Kubota Credit v. Doug Tillman ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
October 15, 2002 Session
KUBOTA CREDIT CORPORATION, USA v. DOUG TILLMAN, ET AL.
Direct Appeal from the Circuit Court for Tipton County
No. 5431 Joseph H. Walker, Judge
No. W2002-00885-COA-R3-CV - Filed December 16, 2002
The plaintiff creditor in this case filed suit to recover a tractor that was subject to a security
agreement and was pawned to the defendant pawnbroker. The court below awarded summary
judgment to the creditor. The pawnbroker appeals, claiming the creditor’s security agreement was
not properly perfected, and that the creditor therefore does not have a superior right to possession
of the tractor. We find issues of material fact exist regarding whether the security agreement was
perfected, whether the pledgor had authority to pawn the tractor, and whether the pawn transaction
was entered into in good faith. We reverse summary judgment and remand.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court; Reversed and
Remanded
DAVID R. FARMER , J., delivered the opinion of the court, in which ALAN E. HIGHERS and HOLLY K.
LILLARD, J.J., joined.
Roger A. Stone, Memphis, Tennessee, for the appellant, Doug Tillman a/k/a Bud Tillman, d/b/a
Millington Motors d/b/a AAA Collateral Loan & Jewelry Company..
William D. Wilson, Jr., Memphis, Tennessee, for the appellee, Kubota Credit Corporation.
OPINION
In April of 1999, Wooten Tractor Co. and Deborah Hubbard (Ms. Hubbard) entered into two
retail installment contracts and security agreements for Kubota tractors which were assigned to
Kubota Credit Corporation (“Kubota”). The first transaction was for the purchase of a Kubota
Model B7300HSD 16-hp tractor and a box blade. The second transaction occurred approximately
two weeks later, and consisted of an exchange of the first tractor for a larger tractor, a Kubota Model
L3010HST. The parties also completed a UCC-1 financing statement for $14,979.80 covering the
larger tractor, which Wooten Tractor filed in the register’s office of Tipton County. The documents
name only Ms. Hubbard as the buyer/debtor, and list her address as 5235 Simmons Road,
Drummonds, TN. The second tractor was picked up from Wooten Tractor by Ms. Hubbard’s
brother, Donald Long (Mr. Long), who brought it to his home. The tractor remained garaged at Mr.
Long’s home until June of 1999, when he pawned it to Bud Tillman, d/b/a Collateral Loan & Jewelry
Co. (Bud Tillman and Collateral Loan & Jewelry Co. will be referred to collectively as Mr. Tillman).
The pawn documents include an affidavit by Donald Long stating that he was the owner of the
tractor and warranting the tractor against lawful claims and demands.
In April of 2001, Kubota filed a warrant the Tipton County General Sessions court against
Ms. Hubbard and Mr. Tillman, asserting a purchase money security interest and seeking to recover
the tractor from Mr. Tillman. The court awarded Kubota possession upon the filing of a bond, and
Kubota recovered the tractor. Mr. Tillman appealed the general sessions’ order to the circuit court,
and counter-complained against Kubota, joining Ms. Hubbard, Donald Long, and Long’s
Construction as third-party defendants, for conversion in the amount of $13,500. Ms. Hubbard
subsequently filed for bankruptcy. Kubota moved for summary judgment, arguing it had a purchase
money security interest in the tractor and that the tractor was pawned by Donald Long individually
and without authority. The court awarded summary judgment to Kubota. Mr. Tillman non-suited
the third-party complaint against Ms. Hubbard, Donald Long and Long’s Construction, and perfected
an appeal to this Court.
Issues
Mr. Tillman submits the following issues for review by this Court:
(1) Whether a genuine issue of material fact exists regarding whether Deborah
G. Hubbard gave Donald Long the authority to place the tractor which is the
subject matter of this litigation with a pawnbroker, the appellant Bud
Tillman, d/b/a Collateral Loan & Jewelry Company.
(2) Whether a genuine issue of material fact exists regarding whether Kubota
Credit Corp’s security interest was properly perfected, giving it priority over
the interest of the appellant Bud Tillman, d/b/a Collateral Loan & Jewelry
Company.
Kubota asserts that the dispositive issue is:
Whether Doug Tillman has shown that he has any right to possession of the
tractor that is superior to Kubota Credit’s claim for possession.
Standard of Review
Summary judgment should be awarded when the moving party can demonstrate that there
are no genuine issues regarding material facts of the cause of action and that it is entitled to a
judgment as a matter of law. Tenn. R. Civ. P. 56.04; Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn.
1993); McCarley v. West Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998). Mere assertions
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that the nonmoving party has no evidence does not suffice to entitle the movant to summary
judgment. McCarley, 960 S.W.2d at 588. The moving party must either conclusively demonstrate
an affirmative defense or affirmatively negate an element which is essential to the nonmoving party’s
claim. Id. If the moving party can demonstrate that the nonmoving party will not be able to carry
its burden of proof at trial on an essential element of its case, summary judgment is appropriate. Id.
When a party makes a properly supported motion for summary judgment, the burden shifts
to the nonmoving party to establish the existence of disputed material facts or that the moving party
is not entitled to summary judgment as a matter of law. Id.; Staples v. CBL & Assocs., 15 S.W.3d
83, 89 (Tenn. 2000). The nonmoving party cannot merely rely on the pleadings, but must
demonstrate that essential elements of a claim exist by: 1) pointing to evidence that creates a factual
dispute; 2) re-enforcing evidence challenged by the moving party; 3) offering additional evidence
which establishes a material dispute; 4) submitting a Tenn. R. Civ. P. 56.06 affidavit explaining the
need for additional time for discovery. McCarley, 960 S.W.2d at 588.
We review an award of summary judgment de novo, with no presumption of correctness
afforded to the trial court. Guy v. Mut. of Omaha Ins. Co., 79 S.W.3d 528, 534 (Tenn. 2002). In
determining whether to award summary judgment, the court must view the evidence in the light most
favorable to the nonmoving party, drawing all reasonable inferences in favor of the nonmoving party.
Staples, 15 S.W.3d at 89. Summary judgment should be awarded only when a reasonable person
could reach only one conclusion based on the facts and inferences drawn from those facts. Id. If
there is any doubt about whether a genuine issue exists, summary judgment should not be awarded.
McCarley, 960 S.W.2d at 588.
Kubota’s Security Interest
Mr. Tillman submits that a genuine issue of fact exists regarding whether Kubota properly
perfected its security agreement covering the tractor at dispute in this case. He contends that the
tractor was neither farm equipment nor a consumer good, but equipment purchased for use by Long’s
Construction, a partnership of Ms. Hubbard, Donald Long, and their father, John Long. He asserts
that Kubota’s security agreement was accordingly not perfected by filing the UCC-1 with the register
for Tipton County, nor as a purchase money security interest in consumer goods which is perfected
without filing.
The perfection of security agreements is governed by Tenn. Code Ann. § 47-9-101 et seq.,
Article Nine of the Uniform Commercial Code as adopted in Tennessee. This transaction and cause
of action is governed by the terms of Article Nine which were in effect prior to July 1, 2001, when
substantial changes to the article went into effect. The code provides:
A financing statement must be filed to perfect all security interests except the
following:
....
(d) a purchase money security interest in consumer goods . . . .
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Tenn. Code Ann. § 47-9-302(1)(d)(1996). The code further provides:
The proper place to file in order to perfect a security interest is as follows:
(a) When the collateral is equipment used in farming operations . . . or
consumer goods, then in the office of the register in the county of the debtor’s
residence . . . .
....
(c) In all other cases, in the office of the secretary of state.
Tenn. Code Ann. § 47-9-401 (1)(1996).
Mr. Tillman argues that since the tractor was not a consumer good, Kubota does not have a
perfected security agreement and has no superior interest in the tractor.1 He further argues that since
Kubota’s security interest was unperfected, the sale of the tractor to him by Donald Long is
governed by Tenn. Code Ann § 47-9-301(1)(c), which provides:
Except as otherwise provided in subsection (2), an unperfected security interest is
subordinate to the rights of :
....
(c) in the case of goods, instruments, documents and chattel paper, a person
who is not a secured party and who is a transferee in bulk or other buyer not in the
ordinary course of business, or is a buyer of farm products in the ordinary course of
business, to the extent that he gives value and receives delivery of the collateral
without knowledge of the security interest and before it is perfected.2
Tenn. Code Ann § 47-9-301(1)(c)(1996). Mr. Tillman contends that since he is not a buyer in the
ordinary course of business, and since he gave value for the tractor and received delivery without
knowledge of the security interest, his ownership interest is superior to Kubota’s. Mr. Tillman
further refers the Court to Title 45, Chapter 6 of the Tennessee Code, which governs pawnbrokers.
The code provides:
(b) If the pledgor fails to redeem the pledged goods with thirty (30) days after
the maturity date of the pawn transaction, the pledgor shall thereby forfeit all right,
title and interest of, in and to the pledged goods to the pawnbroker, who shall thereby
acquire an absolute title to the pledged goods and the debt becomes satisfied, and the
pawnbroker shall have the authority to sell of dispose of the unredeemed pledged
goods as the pawnbroker’s own and may sell the unredeemed pledged goods.
1
Neither K ubota no r Ms. H ubbard assert that the tractor was farm e quipment or used in farming operations.
2
A pawnb roker is by definition not a buyer in the ordinary co urse of business. Tenn. Code Ann. § 47-1-201(9).
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Tenn. Code Ann. § 45-6-211(b)(1999 Supp.)
Kubota contends that the tractor was purchased by Ms. Hubbard as a consumer good, and that
its purchase money security interest therefore was perfected without filing. In support of this
assertion, Kubota submits an affidavit by Ms. Hubbard in which she states that she purchased the
tractor for her own use and not for the benefit of Long Construction. Also included in the record is
an affidavit of Steve Wooten, an owner and manager of Wooten Tractor. Mr. Wooten asserts that
the tractor was sold for the personal use of Ms. Hubbard, and that Ms. Hubbard did not disclose any
contemplated business uses for the tractor. Mr. Tillman notes, however, that the credit application
completed by Ms. Hubbard does not state a contemplated use for the tractor, and that statements
made by Ms. Hubbard in her deposition support the contention that the tractor was purchased, at least
in part, for use by Long Construction.
In her deposition, Ms. Hubbard stated that she purchased the original, smaller tractor at the
direction of her brother and partner, Donald Long, and that the down-payment was provided by her
father, also a partner in Long’s Construction. She stated that the exchange of this tractor for a larger
one also was completed at Donald Long’s direction, and that she did not know for what purpose the
tractor was needed. When asked whether the tractor was intended for use in the construction
business, Ms. Hubbard replied, “part of it.” Ms. Hubbard also stated that Donald Long picked up
the tractor from Wooten Tractor, and that it remained on his property from the time of purchase until
it was pawned. She additionally stated that Donald Long previously had pawned several other pieces
of large equipment to Mr. Tillman, apparently without incident.
Donald Long stated in his deposition that Long’s Construction provided the down-payment
for the tractor, and that the tractor was purchased for use by the construction partnership. He
explained that the original, smaller tractor was exchanged for the larger model because the smaller
tractor had nearly flipped over when used on a construction site. Donald Long further stated that
Deborah Hubbard purchased the tractor in her name because the partnership lacked sufficient credit
to finance it in its own name. He confirmed that he picked up the tractor from Wooten Tractor and
that it remained at his home, which was also the location of the construction business. Donald Long
further stated that the tractor was used for construction business purposes shortly after it was
purchased.
The determinative factor for establishing the classification of goods is the purpose for which
they are bought and used. In re James Fritz Butler v. Murfreesboro Prod. Credit Ass’n, 3 B.R.
182, 183 (Bankr. E.D. Tenn. March 5, 1980). When classifying goods in order to determine whether
a security interest has been perfected, the court looks to the actual use of the goods, not to what use
the goods could be put. Id. at 184. Upon review of this record, we find a genuine issue of material
fact exists regarding whether the tractor is properly classified as a consumer good or equipment, and
whether Kubota’s security interest was perfected.
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Authority of Donald Long to Pawn the Tractor
Kubota submits that the issue of whether its security agreement was perfected is not a
material issue because “the record lacks any affidavit or other credible evidence that Appellant had
lawful possession of the tractor. That . . . is dispositive of the appeal.” Kubota’s argument, as we
understand it, is that Ms. Hubbard purchased the tractor individually, and not on behalf of the
partnership, that the tractor was pawned by Donald Long without her knowledge or permission, and
that Donald Long had no ownership interest in the tractor which could be transferred to Mr. Tillman.
Kubota further asserts that Mr. Tillman knew Donald Long had no ownership interest in the tractor,
despite the affidavit signed by Donald Long as part of the pawn transaction that he was the rightful
owner of the tractor. Kubota contends that where the Code provides that “[a] purchaser of goods
acquires all title which his transferor had or had power to transfer,” Tenn. Code Ann. § 47-2-403(1),
since Donald Long had no title to the tractor, Mr. Tillman could acquire no title. We disagree with
this assertion.
We first address Tenn. Code Ann. § 47-2-403, which provides, in pertinent part:
(1) A purchaser of goods acquires all title which his transferor had or had power to
transfer except that a purchaser of limited interest acquires rights only to the extent
of the interest purchased. A person with voidable title has power to transfer a good
title to a good faith purchaser for value. When goods have been delivered under a
transaction of purchase the purchaser has such power even though:
(a) the transferor was deceived as to the identity of the purchaser, or
....
(d) the delivery was procured through fraud punishable as larcenous
under the criminal law.
....
(4) The rights of other purchasers of good and of lien creditors are governed
by the chapters on Secured Transactions (chapter 9 of this title) and Documents of
Title (chapter 7 of this title).
Tenn. Code Ann. § 47-2-403(1)(1999 Supp.).
Although a thief has void title, one who is in possession of goods as a result of a voluntary
delivery is not a thief in the ordinary sense.3 Alsafi Oriental Rugs v. Am. Loan Co., 864 S.W.2d
41, 44 (Tenn. Ct. App. 1993). Even a swindler who induces a victim through fraud to voluntarily
deliver a good is a purchaser under the code, albeit one with voidable title. Id. A purchaser with
voidable title confers good title upon a good faith purchaser for value, even where delivery was
procured through actionable fraud. Id. Tenn. Code Ann. § 47-2-403(1). The parties do not dispute
that Mr. Long was in possession of the tractor by virtue of a voluntary delivery by both Ms. Hubbard
and Kubota. Thus he had the power to confer good title to a good faith purchaser for value. Kubota
3
Tenn. Co de A nn. § 4 7-6-2 13 governs pawn transaction s involving stolen pro perty.
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contends, however, that Mr. Tillman is not a good faith purchaser because he knew that Ms. Hubbard
was the rightful owner of the tractor and that Mr. Long had no authority to pawn it. This presents
an issue of material fact for determination by the trial court.
Second, Mr. Tillman asserts that Donald Long had authority to pawn the tractor since it was
equipment of the partnership, and not the personal property of Ms. Hubbard. In light of the
circumstances surrounding the purchase and delivery of the tractor as discussed above, we agree that
this is an issue of material fact which also must be determined by the trial court.
Conclusion
This case raises an issue of material fact regarding the classification of the tractor which is
the subject of this dispute. The determination of this issue is necessary to establish whether Kubota’s
security agreement was perfected. The evidence also raises issues of Donald Long’s authority to
pawn the tractor and whether Mr. Tillman was a good faith purchaser.
In light of the foregoing, we reverse summary judgment and remand for a trial on the merits.
In so doing, we emphasize the obligations of good faith and honesty in fact which are required in
every transaction under chapters one through nine of the Uniform Commercial Code. Tenn. Code
Ann. § 47-1-102(3)(1996). Costs of this appeal are taxed to the appellee, Kubota Credit
Corporation, USA.
___________________________________
DAVID R. FARMER, JUDGE
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