Court reviews whether an LLC properly executed its security agreement with a bank in a case involving an action to recover collateral

REGIONS BANK v. BRIC CONSTRUCTORS, LLC, F/K/A BRIC CONTRACTORS, LLC, AND PATRICIA MCINTOSH (Tenn. Ct. App. December 14, 2011)

This is an action to collect a debt and to recover collateral. The defendant LLC obtained a line of credit from the plaintiff bank. The LLC borrowed against the line of credit to purchase certain property, and the property was pledged as collateral. Several months later, the line of credit was converted into a fixed amount loan over a longer term, and a new security agreement was executed pledging the same collateral. On the same day, the LLC obtained another line of credit secured by the LLC's accounts receivable. The next day, the LLC took an advance on the new line of credit. The LLC made monthly payments on both obligations for almost a year, and then it defaulted.

The plaintiff bank filed this lawsuit against the LLC and its principal to collect on the loans and to recover the collateral. The LLC contended that the principal of the LLC did not sign key documents, did not authorize advances, and did not authorize the pledge of the collateral. After a bench trial, the trial court held in favor of the bank based on, among other things, its finding that the principal of the LLC had ratified any allegedly unauthorized advances made under the lines of credit. The defendants now appeal. We reverse the finding of ratification as to one advance and remand for further findings; in all other respects, the decision of the trial court is affirmed.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2011/regionsbank_121411.pdf

UPDATE (4/2012): The opinion filed in this case on December 13, 2011, is withdrawn. The court has refiled the opinion with changes on pages 32-34 under the subheading “Forged Signatures."

The corrected opinion is available at: https://www.tba.org/sites/default/files/regionsbank_CORR_033012.pdf

Court reviews whether guarantors are liable for loans obtained through fraudulent means without their knowledge

SECURAMERICA BUSINESS CREDIT v. KARL SCHLEDWITZ and TERRY LYNCH (Tenn. Ct. App. August 29, 2011)

This is a guaranty case. Appellants personally guaranteed a line of credit for their trucking company. Later, Appellants sold the trucking company to two employees, but were not released by the Appellee lender from their guaranties.

Under new ownership, the company falsified borrowing documents so that more money was extended on the line of credit than was collateralized per the loan agreement. This was done with the complicity of the lender, but without the knowledge of the guarantors. The debtor trucking company defaulted, and the lender sought repayment of the loan from the guarantors.

Following a bench trial, the trial court found Appellants liable for their personal guaranties, but denied prejudgment interest and punitive damages due to what the court characterized as the fraudulent actions of Appellee. In an apparent clerical mistake, on the same date that the trial court entered its final judgment, it also entered an order voluntarily dismissing all claims against Appellants. More than a year later, the trial court entered an order clarifying its prior order of dismissal.

After a thorough review of the record, we conclude that: (1) the trial court properly afforded Appellee relief under Tenn. R. Civ. P. 60.01 to clarify its prior order of dismissal; and (2) the trial court made incomplete and contradictory findings of fact and conclusions of law, such that further appellate review is precluded. Consequently, we vacate and remand for additional findings.

Opinion available at:
http://www.tba2.org/tba_files/TCA/2011/securamerica_082911.pdf