R & J of Tennessee, Inc. v. Blankenship-Melton

• Decision Date: 17 November 2004
• Citation: 166 S.W.3d 195
• Parties: R & J OF TENNESSEE, INC. v. BLANKENSHIP-MELTON REAL ESTATE, INC. and Walden Blankenship, Individually.
• Court: Tennessee Supreme Court

Page 195

166 S.W.3d 195

R & J OF TENNESSEE, INC. v. BLANKENSHIP-MELTON REAL ESTATE, INC. and Walden Blankenship, Individually.

Court of Appeals of Tennessee, Western Section, at Jackson.

September 20, 2004 Session.

November 17, 2004.

Application for Permission to Appeal Denied by Supreme Court May 9, 2005.

COPYRIGHT MATERIAL OMITTED

Kevin Carter, Lexington, TN, for Appellant.

Howard F. Douglass, Lexington, TN, for Appellee.

OPINION

ALAN E. HIGHERS, J., delivered the opinion of the court, in which W. FRANK CRAWFORD, P.J., W.S., and DAVID R. FARMER, J., joined.

This case involves a lawsuit filed by a secured party against a guarantor seeking a deficiency judgment following a foreclosure sale. The guarantor argued that the secured party was not entitled to a deficiency because he was given inadequate notice and the sale was conducted in a commercially unreasonable manner. Following a hearing, the trial court awarded the secured party a deficiency judgment. We reverse and remand to the trial court for further action consistent with this opinion.

I. Factual Background and Procedural History

On February 23, 2000, Walden Blankenship ("Mr.Blankenship"), as acting president of Blankenship-Melton Real Estate, Inc. ("Blankenship-Melton"), entered into a loan transaction with the Bank of Henderson County (the "Bank"). In exchange for the Bank loaning Blankenship-Melton $40,133.00, Blankenship-Melton executed a security agreement granting the Bank a security interest in a 1999 Bryant boat, a New Holland tractor, a 1999 Ford F150 truck, and a 1994 mobile home. The agreement called for Blankenship-Melton to pay off the loan by June 18, 2000.

The collateral used to secure the loan was purchased by Blankenship-Melton prior to entering into the loan in question. According to Mr. Blakenship, Larry Melton, a director of Blankenship-Melton, purchased the truck new for an amount between $23,000 and $24,000, and the vehicle's title listed Blankenship-Melton as the owner. Mr. Blankenship purchased the tractor used as collateral, as well as a tiller, a bush hog, and a boom pole, for an amount between $17,000 and $18,000. Mr. Blankenship also stated that Blankenship-Melton paid approximately $15,000 for the double-wide mobile home when they purchased it. At the time the loan agreement was entered into in February of 2000, the Bank estimated the value of all of the collateral to be at least $40,000.

Contemporaneously with the execution of the promissory note, Mr. Blankenship executed a guaranty agreement promising to remain personally liable on the promissory note owed to the Bank. The guaranty agreement identified Mr. Blankenship's home address as "2820 Shady Hill Road, Lexington, TN, 38351." In addition, Larry Melton and his son, Steve Melton, the secretary of Blankenship-Melton, also executed personal guarantees to secure the loan. The Bank renewed the loan on two separate occasions, extending the due date for six months each time. At some point, the loan went into default.¹ During this period of time, Mr. Blankenship asserted that he communicated with the Bank and asked the Bank to foreclose on the collateral. Stan Reynolds, a representative of the Bank, did not recall Mr. Blankenship making such a request. Regardless of this dispute, Mr. Blankenship never personally paid any amounts toward the outstanding loan amount.

Johnny Melton is the majority shareholder and president of R & J of Tennessee, Inc. ("R & J" or "Appellee"). Larry Melton and Steve Melton approached Johnny Melton explaining that this particular note had come due and asked for help with some outstanding loans Blankenship-Melton owed to the Bank. On November 6, 2001, Johnny Melton, acting as agent for R & J, purchased the promissory note from the Bank for $26,455.39. At the time R & J purchased the promissory note from the Bank, Blankenship-Melton was already in default on the loan, and the Bank had already begun to institute foreclosure proceedings on the collateral. In addition, only the truck, tractor, and mobile home were left as collateral to secure the note.² When R & J purchased the note, Steve Melton had been living in the trailer which was used as collateral, and he never paid rent to Blankenship-Melton during his periods of occupancy. Larry Melton had possession of the Ford truck and drove it on a daily basis. The tractor remained in Larry Melton's possession and was stored at his personal residence. According to Johnny Melton, at the time R & J purchased the note, the tractor was inoperable due to mechanical problems.

In June of 2002, Johnny Melton, acting as agent for R & J, began the foreclosure process. On June 11, 2002, Johnny Melton sent a notice to Mr. Blankenship indicating that the collateral would be sold at a public sale on June 21, 2002. According to Johnny Melton, Steve Melton and Larry Melton continued to use the collateral during this period of time. R & J sent the notice of sale by certified mail to Mr. Blankenship at the address listed in the promissory note. Mr. Blankenship, however, had subsequently moved and conceded that he never notified the Bank of his new home address. According to Johnny Melton, similar notices were also sent to Larry Melton and Steve Melton. Johnny Melton also posted a copy of the notice of sale at R & J's office, the courthouse, and on the collateral. The envelope containing the notice to Mr. Blankenship, which was introduced as an exhibit at trial, indicated that the postal service attempted to deliver the notice to Mr. Blankenship at his old address on June 13 and 18, 2002. Despite having not received a return receipt indicating successful delivery of the notice, R & J went ahead with the sale of the collateral on June 21, 2002. On June 28, 2002, the postal service returned the notice to R & J marked "not deliverable as addressed."

On the date of the public sale, only Johnny Melton, on behalf of R & J, and Larry Melton were present, and only Johnny Melton placed a bid on the collateral. R & J purchased the mobile home for $8,000, the Ford truck for $11,000, and the tractor for $1,000. Johnny Melton stated that he used his previous experience in the banking industry and mobile home business to assess the value of each item of the collateral at the time of the sale. On August 26, 2002, Johnny Melton, on behalf of R & J, filed a lawsuit³ against Mr. Blankenship in the General Sessions Court of Henderson County, seeking a deficiency judgment in the amount of $13,388.40⁴ pursuant to the personal guaranty. The general sessions court found in favor of Mr. Blankenship, and R & J appealed the decision to the Circuit Court of Henderson County.⁵ Following a de novo bench trial the circuit court entered a deficiency judgment against Mr. Blankenship in the amount of $10,847.29.

Mr. Blankenship filed a timely notice of appeal to this Court and presents the following issues for our review:

I. Whether Appellant, Walden Blankenship, was given statutorily sufficient notice regarding the public sale of the collateral pursuant to section 47-9-611(b) of the Tennessee Code;

II. Whether Appellee, R & J of Tennessee, failed to dispose of the collateral in a commercially reasonable manner under section 47-9-610(b) of the Tennessee Code and to exercise good faith pursuant to section 47-1-203 of the Tennessee Code;

III. Whether Appellee, R & J of Tennessee, exercised reasonable care pursuant to section 47-9-207(a) of the Tennessee Code in preserving and exercising custody of the collateral used to secure the loan at issue; and

IV. Whether the trial court erred in finding that no evidence was introduced at trial regarding the condition and value of the tractor on the date of the foreclosure sale as it relates to Appellee's bid.

In addition to the issues raised by Appellant, we are also asked to review the following issue raised by Appellee:

V. Whether Appellant, Walden Blankenship, waived the objections to the foreclosure sale which he now raises on appeal according to the terms of the personal guaranty.

For the reasons contained herein, we reverse the decision of the trial court.

II. Standard of Review

This Court will review findings of fact made by the trial court sitting without a jury "de novo upon the record of the trial court, accompanied by a presumption of correctness of the finding, unless the preponderance of the evidence is otherwise." Tenn. R.App. P. 13(d) (2003); see also Decatur County Bank v. Smith, No. CAW1999-02022COAR3CV, 1999 WL 1336042, 1999 Tenn.App. LEXIS 864, at *4 (Tenn.Ct.App. Dec. 27, 1999). We review the lower court's conclusions of law de novo without any presumption of correctness. Dennis Joslin Co. v. Johnson, 138 S.W.3d 197, 200 (Tenn.Ct.App.2003) (citing Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn.1993)).

III. Waiver of Objections

R & J asserts on appeal that Mr. Blankenship has waived his right to contest the sufficiency of the foreclosure sale and notice based upon the terms of the personal guaranty. The applicable provision of Tennessee's version of the Uniform Commercial Code provides:

Waiver. —

(a) WAIVER OF DISPOSITION NOTIFICATION. A debtor or secondary obligor may waive the right to notification of disposition of collateral under § 47-9-611 only by an agreement to that effect entered into and authenticated after default.

Tenn.Code Ann. § 47-9-624(a) (2003) (emphasis added). Accordingly, we find this issue to be without merit. See Tropical Jewelers, Inc. v. Nationsbank, N.A., 781 So.2d 392, 396 (Fla.Dist.Ct.App.2000).

IV. Notice of Sale

The loan transaction at issue in this case is governed by Tennessee's version of Article 9 of the Uniform Commercial Code codified at section 47-9-101 et seq. of the Tennessee Code. See Nationsbank v. Clegg, No. 01-A-01-9510-CH-00469, 1996 WL 165513, at *1, 1996 Tenn.App. LEXIS 214, at *3 (Tenn.Ct.App. Apr.10, 1996). The question of whether the notice given by R & J in this instance was sufficient is a question for the...