WM Capital Partners, LLC v. Anthony W. Thornton
91 U.C.C. Rep. Serv. 2d (West) 619, 2015 Tenn. App. LEXIS 1007, 525 S.W.3d 265 (2016)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A secured creditor's duty to conduct a commercially reasonable disposition of collateral under UCC Article 9 (Tenn. Code Ann. § 47-9-610) is triggered only upon the creditor taking actual or constructive possession of the collateral. A creditor's refusal to repossess collateral upon the debtor's request does not, by itself, constitute constructive possession.
Facts:
- Anthony and Elizabeth Thornton owned Bowling Green Freight, Inc., which obtained several loans from Tennessee Commerce Bank (the 'Bank').
- Bowling Green Freight granted the Bank a security interest in its equipment as collateral for the loans, and the Thorntons personally guaranteed the debt.
- After experiencing financial difficulties and losing a major client, Bowling Green Freight defaulted on its loans.
- On June 23, 2011, Mr. Thornton asked the Bank to repossess the collateral, noting that its value at the time exceeded the outstanding loan balance.
- The Bank refused to repossess the equipment and instead directed Bowling Green Freight to continue using it.
- The Bank continued to refuse subsequent requests from the Thorntons to repossess the collateral.
- A successor creditor, WM Capital Partners, LLC ('WMCP'), eventually acquired the loans.
- WMCP finally repossessed the collateral and sold it at auction on July 11, 2013, over two years after the initial request to repossess was made.
Procedural Posture:
- The original lender, Tennessee Commerce Bank, sued Bowling Green Freight and the Thorntons for default in January 2012.
- The FDIC became the receiver for the Bank, was substituted as plaintiff, and the case was removed to federal district court.
- WM Capital Partners, LLC ('WMCP') purchased the loans from the FDIC and intervened in the federal lawsuit.
- The federal district court denied WMCP's motion to add a key claim, leading WMCP to dismiss its claims without prejudice.
- WMCP filed a new suit in the Chancery Court for Davidson County, Tennessee (a state trial court) against the Thorntons and Bowling Green Freight, seeking a deficiency judgment.
- WMCP moved for summary judgment against the defendants.
- The chancery court granted summary judgment for WMCP, awarding a judgment of $6,507,435.10.
- Bowling Green Freight and the Thorntons (appellants) appealed the summary judgment order to the Tennessee Court of Appeals, with WMCP as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a secured creditor's delay in repossessing collateral, despite the debtor's request after default, render the eventual disposition of the collateral commercially unreasonable under Tennessee Code Annotated § 47-9-610?
Opinions:
Majority - W. Neal McBrayer, J.
No, a secured creditor's refusal to repossess collateral upon the debtor's request does not, standing alone, render the eventual disposition commercially unreasonable because the duty of commercial reasonableness only attaches once the creditor has actual or constructive possession. The court reasoned that Article 9 of the UCC provides secured parties with optional remedies upon default, including the right to take possession, but does not impose an obligation to do so on the debtor's demand. The court defined constructive possession as the 'exercise of control or dominion over a property without actual possession or custody of it' and concluded that the Bank's refusal to repossess and its instruction to continue using the equipment did not meet this standard. However, the court also found that once Bowling Green Freight and the Thorntons challenged the time aspect of the disposition, the burden shifted to WMCP to prove the disposition was commercially reasonable. Because WMCP failed to produce evidence establishing when it took possession and whether the time between possession and sale was reasonable, it failed to meet its burden for summary judgment.
Analysis:
This decision clarifies the trigger point for a secured creditor's duty of commercial reasonableness under UCC Article 9. By holding that the duty attaches only upon possession, the court affirms significant creditor discretion in the timing of remedies post-default and protects creditors from being forced into repossession by debtors. However, the ruling also underscores the procedural burden on creditors: once a debtor challenges any aspect of a disposition's reasonableness in a deficiency action, the creditor must affirmatively prove every aspect was reasonable, including the time elapsed between taking possession and the final sale. This creates a clear demarcation, separating the pre-possession phase, where the creditor has discretion, from the post-possession phase, where the creditor's actions are subject to strict scrutiny.
