Bartlett Milling v. Walnut Grove Auction

• Decision Date: 19 August 2008
• Docket Number: No. COA07-329.,COA07-329.
• Citation: 665 S.E.2d 478
• Parties: BARTLETT MILLING COMPANY, L.P., Plaintiff, v. WALNUT GROVE AUCTION AND REALTY CO., INC., Rocky Creek Dairy, Inc., and Broker Dairy, Inc., Defendants.
• Court: North Carolina Court of Appeals

665 S.E.2d 478

BARTLETT MILLING COMPANY, L.P., Plaintiff, v. WALNUT GROVE AUCTION AND REALTY CO., INC., Rocky Creek Dairy, Inc., and Broker Dairy, Inc., Defendants.

No. COA07-329.

Court of Appeals of North Carolina.

August 19, 2008.

Appeal by plaintiff and cross-appeal by defendant from an order entered 22 August 2006 by Judge Larry G. Ford in Iredell County Superior Court. Heard in the Court of Appeals 29 October 2007.

Blanco Tackabery Combs & Matamoros, P.A., by Peter J. Juran, Winston-Salem, for plaintiff-appellant/cross-appellee.

Hamilton Moon Stephens Steele & Martin, PLLC, by David G. Redding and Mark R. Kutny, Charlotte, for defendants-appellees/cross-appellants.

JACKSON, Judge.

Keith and Talley Stephens ("the Stephens") owned and operated a dairy farm that failed. The Stephens had numerous creditors, including Bartlett Milling Company, L.P. ("plaintiff"). On 19 July 1999, plaintiff obtained a judgment in the amount of $102,964.04, plus one and a half percent monthly interest accruing from 17 August 1998, against the Stephens for defaulting on their payment for cattle feed purchased from Bartlett.

After entry of judgment, the Stephens requested assistance from plaintiff in restructuring their finances. Plaintiff agreed to remove its judgment from the record, accept a lower total payment, and accept payments over time, secured by a security interest in the Stephens' cattle herd ("the Stephens' herd") and its proceeds. A Promissory Note was executed on 11 August 2000, pursuant to which plaintiff agreed to accept $105,981.03, plus interest at a lower interest rate, instead of the full judgment, provided that the Stephens fulfilled the terms set forth in the Note. On 11 August 2000, the Stephens executed a security agreement (along with the 11 August 2000 note, "the Stephens agreement") securing all indebtedness of the Stephens to Bartlett and granting plaintiff a security interest in, inter alia, the Stephens' herd. Subsequent to the security agreement, defendants sold additional cattle to the Stephens. Defendants Rocky Creek Dairy, Inc. ("Rocky Creek") and Broker Dairy, Inc. ("Broker Dairy") perfected security interests in the cattle sold to the Stephens, though Walnut Grove Auction and Realty Co., Inc. ("Walnut Grove", and collectively with Rocky Creek and Broker Dairy, "defendants") failed to do so. The Stephens subsequently defaulted on the Stephens agreement, pursuant to which (1) the entire amount of the judgment plus accrued interest became due and payable, and (2) the security interest in the Stephens' herd remained intact.

As of May 2002, the Stephens continued having difficulty meeting their financial obligations. Walnut Grove, Rocky Creek, and Broker Dairy, along with Terry Jolly ("Jolly") of First Community Bank, held periodic meetings throughout the spring and summer of 2002 to discuss means of recouping the money owed to them by the Stephens. This group of creditors designated Jolly as the responsible party for maintaining the Stephens' dairy checkbook and payment of dairy expenses in order to control the flow of money in and out of the Stephens' farm. Plaintiff was not invited to participate in these meetings. Thereafter, defendants took possession of a portion of the Stephens' herd and made plans to sell it at an auction. The Stephens were not in default of their obligations to the creditors — except for plaintiff — at this time.

On 30 October 2002, defendants, acting under the name "State Road Dairy," sold approximately 300 cattle from the Stephens' herd at an auction run by Walnut Grove. Both before and after the auction, plaintiff notified defendants and their attorneys that plaintiff held a senior security interest in the Stephens' herd and its proceeds. Walnut Grove informed plaintiff that the proceeds of the auction would be held in trust pending a determination of the parties' respective rights to the auction proceeds as required by North Carolina auction law. Plaintiff's attorney sent two letters, both prior to and after the auction, confirming that the auction proceeds would be held in escrow pending a determination of the creditors' priority rights. Plaintiff did not attempt to stop the auction.

The auction generated $357,275.00 in proceeds. After payment of the costs of the sale — which amounted to $17,000.00 — Rocky Creek was to receive $165,000.00, Walnut Grove was to receive $110,000.00, and Broker Dairy was to receive $65,000.00. Defendants' answer to plaintiff's amended complaint states that all proceeds were disbursed pursuant to Chapter 25, Article 9 of the North Carolina General Statutes (Uniform Commercial Code), and presented as an affirmative defense that they were entitled to sell the cattle, and disburse the funds as they did pursuant to North Carolina General Statutes, sections 25-9-610 and 25-9-615. The Settlement Sheet did not provide that plaintiff would receive any of the proceeds.¹ After defendants refused to pay plaintiff according to its purported senior lien interest, plaintiff commenced this action on 7 February 2003.

On 21 December 2005, the trial court granted partial summary judgment in favor of plaintiff on the issue of liability on the conversion claim, leaving for trial the issues of unfair and deceptive trade practices, damages for conversion, and the unsettled issue of punitive damages.

During the course of the trial, the trial court, sua sponte, raised the issue of whether the Stephens agreement was flawed on the grounds that it was based upon a judgment bearing interest at a higher rate than that allowed by law. Specifically, the trial court held that because the Stephens' debt arose out of an agricultural loan, a default rate of eighteen percent was unenforceable under North Carolina General Statutes, section 24-5. The trial court reduced the amount of judgment interest to eight percent and maintained the interest of the Stephens agreement at eighteen percent. The trial court denied plaintiff's motion for directed verdict based upon the original amount of the Stephens agreement. The trial court also declined to send plaintiff's punitive damage claim to the jury.

On 26 May 2006, the trial court entered judgment for plaintiff in the amount of $44,232.88. This amount constituted $75,000.00 for plaintiff's claim of conversion, plus $19,232.88 in interest, for a total of $94,232.88, less $50,000.00 already paid to plaintiff in a settlement with an alleged joint tortfeasor. The trial court denied plaintiff's motion for judgment notwithstanding the verdict based upon the original amount of the Stephens agreement. Thereafter, both plaintiff and defendants filed timely notices of appeal. Additional relevant facts will be discussed below.

Plaintiff's Appeal

In plaintiff's first two arguments, it contends that the trial court erred as a matter of law in refusing to enforce the promissory note of 11 August 2000 according to its terms, and by refusing to grant plaintiff's motions for directed verdict and judgment notwithstanding the verdict. We disagree.

"We review questions of law de novo." Staton v. Brame, 136 N.C.App. 170, 174, 523 S.E.2d 424, 427 (1999). "This Court's review of a trial court's grant of a JNOV is the same as the review of the grant of a motion for directed verdict." Asfar v. Charlotte Auto Auction, 127 N.C.App. 502, 504, 490 S.E.2d 598, 600 (1997) (citation omitted). The question is whether the non-moving party has presented essential evidence to support its claim; all evidence should be taken in the light most favorable to the non-moving party, and all discrepancies in the evidence should be resolved in the non-moving party's favor. Id.

On 19 July 1999 default judgment was entered by the Superior Court of Iredell County in Bartlett Milling Co. v. Stephens. This was a default judgment entered against the Stephens, declaring they were in default on their obligations to plaintiff, and ordering the Stephens to pay $102,964.04 plus eighteen percent interest from 17 August 1998 until paid. Defendants were not parties to this action. Both parties in the instant action agree the interest awarded on this default judgment was in error, as the maximum amount allowed by law for default on an agricultural loan is eight percent. N.C. Gen. Stat §§ 24-5(a) and 24-1 (2007).

Plaintiff also argues in its brief, and argued at trial, that pursuant to the Stephens agreement, executed between them and the Stephens on 11 August 2000, the default judgment against the Stephens was satisfied. The parties agree that the interest rate calculated for the Stephens agreement was incorrect as a matter of law, as it erroneously adopted the eighteen percent rate included in the default judgment in contravention to the maximum legal rate for the extension of credit for agricultural loans, which is capped at eight percent. Id.

Section 24-5, however, is limited to actions for breach of contract. Plaintiff had no action against defendants for breach of the Stephens agreement, as defendants were not parties thereto. The instant action is one for the tort of conversion. The provisions of section 24-5 do not directly apply to plaintiff's action against defendants in the instant case.

Our trial courts are general courts of both law and equity. Kiser v. Kiser, 325 N.C. 502, 507, 385 S.E.2d 487, 489 (1989); Reynolds v. Reynolds, 208 N.C. 578, 624, 182 S.E. 341, 369 (1935). Trial courts have the discretionary power to "grant, deny, limit, or shape" equitable relief as they deem just. Sara Lee Corp. v. Carter, 351 N.C. 27, 36, 519 S.E.2d 308, 314, reh'g denied, 351 N.C. 191, 541 S.E.2d 716 (1999). Unjust enrichment is an equitable doctrine. Collins v. Davis, 68 N.C.App. 588, 591, 315 S.E.2d 759, 761 (1984). It is clear from the record and transcripts that the trial court in the instant case was concerned that a directed verdict in favor of plaintiff for the amount due under the Stephens agreement would unjustly enrich plaintiff due to plaintiff's and the...