United States Fidelity and Guaranty

BROCK, Justice. OPINION This is an action to recover rent from an alleged lessee and its surety. The claim of Thompson and Green Machinery Company, a dealer in heavy construction equipment, arises out of defaults by James F. Gregory, Inc., a highway contractor, in the payment of monthly installments due plaintiff on thirty items of road-building equipment under twenty-six written agreements, plus certain repairs and parts furnished by Thompson and Green to Gregory. The equipment was used on seven separate state highway contracts on which Gregory was the principal contractor and on three state highway contracts on which Gregory was the subcontractor. United States Fidelity and Guaranty Company gave its bond in statutory form on the obligation of the contractor as required by T.C.A. § 54-519 and on the seven contracts which Gregory held with the State. USF&G also executed a performance bond for Gregory on the three highway jobs for which he was the subcontractor. Thompson and Green filed suit against Gregory and USF&G in the Chancery Court for the amounts allegedly due under the agreements. Gregory defended that the rentals were actually sales and counterclaimed for damages arising from the breach of an alleged novation between Thompson and Green and Gregory, i.e., Thompson and Green's refusal to conduct an auction of the equipment as allegedly agreed, with the proceeds to be applied first to the remaining debt owed Thompson and Green with excess payable to Gregory as his equity in the equipment. Gregory subsequently amended his answer and counterclaim, alleging that he had returned the equipment to Thompson and Green pursuant to an agreement for its disposal by auction and that Thompson and Green had failed to sell or dispose of the equipment as required by Article 9 of the Uniform Commercial Code. However, the latter insistence was not made in this Court, and, therefore, is not before us for determination.