Allstate Financial Corp. v. Financorp, Inc.

934 F.2d 55 (1991)

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Allstate Financial Corp. v. Financorp, Inc.

United States Court of Appeals for the Fourth Circuit
934 F.2d 55 (1991)

Facts

Allstate Financial Corporation (Allstate) (plaintiff) was in the business of purchasing commercial accounts receivable. Allstate entered into a contract with Kane Deliver Limited, d.b.a. Advance Disposal Service (Kane) under which Allstate loaned Kane money in exchange for purchasing and taking a security interest in Kane’s accounts receivable. Allstate filed financing statements in Washington, D.C. to perfect its security interest. Thereafter, Kane moved to Maryland, but Allstate did not file a financing statement in Maryland until approximately four months later. Kane became a subcontractor for Laidlaw Waste Systems, Inc. (Laidlaw). Under the subcontractor agreement, Laidlaw paid Kane by check. Kane subsequently obtained loans from Financorp, Inc. (Financorp) (defendant). To obtain the loans, Kane assigned its Laidlaw accounts receivable to Financorp. Before entering into the loan agreement, Financorp searched the Maryland Uniform Commercial Code (UCC) records for any financing statements. However, the search revealed no financing statements because Allstate had not yet filed its Maryland financing statement. Financorp did not search the Washington, D.C. UCC records. Pursuant to the loan agreement, Kane indorsed two checks totaling $96,888.33 that it received from Laidlaw to Financorp. Financorp deposited the checks and credited the amount received to Kane’s loan balance. Allstate sued Financorp for damages and asserted that it had superior rights to the checks pursuant to its perfected security interest. Financorp moved for summary judgment supported by an affidavit from its vice-president, who was responsible for processing and collecting the accounts receivable in question, stating that he had no knowledge of any prior claim to the two checks. The trial court ruled that Financorp constituted a holder in due course with superior rights and granted the motion. On appeal, Allstate argued that Financorp cannot be a holder in due course because it had notice of Allstate’s security interest and because Financorp was already a junior lienholder.

Rule of Law

Issue

Holding and Reasoning (Ervin, C.J.)

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