# FILED
September 08, 1997 Cecil Crowson, Jr . App ellate C ou rt Clerk IN THE COU RT OF A PPEA LS OF TENN ESSEE WESTERN SECT ION A T JA CKSON
COY N. HA RAWA

Y and ) REDWING TEC HNICA L SYSTEMS , ) INC., ) ) Plaintiffs/App ellants, ) Shelby Chancery No. 101852-3 R.D. ) VS. ) A ppeal No. 02A 01-9508-CH- 00179 ) WILLIAM C. BURNETT, ) ) Defendant/Appellee. )
APPEAL FROM THE CH ANCERY COU RT OF S HELBY COUN TY AT MEMPHIS, TEN NESSEE THE HONORABLE D. J. ALISSAN DRATOS, CHAN CELLOR

RICHA RD L. WINC HESTER Memphis, Tennessee Attorney for Appellants
FELIX H. B EAN , III Memphis, Tennessee Attorney for Appellee

AFFIRMED IN PART, REVERSED IN PA RT AN D REMA NDED

ALAN E. HIGHERS , J.

CONCUR: DAVID R. FA RMER, J. WILLIA M H. INM AN , Sr. J.2

Plai ntiffs Coy N. Haraway and Redwi ng Technical Systems, Inc ., appeal the tr ial court’s final judgment w hich determined that Haraway was required to pay $72,636.30to redeem collateral in the possess ion of Defendant William C. Burnett and which dismissed Redwing from this lit igation. F or the reasons hereinafter stat ed, we modify in part, affirm in part, and reverse in part the trial court’s judg ment, and we remand for furthe r proceedings.

I. FACTUA L BACKGROUND In December 1989, H araway and Burnett entered into a purcha se/se curity agree me nt wh ereby Haraway agreed to purchase from Burnett 1,00 0 shares of stock in Redwing Technical Systems, Inc., plus certain pa tents, for a total purc hase p rice of $35,000. T he 1,00 0 shares of Redw ing stock represented 100% of the stock iss ued by Redwing. Haraway agreed to pay Burnett the $35,000 purchase price acco rdin g to the following schedule: (a) Haraway shall pay

Burnett 50% of the first $40,000.00 of net sa les collec ted by Redw ing (after dea ler discountand sales c ommissions) unt il such ti me as Burnett has been paid the to tal sum of $20,000.00. (b) Therea fter, Haraway sha ll pay Bur nett 25% of the next $60,000.00 of net sales collected by

Redwing (after d ealer discount and sales commission s) until such tim e a s Burnetts hall have be en paid the balanc e of $15,000.00 due him. (c) Paymentof the above sums shal l b e made by Haraway to Burnett by

the tenth of the month follow ing receipt by Redwing. (d) Haraway

shall have the optio n, but not the obligation, to pay Burn ett the balance of the $35,000 due him at any time. In addition to the $35,000 purchase pr ice, Haraway agreed to pay Burn ett r oyalt ies on Redwing’s sales ofdust control nozzles in the amount of ten percen t (10%) of Redwing’s net sales. The agreement pr ovided that H araway ’s oblig ation to pay royalties would cease upon the payment of the entire $35,000 purchase price.

To secure the payment of the $35,000purchase pri ce, Haraway grant ed to Burnett
a securit y interest in the stock and pat ents. In the event of Haraway’s default, the3

agreementafforded Burnett all of the rights and remedies of a sec ured party under Ten nessee’s version of the Uniform Commerci al Code (UC C). In connec tion wit h the purchase/secur ity

agreement, Ha raway

executed an irrevocable stock p ower w hich, in the eventof Haraway ’s default under t he agreement, as signed all of Haraway ’s interest in the stockto Burnett and aut horized Bur nett to sell, as sign, or transfer the stoc k to a third part y. A fter executing the agreement, Haraway became Redwing’s president and sole shareholder.

In the years foll owing execution of the purchase/secu rity ag reement, Haraway failed to remit timely pay ments to Burnett as required by the agr

eement. On July

16, 1992, therefore, Burnett notified Haraway by certi fied mail that Har away was in de fault under the agreementand that, unless Haraway

made payment of all amounts due and ow ing under the agreement, plus interest, within ten days, Burnett would exercise his right pur suant to the UCC to t ake immediate poss ession of the coll ateral.

A dispute arose between Har away and Burnett as to th e correct amount due under the purchase/secur ity agr eement. Haraway offered to pay Burn ett $48,273 to redeem the collateral, but Burnett re fused this amount as be ing unac ceptable. By letter dated August 3, 1992, Burnett informed Haraway that he was repudiatingthe purchase/secur ity agreementand that he was reasserti ng his ow nership of the col lateral, the stock and patents. The stock cert i ficate already was in B urnett’s poss ession. In addi tion to
exe rcising his owner

ship rig hts with regard to t he stock, Burn ett, through his agent, DouglasReeves, pr

oceeded to seiz e control and possession of the patent documents an d Redwing’s other assets, including its shop equipment and inventory . Burnett then caused the assets to be removed to M ontana.

II. PROCEDURAL HISTORY On August 24, 1992, Haraw ay and Redw ing filed thi s action against Bur nett seeking inju ncti ve and other rel ief. Specificall y, the compla int sought an injunction (1) restraini ng Burnettfrom interfering with Redwing’s business operations; ( 2) orderingBurnett to return4

Redwing’s shop equip men t and inve ntory; (3) and ordering Burnett to return all stock certificatesand patent docum ents. The complaint also sou ght damages for Burnett’s repudiation of the purchase/sec urity ag reement and his interf erence with Redwing’s business activit ies. Asser ting that he r

emained ready, willi ng, and able to fully perform his obligations

pursuant to theagreement, Ha raway deposited the sum of $48,273 with t he trial court. Har

away obt ained these funds from R edwing.

In September 1992, Bu rn ett, a Montana resi dent, filed a notic e of removal i n the United States Dist rict Court for the W estern District of Tennesse e. The federal district court remanded the case to th e trial court in D ecember 1992 beca use the amount in controversywas “insufficient to meet the $50,000 juris dictional min imum for removal of an action based upon diver sity of ci tizenship. ” The federal cour t’s order of

remand was not filed in the tr ial court unt il June 1993.

Meanwhil e, in December 199 2, Burne tt filed a bankru ptcy petit ion in Montana. Burnettthen filed an adversary p roceeding ag ainst Haraway in the bank ruptcy co urt based
on Haraway ’s breach of the pu rchase/secur ity agr eement. Haraway responded by filing
a moti on fo r manda tory absten tion. The United States Dist rict Cour t for the Distr ict of Montana granted Haraway’s motion and transferred the ad versary proceeding to the trial court in Apr il 1993.

After the case was remanded to the trial court, Bu rnett answered the Plaintiff s’ complaintand ass erted counte rclai ms against Haraway for breach of contr

act, fraudulent misr epresentation, and lack of good faith a nd fair dealing. Burnett’s counter com pla in t also demanded an audit ed accounting of Redwing ’s financial r ecords.

In July 1993, the t rial cou rt entered an or der whic h (1) enjoin ed Burnett from interfering with Re dwing’ s bus ines s ope ratio ns; (2 ) orde red B urne tt to retu rn all inven tory, equipment, and other assets or property seized from R edwing; and (3) ordered Burnett to account for an acco unt receivable collect ed by Burnett on behalf of Redwi ng.5

In March 1994, the trial court referred this cause to a special mast er to determine the following issues: ( 1) the total amount owed to Bur nett under the purchase/securi ty agreement; and (2) thetotal amount of damages, if any, due R edwing a nd/or Haraway for business tort s allegedl y committed by Burnett and/or his agents.

After conducting a hearing on March 24, 1994, the master iss ued a r epo rt determining that Haraway owed Burnett the sum of $34,361 under the purchase/securi ty agreement. This amount incl uded the $35,000 purc hase price pl us $15,649 in roy alties due under the agreement, less a $2, 000 payment previo usly made by Haraw ay and $14,288 for the Redw ing account recei vable inter cepted by Burnett. Later in hi s report, the master reduced the total amou nt owed to $29,861 based on Burnett’s failure to re turn a nozzle wo rth $4,500 to Redwing. As for the Plaintif fs’ claim for damages f or Burn ett’ s alleged business tor

ts, the master d etermined tha t the Pla intiffs were not entitled to lost profits based on the master’s f indings that Haraway’s prior tender was insufficient to cure the defau lt and that “Bur nett acted proper ly pursua nt to [Tennessee CodeAnnotated sections 47-9-501 and 47-9-503]. ” In making these findings, the mast e r apparently approved of the procedure whereby Burnett exe rcised “th e Irrevocable Stock Power thus becoming ow ner of the stockof Redwing , Inc., and as s ole shareholder took possessi on of the assets of the corporation and r emoved them to Mo ntana. ” In l ight of this determination, the master made no findi ng as to the amount of Redwin g’s lost profits. At the hearing, how

ever, the Pl aintiffs presented a statement of income show ing that, i n the year preceding Burnett’s sei zure and poss ession of Redw ing’s ass ets, Redwi ng averag ed
a monthl y net

incomeof $3,069.67. Duri ng the ten months followingBurnett’s s eizure of the assets, Redw ing aver aged a net los s of $601.60 per month. Thus, the Plaintiffs soug ht to prov e tha t Redwing lost profits of $36,712. 70 for the ten-mon th period in which Redwing ’s assets r

emained in Burnett ’s possessi on.

The trial court subsequently entered an order adop ting and modifying the master’s
re port. In its orde r, the trial court found that H araway materially

defaulte d under th e purchase/secur ity

agreement and that Burnett proper ly exe r cised th e irrevocable stock6

power, thereby effectiv ely becomingthe owner of Redwing . The trial court mod ified the master’s report by

determining that Harawayowed Burnett $48,659 under the purchase/secur ity

agreement rat her than $29,861 as found bythe master. Thetrial court reasoned that, inasmuch as the parties ag reed that the $4,500 nozz le and the $14,288
accoun t receivab le were asse ts of Re dwing, these amountswere not p roperly subject to set- off by Haraw

ay. By “further

implication, ” the trial court then dismissed Redwing as a party plaintiff from this a ction. The tri al court’s dismissal of Redwing apparently was based on the court’s

finding that Bur nett, and not Har away, w as the owner

of Redwing

.

Fol lowing m otions by t he parties, thetrial cour t entered an addit ional order ruling that the collater

al pledged by Haraw

aywas the property of Burnett, but granting Haraway’s motion to redeem the collateral. Th e trial court then referred the case back to the master to deter mine the follow ing issues : (1) the nat ure of the collat eral pledge d to Burnett by Hara way; (2) the ex penses re asonably i ncurred by Burnett in retaking, hol ding, and preparing the collater

al for disposi tion; and (3) the amount requi red for Haraway to redeem the collateral . Burnett filed a writt en objection to Haraway ’s redemption of thecollateral on th e ground that the collateral previously had been transf erred to Burnett purs uant to th e irrevocable stock power.

After conducting a second hearing on Janua ry 25, 1995, the master issued a report determining that, per the par ties’ stip ulat ion, th e collateral pledged was 1,000 shares of Redwing stock and si x patents. The master determined that Bu rnett incurr ed expenses of $11,569.30 in retaking, holding, and preparing the co llatera l for disposi tion. This total included the $8,209.50 cost of moving R edwing’ s assets from Memphis to M ontana and back, the $2,950 cost of st oring the as sets whi le in Montana, and the $483 cost of certain utilitiesand rent which Burnett init ially w as required to pay in o rder to obtain access to the assets. At the hearing , Burnett also sought rei mbursement for $57,734 i n travel expenses incurred by Burnett and for $122,608.20 in fees charged by Douglas R eeves. The master found that Burnett had not met his burden of proof in delineating these expen ses because Burnett’s travel e xpenses “were not expens es actually incurred but were ba sed on IRS7

allowances ” and because “the contract w ith Reeves was ini tially to run the business and included monthly charges for doing so.” As found by the master, the purpos e of the contract between Reev es and Burnett was for Reeves to assist Bu rnett “in th e lawsui t and to be in charge of the opera t ion of Redwi ng’s busin ess on an . . . as needed basis t o formulate policies and [to administer] said ma tters i n all r espects.” F inally, the master determined the cost of redempti on to be $53,838.30. Thi s amount included the$29,861 balance due on the de bt as previously found by the master, the $11 ,569.30 in expenses as found by the master at the second hear ing, and an addi tional $12, 408 in un paid royalti es.

Based on the master’s second report , the trial court entered a final judgment awarding Burnettthe sum of $53,838.30. The j udgmentdirected Bur nett, upon recei pt of this sum, to return the Redwing stock certificate to Haraway and to file a UCC-3 release evidencing Burn ett’s receipt of the paymen t and his release of any security interest held in the patents. The j udgmentadditionally directed Har

away to pay $300 to Bur nett as civil contempt dama ges. As for Burnett’s counter comp laint, the trial court denied recovery based on the court’s finding that Burne tt had “failed to dem onstrate any act ionabl e damages.”

The master later

filed an amended repo rt in which he determined the cost of redemption to be $72, 636 .30. This ame ndm ent wa s necess ary because the master’s second report failed t o reflect that the trial cour t previous ly modified them aste r’s initi al report to pro vide t hat t he ba lanc e due on th e deb t wa s $48,6 59 and not $29,861. The amended redemption amount, therefore, incl uded the $48,659 balanc e due on the debt, $11,569 .30 in e xpenses, and $ 12,408 in royalties. The tr ial court ent ered an order modifying its final jud gment in accor dance with the master’s amende d report. As modified, the trial cour

t’s final judgment als o ordered Haraway to reimburse Burnett $99.75 for onehalf the cost of transc rib ing the master’s second hearing. The trial court sub sequently denied the Plaintiffs’ mot ion to alter or amend the final judgment, as well as other motions, and this appeal foll owed.8

On ap pea l, th e Pla inti ff s rais e the foll owing i ssue s fo r this cour t’s re view:

1. Did the Special Master and the Trial Court err in calculating the amount whi ch Plaintiff Haraway was required to pay Defendant to redee m his collateral? 2. Did the Special Master and the Trial Court err in failin g to a pply

T.C.A. § 47-9 -506 t o calc ulate t his su m? 3. Did the Trial Court err i n di smis sin g Pl aint iff, Redwing Technical Systems, Inc. from thi s litig ation? 4. Did the Special Master and the Trial Court err in failing to aw

ard Plai ntiff R edwing Technical Systems, Inc. a judgmentagainst Defendant Burn ett for the amount of the Redwing receivab le intercepte d by Burnett ($14,288.00) and the value of the g rain nozz le taken and n o t returned ($4,500.00)? 5. Did the Special Master and the Trial Court err in determining that Defendant Burnett “ acted [properl y]” w hen he c onfiscated property of Redwing Techni cal Systems, Inc. whic h was not part ofthe collateral pledged to secure Mr. Haraway’s debt to Mr. Bur nett? 6. Did the Special Master and the Trial Court err in not awardingRedwing Technical Systems, In c. its [lost] profits forthe period of time tha t it was out of business as a result of the confiscation of its equipment a nd inventor y? On cross appeal, Burnett also ha s raised several issues:

1. Do the P la intiff’s Complain t, subsequent pleadings and weight of the evidence s upport the propos ition that he is entitled to seek redem ption of the collateral? 2. W ere the interpled fund s ($48,273.00), which were deposi ted into the cour t simultaneousl y wi th the filing of this cause, the prope rty of Plai ntiff Haraway and, is he properly and law fully entit led to apply

these funds tothe amo u nt required to redeem the collateral? 3. Do the Special Master’s calc ula tions take int o account all s ums to whic h Defendant Burnett i s entitled . . . ? 4. Has Defendant Burnett been ful ly and adequately compensated for the egregious conduct of Pla intiff Haraway in connection w ith the prosec ution of this caus e?

II I. HAR AWAY ’S RI GH T T O R ED EE M T HE CO LL ATE RAL As a n initial matt er, we find i t necessary to address Bur nett’s contenti on that Haraway was not ent itled to redeem the collatera l. Section 9- 506 of the UCC g overns Haraway ’s righ t of redemption:9 47-9-506. Debtor’s righ t to redeem collateral. -- At any time before the secured party hasdisposed of coll ateral or entered into a contrac

t for its disposi tion under § 47-9-5 04 or before the obligatio n has been dischar ged under § 47-9-5 05(2) the debtor or any other secured part y ma y unless otherwise agreed in writi ng after default redeem the collater al by tendering fulfillment ofall oblig ations secure d by the col lateral as well as

the expenses reasonabl y incu rred by t he secured party in retaking , holding and preparing th e c ollateral for disposition, in arrangingfor the sale, and to the extent provided in the agreement and not prohi bite d by law, his reasonable attorneys’ fees and legal expenses. T.C.A. § 47-9-506 (19 92). Prov ided he made a vali d tender under this secti on, therefore, Haraway was enti tled to redee m thecol late ral unl ess (1) Bur nett had d isp osed of th e collateral or entered in to a contract for disposition of the collateral under section 9-504, or (2) Burnett

had retained the collateral in satisfactio n of Haraway ’s oblig ation pursuant t o section 9-505(2).

On cro ss a ppea l, B urne tt c onte nds t hat H araw ay w as pr ecl uded fr om rede eming the collateral because Haraway’s pleadings did not request redemption and beca use Burnett already had disposed of the collateral be fore Har away made a valid ten der pursuant to section 9-506. We conclude that both of these contentions are wit hout merit and that the trial court properly allowed Haraway to redeem the collateral.

We first rejec

t Burnett’s contention that the t rial court improperly

granted red emption based on Haraway’s failure to request this remedy in his pleadi ngs. The TennesseeRules of Civil Procedure di rect the cour ts of this stat e to libe rally const rue the parties’ pleadin gs so as to do substant ial justice. See T.R.C.P. 8.06. Haraway’s complaint requested return of the collater

al and, in connec

tion therew ith, Haraway deposited $48,273 w ith the trial court, an amo unt tha t he contended fulfill ed his oblig ations under the purchase/secur ity agreement. Base d on t he pl ead ings, ther efo re, t he tr ial co urt a cted prop erly in gran ting Haraway the remedy of redemption. See Lamons v. Chamberlain , 909 S.W.2d 795, 800 (Tenn. App. 1993) (holdi ng that resc ission was not preclude d as possible remedy where plaintiff’s complaint averred that she had lost her entire investment and prayed f or return of down payment).1 Re gard ing the sale o r othe r disp osition of the collate ral, se ction 9 -504 furthe r pro vides that: Sa le or ot her di sposit ion may be as a uni t orin p arcel s and at any ti me and pl ace an d o n a ny te rm s b ut e ve ry as pe ct o f th e d isp os ition inc lud in g th e method, manner, ti me, place and t erms m ust be comm erci all y r easonabl e. Unless coll ater al i s peri shable or t hreat ens to decl ine sp ee dily in va lue or is of a t ype cu sto m ar ily sold on a recogni zed market, reasonabl e noti fi cati on of the tim e a nd pla ce of a ny p ub lic s ale or rea sonable noti fi cati on of t he tim e after whic h an y private sa le or o the r int en de d d isp os ition is to be m ad e s ha ll be sent by

the secur ed part y t o the de bto r, if h e h as no t sig ne d a fte r de fa ult a stat ement renounci ng or modify ing hi s ri ght t o noti fi cati on of sa le. In t he case of consumer goo ds n o oth er no tification n eed be s ent. In ot her cases noti fi cati on shall be sent to any other secured party

from whom the secur ed party has rece ived . . . wri tt en noti ce of a cl aim of an i nter est i n the co llate ra l. The secured party may buy at any publi c sale and ifthe col lat eral is of a t ype cust omarily sold in a recogni zed market or is ofa ty pe which is

10 We also rejec

t Burnett’s contention that Har away was preclude d from redeeming the collateral on the ground that Burnett alr eady had dispo sed of the collater al by assi gning the stock to himself pursuant to the irrevocable stock power executed by Haraway. Upon the debtor’s defau lt, the UCC gives the secured creditor three options:

First, [the secured cre ditor] may reduce the clai m to judgment, foreclose or

otherwis e enforce the secur ity inter est by judi cial procedurespursuantto T.C.A. § 47-9-501(1), (2), (3), (4), (5). Second, [the secured cr edit or] may rep ossess and sel l the collateral in satisf action of the obliga ti on. T.C.A. § 47-9-504(3) , . . . . Finally , the creditor may propose to retain the collateral in satisfac tio n of the obligati on. T.C.A. § 47-9-505(2). American City Bank v . Western Auto Supply Co. , 631 S.W.2d 410, 419-20 (Tenn. App. 1981) (footnote s omitted).
Regarding the second option , section 9-5 04 of the UCC pr ovides, i n part: 47-9-504. Secured party’s righ t to dispose of collatera l after default -- Effect of disposition. --(1) A secured party after defa ult may sell, lease or otherwise dispose of any or all of the collatera l in its t hen condition o r following any commerci ally re asona bl e preparation or processing

. . . .

. . . . (3) Dispositi on of the collater al may be by publi c or privateproc eed ings a nd m ay be m ade by way o f o ne (1) or more contracts

. . . . (4) When collateral is disposed of bya secured par ty afterdefault, the dispos ition transfers to a purchaser for v alue all of th e debto r’s rig hts therein, di scharges t he security interest under which it is made and any security interest or

lien subordinate thereto. . . . T.C.A. § 47-9-504 (1992 ). 1the subjectof w idel y di stri buted st andard pr ice quo tat ions he may buy at pri vate sa le. T.C.A. § 47-9 -504(3) (1992). 11 Authorities generally agree that a secured creditor’s transfer of collateral, such as stock, to the credit or’s ow n name does not const itute adisposition under section 9-504 of the UCC. See Flet cher v. Cob uzzi , 499 F. Supp. 694, 698-99 (W.D. Pa. 1980); Sports Courts of Omaha, Ltd. v. Brower , 534 N.W.2d 317, 322 (Neb. 1995); see also IFG Leasing Co. v. Gordon , 776 P.2d 60 7, 613 (Utah 1989); Ronald A. Ander son, Anderson on the Uniform Commercial C ode § 9-504:47, at 425 (3d ed. 1994 & Supp. 1 996). W ithin the cont ext of the UCC, the term “disposi tion” connotessome transfer for v alue of the creditor’s rightsto the collat eral and does not contemplate acredi tor ’s t ransfer o f tit le t o hi msel f. Fletcher v. Cob uzzi , 499 F. Supp. at 698; T.C.A. § 47-9-50 4(4) (1992). In accordance w ith these authorities, we concl ude that Burnett di d not effect a disposi tion of the Redwing stock within the meaning of sec tion 9-504 when h e transferred title of the stoc k to himself and, thus, that Haraway

was not pr

ecluded from redeemingthe stock pur suant to secti on 9-506.

Burnettcites Comer v. G reen Tree Acceptan ce, Inc. , 858 P.2d 560 (Wyo. 1993), for the propositi on that, by transfer ring the collateral i nto his ow n name, Burnett dispos ed of the collateral within the meaning of sect ion 9-506. In Comer , howeve r, the court concluded that the debtor was precluded from redeeming the collateral because the secur ed creditor had retained thecollater al in satisfaction of the debt purs uant to section 9-505(2) of the UCC, not because the creditor had dis posed of the collate ral wi thin the meaning of section 9-504. Comer v. Green Tree Acceptance , 858 P.2d at 563-64. We conclude that Comer has no applicatio n to this casebecause here Bur nett claims to be proceeding pursuantto section 9-504 of the UCC, not section 9-505(2).

We note that, after tran sferring title to himself, Burnett cou ld have chosen the third available option by el ecting to retain the collateral in satisfacti on of Haraway ’s oblig ation pursuantto section 9- 505(2). See American City Bank v. W estern Auto Supply , 6312 That secti on provi des that In any o thercase i nvol vin g consumer goods or any other coll ater al a secured party

in p osse ss ion may, aft er defau lt , pr opose to r etai n the coll ater al in sa ti sfac t ion ofthe obl igat ion. W ri tt en noti ce of such pr oposal sh all be s ent to the d ebto r if he h as n ot sign ed a fte r defaul t a st atement renounci ng or m odifyi ng his ri gh ts under thi s subsecti on. I n the case of consumer goo ds n o oth er no tice ne ed b e give n. In o the r c as es no tice sh all be sent t o any othersec ured party from whom the secur ed part y has recei ved

. . . wr it ten not ice ofa cla im of an i nter est i n the col lat eral . I f th e secured part y r eceiv es object ion i n wri ti ng from a person e ntitl ed to receive not if icat ion wit hin twenty -one (21 ) day s aft er t he noti ce was sent, the se cured par ty

must dispose ofthe col lat eral under § 47- 9-504. In t he absence of such wri tt en object ion the secur ed part y may r etai n the col lat eral in sat isf acti on of t he debtor ’s obl igat ion. T.C.A. § 47-9 -505(2) (1992).

3 Ne ither B urne tt’s app ellate b rief no r his c oun ter co m plaint c ite sec tion 9-5 05(2 ). 12 S.W.2d at 419; T.C.A. § 47 -9-505(2) (1992); 2 see also Flet cher v. Cob uzzi , 499 F. Supp. at 699; IFG Leasing Co. v. Gordon , 776 P.2d at 612; In re Szele ga , 469 N.Y.S. 2d 271, 272-73 (App. Div . 1983). In proceeding pursuant to section 9 -505(2), however, a secured credi tormust g ive the debtor written notice of his intent to reta in the collateral in sat isfaction of the debt and must forfeit his rig ht to a deficiency judgment. See T.C.A

. § 47-9- 505(2) (1992) ; see also Comer v. Green Tree Acceptance , 858 P.2d a t 565 ; Anderson on the UCC §§ 9-505:4, 9-505 :30, at 656, 671. I n the presen t case, Burnett
never has contended that h e was proceeding purs uant to se ction 9-505(2), 3 nor has he provided Haraway with w ritten notice of his intent to reta in the collat eral in satisfacti on of Haraway ’s oblig ation under thepurchase/secur ity agreement. Ac cordingly , we need not address the potent ial applicat ion of section 9- 505(2) to this case.

IV. HA RA

WAY ’S COST OF R EDEMPTION Having determined that H araway was not precluded from redeemingthe collateral byvirtue of Burnett’s disposition of the colla teral, w e ne xt address the issue of the appropriate redemption amount. The final redemption amount, as calculated by

the trial court, was $72,636.3 0, which i ncluded the $48,659 de bt as determined by the trial court when it modified and ado pted the m aster’s ini tial report , $11,569.30 in ex penses, and $12,408 in additional royalti es. We agree with the Plaintiffs’ content ion that the $11,569. 30 in expenses was improperly included in the cost of redempt ion because these expenses are not authorized by the UCC.13

In orde r to re dee m the colla tera l, Har away was requi red t o pay, in addition to the underlyin g obligation secured by the collateral, “the expens es reasonably incurred by

the secured party

[Burnett] in retaking, holding and pr eparing the collateral for disposition ” and in arrangingfor its sale. T.C.A. § 47-9- 506 (1992). The ex penses claimed by Burnettand awarded by

the trial court, howev

er, wereincurred by

Burnett w hen he seized t he corporate assets of Redwing, including its equipment and inventory. These corporate assets did not constitute a part of the purc hase/security agreement’s collateral and, thus, section 9-506 did not authorize Burnett to recover expenses associated with taking or holding this prop erty. In fact, at the January 1995 hearing before the master, Bur nett acknowl edged that he incurred no expenses in retaking the collateral beca use the stock cer tificate alread y was in his poss ession prior toHaraway’s default and because Burnet t had perfected his security interest in the patents by fil ing a UCC -1 fi nan cing s tate men t. Acc ordi ngly, we modi fy the trial court’s final j udgment to reflect tha t Haraway’s cost of redemption is $61,067 and not $72,636.30.

In making this

modification, we rejec

t Burnett’s contention on cros s appeal that the trial court erre d in failing to award h im add itio nal e xp enses for retaki ng, holding , and preparing the collater

al for disposition . Regardi ng Burnett’s claimed travel expenses, the master found that Burnett di d not prove h is actual ex penses butinstead based theamount of his claim on the maximum ded uctions allo wed by the IRS. In ligh t of this f indi ng, we affirm the trial court’s decision to deny Burnett’s claim for $57,734 in travel expenses. We also affirm the t rial court ’s decisio n to deny Bur nett’s clai m for $122,608.20 in fees allegedlyowed toDouglas R eeves. As found bythe master, the p urpose of the agreement between Burnett and Reev es was for R eeves toassist Burnett in this lawsuit and to be in charge of the opera tion of Redwing’s business on an as-needed basis. The record fails to indicate, however, how Reeves’ service s related to “ retaking, holding and preparing the collateral fordisposition.” T.C.A. § 47-9- 506 (1992). Al though Reeves apparently assisted in seizingthe corporate assets of Redw ing, aswe prev iously hav e held, these ass ets did not constitute a part of the purchase/security agreement’s collateral. W e also not e that most of Reeves’ i nvoices cover the per iod after July 1993, when thetrial court entered its4 As pertine nt, rule 5 3.04 (2) p rovide s tha t: W ithin ten (10) days after being serv ed wit h not ice ofthe f il ing ofthe [mas te r’ s] report , any part y may serve wri tt en object ions t heret o upon th e othe r par ties. Appli cati on to t he court for act ion up on the r eport and upon object ions t her eto sh all b e b y m otio n a nd up on no tice as pre sc rib ed in Rule 6. 04. T.R.C .P. 53.04(2). 14 order enjoining Burnett from interfering with Redwing’s business operations and o rdering Burnett to retu rn Redwi ng’s asset s.

W e likewise reject Burnett’s contention that t he master’s in itial repor t understated the amounts owed toBurnett pursua nt to the purchas e/security agreement. A n appellant waives an issue for pur poses of app ella te re vi ew when he fails to make the appropriate objection at the trial court level. Barnhill v. Barnhill , 826 S.W.2d 443 , 458 (Tenn. App. 1991). In this regard, the appellant has the du ty “to prepare a record which conveys afair,
a ccurate a nd complete account of what trans pired in the t rial court with respect to the issues which form t he basis of the appeal.” State v. Bol ing , 840 S.W.2d 944, 951 (Tenn. Crim. App. 1992); T.R.A .P. 24(b). Ab sent a transcrip t of the March 1994 hearing at which the master’s alleged error occurred, we are unable to determine whether Burnett raised th is issue below. M oreover, we note that the record fails to r eflect whether Burnett f ormally object ed to th e ma ster ’s ini tial repo rt as p ermi tted by the Ten ness ee Ru les o f Civi l Procedure. See T.R.C.P. 53.04(2). 4 Under these circumstances, Burnett has waived this issu e fo r app ella te re view.

V. BURNETT’S REPOSSESSION OF REDWING’S EQUIPMENT AND INVENTORY On appeal, the Plai ntiffs additionall y contend that the trial court erred i n determining that Burnett acted pr

operly under

the UCC w hen Burnett confiscated Redwi ng’s equi pment and inventory . The Pla inti ffs argue that, contrary to the trial court’s findi ng, Burnett w as not authorized to repossess Redwing’s equip ment and inventory because this pr

operty was not part of the collateral covered by the p urchase/secur ity agr eement.

We agree. Un der

the UCC, upon the debtor’s default, the secured cr editor’s r ight to take possessi on of the debtor’s pr operty ex

tends only t o the collater al. T .C.A.15

§ 47-9-503 (1992) . A secured c reditor w rongfully repossesses property

when the creditor takes possession of pr

operty that is not subjec t to the security

interest. Anderson on the UCC § 9-503:64, at 327. In addition to assertinghis rig hts to the coll ateral in thi s case, the stockand p aten ts, B urne tt pr ocee ded to rep osse ss Red wing’s equip men t and inven tory. Burnettwas not

authorized to repossess this proper ty because R edwing’ s equipment and inventorywas not thesubject of Burnet t’s securi ty intere st. We conclude, therefore, that the trial cour

t erred in r uling that B urnet t acted properly in repossessing Redwing’s prop erty.

At the second heari ng before the master , Burnett asser ted that he wa s authoriz ed to repossess Redwing’s equipment and inventory pursuant tosection 9-501 of the UCC. As pertinent, that section pr ovides that: When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this part and except as

limited by subsection (3) those provided in the security

agreement. He may reduce his claim to judgment, foreclose or otherw ise enforce the s ecurity interest by any available judicial procedure. If the collateral is documents the secured party may

proceed either

as to the documents

or as to the goods covered thereby. . . . T.C.A. § 47-9-501(1) (1992). Thus, this section author izes thesecured party , in the eve nt the collateral is a document, to procee d either as to t he document or as t o the goods covered thereby. In citing this UCCsection at thehearing bel ow, Burnett apparently

was taking the position that the Redwing stockcertificate was a document and that Redwing’s equipment and inv

entory were the goods covered by such document.

This argument is without merit. Under Article 9 (Chapter 9) of the UCC, the te rm “document” refers to a document of title as defined i n the U CC’s sect ion of general definitions. T.C.A. § 47-9-105 (1992) . The UCC g enerally defines a document of title to include a bill of ladi ng, dock war rant, dock receipt, wa rehouse recei pt or

ord erfo r the delivery of goods , and also any other document which in the reg ular course of business or financ ing is treated as adequately

evidencin g thatthe person in possession of it is entitled to receive, hold and dispose of the documentand the goods it covers. To be a documen t of title a document must purport to be issued by or addressed to a bailee and purp ort to16 cover goods in the bailee’s poss ession whi ch are either identified or are fun gible portions of an identif ied mass. T.C.A. § 47-1-201( 1 5) (1992). The stock certificate held by Burnett as collateral in this
case doesnot f all wi thin the f oreg oingdefi niti on. A sto ck c ert ifi cate i s not a document which in the reg ular course of business ev idences the poss essor’s enti tlement to identifiable goods; rather, a stock certificate is an instrum ent which represe nts a s hare, participati on, or other int erest in th e issuer’s property or enterpri se. See T.C.A. §§ 47-8-102(1), 47-9-105(1)(i) (1992); see also FDIC v. Cali endo , 802 F. Supp. 575, 578 (D.N.H. 1992). See g enerally And erson on the UCC §§ 1-201:231 to :244 , at 633-37 (discussi ng what is and is not a document of title); see also Hinton v. Carne y , 250 S.W.2d 364, 365 (Tenn. 1952) ( noting that ownership of all capital stock of corpor ation does not make share holder

owner of cor poration’s pr operty); accord Vella v. National Pizza Co. , No. 02A01-9311-CV-0025 4, 1994 W L 618606, at *3 (Ten n. App. Nov. 9, 1994).

On cross appeal , Burnett also asserts that

he was enti tled to repossess Redwing’s equipmentand inventor y be caus e he became the ow ner of Redwi ng pursuant t o the irrevocable stock pow er executed by Haraway in connec tion wit h the pur chas e/security agreement. In executi ng the stock power, Harawayagreed that, in the event of his def ault under the purchase/security agreement, all of his interes t in the stock would be tr

ansferred to Burnett.
Again, we find Bu rnett’s arg ument to be wi thout merit. In matters concer ning the parties’ rights, obligations, and remedies, the provi sions of Artic le 9 apply whether title to the collateral is in the s ecured creditor or in the debtor. T.C.A. § 47-9-20 2 (1992). Thus,
even if title to the Redwing stock was transferred to Burnett’s nam e after defau lt, this transfer did not affect th e parties’ rights, obligatio ns, and remedies under Articl e 9. Further, to the extent that the prov isions of Article 9 grant certain rights to the debtor and impose certain duties on the s ecured credi tor in the event of default, th ese provisi ons may not be waived or vari ed by the par ties. T.C.A. § 47-9-501(3) (1992). These pr ovisions include the UCC sections deal ing wi th the secured c reditor’s disposition of the collateral (T.C.A. §§ 47-9-504(3) , 47-9-505(1) ), the secured creditor’s retention of the collateral in17

satisfaction of the debtor’s obligation (T. C.A. § 47-9-505(2)), the debtor’s redemption of the collateral (T.C.A. § 47-9-506), and the secured cre ditor’s l iability for failure to co mply wi th Article 9's default provisions (T.C.A. § 47-9-50 7(1)).

In appl ying th ese p rinci ples , thi s cou rt pre vious ly h as h eld tha t a stock p ledge agree me nt whi ch purports to vest the stock in the secured creditor up on the debtor’s default is inva lid; such an a greement neither waives the debtor’s

rights u nder Articl e 9 nor terminates the debto r’s rights of ownership in the stock. Trimble v. Sonitrol of Memphis, Inc. , 723 S.W .2d 633, 638-39 (Te nn. App. 1986); accord Data Sec., Inc. v. Pless man , 510 N.W .2d 361, 365-66 (Neb . Ct. App. 1993) ; 18 C.J.S. Corporations § 264 (1990). I n Trimble , the language of the stock pledge agr eement clearly

provided t hat, upon default, the stock would vest i n the secured c reditor. Trimble v. Sonitrol , 723 S.W.2d at 638. The pledge specifically included all “voting and other shareholde r rights.” Id

.
In commenting on t he effect of such an agre ement, one authority explained: The mere fact that the debt or defaults doesn ot terminate the debtor’s ownership in the collater al. The concept of strict forec losure that was followed by the law centuri es ago does not apply, with theconsequence t hat default does not in itself extingu ish the debtor’ s rights but m ere ly satisfies a c o ndition precedent to the creditor’s right to invoke certain remedies, one of which i s a right to sell thecollateral which will effect the termination of the debtor’s ownership. Thus, on the default of the debtor the creditor has the rig ht to repossess and dispose of the collatera l but doesn ot acquire title auto mat icall y. A provisi on in an agre ement coveri ng the pledg e of stockthat upon default “voti ng and other shareholder’s rights” were to vest i n the pledgeeis inva lid and does not deprive the pledgor of standing to at

tack the commercial reasonableness of the disposition of the collateral. Anderson on the UCC § 9-501:42, at 234 (ci ting Trimble v. Sonitrol of Memphis, In c. , 723 S.W.2d 633 (Tenn. App. 1986)) (footnotes omitted) ; see also T.C.A. § 48-16- 203(d) (1988) (providi ng that, for purposes of assigning liability, pledgor, and not pledgee, remains holder of shares in corporation pled ged as collateral security).18

Another authority has succinctly described the effect of the UCC’s default provi sions on title to the collateral:

The default provi sions in the U CC do not automatically transfer title to the secured part y upon default

. . . . Th e provisio ns found in the UCCgrant broad rights t o the sec u red party to repossess the security in order to sell or otherwise dispose of that property

upon default. When the creditor repossesses the secured prope rty, ho wever , it obtains o nly the r ight of possession, not title. . . . Under the UCC, default does not divest a debtor

of a ll righ t and inte rest in th e sec ured prop erty, nor is the secured party, t he creditor, vested w ith the unlimi ted power to deal with the property as it wishes. Comer v. Green Tree Acceptance, Inc. , 858 P.2d 560, 563(Wyo. 199 3) (citations omitted).

In accordance w ith the foregoi ng autho ritie s, we hold that the irrevocable stock power execu ted b y Harawa y in th is cas e was in eff ecti ve to automatically transfer title of the Redwing stock to Bur nett in th e event of default and, thus, did not vest Burnett w ith unlimited power to d eal with Redwing ’s property as he wished. The stock pow er neither waived Haraway ’s righ ts under Artic le 9 nor divested him of ownership rights in the stock. Accordin gly, contr ary to Bur nett’s arg ument on cross app eal, the stock power di d not aut hori ze Burnett to ass ume control of Redw ing and to repossess its equipment a n d inven tory.

A cr ed itor who wrongfull y takes pos session of proper ty may be held liable for conversi on damages and for g eneral damages, such as lost profits. See Daven port v. Chrysl er Credit Cor p. , 818 S.W.2 d 23, 30- 32 (Tenn. App. 1991); Walker v. Associates Commercial Corp. , 673 S.W .2d 517, 521 (Tenn . App. 1983); Harris Tr uck & Trailer Sales v. Foote , 436 S.W.2d 460, 464 (Tenn. App. 1968); Anderson on the UCC §§ 9-5 03:64 , 9-503:74, at 327, 339; see also Lance Prods., Inc. v. Commerce Union Bank , 764 S.W.2d 207, 213 (Tenn. App. 1988) . At the init ial hearing bef o re the master i n this case, t he Plai ntiffs sought toprove t hat Redwin g lost pr ofits as a resul t of Burnett’s w rongful repossession of Redwing ’s assets. The master denied the Plaintiffs’ cla im for lost pro fits based, not on eviden tiary g rounds, but on the master’s finding that Bu rnett acted properly under the UCC , and the trial court adopted this portion of the master’s report. Inasmuch
as neithe r the ma ster nor t he trial co urt mad e any fin dings with regard to theevidence of5 As pres ente d, the Plaintiffs ’ claim for los t profits belon gs to Redwing, not H araw ay. See Hadd en v.

City of Gatlinburg , 746 S. W .2d 687, 689 (Tenn. 1988 ) (hol ding thatsole sharehol der of co rporat ion may not bring suit i ndividuall y to ri ght wrong do ne to corporation; action m ust be brough t by corporation).

6 In any event, we note that Redwing m ay have been a n ecess ary party to this ac tion. See Citi zens Real Estat e & Loan Co. v. Mountai n Stat es Dev. Corp. , 633 S. W .2d 763, 766 (Tenn. App. 1981) ( concludi ng that all parties claiming titl e to subject property were nec essary part ies to laws uit); T.R .C.P . 19.0 1; see also Japan Petrol eum C o. v. Ashland Oil, Inc. , 4 56 F. Supp. 831, 836 n.8 ( D.C. Del . 1978) (not ing t hat cor porat ion generally i s indispensable party in any acti on affecting its ri ghts and liabili ties). 19 lost profits presented by the Plaintif fs, we remand for the trial court to reconsider Redwing’s claim for lost profits. 5

VI. THE TRIAL COUR T’S DISMISSAL OF REDWING Having determin ed tha t Redwing may be entitled to lost profits for Burne tt’s conversi on of its equipment and inventor

y, we next address the issue of the trial court’s dismissal of Redw ing from this lawsuit. In this reg ard, inasmuch as we haveheld that Burnettdid n ot be come the o wner o f Red wing pu rsua nt to the i rrevo cabl e sto ck po wer, we also must rever

se the tr ial court’ s order dismissing Redwing. The trial court apparently dismissed Redwing based on the court’s conclusion that Burnett was the owner of Redwing and, thus, that Har

away had no authority

to maintain thi s action on behal f of Redw ing. Because Haraway’s ownershi p interest i n Redwing was not terminated by Burnett’s ac

tions taken pursuant to the irrevocable stock power, we hold that Hara way was not precluded from maintaining this action on behalf of Redwingon this basis

. Other t han his alleg ed ownership of Redwing pursuant to the irrevocable stock pow er, Burnett has

advanced no other basis to chal lenge Haraw ay’s author ity, as R edwing’ s president and sole shareholder , to bring thi s lawsui t on behalf of Redwi ng. See Lewis ex rel. Cit izens Sav . Bank & Trust Co. v. Boyd , 838 S.W.2d 215, 220 (Tenn. App . 1992) ( noting that responsibili ty for determining whether corporation should pursue judic ial remedies for its injur ies falls on its officers and directo rs). 6

In his initial report, the master foun d that Burn et t owed Redw ing $14,288 for an accountreceivab le that he inter cepted and $4,500 for

a nozzle that he failed to r eturn. In accordance with these findings, we co nclude that a judgment in t he amount of $18,788 should be ente red in f avor of Re dwing.20 VI I. RE MAI NI NG IS SU ES ON APP EAL In light of the foregoing anal yses, we also hold that the trial court properl y permitted Haraway to redeem the col lateral usi ng $48,273 in fundsobtained from Redwin g. As we have held, Haraway’s ow nership inter est in Redw ing was

no t exti nguished by Burnett’s exercise of the irrevocable stock p ower. M oreover, we note that the purcha se/security agreementitself contemplat ed that Haraway woul d use Redwi ng’s revenues to p ay the purchase pri ce for Redwi ng.

Fina lly, we rejec

t Burnett’s ar

gumenton cross appeal that he is entitled to addi tional damages forHaraway’s “egreg ious conduct.” The trial co urt found that Burnet t had “failed to demonstrate any

actionable damag es” on his counterclaims, and we concl ude that the evidence does

not preponderate against thi s finding.

VIII. CONC LUSION The trial cour

t’s judg ment is he reby modified t o reflect that H araway ’s cost of redemption is $61,067 instead of $72,636.30. We reverse that portion of

the trial court’s judgmentdismissingRedwing from this law suit and enter a judg ment in favor of R edwing in the amount of $18,788. We also reve rse that portion of the t rial court ’s judgment denying Redwing’s claim for damages resulting from Burnett’s con version of Redwing’s equipmentand invent ory . In connection therewit h, this cause is remanded for the trial court to reconsider Redwing’s claim for lost pr ofits, and fo r any furt her proc eedings consi stent with this opinion. In all other respects, the trial court’s judgment is af firm ed

. Cost s on a ppe al are taxed to Bu rnet t, f or whic h exec utio n ma y issue if ne cess ary.

HIGHERS, J.

CONCUR:

FARMER, J.21

INMAN, Sr. J.