DeGiacomo v. Raymond C. Green, Inc. (In re Inofin, Inc.)

Dealers sold cars to consumers for a small deposit. The balance of the purchase price was financed using installment contracts (IC). Each IC set forth the consumer’s financial obligations to the dealer and, as collateral, granted to the dealer a security interest in the car. The dealers then sold and assigned to Inofin, Inc. all right, title, and interest in the ICs and all collateral described therein pursuant to a seller agreement. Separate from the seller agreement, the dealers and Inofin also executed a partial purchase and assignment (PPA) in connection with each IC. Each PPA set forth a reversion to the Dealers of all right, title, and interest in the ICs as soon as Inofin recovered whatever monies it was entitled to receive. Inofin obtained the financing to purchase all the ICs through its long-standing lending relationship with Raymond C. Green, Inc. (RCG) (defendant) that commenced through a series of loan documents, including a loan agreement and a security agreement. Pursuant to the loan agreement, all funds disbursed were for the sole purpose of financing the purchase of the ICs, and each disbursement was to be secured and perfected through the receipt and possession of the original ICs and PPAs. Further, the security agreement granted to RCG a security interest in “all of [Inofin’s] rights in and to chattel paper . . . purchased . . . with the proceeds of loans from [RCG] and assigned and delivered to [RCG].” Even though RCG obtained possession of the original ICs, it obtained just copies of the PPAs. The Chapter 7 trustee (trustee) (plaintiff) initiated the instant proceeding for a declaration that RCG failed to perfect its security interest in the ICs because it never obtained the original PPAs. The trustee argued that the PPAs were the operative documents with respect to the dealer’s rights under the ICs and, therefore, constituted chattel paper within the meaning of the Uniform Commercial Code (UCC). The trustee further argued that, because the PPAs constituted chattel paper, RCG was required under the loan documents to obtain the original PPAs, without which RCG was unable to perfect its security interest in the ICs.