Cochran v. Pate

• Decision Date: 30 January 1998
• Citation: 712 So.2d 1099
• Parties: S.H. COCHRAN, as trustee of Port City Medical, Inc., Pension Trust v. Thad W. PATE. 2961185.
• Court: Alabama Court of Civil Appeals

Page 1099

712 So.2d 1099

S.H. COCHRAN, as trustee of Port City Medical, Inc., Pension Trust v. Thad W. PATE.

2961185.

Court of Civil Appeals of Alabama.

Jan. 30, 1998.

Rehearing Denied March 13, 1998.

Clifford C. (Kip) Sharpe, Mobile, for appellant.

Keith B. Franklin of the Dauphin Law Center, P.C., Mobile, for appellee.

BEATTY, Retired Justice.

The plaintiff, S.H. Cochran, as trustee of Port City Medical, Inc., Pension Trust, appeals from a summary judgment in favor of the defendant, Thad W. Pate. Our supreme court transferred the appeal to this court pursuant to § 12-2-7(6), Ala.Code 1975. We affirm in part, reverse in part, and remand.

In April 1993, Pate and Hochang Kwon incorporated an import-export business known as Gulf Eastern Export, Inc. Pate and Kwon were the corporation's only shareholders, directors, and officers. At the time of incorporation, Gulf Eastern obtained a $100,000 line of credit from Compass Bank. Kwon and Pate executed a promissory note on behalf of Gulf Eastern in their capacities as the corporation's president and its vice-president/secretary/treasurer, respectively. They also personally guaranteed the note. To secure the note, Pate and his wife executed a "Pledge Agreement" giving the bank a security interest in stock that had a fair market value of approximately $120,000, and Kwon and his wife executed a "Real Estate Accommodation Mortgage" giving the bank a security interest in their home. The Kwons' home was valued at over $250,000 and bore a first mortgage of approximately $95,000. During the remainder of 1993, Gulf Export used the $100,000 line of credit for operating expenses.

In December 1993, Cochran obtained a judgment for $35,744.52 against Kwon individually. Cochran recorded the judgment in the probate office of Mobile County, where it thereafter appeared of record as a lien against the Kwons' home.

In early 1994, Gulf Eastern stopped doing business, as a result of financial difficulties. Pate says that he made the interest payments on the corporation's note with Compass Bank until May 1995, when Compass Bank declared the note in default. On May 26, 1995, Pate paid Compass Bank $101,459.19, which fully paid the principal balance of $99,065.13 on the corporation's promissory note, plus accumulated interest. Compass Bank then assigned to Pate the promissory note, personal guaranty agreement, and security agreements, including the mortgage on the Kwons' home.

Pate began foreclosure proceedings on the Kwons' home in the fall of 1995. On October 10, Kwon filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Alabama. In his bankruptcy schedules, he listed Pate as a secured creditor to whom he said he owed $50,000, and Cochran as an unsecured creditor to whom he said he owed $30,000. On October 24, Pate filed in the bankruptcy court a motion for relief from the automatic stay of his foreclosure proceedings that had been imposed when Kwon filed his bankruptcy petition, requesting that he be allowed to resume foreclosure proceedings. In that motion and the accompanying affidavit, Pate stated that Kwon owed him $105,449.30, representing the principal and accumulated interest on the Gulf Eastern note; that the entire amount was secured by the assignment to Pate of Gulf Eastern's note and the Kwons' accommodation mortgage; and that the value of the Kwons' property was approximately $220,000. Kwon did not oppose the motion. The bankruptcy court lifted the stay, and afterwards Pate completed foreclosure proceedings on the Kwons' home. At the foreclosure sale on December 27, Pate was the successful bidder, with a bid of $82,500. Pate then assumed the first mortgage on the home and later satisfied it.

Because Pate claimed that Kwon owed him over $100,000, no equity remained in the home after Pate foreclosed on it. As a result, the bankruptcy trustee sent notices to Kwon's other creditors informing them that there were no assets in his estate with which to pay them. On January 8, 1996, in a letter from Cochran's attorney to the attorneys for Pate and Kwon, Cochran's attorney requested information about the conveyance of the Kwons' home to Pate, stating that "it appear[ed] that Mr. Kwon, and possibly others, ha[d] conspired to defraud creditors." On January 10, Kwon amended his bankruptcy schedules to list Pate as a secured creditor to whom he owed $100,000 and as an unsecured creditor to whom he owed $79,000.

Cochran sued Pate, alleging that the foreclosure sale had created a surplus from which funds were due to be paid to him in satisfaction of his judgment and that Pate and Kwon had conspired to defraud him and hinder him in the collection of his judgment. Pate moved for a summary judgment; Cochran opposed it. The trial court entered a summary judgment in favor of Pate. After Cochran's post-judgment motion was denied by operation of law pursuant to Rule 59.1, Ala. R. Civ. P., he appealed.

Cochran contends that, pursuant to Alabama law regarding contribution among cosureties, Kwon owed Pate only half of the amount borrowed by Gulf Eastern that was guaranteed by the two men. Therefore, Cochran argues, as a matter of law, a surplus of approximately $32,500 remained after the foreclosure sale from which funds should have been available to apply toward the satisfaction of his judgment. Pate contends that, pursuant to Alabama law regarding the subrogation rights of a surety, Kwon owed him the entire amount of the Gulf Eastern loan. Therefore, Pate argues, no surplus remained after the foreclosure sale. Cochran also contends that he presented substantial evidence showing that Pate and Kwon conspired to defraud him and hinder him in the collection of his judgment. Pate maintains that Cochran presented no evidence of fraud or conspiracy.

Our standard for reviewing a summary judgment is well settled. The summary judgment was proper if there was no genuine issue of material fact and Pate was entitled to a judgment as a matter of law. Rule 56, Ala. R. Civ. P. Pate had the burden to make a prima facie showing that no genuine issue of material fact existed and that he was entitled to a judgment as a matter of law. Long v. Jefferson County, 623 So.2d 1130 (Ala.1993). If Pate made that showing, then the burden shifted to Cochran to present evidence creating a genuine issue of material fact, so as to avoid the entry of a judgment against him. Id. In deciding whether there was a...