Barnes v. Turner - 278 Ga. 788, 606 S.E.2d 849 (2004)

Rule:

In sale of business transactions where the purchase price is to be paid over time and collateralized, it is paramount that the seller's attorney prepare and file Uniform Commercial Code financing statements to perfect his client's security interest. Further, if the financing statements require renewal before full payment is made to the seller, then the attorney has some duty regarding this renewal. Otherwise the unpaid portion of the purchase price becomes unsecured and the seller does not receive the protection he bargained for. 

Facts:

On October 1, 1996, Barnes sold his company, William Barnes' Quality Auto Parts, Inc., to James and Rhonda Lipp for $220,000. The Lipps paid $40,000 at the closing and executed a ten-year promissory note in favor of Barnes for the $180,000 balance. The note was secured by a blanket lien on the Lipps's assets. On October 30, 1996, Turner perfected Barnes's security interest by filing UCC financing statements. Viewing the facts in the light most favorable to Barnes (as the non-moving party), Turner did not, however, inform Barnes that under OCGA § 11-9-515, financing statements are only effective for five years, although their renewal for another five years is expressly provided for in that statute. The renewal is effected by filing continuation statements no earlier than six months before the end of the initial period. No renewal statements were filed, and on October 30, 2001, the original statements lapsed. Unknown to Barnes, the Lipps had pledged the same collateral to F&M Bank and Trust Company and to Mid-State Automotive Distributors on December 28, 1998 and January 29, 2001, respectively. Both of these companies filed UCC financing statements, which put them in a senior position to Barnes when his financing statements lapsed. Barnes is still owed more than $142,792.09 under the promissory note, and James Lipp is now in Chapter 7 bankruptcy. Barnes sued Turner for malpractice on October 18, 2002. The trial court granted Turner's motion to dismiss. Finding that the only possible incident of malpractice was Turner's failure to inform Barnes of the renewal requirement in October 1996, the Court of Appeals held that the four-year statute of limitations had run and affirmed the trial court.

Issue:

Did the intermediate appellate court err in finding that the only incident of malpractice was Turner's failure to inform Barnes of the renewal requirement and that the four-year statute of limitations had run before the suit was filed?

Answer:

Yes.

Conclusion:

The court held that Turner's duty was to safeguard Barnes’ security interest, which Turner could have satisfied by either informing Barnes of the renewal requirement or renewing the financing statements. Under that view, Turner breached his duty at the time the five-year period of effectiveness for the financing statements expired, when he failed to inform Barnes of the renewal requirement or renew the statements, and thus the statute of limitations had not expired.