Regions Bank v. Bric Constructors, LLC
| Decision Date | 13 December 2011 |
| Docket Number | No. M2010-01898-COA-R3-CV,M2010-01898-COA-R3-CV |
| Parties | REGIONS BANK v. BRIC CONSTRUCTORS, LLC, F/K/A BRIC CONTRACTORS, LLC, AND PATRICIA McINTOSH |
| Court | Tennessee Court of Appeals |
An Appeal from the Chancery Court for Williamson County
No. 35614 Robbie T. Beal, Chancellor
This is an action to collect a debt and to recover collateral. The defendant LLC obtained a line of credit from the plaintiff bank. The LLC borrowed against the line of credit to purchase certain property, and the property was pledged as collateral. Several months later, the line of credit was converted into a fixed amount loan over a longer term, and a new security agreement was executed pledging the same collateral. On the same day, the LLC obtained another line of credit secured by the LLC's accounts receivable. The next day, the LLC took an advance on the new line of credit. The LLC made monthly payments on both obligations for almost a year, and then it defaulted. The plaintiff bank filed this lawsuit against the LLC and its principal to collect on the loans and to recover the collateral. The LLC contended that the principal of the LLC did not sign key documents, did not authorize advances, and did not authorize the pledge of the collateral. After a bench trial, the trial court held in favor of the bank based on, among other things, its finding that the principal of the LLC had ratified any allegedly unauthorized advances made under the lines of credit. The defendants now appeal. We reverse the finding of ratification as to one advance and remand for further findings; in all other respects, the decision of the trial court is affirmed.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
is Affirmed in Part, Reversed in Part, and Remanded
J. Brad Scarbrough, Chris Holleman, and Timothy A. Bishop, Brentwood, Tennessee, for the Defendant/Appellants Bric Constructors, LLC, f/k/a Bric Contractors, LLC, and Patricia McIntosh
David M. Smythe, Nashville, Tennessee, for the Plaintiff/Appellee Regions Bank
FACTS
Defendant/Appellant Bric Constructors, LLC ("the LLC"), is a grading and utility contracting business formed in early 1999. The original members of the LLC were a married couple, Defendant/Appellants Patricia McIntosh ("Ms. McIntosh") and Bric McIntosh ("Mr. Mcintosh"). Initially, Ms. McIntosh owned 90% of the business, and Mr. McIntosh owned 10%. On July 1, 1999, Mr. McIntosh assigned his interest in Bric Constructors to Ms. McIntosh, making her the sole member of the LLC.
Although Ms. McIntosh was the sole member of the LLC, she was not involved in the day-today operations of the business. Instead, she delegated those operational duties to Mr. McIntosh and others. Generally, the on-site operational aspects of the business were managed by Mr. McIntosh. Neither Mr. nor Ms. McIntosh had primary responsibility to the LLC's financial operations. During most of the time in which the transactions at issue took place, the LLC's financial operations were handled by John Coleman ("Mr. Coleman"), who was the acting CFO of the business until October or November 2007.1 Near the end of 2007, Bob Bower ("Mr. Bower") was hired to replace Mr. Coleman. Mr. Bower worked for the LLC for about six months, and then his employment terminated.
The Operating Agreement of the LLC, dated January 6, 1999, provides that the entity is member managed. Of course, after July 1999, the only "Member" was Ms. McIntosh. Section 5.2 of the Operating Agreement states specifically that each "Member" of the LLC shall have the power to bind the LLC to carry out its business, including borrowing money from banks and encumbering assets to secure the repayment of the loans:
Thus, under this provision of the Operating Agreement, liability could be incurred by the LLC by the actions of Ms. McIntosh or by the actions of agents or employees whom Ms. McIntosh "expressly authorized to contract such debt or incur such liability." The Operating Agreement included another proviso: "Unless authorized to do so by this Operating Agreement or by a Member of the Company, no . . . employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose."
In 2006, the McIntoshes began a business relationship with the Plaintiff/Appellee Regions Bank ("the Bank" or "Regions"). The Bank officer for all of the transactions at issue in this appeal was Chad Hill ("Mr. Hill"), the Bank's Vice President and Business Banking and Community Banking officer. The pertinent transactions between the Bank and the LLC are outlined below.
Master Equipment Lease
On May 23, 2006, Ms. McIntosh, on behalf of the LLC, executed a Master Equipment Lease Agreement (the "Master Lease") with the Bank. Under the Master Lease, the Bank would, in effect, purchase grading and compacting equipment for the use of the LLC, and then lease the equipment to the LLC.2 Ms. McIntosh and Mr. McIntosh both executed a Commercial Guaranty on the Master Lease, giving the Bank a personal guaranty.3 Pursuant to the Master Lease, the Bank purchased two pieces of equipment for the LLC - a 1991 CAT Moto Grader (purchased for $75,000) and a CAT 563E Vibratory Compactor (purchased for $118,636),referred to herein as the "leased equipment." This equipment was then leased to the LLC. On July 24, 2006, the Bank filed a UCC-1 Financing Statement with the Tennessee Secretary of State to evidence the Master Lease with the LLC.
On July 12, 2006, Ms. McIntosh, on behalf of the LLC, signed a schedule of monthly payments due to the Bank under the Master Lease. The LLC made monthly payments on the Master Lease from July 27, 2006, through October 21, 2008.
ELOC
On March 30, 2007, Ms. McIntosh, on behalf of the LLC, executed an Equipment Line of Credit Note ("ELOC") with the Bank in the amount of $750,000.4 At the same time, Ms. McIntosh executed a Security Agreement with the Bank ("ELOC Security Agreement"), pledging that the ELOC would be secured by "ALL EQUIPMENT TO BE PURCHASED IN THE FUTURE USING THIS FACILITY" (capitalization in original). Thus, under the ELOC, the term "facility" meant the Bank's line of credit to the LLC. As with the Master Lease, Mr. and Ms. McIntosh each executed a Commercial Guaranty in favor of the Bank, giving the Bank a personal guaranty on the ELOC. The amount owed to the Bank under the ELOC was any amount the Bank actually advanced to the LLC plus interest on that amount at a rate of 8.25%.5 The ELOC required the LLC to make monthly payments of interest only; a "balloon payment" consisting of the outstanding amount of principal plus all accrued unpaid interest was due in full on the ELOC's maturity date, which was one year after the initial loan, March 30, 2008.
On the same date, March 30, 2007, at the request of the Bank, Ms. McIntosh signed a "Limited Liability Company Resolution to Borrow/Grant Collateral" form ("Resolution"). The Resolution indicated that Ms. McIntosh was the only representative of the LLC who was authorized to request advances and authorize payments under the ELOC. This document required Ms. McIntosh's signature for all such transactions at the Bank. The Resolution also stated that Ms. McIntosh could "designate additional or alternate individuals as being authorized to request advances under" lines of credit, but it is undisputed that Ms. McIntosh never signed a written authorization.
The Bank made five advances to the LLC under the ELOC:
Thus, the advances to the LLC under the ELOC came to a total of $528,182.90. Ms. McIntosh and the LLC claim that only the fifth advance, $32,353 for the purchase of a 2007 Ford F150 ("2007 Ford Truck"), was authorized by Ms. McIntosh. The ELOC advances that are in dispute are discussed below.
The Bentley and the 2008 Ford Truck
On April 16, 2007, Ms. McIntosh purchased a 2007 Bentley automobile ("Bentley") for $239,000 with funds that she withdrew from the LLC's checking account at the Bank. The LLC loaned the funds to Ms. McIntosh, and almost a year later on April 14, 2008, Ms. McIntosh repaid the loan to the LLC. The Bentley was titled in the name of the LLC, but it was intended only for Ms. McIntosh's personal use.
On April 26, 2007, the LLC purchased a 2008 Ford F250 Truck ("2008 Ford Truck") for $36,458, with funds from the LLC's checking account at the Bank. The 2008 Ford Truck was intended for business use for the LLC.
On May 30 and 31, 2007, respectively, the Bank made two advances to the LLC, the first for $196,907.40, and the second for $23,333.50. The total of these two advances equaled about 80% of the value of the purchase price of the two vehicles, the Bentley and the 2008 Ford Truck.6
Two addenda to the ELOC Security Agreement were drafted. These granted the Bank a security interest in the Bentley and the 2008 Ford Truck to secure the two advances. In addition, there were two applications for the noting of liens on the certificate of title, one...
To continue reading
Request your trial