FAILURE TO SELL STOCK

May 4, 2005 (Press Release) -- A court has held that the bank did not breach its fiduciary duty because it failed to sell pledged stock with in a timely manner. First Tennessee Bank made three loans to Bad Toys, Inc. Its owners, Larry and Susan Lunan, pledged stock to secure the loans. Susan Lunan filed bankruptcy, and the loans were declared default. The bank sued Bad Toys and Larry Lunan on the loans. A Counterclaim was filed by the debtors that claimed the bank had agreed to sell the pledged stock since it was pledged. The Court found that the land documents were clear and unambiguous. Those documents provided that the bank had the right to sell the collateral pledged only upon default and, even then, it did not require it to do so. The Court found that the duty of reasonable care imposed by the UCC when applied to stock pledged as collateral refers to the physical possession of the stock certificates and neither imposes liability upon a lender if the market value of the stock declines nor establishes a duty to notify the pledgor of the decline in value. Thus, the Court found that the bank did not owe a duty to the Lunans to sell the stock. First Tennessee National Bank Association v. Bad Toys, Inc., Tenn. Ct. App. No. E2003-02503