Peerless Packing Co. v. Malone & Hyde Inc.

Malone & Hyde, Inc. (Malone) (defendant) entered into an agreement with John Kizer whereby Malone agreed to sublease a grocery store to Kizer and sell Kizer $200,000 in equipment and $187,000 in inventory. In return, Kizer gave Malone a promissory note in the amount of $387,000, secured by an interest in all present and after-acquired inventory. Malone perfected its interest in the collateral. Thereafter, Kizer opened the grocery store and sold the inventory supplied by Malone, as well as inventory supplied by Peerless Packing Company and eleven other wholesalers (wholesalers) (plaintiffs). The wholesalers had regularly delivered goods to Kizer on open account credit and did not obtain any purchase-money security interests (PMSIs) in the supplied inventory. Malone soon learned that Kizer’s store was unsuccessful, with Kizer missing numerous rent and note payments. Kizer executed a Notice of Default and Transfer of Possession Agreement, transferring all rights in the store, equipment, and inventory to Malone. In exchange for the transfer, Malone released Kizer from all liability resulting from prior deficiencies. Malone took possession of the store and notified the wholesalers that Malone had realized its security interest without assuming liability to third parties, and would consequently not pay for any of the inventory previously delivered by the wholesalers. The wholesalers brought suit against Malone, claiming that Malone was unjustly enriched when it realized its security interest to the exclusion of the wholesalers. Malone moved for a directed verdict. The trial court granted the motion, concluding that an unjust-enrichment theory was inapplicable to any case governed by the Uniform Commercial Code (UCC). The wholesalers appealed.