Allen v. Coates, No. 94-505

CourtCourt of Appeal of Florida (US)
Writing for the CourtVAN NORTWICK
Citation661 So.2d 879
Decision Date10 October 1995
Docket NumberNo. 94-505
Parties20 Fla. L. Weekly D2294, 27 UCC Rep.Serv.2d 1409 Aquilla J. ALLEN and Virginia C. Allen, Appellants, v. Richard COATES, an Individual, a/k/a Richard A. Coates, Jr., Appellee.

Page 879

661 So.2d 879
20 Fla. L. Weekly D2294, 27 UCC Rep.Serv.2d 1409
Aquilla J. ALLEN and Virginia C. Allen, Appellants,
v.
Richard COATES, an Individual, a/k/a Richard A. Coates, Jr., Appellee.
No. 94-505.
District Court of Appeal of Florida,
First District.
Oct. 10, 1995.

Page 880

James G. Mahorner, Jacksonville Beach, for appellants.

Samuel S. Jacobson of Datz, Jacobson, Lembcke & Garfinkel, Jacksonville, for appellee.

VAN NORTWICK, Judge.

Aquilla J. Allen and Virginia C. Allen appeal a final summary judgment in favor of appellee, Richard Coates, on the Allens' complaint which sought judgment on promissory notes that were made by Coates as the purchase price for his acquisition from the Allens of the capital stock of Allen's Electrical Center, Inc. (AEC). Following default under the notes by Coates, the Allens reassumed control and operation of AEC, the capital stock of which secured payment of the notes, and, at the same time, sought to recover a judgment on the full amount of the notes. The trial court granted summary judgment in favor of Coates, ruling that the Allens were not entitled to judgment on the notes after retaking control and possession of AEC, because the undisputed facts established that in retaking the business they had failed to comply with the requirements of Chapter 679, Florida Statutes. The Allens argue that the trial court erred because Chapter 679, Article 9 of the Uniform Commercial Code, is not applicable here. We disagree and, since the Allens presented no facts to the trial court on which they might

Page 881

recover a deficiency judgment under the notes, we affirm.

Factual Background

The Allens owned all of the capital stock of AEC, a Florida corporation that distributed light fixtures and electrical supplies. On April 28, 1992, pursuant to a stock purchase and sale agreement, the Allens sold the corporate stock of AEC to Coates for a purchase price of $150,000, paid by Coates' delivery to the Allens of two promissory notes of $75,000 each, payable over 10 years in equal monthly installments. 1 The stock purchase and sale agreement provided that, in the event Coates defaulted in the payment of the notes, the full amount payable under the notes accelerated and "if such amount is not paid within ten (10) days thereafter, the stock conveyed becomes the property of the Sellers, at Sellers' election upon written notice to Purchaser to satisfy any unpaid balance."

During January 1993, Coates defaulted on the monthly payment due on the notes for December 1992. Further, he notified the Allens that he would be unable to make the note payments due in January and February 1993. As a result, in late January 1993, the parties agreed that ownership of the AEC business would be transferred back to the Allens. Coates delivered the keys to the AEC business premises to the Allens. The Allens took control of AEC, electing themselves corporate officers, and operated its business.

In June 1993 the Allens filed suit against Coates seeking, among other things, a judgment on the full amount of the two $75,000 notes. 2 In granting summary judgment in favor of Coates, the trial court ruled that the Allens were not entitled to a judgment on the notes, concluding:

It is undisputed that [the Allens] retook the business without any effort at compliance with Chapter 679 [Florida Statutes], including sections 679.504 and 679.505. [The Allens] accordingly are not entitled to prevail here on their request for a money judgment.

Application of Chapter 679

Raising issues of first impression in Florida, the Allens argued below and argue here that any failure on their part to comply with the requirements of Chapter 679, Florida Statutes, in retaking control of AEC, should not bar their action on the notes, because the Uniform Commercial Code in general and Chapter 679 in particular do not apply to the sale of a business. The Allens contend that, as a result, the trial court's reliance on Chapter 679 in granting summary judgment was error. 3 Although we have found no Florida case which directly addresses whether the Code applies to a security interest in corporate stock granted in connection with the sale of all of the capital stock of a closely-held corporation, we conclude that the Allens' argument is contrary to the clear language and intent of the Uniform Commercial Code. The Code does apply to the security interest granted in the AEC stock in the instant case.

The use of corporate stock as collateral is governed by a combination of Article 8 and Article 9 of the Code; codified in Florida Statutes as Chapters 678 and 679, respectively. The first issue to be resolved is whether the Uniform Commercial Code applies to the capital stock of a closely-held corporation, such as AEC. Although there is a split of

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authority among the various states, 4 we agree with the reasoning in the majority of jurisdictions and conclude that a "security," as defined in subsection 678.102(1), Florida Statutes, includes the corporate stock of a closely held corporation. 5

Under subsection 678.102(1)(a), a "certificated security" includes:

"a share ... of the issuer which is ... [r]epresented by an instrument issued in bearer or registered form ... [o]f a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investments...."

In concluding that the corporate stock of a closely-held corporation falls within this definition, we are guided by the official comments of the Uniform Commercial Code adopted in Florida, which provide, in part, as follows:

Interests such as the stock of closely-held corporations, although they are not actually traded upon securities exchanges, are intended to be included within the definitions of both certificated and uncertificated securities by the inclusion of interests "of a type" commonly traded in those markets.

West's F.S.A. Sec. 678.102 comment 2. Further, we agree with the following analysis of the North Carolina Supreme Court in its consideration of this same issue:

[I]t is inconsequential whether the shares of stock in question are in fact suitable for trading or have ever been traded on an exchange or market. The statutory definition only requires ... that instruments be "of a type" that is dealt in on securities exchanges or markets in order to be deemed investment securities. Since stock exchanges and markets generally facilitate the trading of shares of corporate stock ... the shares of a corporation--whether publicly or close held--are instruments "of a type" commonly dealt in on securities exchanges or markets.

Stancil v. Stancil, 326 N.C. 766, 392 S.E.2d 373, 375 (1990). In addition, not only is stock in a closely-held corporation an interest "of a type" that is traded on securities markets, but it is also "commonly recognized" in Florida and elsewhere as a "medium for investment." Sec. 678.102(1)(a)2, Fla.Stat. (1993). As an example of this recognition, the United States and the states govern the raising of capital through this "medium for investment" by the regulation of private offerings of securities of small businesses. See, e.g., 15 U.S.C. Sec. 77d(2); 17 C.F.R. Secs. 230.501-230.505; Sec. 517.061, Fla.Stat. (1993).

Having determined that a security interest in the capital stock of AEC is governed generally by the Code, we now address the Allens' argument that Chapter 679 does not apply to the security interest in AEC stock, since the interest arises from the sale of a business. We conclude that the Code contains no general exception for a transaction involving the sale of a business and that Chapter 679 applies to a security interest in a corporation's stock granted to secure payment of the purchase price of a business sale.

Page 883

Section 678.321, Florida Statutes, governs the creation, perfection and termination of security interests in securities. Subsection 678.321(3), in turn, provides that, subject to two exceptions not applicable here, "[a] security interest in a security is subject to the provisions of Chapter 679...." This cross reference is consistent with the purpose of Chapter 679, which is to apply to "any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, or accounts; ... [and] to security interests created by contract...." Sec. 679.102(1)(a) and (2), Fla.Stat. (1993). As stated in the official comments to section 9-102 of the Code, "[t]he main purpose of this Section is to bring all consensual security interests in personal property and fixtures under this Article, except for certain types of transactions excluded by section 9-104." West's F.S.A. Sec. 679.102 comments to 1972 revision. No provision in the Code generally excludes from the Code's application security interests granted in connection with the sale of a business. Further, the Allens have cited no case, and we have found none, that would generally exclude the sale of a business from the application of Chapter 679.

The Allens' argument that subsection 679.104(6) removes this transaction from the application of Chapter 679 is also without merit. Subsection 679.104(6) on its face does not exclude all transactions involving the sale of a business from the application of Chapter 679, but only "a sale of accounts or chattel paper as a part of the sale of the business out of which they arose." The transaction that is the subject of this appeal did not involve the sale of accounts or chattel paper, however, but the sale of all of the capital stock of a closely-held corporation and the retention of a security interest in that capital stock. Accordingly, Chapter 679 applies to the security interest in the stock of AEC granted to the Allens in the stock purchase and sales agreement.

Remedies Under Chapter 679

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14 practice notes
  • Knauss v. Dwek, Civil Action No. 01-3662(MLC).
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • October 22, 2003
    ...Frohman v. Bar-Or, 660 So.2d 633, 634 (Fla.1995); Witchell v. Londono, 707 So.2d 796, 798 (Fla. 1st DCA 1998); Allen v. Coates, 661 So.2d 879, 883 (Fla. 1st DCA 1995); Magnuson v. Jones, 491 So.2d 1315, 1316 (Fla. 5th DCA 1986). "Repossession sale," then, means a sale of collatera......
  • Wakefield v Crawley, 99-00029
    • United States
    • Supreme Court of Tennessee
    • November 1, 1999
    ...corporations meets the definition found in the UCC. See In re Hryniewicz, 222 B.R. 14, 18 (Bankr. D. Conn. 1998); Allen v. Coates, 661 So.2d 879, 882 (Fla. Dist. Ct. App. 1995); Haught v. Lante Corp., No. 9-C-02342, 1991 WL 148198, at *2-3 (N.D. Ill. July 26, 1991); Medesco, Inc. v. LNS Int......
  • Comerica Bank v. Mann, Civil No. 1:11–CV–467–AT.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
    • September 17, 2013
    ...obtain an excessive deficiency judgment.’ ” Burley v. Gelco Corp., 976 So.2d 97, 100 (Fla.Dist.Ct.App.5th 2008) (quoting Allen v. Coates, 661 So.2d 879, 884 (Fla.Dist.Ct.App.1st 1995)). In order to establish entitlement to a deficiency judgment in a certain amount, the secured party must sh......
  • Comerica Bank v. Mann, Civil No. 1:11–CV–467–AT.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
    • September 17, 2013
    ...obtain an excessive deficiency judgment.’ ” Burley v. Gelco Corp., 976 So.2d 97, 100 (Fla.Dist.Ct.App.5th 2008) (quoting Allen v. Coates, 661 So.2d 879, 884 (Fla.Dist.Ct.App.1st 1995) ). In order to establish entitlement to a deficiency judgment in a certain amount, the secured party must s......
  • Request a trial to view additional results
14 cases
  • Knauss v. Dwek, Civil Action No. 01-3662(MLC).
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • October 22, 2003
    ...Frohman v. Bar-Or, 660 So.2d 633, 634 (Fla.1995); Witchell v. Londono, 707 So.2d 796, 798 (Fla. 1st DCA 1998); Allen v. Coates, 661 So.2d 879, 883 (Fla. 1st DCA 1995); Magnuson v. Jones, 491 So.2d 1315, 1316 (Fla. 5th DCA 1986). "Repossession sale," then, means a sale of collatera......
  • Wakefield v Crawley, 99-00029
    • United States
    • Supreme Court of Tennessee
    • November 1, 1999
    ...corporations meets the definition found in the UCC. See In re Hryniewicz, 222 B.R. 14, 18 (Bankr. D. Conn. 1998); Allen v. Coates, 661 So.2d 879, 882 (Fla. Dist. Ct. App. 1995); Haught v. Lante Corp., No. 9-C-02342, 1991 WL 148198, at *2-3 (N.D. Ill. July 26, 1991); Medesco, Inc. v. LNS Int......
  • Comerica Bank v. Mann, Civil No. 1:11–CV–467–AT.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
    • September 17, 2013
    ...obtain an excessive deficiency judgment.’ ” Burley v. Gelco Corp., 976 So.2d 97, 100 (Fla.Dist.Ct.App.5th 2008) (quoting Allen v. Coates, 661 So.2d 879, 884 (Fla.Dist.Ct.App.1st 1995)). In order to establish entitlement to a deficiency judgment in a certain amount, the secured party must sh......
  • Comerica Bank v. Mann, Civil No. 1:11–CV–467–AT.
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia
    • September 17, 2013
    ...obtain an excessive deficiency judgment.’ ” Burley v. Gelco Corp., 976 So.2d 97, 100 (Fla.Dist.Ct.App.5th 2008) (quoting Allen v. Coates, 661 So.2d 879, 884 (Fla.Dist.Ct.App.1st 1995) ). In order to establish entitlement to a deficiency judgment in a certain amount, the secured party must s......
  • Request a trial to view additional results

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