## Facts

- Thomas D. Thomas owned LGT Aviation, Inc. (LGT), which borrowed money from Regions Bank’s predecessor to purchase an airplane.
- LGT signed note and security documents that required it to keep the aircraft fully insured; the aircraft served as collateral for the loan.
- Thomas and other defendants (including family members and a family trust) executed guaranties of LGT’s debt.
- The loan documents treated failure to maintain the required insurance as an event of default.
- In 2006, LGT allowed the aircraft’s insurance to lapse. Thomas said he planned to obtain replacement coverage but did not do so and stopped responding to the bank’s requests for proof of insurance.
- Regions notified Thomas that LGT was in default, that the loan was being accelerated, that litigation had begun, that Regions had obtained insurance coverage at LGT’s expense, and that the aircraft might be repossessed.
- Regions repossessed the aircraft in February 2008. The defendants later contended they did not learn the bank had taken possession until December 2008, after the plane had been sold.
- Regions sold the aircraft by private sale in December 2008.
- In 2009, Regions sought a default judgment; Thomas did not file pleadings or appear at that time, but the trial court did not enter a default judgment. Thomas later filed an answer and counterclaim.
- The defendants argued that repossession was unlawful because LGT’s loan payments were current, and that any insurance breach was resolved when Regions obtained “force-placed” insurance and charged the premiums to LGT.
- After a bench trial, the trial court ruled for Regions on liability and awarded a deficiency. The defendants appealed.

## Issues

1. Whether LGT’s failure to maintain the required insurance was a material breach and event of default that permitted Regions to accelerate the debt and repossess the aircraft even though payments were current.
2. Whether Regions waived the insurance default or treated it as cured by obtaining insurance coverage itself and billing LGT for the premiums, or through other conduct.
3. Whether Regions breached the implied covenant of good faith and fair dealing by accelerating the loan and repossessing/selling the aircraft under these circumstances.
4. Whether Regions provided the notice required by UCC Article 9 for disposition of collateral, and if not, what effect noncompliance had on Regions’ right to a deficiency under Tenn. Code Ann. § 47-9-626.

## Decision

- The court affirmed the trial court’s finding that the insurance lapse was a material default under the loan documents, authorizing acceleration and enforcement remedies.
- The court affirmed the rejection of the defendants’ waiver and “cure” arguments; Regions’ purchase of insurance at the borrower’s expense did not amount to an intentional surrender of its default remedies.
- The court affirmed the rejection of the defendants’ bad-faith claim, holding that Regions’ exercise of express contractual rights did not, without more, show lack of good faith.
- The court held Regions did not give proper Article 9 notice of disposition because its letters did not communicate a settled intent to sell, the type of sale (public or private), or the time (on or after a stated date) when the sale would occur.
- The court vacated the deficiency judgment and remanded for further proceedings to determine whether Regions could prove a deficiency under Tenn. Code Ann. § 47-9-626 despite Article 9 noncompliance and, if so, the amount.

## Legal Principles

- When loan and security documents expressly make maintenance of insurance on collateral an event of default, a lapse can be a material breach that permits acceleration and repossession even if periodic payments are current.
- Waiver requires an intentional relinquishment of a known right; a lender’s efforts to protect its collateral (including obtaining insurance coverage and charging the borrower) do not, by themselves, show waiver of the lender’s contractual default remedies.
- The implied covenant of good faith and fair dealing operates within the contract’s agreed terms and does not create new rights that override express default and remedy provisions.
- Under UCC Article 9, a secured party must give the debtor and certain obligors reasonable notice of disposition that informs them of the intended sale, including whether it will be public or private and the time when the disposition will occur (or the date after which it will occur).
- Under Tenn. Code Ann. § 47-9-626, when Article 9 compliance is placed in issue and the secured party did not comply, the secured party bears the burden to prove that compliance would have produced proceeds yielding a smaller amount than the secured obligation (plus allowable expenses and attorney’s fees) before a deficiency may be awarded.

## Conclusion

The Court of Appeals held that LGT’s insurance lapse was a material default that permitted Regions to accelerate the loan and repossess the aircraft, and it rejected defenses based on waiver, cure, and bad faith. However, because Regions failed to give Article 9-compliant notice of its intended private sale, the court vacated the deficiency award and sent the case back for a § 47-9-626 analysis to determine whether any deficiency could be recovered and, if so, in what amount.


Regions Bank v. Thomas, 422 S.W.3d 550, 2013 Tenn. App. LEXIS 156 (2013)