## Facts

- Grocers Supply Co. (“Grocers Supply”) financed The Grocery Store, Inc.’s business and held a perfected Article 9 security interest in the store’s inventory and related property, securing debt that exceeded $600,000.
- The security agreement treated events such as entry of a judgment against the debtor and seizure of the collateral as defaults and, upon default and at Grocers Supply’s option, allowed acceleration and immediate repossession without notice.
- Intercity Investment Properties, Inc. (“Intercity”) later obtained a county court judgment (about $36,000) against The Grocery Store, Inc. and its principal, Cedric Wise.
- To collect, Intercity obtained post-judgment process (including a turnover order and/or writ of execution) and directed a constable to take the store’s inventory, equipment, and other items.
- Intercity proceeded despite knowing Grocers Supply had a prior, recorded security interest and did not notify Grocers Supply before the seizure.
- After the levy, the seized property was transported and placed into storage, generating expenses (including storage-type charges) that Grocers Supply later incurred in order to recover its collateral.
- Grocers Supply filed suit in district court seeking possession of the collateral and reimbursement of the costs it incurred in reclaiming it.
- The district court awarded Grocers Supply possession and ordered Intercity to pay Grocers Supply’s recovery expenses; the written judgment did not state a specific dollar amount for those costs, which Intercity characterized as a form problem.

## Issues

1. Whether a prior perfected secured creditor’s right to possession on default is superior to a judgment creditor’s rights when the judgment creditor seizes the collateral through a turnover order and/or execution.
2. Whether the judgment creditor that causes the seizure, with notice of the prior security interest, is liable for the secured creditor’s reasonable costs incurred to recover the collateral (e.g., transportation and storage), on a conversion-type theory.
3. Whether the trial court’s failure to state a specific dollar amount for recoverable costs requires reversal or instead may be corrected without disturbing the secured creditor’s entitlement.

## Decision

- The court of appeals held that Grocers Supply, as a prior perfected secured creditor with a right to immediate possession upon default, had a better right to possession of the collateral than Intercity, a judgment creditor collecting under post-judgment process.
- The court rejected the argument that Intercity’s turnover/execution process could cut off or override Grocers Supply’s earlier perfected secured interest and possessory rights.
- The court held that a secured creditor may recover its collateral from an officer who levied on the property at the direction of a judgment creditor when the secured creditor’s right to possession is superior.
- The court held Intercity’s interference with Grocers Supply’s possessory rights supported liability for damages measured by the recovery expenses Grocers Supply incurred as a result of the seizure and storage of the collateral.
- Addressing the form defect in the cost award (the judgment’s failure to specify a precise amount), the court affirmed Grocers Supply’s entitlement to such costs and disposed of the case without reversing the award on that ground.
- The judgment in favor of Grocers Supply was affirmed, and the Supreme Court of Texas later denied writ.

## Legal Principles

- A perfected security interest generally has priority over the rights of a later judgment lien creditor as to the same collateral.
- When default gives a secured party an immediate right to possess collateral, that right is superior to a judgment creditor’s claim enforced by turnover and execution.
- Post-judgment collection devices (including turnover relief) do not extinguish or subordinate a nonparty secured creditor’s preexisting perfected property rights in the collateral.
- A secured creditor with the right to immediate possession may recover collateral from a levying officer or from the judgment creditor who directed the levy.
- Conversion includes an unauthorized exercise of dominion or control over property inconsistent with another’s superior right to possession; a secured creditor may sue for conversion when a third party excludes the secured creditor from collateral it is entitled to possess.
- A judgment creditor that causes seizure of collateral while on notice of a prior perfected security interest may be liable for damages proximately caused by the seizure, including reasonable transportation and storage expenses incurred to recover the collateral.
- A defect in the form of a judgment awarding costs (such as omission of a specific figure) does not necessarily defeat the prevailing party’s substantive entitlement to recover those costs.

## Conclusion

Grocers Supply Co. v. Intercity Inv. Props., Inc. holds that a prior perfected secured creditor with a contractual and statutory right to possess collateral on default has priority over a judgment creditor that seizes the same collateral through turnover/execution, may recover possession from the levying officer, and may recover reasonable recovery expenses (such as transportation and storage) as damages for the wrongful interference; the court affirmed the secured creditor’s judgment, and writ was denied.


Grocers Supply Co. v. Intercity Inv. Props., Inc., 795 S.W.2d 225 (Tex. App.—Houston [14th Dist.] 1990, writ denied)