Blazer Financial Services, Inc. v. Harbor Federal Savings & Loan Association

In 1989, Harbor Federal Savings & Loan Association (Harbor Federal) (defendant) loaned money to Dubose Jewelry Company, Inc. (Dubose Jewelry). To secure the loan, Dubose Jewelry gave Harbor Federal an interest in its inventory and then-existing and after-acquired accounts and chattel paper. Harbor Federal filed the requisite financing statements regarding its interest. In March of 1990, Blazer Financial Services, Inc. (Blazer) (plaintiff), which often bought accounts receivables from retailers, purchased a series of sales contracts, accounts receivable, and security agreements (the sales contracts) from Dubose Jewelry. The sales contracts had a face value of $107,567.53, and Blazer purchased the sales contracts for $64,876.51. Many of the sales contracts were evidenced by chattel paper. Blazer took possession of all the sales contracts evidenced by chattel paper except 29 of them. In June of 1990, Dubose Jewelry filed for bankruptcy. Harbor Federal then sued Blazer for conversion of its collateral. Blazer claimed that it had priority over Harbor Federal’s security interest under Uniform Commercial Code § 9-308. The trial court found that Blazer had priority in the chattel paper under § 9-308 but limited the statutory protection to the amount of new value paid. Accordingly, the trial court awarded Harbor Federal $42,691.02 in damages, which represented the difference between what Blazer paid for the chattel paper and the chattel paper’s face value, plus prejudgment interest and costs. On appeal, Blazer argued that it was entitled to take the chattel paper free of Harbor Federal’s security interest under § 9-308.