Chemical Bank v. Security National Bank

Osborne Computer Corporation (Osborne) required financing for its business. It was already borrowing money from Security Pacific National Bank (Security Pacific) (defendant). In January 1983, Security Pacific loaned Osborne $15 million and perfected a security interest by filing a UCC-1 financing statement later that month. In April 1983, Security Pacific and two other banks joined in an agreement to provide $25 million in credit to Osborne. 60 percent of the funds would be provided by Security Pacific, and the remainder by Chemical Bank (Chemical) and National Westminster Bank USA (Westminster) (plaintiffs). The agreement between the banks indicated that Security Pacific would be the agent for the three banks. The contract included a clause that the agent would not be responsible to the other banks “except for their own gross negligence or willful misconduct.” After the April 1983 agreement, no new financing statement was ever filed. Accordingly, when Osborne filed for bankruptcy in September 1983, Security Pacific was a secured creditor because of its January 1983 filing. It received full payment on its loan and did turn over 40 percent of that payment to Chemical and Westminster, pursuant to the agreement between them. However, Chemical and Westminster were unsecured creditors, and they believed they should have received full repayment. Chemical and Westminster then filed suit against Security Pacific, arguing that but for Security Pacific’s negligent failure to file a new financing statement, they would have been secured. Security Pacific argued that such a claim was waived by the contract, which limited its exposure to gross negligence or willful misconduct. The trial court granted Chemical and Westminster summary judgment on their negligence claim against Security Pacific but also granted Security Pacific summary judgment on the claim alleging breach of a fiduciary duty. Both parties appealed.