Fees, and Assessments in CRC's $8,000,000 land loan to Charles C. Barton." At no time did Barton or anyone else dispute the fact that Chemical Realty Corporation held the certificate pursuant to a pledge agreement.
On March 12, 1976, when the current certificate matured, it was clear to Chemical Realty Corporation that deficiencies in the original reserve for the payment of interest, taxes, fees and assessments would occur prior to the maturity of any further certificates of deposit and prior to the maturity of the loan. Hence, on March 11, when Chemical Realty Corporation sent Chemical Bank the certificate of deposit which would mature on March 12, Chemical Realty Corporation instructed Chemical Bank to deposit the proceeds thereof in Chemical Realty Corporation's account rather than purchase another certificate of deposit. In accordance with these instructions, Chemical Bank cashed and cancelled the certificate the next morning, March 12, 1976, and deposited the proceeds in Chemical Realty Corporation's account. Amounts remaining in the original reserve account were insufficient to pay interest due upon the $8,000,000 loan after March 31, 1976 and thereafter Chemical Realty Corporation commenced application of the proceeds from the certificate to payment of interest due.
On the afternoon of March 12, 1976 Barton, with his attorney, personally appeared at the Chemical Bank and demanded that the bank deliver to him the certificate of deposit or its proceeds. This was the first time in almost three years that Barton had even suggested that he regarded the certificate purchased with $200,000 of the original loan from Chemical Realty Corporation as anything other than pledged to Chemical Realty Corporation. After contacting Chemical Realty Corporation, which informed Chemical Bank that these funds had been continuously pledged to it, Chemical Bank declined to comply with Barton's demands. Barton then filed the present suit.
The primary issue in this suit is whether a security agreement covering the certificate of deposit existed between Barton and Chemical Realty Corporation. If a security agreement existed, Chemical Bank's payment of the proceeds of the certificate of deposit to Chemical Realty Corporation rather than to Barton was proper. 7
The circumstances demonstrate that a valid security agreement covering the certificate of deposit was reached. 8 While Barton and Chemical Realty Corporation never signed a written pledge agreement, Georgia law permits enforcement of oral security agreements under certain conditions. Although the Georgia statute enacting the Uniform Commercial Code explicitly provides that a written security agreement is required for enforcing a security interest when the secured party lacks possession of the collateral, Ga.Code Ann. § 109A-9-203(1)(b), no similar requirement for enforcing a security interest is imposed when the secured party possesses the collateral, id. § 109A-9-203(1) (a). The Official Comments indicate that the omission of a provision for a written security interest when the creditor possesses the collateral was intended to allow oral security agreements.
Where the collateral is in the possession of the secured party, the evidentiary need for a written record is much less than where the collateral is in the debtor's possession; customarily, of course, as a matter of business practice the written record will be kept, but, in this Article, as at common law, the writing is not a formal requisite. Subsection (1)(a), therefore, dispenses with the written agreement and thus with signature and description if the collateral is in the secured party's possession.
Uniform Commercial Code 9-203, Comment 3.
Since it is undisputed that Chemical Realty Corporation had possession of the collateral, the certificate of deposit, Chemical Bank's conduct was proper if the facts show that Barton and Chemical Realty Corporation reached an oral security agreement. Barton presents alternative arguments in his brief concerning the existence of an oral agreement with Chemical Realty Corporation. At times Barton contends that no oral agreement to create a security interest was ever reached. At other times Barton contends that a security agreement was reached but that the agreement conditioned the creation of a security interest on the completion of a written security agreement. However, we conclude that neither position is supported but that Barton and Chemical Realty Corporation reached a binding oral security agreement covering the certificate of deposit.
A security agreement is defined as "an agreement which creates or provides for a security interest." Ga.Code Ann. § 109A-9-105(1)(h). Hence, for a valid security agreement the parties need merely agree to create a security interest in the collateral. That an intent to create a security interest is the sole requisite for a security agreement 9 is further supported by an examination of the provision for a written security agreement when the secured party lacks possession of the collateral, Ga.Code Ann. § 109A-9-203(1)(b). A written security agreement satisfies this provision if the signed security agreement contains a description of the collateral. See Ga.Code Ann. § 109A-9-203(1)(b). See generally J. White & R. Summers, Handbook of the Law under the ...
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