Coosa Valley Bank v. Taylor-Holmes Indus. Supply, Inc.

• Decision Date: 24 September 1982
• Docket Number: TAYLOR-HOLMES
• Parties: COOSA VALLEY BANK, a corporation v.INDUSTRIAL SUPPLY, INC., a corporation. 81-365.
• Court: Alabama Supreme Court

Page 51

420 So.2d 51

COOSA VALLEY BANK, a corporation v. TAYLOR-HOLMES INDUSTRIAL SUPPLY, INC., a corporation.

81-365.

Supreme Court of Alabama.

Sept. 24, 1982.

Jack W. Torbert and Howard B. Warren of Torbert, Turnbach & Warren, Gadsden, for appellant.

R. Ben Hogan, III of Hogan, Smith & Alspaugh, Birmingham, and Robert H. King, Gadsden, for appellee.

JONES, Justice.

This action was tried to a jury on alternative theories of fraud and conversion, claiming both compensatory and punitive damages. The jury returned a general verdict for $30,000.00, in favor of Plaintiff Taylor- Holmes and against Defendant Coosa Valley Bank. Defendant Bank's motions for directed verdict, judgment notwithstanding the verdict, and remittitur were denied. This appeal followed.

In May of 1977, Clarence Eugene Taylor obtained a $48,000.00 SBA loan through Coosa Valley Bank for the business Taylor-Holmes Industrial Supply, Inc. Ninety per cent of the loan was guaranteed by the Small Business Administration. The loan was secured in part by the inventory of the business and partially guaranteed by Taylor, individually. After making five payments on the indebtedness, Taylor, as president of Taylor-Holmes, notified Coosa Valley Bank that the business was failing but that the inventory, when liquidated, would yield sufficient funds to cover the outstanding loan amount.

Claude Springfield, president of Coosa Valley Bank, sent Taylor to Birmingham for discussions with representatives of the SBA. An SBA representative then came to Coosa Valley Bank for a meeting with Springfield and Taylor. As a result of that meeting, an agreement was executed by the parties on January 10, 1978, which provided that a special account would be opened to receive only the proceeds from the sale of the Taylor-Holmes inventory, to pay the salary of Taylor as he continued to try to sell the inventory ("quickly and for the best possible price"), and to pay the rent for the warehouses where the inventory was stored. The language of the agreement was to the effect that the arrangement would terminate on February 10, 1978, unless all parties mutually agreed to an extension of its terms. From January through May of 1978, $19,000.00 was deposited into the special account.

The subsequent events, and the disparate testimony with regard to those events, form the basis for Taylor's complaint and this action.

Coosa Valley Bank claims that the written agreement was extended until the end of May, 1978, when it was terminated and Taylor picked up his last paycheck from the Bank and turned in his keys to the warehouses. Taylor, however, denies that he was ever given notice of the termination of the agreement, and says that he had turned in his keys to the warehouses merely as an accommodation to the representatives of Mid-South Industries, Inc. (formerly Etowah Manufacturing Co. Inc.), which company had expressed an interest in purchasing the remaining Taylor-Holmes inventory and may have needed to inspect the goods. Taylor further maintains that he indicated to Coosa Valley Bank that he would continue to work to sell the inventory, but without pay.

Taylor estimated the retail value of the remaining inventory to be $30,000.00, but placed the wholesale cost at $14,854.31. Coosa Valley Bank, says Taylor, agreed not to sell the inventory for less than $13,854.31, and, further, promised to call Taylor before allowing anyone to inspect the inventory. Coosa Valley Bank president, Springfield, admitted that Taylor did say that he would like to get at least $13,000.00 for the inventory, but that there was no indication of the volume of inventory remaining at that time. Springfield denies that Taylor ever told him not to accept less than $13,854.31.

Taylor concedes that at the time he told Coosa Valley Bank about his discussions with Mid-South he was told by Springfield that the Chairman of the Board of the Bank was also the Chairman of the Board of Mid-South.

Coosa Valley Bank contends that when the agreement with Taylor was terminated the principal amount due the Bank on the Taylor-Holmes loan was $38,203.67, and that Taylor was told of the termination of the agreement. On May 30, 1978, says Bank, it wrote a letter to the SBA requesting that the SBA purchase its portion of the promissory note from Taylor-Holmes, and that Bank gave notice to Taylor of such request. Further, Bank claims that, as of May 30, 1978, it assigned to the SBA all of Bank's interest in and to the note, security agreement, and real property mortgage securing the Taylor-Holmes loan.

In June of 1978, Mid-South offered Coosa Valley Bank $6,500.00 for the remaining inventory. Coosa Valley Bank claims that, because it had assigned its interest in the inventory to the SBA, a call was made to the SBA to relay Mid-South's offer, which the SBA accepted. In the latter part of June, 1978, Mid-South took possession of the inventory and on July 21, 1978, payment was made by Mid-South to the SBA through Coosa Valley Bank.

Coosa Valley Bank consistently maintained that the SBA's valid security interest in the inventory gave the SBA the right to dispose of the inventory and that Coosa Valley Bank merely acted for the SBA in the sale of the inventory to Mid-South. The testimony of John Duncan and Paul Stevens, SBA employees at the time of the Taylor-Holmes loan, reveals that the SBA did not take over the "servicing" of the Taylor-Holmes loan until July 1, 1978, and that up until the time the SBA paid Coosa Valley Bank under the guaranty agreement, Coosa Valley Bank alone had the responsibility of servicing the Taylor-Holmes loan.

Further, Coosa Valley Bank president, Springfield, testified that the Bank did receive monies from Taylor after May 30, 1978, and that the Bank received payment from the SBA for the guaranteed portion of the loan on August 4, 1978.

Eugene Taylor testified that his efforts to sell the inventory went well past the May 30, 1978, date of his final paycheck and alleged termination of the agreement. Indeed, Taylor took money to Springfield at the Bank during June for an inventory sale, and Taylor's discovery of the empty warehouses in early July was the result of another sale of a portion of the inventory which necessitated his visiting the warehouses.

A representative of Mid-South estimated the value of the inventory on the list Mid-South was given to be $6,500.00, but stated that $1,000.00 worth of inventory from the list was missing.

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