Title: AmSouth Bank, NA v. J & D FINANCIAL

State: alabama

Issuer: Alabama Supreme Court

Document:

679 So. 2d 695 (1996)
AMSOUTH BANK, N.A.
v.
J & D FINANCIAL CORPORATION.
1931140.

Supreme Court of Alabama.
June 28, 1996.
Rehearing Denied August 30, 1996.
*696 Eric J. Breithaupt of Feibelman, Shulman & Terry, Mobile, for Appellant.
Peter S. Mackey of Burns, Cunningham & Mackey, Mobile, for Appellee.
PER CURIAM.
AmSouth Bank appeals from a summary judgment in favor of J & D Financial Corporation holding that J & D Financial is entitled to $77,341.43 in accounts receivable from Lori & Me, a division of Sweet Bonnie Sue, Inc., and holding that J & D is entitled to $1,758.00, collected by AmSouth from creditors of Lori & Me. The following stipulation of facts was submitted to the trial judge, who, before entering the summary judgment, heard oral argument and considered memorandums of law submitted by both parties:
It is undisputed that, without the subordination agreement between AmSouth and J & D, the lienholders would be ranked in priority as follows: (1) Presidential; (2) AmSouth; and (3) J & D. There is also no dispute that the central issue in this appeal is the effect of the subordination agreement between Presidential and J & D on AmSouth's priority status. The agreement between Presidential and J & D stated:
The trial court held that the subordination agreement resulted in a change in priority among lienholders, establishing the following order: (1) J & D; (2) AmSouth and (3) Presidential. In addressing the effect the subordination agreement between J & D and Presidential had on AmSouth, the trial court relied on I.T.T. Diversified Credit v. First City Capital Corp., 737 S.W.2d 803 (Tex. 1987). The fact situation in that case was virtually identical to the situation before us today. In fact, in ITT the trial court and the intermediate court reached the result AmSouth urges this Court to reach in this case, that is, the following rank in priority: (1) AmSouth; (2) J & D, and (3) Presidential. As AmSouth urges us to do here, the trial judge in ITT held that the second priority lienholder (here AmSouth) moved into first position and that the first priority lienholder (here Presidential), in subordinating its interests to the third priority lienholder (here J & D), merely moved behind the third priority lienholder with the other lienholders shifting upward by 1. The Texas Court of Appeals affirmed the trial court's decision, holding *698 that the first priority lienholder "could have transferred its interest to any inferior lienholder," ITT Diversified Credit Corp. v. First City Capital Corp., 717 S.W.2d 419, 421 (Tex. App.1986), but did not, for whatever reason, do so. The Texas Court of Appeals, in making its ruling, relied on this Court's case of Shaddix v. National Surety Co., 221 Ala. 268, 128 So. 220 (1930), as authority for its decision:
ITT Diversified Credit v. First City Capital Corp., 717 S.W.2d 419, 421 (Tex.App.1986). Although the Texas Supreme Court reversed the ruling of the Court of Appeals, we hold the language of the Texas Court of Appeals opinion and the reliance on Shaddix therein to be a more compelling argument under the facts of this case. In so holding, we find the result reached by relying in Shaddix to be consistent with the definition of "subordination agreement":
Black's Law Dictionary (6th ed.1990). By definition, "subordination" contemplates a reduction in priority. Nothing in the definition contemplates raising a lower priority lienholder up to the position of the subordinating party.[4]
The judgment is reversed and the case is remanded, on the authority of Shaddix v. National Surety Co., 221 Ala. 268, 128 So. 220 (1930).
REVERSED AND REMANDED.
HOOPER, C.J., and MADDOX, SHORES, HOUSTON, KENNEDY, INGRAM, and BUTTS, JJ., concur.
COOK, J., dissents.
COOK, Justice (dissenting).
I respectfully dissent. I would affirm the judgment of the trial court; I adopt the following reasoning of the Texas Supreme Court in ITT Diversified Credit v. First City Capital Corp., 737 S.W.2d 803 (Tex.1987):
737 S.W.2d  at 804. Under the facts of this case, AmSouth has neither benefited from, nor been adversely affected by, Presidential's allowing J & D to move into first priority only to the extent of the amount of Presidential's lien. Had there been no agreement between Presidential and J & D, AmSouth would not have been entitled to the funds it now claims. Without question, those funds would have gone to Presidential. The obvious intent of the agreement between Presidential and J & D, in my opinion, was to allow J & D to move into first priority to the extent of Presidential's claim; therefore, I would follow Professor Gilmore's approach as it was stated in the ITT case, quoted above. For the foregoing reasons, I respectfully dissent.
[1]  According to the appellant, a factoring agreement "is a credit facility where the factor buys the accounts receivable of the customer at a discount, and then makes a profit by collecting the full amount of the receivable directly from the customer's account debtor. This allows the customer to obtain immediate cash flow rather than waiting for the receivables to be paid. Both Presidential and J & D were factors."
[2]  The collateral listed on both UCC-1 forms is virtually identical; however, the UCC-1 based on the transaction between SBS and AmSouth shows the debtor as "Sweet Bonnie Sue, Inc.," while the UCC-1 based on the the transaction between SBS and J & D shows the debtor as "Sweet Bonnie Sue, Inc. T/A Lori and Me." "Lori and Me" is a division of SBS.
[3]  In its brief on appeal, the appellee accepted the "stipulated facts" as an adequate statement of the facts, but added the following: "Additionally, J & D would show ... that Presidential Financial Corporation obtained a judgment against [SBS] on October 8, 1992, in the amount of $80,694.65..., no part of which has been paid."
[4]  We note that there was no assignment or subrogation agreement in this case. Had there been, the resulting order of priority would have been different.