Conister Trust Ltd. v. Boating Corp. of Amer. & Villas-Afloat Ltd., M1998-00949-COA-R3-CV
| Decision Date | 14 March 2002 |
| Docket Number | M1998-00949-COA-R3-CV |
| Parties | CONISTER TRUST LTD. v. BOATING CORPORATION OF AMERICA andIN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Sumner County No. 94C-412 Tom E. Gray, Chancellor
The buyer of three boats that were to be built pursuant to specific instructions defaulted on payment for the second and third boats by failing to pay the entire purchase price of the boats. The seller resold the two boats and recovered its damages caused by the buyer's breach. A creditor of the buyer, who furnished funds for the purchase of the first two boats, sought the excess proceeds from the sale of the second boat asserting that it had an unperfected security interest. Because the buyer did not attain rights in the collateral sufficient to meet the requirements for attachment of a security interest, the creditor is not entitled to distribution of the proceeds under Article 9 of the Uniform Commercial Code. Instead, the rights of the buyer and seller are governed by Article 2. The creditor was entitled to assert the buyer's right to restitution of partial payments, and the seller was entitled to recover its damages from the resale of the two boats. The seller also had a right of setoff which it exercised to recover losses on the third boat from moneys realized in the sale of the second boat. Accordingly, we affirm the trial court.
Todd E. Panther, Nashville, Tennessee, for the appellant, Conister Trust Ltd.
Steven C. Douse, Nashville, Tennessee, for the appellees, Boating Corporation of America and Villas-Afloat, Ltd.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed and Remanded
PATRICIA J. COTTRELL, J., delivered the opinion of the court, in which BEN H. CANTRELL, P.J., M.S., and WILLIAM C. KOCH, JR., J., joined.
The issue presented to the court is whether Boating Corporation of America ("BCA") or Conister Trust, Ltd. ("Conister") is entitled to proceeds realized from the sale of a boat. Conister, a British financing institution, sued Villas-Afloat, Ltd. ("Villas-Afloat") and BCA seeking surplus proceeds that BCA withheld from the sale of a boat built by BCA for Villas-Afloat. Conister had provided financing to Villas-Afloat for two boats to be built by BCA, and BCA sold the second after Villas-Afloat failed to pay. After the sale, BCA applied proceeds from the sale to moneys owing on a third boat it had built for Villas-Afloat. The trial court found that no surplus proceeds existed from the sale of the second boat, and Conister appealed.
In 1989, Robin Bamford, director of the newly formed Villas-Afloat, approached Conister about financing the purchase of several boats. Like Conister, Villas-Afloat was a business located on the Isle of Man in Great Britain. Villas-Afloat intended to purchase the boats and offer them to vacationers in the Mediterranean on a time share basis.
BCA was a Tennessee corporation which built houseboats, boats and cruisers.1 These boats were marketed through a network of some 23 dealers in the U.S. and Canada which ordered and bought the boats and sold them to consumers. The boats were typically built to order and delivered only after full payment by the dealer.
In 1989, Mr. Bamford approached BCA about becoming BCA's exclusive distributor in Europe. In June, after a telephone conversation between the parties, BCA confirmed its agreement with a letter indicating that Mr. Bamford's company would be the exclusive European dealer of BCA boats with a minimum annual order of six boats. In August 1989, acting under this agreement, Mr. Bamford requested that BCA send him invoices for two boats. His correspondence stated:
Although we will have sufficient funds for the first two boats, we are taking advantage of an initial loan offered to us to leave capital free for operation costs.
In late November 1989, Villas-Afloat paid a $25,157.68 deposit to BCA on the first boat ("Boat I"). The deposit was accompanied by a confirmation facsimile advising BCA that the balance would be from a "finance house." On December 1, 1989, BCA sent Villas-Afloat Invoice Number 1766 in the amount of $196,934.75 for Boat I. This invoice provided detailed information on the equipment and components to be used on the boat and their cost. On December 6, BCA sent invoice number 1771, which was equally detailed and for the same amount, to cover the second boat ("Boat II").
In December 1989, Conister and Villas-Afloat entered into two conditional sales agreements. The documents purport to represent a sale by Conister, called "seller" in the documents, to Villas-Afloat, called "buyer" therein. They included a section to be signed by a "dealer," offering to sell the goods to Conister. Although BCA's name had been filled in as the dealer, no signature was included for BCA. Conister never forwarded the documents to BCA for signature. Conister was to advance up to 100,000 per boat2 and under the agreements, Villas-Afloat was to be liable for the balance. Villas-Afloat sent the invoices it had received from BCA to Conister.
On December 13, 1989, pursuant to the conditional sales agreements between Conister and Villas-Afloat, Conister wired 200,000 (approximately $320,800) to BCA. The confirming facsimile to BCA for this wire transfer stated in part:
Subject: Invoice 1771 and 1766
Comments: Confirmation of funds of 200,000.00 sterling have been sent to your account by SWIFT to your Banker.
Conister preceded this fax with a telephone call to BCA's president, Clyde C. Head. The Conister representative who made the call, Michael James Lees, recalled that he "phoned Boating Corporation of America in the afternoon to obtain and confirm the banking details of Boating Corporation of America." These were the first communications between Conister and BCA. At no time did these two entities enter into any kind of a written contractual arrangement regarding the boats.
On December 15, 1989, BCA released Boat I to Villas-Afloat, having received full payment for that boat.3 This left BCA holding the remaining funds originating from Conister and Villas-Afloat.4
On January 19, 1990, Villas-Afloat ordered six additional boats from BCA for the Olympic Games Committee.5 Mr. Bamford's correspondence requested:
From the funds we have already advanced to you, please allocate $25,000 to the deposit on the first of these six boats which are required by the 1992 Olympic Committee. We are at present attending to the final contract details as all six boats are being financed through a lending institution for the Olympic Committee.
As requested by Villas-Afloat, BCA used $25,000 of the amount remaining from payment for Boat I as a deposit on a third boat ("Boat III"). BCA applied the remaining balance to Boat II.6 Due to changes and additions requested by Villas-Afloat, $14,191.88 was added to the price of Boat II. Thus, as of January 30, 1990, BCA's records showed that $87,123.70 remained owing on Boat II, which was completed on February 13, 1990.
In January of 1990, Villas-Afloat failed to make its first payment to Conister under the Conditional Sales Agreement. Villas-Afloat also failed to make any payments to BCA on Boat II.
On February 21, 1990, E. J. Thorn, Conister's chief executive, corresponded with BCA's president, Clyde Head. The letter stated:
We have today determined an agreement with Villas-Afloat Limited in respect of a Mediterranean Motor Yacht, believed to be recently completed and in your possession. This letter serves as your authority, from this company as owners, to retain possession of this vessel and await our further instructions.
Mr. Head responded on March 12, 1990, with a letter to Conister's counsel stating:
We received a letter from E. J. Thorn . . . concerning the ownership and possession of the second Harbor Master Motoryacht which we constructed for Villas-Afloat. This motoryacht is owned by and is in the possession of Boating Corporation of America. This boat had been sold to Villas-Afloat with partial funding provided by Conister. . . . It is my understanding that Conister has funded the purchase of these Harbor Master Motoryachts for Villas-Afloat. Could you please supply me with documentation to demonstrate Conister's ownership position in this vessel? The motoryacht under discussion was finished on February 13, 1990 and we anticipated immediate shipment. We are awaiting shipping instructions and stand ready to ship the boat upon payment of the outstanding balance.
Conister's counsel responded the following day, March 13, 1990, by sending BCA copies of the conditional sales agreements and explaining that Villas-Afloat was in default. No mention was made of what BCA should do with Boat II.
After Mr. Head received the agreements, he noticed that BCA's name had been filled in under a provision of the documents which stated:
To Conister Limited . . .
I/We offer to sell you the Goods described in the Schedule hereto and request you to supply them on Conditional Sale to the proposed Buyer named in the schedule hereto. The Goods referred to are my/our sole property unencumbered and have not been the subject of any previous transaction with the proposed Buyer. I/We warrant that the initial Payment shown in the Schedule above has not been increased in any way beyond the actual amount that will be paid in cash by the proposed Buyer or the fair market value of goods traded in to me/us.
NO INVOICE OR OTHER DOCUMENTATION INFERRING A SALE OR AN AGREEMENT TO SELL HAS BEEN ISSUED BY ME/US AND WE CERTIFY THAT THIS TRANSACTION HAD NEITHER BEEN OFFERED TO NOR REFUSED BY ANY OTHER COMPANY, PERSON OR FIRM. I/WE FURTHER CERTIFY THAT THE MEANING AND EFFECT OF CLAUSE 5 OVERLEAF HAVE BEEN FULLY EXPLAINED TO THE PROPOSED BUYER BY ME/US AND I/WE DECLARE AND CERTIFY THAT THE GOODS ARE FIT FOR THEIR INTENDED USE.
The date, November 12, 1989, was filled in, but a space for the signature...
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