General Elec. Credit Corp. v. Strickland Div. of Rebel Lumber Co., Inc.

Decision Date26 August 1983
Citation437 So.2d 1240
CourtAlabama Supreme Court

Ronald F. Suber of Martin & Ford, Tuscumbia, for appellant.

Gary P. Wilkinson of Poellnitz, Cox, McBurney & Jones, Florence, for appellees.

FAULKNER, Justice.

This is a Uniform Commercial Code case wherein a secured creditor, by virtue of an "after-acquired property" clause in a security agreement, claimed possession of certain items of inventory furnished to the now-insolvent debtor by the defendants pursuant to "consignment" agreements. The secured creditor, General Electric Credit Corporation (GECC), appealed from a judgment in favor of the consignors, Strickland Division of Rebel Lumber, Inc. (Strickland) and Tommy Smith d/b/a Tri-Cities Portable Buildings (Smith).

Larry Terry operated a business known as Larry Terry Sales, where he sold metal buildings and various other items, including cars, trucks, and appliances. Strickland furnished Terry with his inventory of metal buildings on consignment. Since Terry wished to increase the size of his inventory beyond the number of metal buildings which Strickland would deliver on a consignment basis, Strickland introduced Terry to representatives of GECC, who agreed to floor plan Terry's inventory.

On August 20, 1980, Terry and GECC entered into a financing agreement whereby GECC agreed to pay Strickland for buildings as they were shipped to Terry. Terry then repaid GECC as each building was sold, with the full amount for each shipment due within six months. Terry granted GECC a security interest "in all inventory, new and used, presently owned and hereafter acquired, together with all proceeds of the sale or other disposition thereof."

GECC began making payments to Strickland for shipments beginning in September 1980 and continued to do so until Terry wrote GECC a bad check in January 1981. At that time GECC notified Strickland that it would not finance any further shipments to Terry and Strickland informed GECC orally that it would resume shipments to Terry "on consignment."

When Strickland resumed shipping buildings to Terry, it sent the invoice for each shipment directly to Terry instead of to GECC. Although the invoices, which were on printed forms prepared by Strickland, purported to contain a "purchase agreement" indicating that the buildings were "sold to" Terry, Strickland and Terry entered into an oral "consignment agreement" whereby Terry was given the right to return unsold buildings to Strickland. Each invoice contained the wholesale cost of each building plus a 5% "upcharge." Terry was to remit the wholesale price plus the upcharge to Strickland upon the sale of each building. Terry was allowed to sell the buildings for whatever price he could get from the buyer and was allowed to keep as profit the difference between the amount he received and the wholesale price plus 5%. Even if Terry was unable to sell a building and returned the building to Strickland he would still be liable to Strickland for the 5% "upcharge."

Smith also shipped metal buildings to Terry pursuant to an oral "consignment" agreement. Under the terms of his agreement with Smith, Terry was paid a commission based on a percentage of the amount received for each of Smith's buildings he sold.

Strickland began shipping buildings to Terry knowing that Terry owed GECC an outstanding balance which was secured by the inventory on his lot purchased under the floor plan. Although Terry was still making payments to GECC, GECC called Robert Hawkins, Strickland's president, in the early part of July 1981, and told him that GECC was "getting ready to close out Larry Terry Sales." Hawkins suggested that GECC wait until Terry found out whether he would be able to get a loan to pay off GECC. GECC agreed to wait; however, on or about July 22, 1981, the State Department of Revenue padlocked Terry's lot.

The issue presented on appeal is whether GECC can claim the buildings shipped by Strickland and Smith to Terry "on consignment" by virtue of the "after-acquired property" clause contained in its security agreement and properly filed financing statement.

The threshold issue is whether GECC had a perfected security interest in the goods in question as of July 1981. The trial court found that the "security agreement was terminated as indicated by the actions of the parties on or about January of 1981, and therefore, no security interest attached to any inventory or other property of Larry Terry after January of 1981."

Strickland argued that there was evidence to support a finding that GECC and Terry mutually agreed to rescind the security agreement. Terry separated the buildings into three groups; one group for buildings financed by GECC, one for those furnished by Strickland, and one for those furnished by Smith. GECC only inventoried the buildings it financed and it did not demand payment for the buildings furnished "on consignment" as they were sold.

The finding that the parties mutually rescinded the security agreement was clearly erroneous. If GECC had voluntarily abandoned its security interest there would have been no reason to inventory any of the buildings on Terry's lot. Furthermore, the ruling is clearly contrary to the express provisions of the U.C.C., which states:

"A security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor to use, commingle or dispose of all or part of the collateral (including returned or repossessed goods) or to collect or compromise accounts or chattel paper, or to accept the return of goods or make repossessions, or to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral."

Section 7-9-205, Code of Alabama (1975).

The defendants also argued that even if it had a valid security interest, GECC waived its rights to assert its lien on the property. With regard to that contention, the trial court ruled:

"GECC had actual knowledge of Strickland's interest in the buildings it shipped to Larry Terry between January and July of 1981, and did not attempt to enforce its security interest (if any it had). This delay in asserting its interest resulted in Strickland continuing to ship buildings all to its ultimate detriment. Due to its inaction in promptly asserting its claimed interest, GECC is now estopped from asserting that claimed interest."

The essential elements of equitable estoppel are: (1) The person against whom estoppel is asserted, who usually must have knowledge of the facts, communicates something in a misleading way, either by words, conduct, or silence, with the intention that the communication will be acted on; (2) the person seeking to assert estoppel, who lacks knowledge of the facts, relies upon that communication; and (3) the person relying would be harmed materially if the actor is later permitted to assert a claim inconsistent with his earlier conduct. Mazer v. Jackson Ins. Agency, 340 So.2d 770, 773 (Ala.1976).

There were no allegations that GECC ever made any misleading communications to the defendants with regard to GECC's security interest. At most, GECC failed to inform Strickland of its interest in the after-acquired inventory when Strickland informed GECC of its intent to supply goods to Terry "on consignment." We find the defendants' implicit assumption, that GECC had a duty to make such a disclosure, questionable at best. That question notwithstanding, in addition to the fact that both defendants were put on...

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