William Iselin and Co., Inc. v. Delta Auction and Real Estate Co.

• Decision Date: 27 April 1983
• Docket Number: No. 54052,54052
• Citation: 433 So.2d 911
• Parties: 36 UCC Rep.Serv. 607 WILLIAM ISELIN AND COMPANY, INC. v. DELTA AUCTION AND REAL ESTATE COMPANY, et al.
• Court: Mississippi Supreme Court

Page 911

433 So.2d 911

36 UCC Rep.Serv. 607

WILLIAM ISELIN AND COMPANY, INC. v. DELTA AUCTION AND REAL ESTATE COMPANY, et al.

No. 54052.

Supreme Court of Mississippi.

April 27, 1983.

Rehearing Denied July 13, 1983.

Brown, Tillman & Rutherford, Winn Davis Brown, Jr., Southaven, James E. Irion, Memphis, Tenn., for appellant.

Gene Barton, Mitchell, Eskridge, Voge, Clayton & Beasley, William M. Beasley, Scribner & Brewer, William H. Brewer, Max E. Warren, Jr., Tupelo, Bennett, Lotterhos & Sulser, Richard T. Bennett, Marcus M. Wilson, Jackson, for appellee.

Before BROOM, PRATHER and ROBERTSON, JJ.

PRATHER, Justice, for the Court:

Delta Auction and Real Estate Company interpled $40,039.83 in the Chancery Court of Lee County for division among the creditors of Moran Manufacturing. Among the eighteen creditors filing claims against the fund, three creditors asserted preferred status. Following the hearing, the chancellor rendered an opinion in which he ruled that all of the creditors were general unsecured creditors, and that each creditor was entitled to receive a pro rata share of the entire fund. Afterwards, William Iselin and Company, Inc., one of the creditors claiming a right to priority, attempted to file an amended proof of claim which changed its claim from a secured amount of $19,338.00 to a general claim of $101,568.77. The amendment was denied.

On appeal, William Iselin and Company contends that it was error for the chancellor to deny its amendment. In addition, Tupelo Foam Sales Company, Inc. and Peak Sales, Inc. contend on their cross-appeal that the chancellor erred in not awarding them priority claims based on judgment liens obtained against Moran.

FACTS

Moran Manufacturing Company, Inc., (Moran) a Mississippi corporation, was engaged in making furniture in Tupelo. One of the companies doing business with Moran was William Iselin and Company, Inc. (Iselin). They entered into a "factoring" contract by which Iselin undertook to finance Moran's accounts receivable. After a period of operation, Moran ran into financial difficulties and entered into another contract with Delta Auction and Real Estate Company, Inc., (Delta) a Tennessee corporation, to conduct a bulk sale to liquidate Moran's assets.

Prior to the sale by Delta, all of Moran's creditors were notified of the proposed sale and of the proposed division of the receipts upon a pro rata basis. ¹ No objection from any creditors was raised prior to the sale and no issue regarding the conduct of the sale was later made.

On December 6, 1979, Delta sold the items at an auction sale and received approximately $47,509.41. The proceeds were then removed and deposited in a Memphis bank, where they remained until brought to the Lee County Chancery Court. After Delta subtracted an amount for its sales commission, the total amount interpleaded from the auction sale was $40,039.83. Other deposits plus interest raised the total amount of $62,484.59 as of July 31, 1981 to be divided among Moran's creditors.

It was not until after the sale that disputes arose among the creditors. In February of 1980, default judgments were entered against Moran by three different creditors--Coleman Lumber in the approximate sum of $6,300.00, Tupelo Foam Sales, Inc., in the approximate sum of $39,900.00, and Peak Textiles in the approximate sum of $15,800.00. All judgments were duly enrolled in Lee County. Tupelo Sales' judgment was enrolled in the Lee County judgment roll on March 13, 1980, while Peak Textiles' default judgment was enrolled on March 14, 1980.

The evidence presented at the hearing established that the total debt claimed by all eighteen creditors was in the amount of $256,433.80. After a deduction for Delta's attorney fees and other expenses, each claimant was then awarded a general claim against the $61,013.60 remaining to be divided in pro rata shares.

LAW

I.

The first assignment of error asserts that the court erred in not allowing William Iselin and Company to amend its proof of claim to the total sum of $101,568.77.

Iselin's original claim asserted a preference amount of $19,338.00 based upon its factoring contract. During the trial, Iselin, along with the other creditors, presented evidence in support of their claims. Iselin's witness, Charles Patrick, testified that the total amount of Iselin's claim was approximately $107,000.00. The attorney then proceeded as follows:

Q. All right. Now thus far, we have filed only alleging the security for the eighteen thousand dollar ($18,000) figure; is that correct?

A. Uh huh.

Q. And we will amend and file as unsecured as to the balance, with the Court's permission?

And at this time I pass the witness.

On May 19, 1981, at the trial's conclusion, the chancellor rendered his opinion denying any creditor priority status. On May 22, 1981 Iselin then filed an amended proof of claim for the total claim of $101,568.77. The pleading stated "Leave of Court having been first granted during the testimony of Charles Patrick ... Iselin ... now files its Amended Proof of Claim to conform to the evidence." There was no request to nor permission from the court to amend reflected in the record. Upon the filing of this amended claim, the other creditors objected, and the trial court disallowed the amendment.

Thus, the question presented is whether the trial court committed error in disallowing an amendment after trial and the rendering of an opinion.

It is a well-established principle that courts may only award that relief which is requested in the pleadings; and since attorneys sometimes fail to write perfect pleadings, it is necessary that courts permit liberal amendments of the pleadings in order to reach the actual merits of a controversy. In chancery practice, section 11-5-53 follows that general principle, and it provides that: "amendments shall be allowed in the pleadings and proceedings, on liberal terms, to prevent delay and injustice." Miss.Code Ann. Sec. 11-5-53 (1972).

However, there are certain limits on permitting amendments. An application to amend should be prompt and not the result of an inexcusable want of diligence. Osborne v. Vince, 240 Miss. 807, 129 So.2d 345 (1961). Moreover, amendments which are permitted in the latter stages of litigation may deny the important policy favoring finality of judgments and the expeditious termination of litigation. Thus, liberality in permitting amendments is not allowed to encourage delay, laches and negligence. Griffith, Mississippi Chancery Practice Sec. 392 (2d ed. 1950).

Additionally, an amended pleading may unfairly prejudice the adverse party. See Saxon v. Harvey, 190 So.2d 901 (Miss.1966) (amendment should have been permitted where it would not have resulted in surprise or injustice). For example, the adverse party may be put to the added burden of further discovery, preparation and expense. And, the adverse party may have little time to investigate and acquaint itself with the new matter alleged in the amended pleading.

In light of the above considerations, we have consistently affirmed a chancellor's denial of an amendment in cases similar to the one now under consideration. In Rolkosky v. Rolkosky, 237 Miss. 89, 113 So.2d 661 (1959), the appellant contended that the chancellor erred in overruling her motion to amend her petition to conform to the proof. The motion was filed after the cause was submitted and the chancellor had announced his decision. The Court affirmed the chancellor's decision since the appellant's delay in filing the application to amend did not meet the requirement of due diligence. Similarly, in Olivari v. Clark, 175 Miss. 883, 168 So. 465 (1936), the Court concluded that a chancellor's refusal to allow an amendment was not error where the proposal to amend was not made until after the lower court had indicated its final decision on the case. Finally, in the old case of Duggan v. Champlin, 75 Miss. 441, 23 So. 179 (1898), the Court concluded that a request for an amendment came too late when made after the presentation of evidence and during the arguments.

Under the precedent established in the Rolkosky, Olivari, and Duggan cases cited above, the amended proof of claim simply came too late. The chancellor's denial of the amendment should be affirmed.

II.

The cross-appellants, Tupelo Foam Sales and Peak Textiles, contend that the lower court erred in ruling that they, as judgment creditors, did not have priority over the general creditors. But, there were several reasons advanced by the other parties as to why the chancellor's ruling on that issue should be affirmed. In considering this issue, it might be of some help to consider first the statutes involved in Delta's auction sale of Moran's assets.

Delta conducted the auction sale pursuant to section 75-6-108 of the Mississippi Code Annotated (1972). That statute is a provision adopted from the Uniform Commercial Code, which deals with "bulk sales." The statute provides in part:

Sec. 75-6-108. Auction sales; "auctioneer".

* * *

(3) The person or persons other than the transferor who direct, control or are responsible for the auction are collectively called the "auctioneer." The auctioneer shall:

* * *

(c) assure that the net proceeds of the auction are applied as provided in this chapter (Section 6-106) [Sec. 75-6-106].

A.

The general creditors' first argument in favor of affirmance is based on subsection 3(c) above which requires that the proceeds of the auction sale be applied as provided for in section 75-6-106. Section 75-6-106 in turn states that if the consideration paid "is not enough to pay all of the [debtor-transferor's] ... debts in full distribution shall be made pro rata." (emphasis added) Miss.Code Ann. Sec. 75-6-106(3) (1972). In other words, the general creditors contend that section 75-6-106 requires a pro rata distribution regardless of the fact that some creditors may have secured interests. Although there are no Mississippi cases on point, at...