Transamerica Commercial Finance Corp. v. AmSouth Bank, N.A.

• Decision Date: 28 August 1992
• Parties: TRANSAMERICA COMMERCIAL FINANCE CORPORATION v. AmSOUTH BANK, N.A. 1910092.
• Court: Alabama Supreme Court

Page 375

608 So.2d 375

TRANSAMERICA COMMERCIAL FINANCE CORPORATION v. AmSOUTH BANK, N.A.

1910092.

Supreme Court of Alabama.

Aug. 28, 1992.

Rehearing Denied Nov. 13, 1992.

Richard K. Mauk, Birmingham, for appellant.

William B. Hairston, Jr. and Judith D. Holt of Engel, Hairston & Johanson, P.C., Birmingham, for appellee.

PER CURIAM.

Transamerica Commercial Finance Corporation ("Transamerica") appeals from a judgment in favor of AmSouth Bank, N.A. ("AmSouth") on AmSouth's claims of conversion. AmSouth alleged that Transamerica wrongfully repossessed certain items of retail inventory in which AmSouth had a first-priority security interest.

Transamerica and Tel-Data Systems, Inc. ("Tel-Data"), a retail seller of computers and related equipment, entered into a "floor-plan" financing agreement. This agreement gave Transamerica a security interest in all of Tel-Data's furniture, equipment, inventory, accounts receivable, and other assets. In return, Transamerica financed Tel-Data's purchases of inventory from its suppliers.

Performance of the inter-related agreements between Transamerica, Tel-Data, and Tel-Data's suppliers began with Tel-Data's order for merchandise from one of the suppliers. The supplier would contact Transamerica and have the order "approved." Approval of the order obligated Transamerica to pay the supplier for the goods that Tel-Data ordered and received. At this time Transamerica assigned an approval number to the order. The supplier shipped the goods to Tel-Data and sent invoices to Transamerica and Tel-Data.

After Tel-Data received the merchandise and notified Transamerica, Transamerica began its process for paying the supplier for the merchandise. Once Transamerica received and approved the invoice sent by the supplier, it created a trust receipt evidencing Transamerica's indebtedness to the suppliers. Transamerica then processed a check for payment. When Tel-Data later sold the merchandise, it paid Transamerica the amount of the invoice, plus interest charges. To determine whether merchandise financed by Transamerica had been sold or not, Transamerica would periodically conduct a floor-plan check of Tel-Data's inventory.

One of the owners of Tel-Data decided to sell his interest in that company. The other owners decided to purchase the selling owner's interest and contacted AmSouth to arrange for a loan. AmSouth agreed to lend the money for the purchase, but required a first-priority security interest in all of Tel-Data's inventory. Transamerica agreed to subordinate to AmSouth its prior security interest in all Tel-Data property specified in the agreement, except "inventory or goods financed by Transamerica." Thus, under the agreement, AmSouth held a first-priority security interest in all inventory not financed by Transamerica. Transamerica and AmSouth agreed further that upon default the secured party having priority under the terms of the subordination agreement would have an immediate right to possession of the collateral as between the parties. Transamerica and AmSouth executed a written subordination agreement, and AmSouth lent the money necessary for the purchase of the selling owner's interest. AmSouth also agreed to advance funds to Tel-Data as necessary.

During November 1989, Transamerica checked Tel-Data's inventory and determined that Tel-Data had sold $115,000 worth of inventory financed by Transamerica. Tel-Data wrote a check for the amount of financed inventory it had sold, but when Transamerica presented the check for payment AmSouth refused to honor the check or advance the funds necessary to cover it. Tel-Data informed Transamerica that it should come and repossess its inventory.

Transamerica employees went to Tel-Data's place of business and, with the help of Tel-Data's owners, repossessed the majority of Tel-Data's inventory. AmSouth was later notified of the repossession. At Tel-Data's invitation, AmSouth sent its agents to repossess the inventory and equipment that Transamerica had not recovered.

Transamerica reviewed the inventory that it had repossessed and discovered that it did not have the first-priority security interest in certain parts of that inventory. Transamerica stored that inventory in a warehouse and informed AmSouth. According to AmSouth, Transamerica's action breached the agreement between AmSouth and Transamerica. Transamerica also sent AmSouth written notice that the inventory it had repossessed would be sold "at public or private sale." AmSouth argues on appeal that the notice was deficient and that, even if the notice was proper, Transamerica failed to sell the inventory at public or private sale. Instead, Transamerica returned large portions of the inventory to the suppliers. Transamerica received large credits for the value of the returned inventory. The suppliers applied these credits to the Tel-Data account and also to the accounts of other retail dealers that Transamerica financed.

The major part of AmSouth's conversion claim against Transamerica relates to the returned inventory. AmSouth claimed approximately $163,000 in damages for Transamerica's conversion of this inventory. Transamerica counterclaimed, alleging that AmSouth had repossessed Tel-Data's furniture, in which Transamerica said it held a first-priority security interest. Transamerica contended that this furniture was worth about $17,000 and that it was entitled to a set-off for this amount.

The judge, without a jury, heard ore tenus evidence and received a large quantity of documentary evidence. To prove that AmSouth, and not Transamerica, had a priority security interest in the returned inventory, AmSouth introduced testimony comparing Transamerica's invoices and...