United States v. Tugwell

• Decision Date: 21 November 1984
• Docket Number: No. C-84-435-G.,C-84-435-G.
• Citation: 597 F. Supp. 486
• Court: U.S. District Court — Middle District of North Carolina
• Parties: UNITED STATES of America, Plaintiff, v. Richard E. TUGWELL, Defendant.

597 F. Supp. 486

UNITED STATES of America, Plaintiff, v. Richard E. TUGWELL, Defendant.

No. C-84-435-G.

United States District Court, M.D. North Carolina, Durham Division.

November 21, 1984.

Richard L. Robertson, Asst. U.S. Atty., Greensboro, N.C., for plaintiff.

Richard M. Hutson, II, Durham, N.C., for defendant.

MEMORANDUM OPINION

ERWIN, District Judge.

This matter is before the court on plaintiff's motion for summary judgment and defendant's motion for summary judgment. The court is of the opinion that defendant's motion should be granted and plaintiff's motion should be denied.

Background

On or about February 22, 1983, defendant Richard E. Tugwell purchased a grain combine from Thurgood M. Bradshaw of Efland, North Carolina. Mr. Bradshaw represented at the time of the sale that the combine was in good working order and that it could be used, with some adjustments, for either combining corn or other grains. Mr. Bradshaw also represented to the purchaser, defendant Tugwell, that Bradshaw had good title to the combine and was free to convey the same to the purchaser. Mr. Tugwell had no knowledge at the time of the purchase of any outstanding security interest held by plaintiff or any other person in the said combine.

In late April 1983, Farmers Home Administration (FHA) informed Tugwell of its security interest in the said combine. In its notice to defendant, plaintiff maintained that the FHA had rights to the combine and that defendant could possibly be obligated to pay to plaintiff the value of the combine at the time it was purchased by defendant.

Defendant admitted his purchase and possession of the combine and has repeatedly tendered the combine to the plaintiff.

Discussion

Plaintiff alleges that defendant wrongfully converted the combine by purchasing it from Mr. Bradshaw when Mr. Bradshaw was not authorized to sell it. Defendant asserts that there was no wrongful conversion and further that defendant would have a perfected security interest in the proceeds from the sale of the combine. The court agrees with the latter assertion.

A person who receives property by virtue of a sale from someone who is not entitled to sell the property may be held liable for conversion. The Restatement (Second) of Torts § 299 (1965) states:

§ 229. Conversion by Receiving Possession in Consummation of Transaction

One who receives possession of a chattel from another with the intent to acquire for himself or for a third person a proprietary interest in the chattel which the other has not the power to transfer is subject to liability for conversion to a third person then entitled to the immediate possession of the chattel.

Although this statement of the law is correct, its application in this case is diminished due to plaintiff's perfected security interest in the combine.

Plaintiff and Bradshaw entered into a security agreement on May 13, 1982 which covered all crops, farm equipment, and livestock described therein, including the combine at issue in this case. Plaintiff had two previously filed financing statements dated January 30, 1980 and February 10, 1981 which served to perfect this security agreement. These financing statements were filed at the office of the Register of Deeds, Orange County, North Carolina. The court holds that because the security interest in the combine was duly perfected, plaintiff's security interest continues in the proceeds of that sale.

North Carolina General Statutes § 25-9-306 provides in pertinent part:

(1) "Proceeds" includes whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds. Insurance payable by reason of loss or damage to the collateral is proceeds, except to the extent that it is payable to a person other than a party to the security agreement. Money, checks, deposit accounts, and the like are "cash proceeds." All other proceeds are "non-cash proceeds."

(2) Except where this article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreements or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.

(3) The security interest in proceeds is a continuously perfected security interest if the interest in the original collateral was perfected but it ceases to be a perfected security interest and becomes unperfected 10 days after

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