Knox v. Phoenix Leasing Inc.

The issue presented is whether a secured creditor who obtains a defaulted debtor’s property can be subject to restitution for the amount of the value of goods furnished the debtor by a third party. The answer is no: unless there are unusual circumstances the equitable remedy of restitution must defer to the rights given a secured creditor by the California Uniform Commercial Code.

Background

In March of 1990 as part of a concerted effort to expand the capacity of its plant in Sonoma County, Domaine Laurier Winery (Domaine) contracted with Mel Knox to purchase 200 seasoned oak wine barrels made in France. Four months later Domaine executed an agreement with Phoenix Leasing Incorporated (Phoenix) whereby Phoenix undertook to provide financing for the expansion. Phoenix was protected by (among other things) a security agreement covering all personal property, including “all equipment . . . whether now owned or hereafter acquired” by Domaine.

The wine barrels came in two shipments. Upon arrival of the first lot, Knox sent an invoice to Domaine; Domaine forwarded the invoice to Phoenix, which paid it in August of 1990. With the second lot, Knox sent the invoice for…