Opinion ID: 1132959
Heading Depth: 1
Heading Rank: 3

Heading: G.E.C.C.'S Claim Under the Wholesale Agreement

Text: G.E.C.C. claimed in Count Two of its complaint a breach by Alford of the terms and conditions of the wholesale financing agreement and the accompanying revolving credit promissory note. The terms of the promissory note provide that, on demand, the promissor agrees to pay G.E.C.C. $50,000, or the aggregate unpaid balance, with interest thereon at the rate of 7.5% per annum, payable monthly. The note also provides for reasonable attorney's fees if necessary for the collection of the note. The note was signed by Alford, both individually and on behalf of the dealership. G.E.C.C. contends that at the time of bringing this action six mobile homes, under the wholesale financing plan, had not been fully paid for by Appellees. G.E.C.C. sought a money judgment for this balance in the amount of $17,889.47, together with interest and attorney's fees. The verdict of the jury and judgment was entered against G.E.C.C. on this count. Upon carefully reviewing the record, we find that there is no evidence to support this aspect of the verdict; thus, judgment against G.E.C.C. is due to be reversed. The evidence shows unequivocally that, at the time of trial, Appellees had failed to pay the balance due on six mobile homes. Although there was some evidence of minor errors made by G.E.C.C. in its bookkeeping, the great preponderance of the evidence clearly establishes that, after correction of the error, the total amount owed by Appellees to G.E.C.C. was $17,889.47. For the error by the trial Court in denying G.E.C. C.'s motion for a new trial, or, its alternative motion for judgment n.o.v., this cause is remanded as to this aspect of G.E.C.C.'s claim. Appellees do not seriously assert that they do not owe G.E.C.C. under the wholesale financing agreement; instead, they argue that the jury properly set off income earned by G.E.C.C. on the amounts held in reserve under the retail financing agreement. Appellees contend that the evidence shows that G.E.C.C. admittedly made profits of over 13% per annum on the reserve accounts without accounting to them for these profits. Because the reserves were generally in excess of $25,000, it is argued that over a four-year period the profits earned would offset the $17,889.47 owed under the wholesale financing plan. Initially, it must be determined whether Appellees are entitled to profits which were admittedly earned on their monies held in reserve accounts. Section 7-9-102(1)(a), Ala.Code 1975, provides that, other than in two cases not here pertinent, Article Nine of the Uniform Commercial Code, dealing with secured transactions, applies: To any transaction (regardless of its form) which is intended to create a security interest in personal property . . . . The intent to create a security interest in the reserve funds is specifically spelled out in the retail financing agreement, wherein it is stated: It is agreed that such reserves are to be held as security for and not in lieu of performance. Because the record shows a clear and unequivocal intention to create a security interest in personal property (i.e., money), we hold that this transaction is governed by Article Nine of the Uniform Commercial Code. Section 7-9-207, Ala.Code 1975, provides in pertinent part: (2) Unless otherwise agreed, when collateral is in the secured party's possession: . . . (c) The secured party may hold as additional security any increase or profits (except money) received from the collateral, but money so received, unless remitted to the debtor, shall be applied in reduction of the secured obligation ; (Emphasis added.) While the retail agreement does not contain an otherwise agreed provision as to the duty to pay over profits or credit such profits to outstanding indebtedness at some point in time, the agreement does specifically provide in paragraph 9: ... So long as any amounts owing on such Accounts by us [Appellees] or any Buyer shall be due and unpaid, or in the event of any breach of this agreement by us, any money, Accounts, or property of ours which may come into your possession may be held and later applied by you to any amounts so owing or which later become due .... The evidence is undisputed that Appellees currently have a contingent liability of over $400,000 under the retail financing agreement, this agreement being executory until such time as all retail sales contracts purchased by G.E.C.C. under the agreement have been liquidated by the various retail purchasers. Therefore, in summary, the law is clear that G.E.C.C. must keep account of the profits they earn on funds belonging to Appellees which are held in reserve. When all outstanding accounts have been liquidated, it will be incumbent on G.E.C.C. to remit such profits to Appellees, after applying any necessary portion of such profits to reduce any amounts Appellees may owe to G.E.C.C. under the recourse provisions of the retail financing agreement. In conclusion, whatever rights Appellees may have to profits earned on the reserve funds (whether earned or to be earned), such profits cannot currently be used as a set-off against amounts Appellees owe under the wholesale financing agreement; nor will such earned profits currently support an independent action. [4]