Brown v. Indiana National Bank

In 1974 Andrew Brown (plaintiff) signed a contract to play hockey for the Indianapolis Racers, then owned by IPS Management (IPS). Brown’s contract provided he was to be paid a salary for five years and an interest factor for five additional years. Shortly after Brown signed the contract, IPS sold the hockey franchise to Indianapolis Racers, Ltd. (Racers). From 1974 to 1977, Racers took out almost $1,000,000 in loans from Indiana National Bank (INB) (defendant). INB had taken and perfected a security interest in Racers’ assets, including the players’ contracts, as collateral. When Racers defaulted on the loans, INB took possession of the collateral, including Brown’s contract, and notified Racers of its intention to dispose of the collateral at a private sale. INB sold almost all the collateral for 20 percent interest in another hockey franchise. However, the owner of that franchise chose not to purchase Brown’s contract. INB gave Brown’s contract back to Racers and retained its security interest. INB never received money from its 20 percent interest in the new franchise and lost around $1,200,000 on the loans it made to Racers. Although INB paid Brown his salary for two months following its possession of his contract, Brown was only paid for a total of three years under the contract. Brown sued INB, alleging that the company failed to notify Brown of the existence of the security agreement in his contract, INB’s possession of the contract upon Racers’ default, and INB’s intention to dispose of Brown’s contract at a private sale. Brown accused INB of fraud and of a breach of a duty of good faith. A trial court granted INB’s motion for summary judgment after all the evidence was presented. Brown appealed, amending his complaint to allege that INB owed him a duty of disclosure because INB’s security agreement had the effect of giving INB an assignment rather than a security interest. Article 9, which governs security interests, had disclosure requirements but none which applied to Brown’s situation.