The Grocers Supply Co. v. Intercity Investment Properties, Inc

Brief Fact Summary. The Grocers Supply Co., (Appellant), brought suit against Intercity Investment Properties, (Respondent), in order to determine its rights to property that Respondent seized pursuant to a county court turnover order.

Synopsis of Rule of Law. The right of a prior perfected creditor to take possession of its collateral is superior to any right of a mere judgment creditor and the prior perfected secured creditor may regain possession of the collateral from an officer who has levied on the property at the direction of a judgment creditor. A secured creditor may maintain an action for conversion against one who exercised unauthorized acts of dominion over the property to the exclusion of the creditor’s rights.

Facts. On February 2, 1989 Appellant perfected a security interest to secure its inventory financing of The Grocery Store, Inc. and Cedric Wise. On March 6, 1989 Respondent obtained a judgment in the county court against The Grocery Store Inc. and Cedric Wise. The county court issued a turnover order. Respondent knew of the prior recorded security interest of Appellant but did not contact Appellant before taking possession of the inventory of groceries, equipment and other items described in the inventory to the writ of execution. Appellant then brought suit to determine its rights in the property.

Issue.
Whether the right of a prior secured creditor to take possession of its collateral was superior to the right of a judgment creditor therefore allowing the prior secured creditor to regain possession of the collateral from the judgment creditor.

Whether the judgment creditor who moves on a property must reimburse the prior secured creditor for transportation and storage costs incurred in recovering the collateral.

Held.
Yes. The right of Appellant, as a prior secured creditor to take possession of its collateral was superior to the right of Respondent, a mere judgment creditor, and Appellant could regain possession of the collateral from the constable who had levied on the property.

Yes. Respondent’s action caused Appellant to incur the additional expense in order to recover its collateral and therefore must reimburse Appellant those costs.

Discussion. The security agreement between Appellant and The Grocery Store clearly provided that a judgment against the debtor constituted a default resulting in the entire obligation becoming immediately due and payable at the secured party’s option without notice to the debtor. Appellant as a prior secured creditor may regain possession of its collateral from the constable who had levied on the property.
Respondent knew of Appellant’s security interest before it seized the collateral yet it failed to notify Appellant before taking action. Respondent caused Appellant to incur the additional transportation and storage expenses and it is only right that it reimburse Appellant those costs.