InterBusiness Bank, N.A. v. First National Bank of Mifflintown

Allied Capital made two substantial loans to Annlick Farm Supply, Inc. within a short period. The parties entered into separate sets of loan agreements and security agreements in which Annlick Farm Supply gave Allied Capital security interests in its inventory and accounts receivable to secure each loan. Allied Capital filed financing statements relating to the first loan. Thereafter, Allied Capital filed financing statements relating to the second loan. In April 2001, Allied Capital assigned the financing statements relating to the second loan to First National Bank of Mifflintown (First National) (defendant). In May 2001, First National extended to Annlick Farm Supply a revolving line of credit pursuant to the second loan agreement. In July 2001, Allied Capital assigned the financing statements and related documents for the first loan to InterBusiness Bank, N.A. (InterBusiness) (plaintiff). Thereafter, Annlick Farm Supply defaulted on the second loan agreement. Consequently, First National collected Annlick Farm Supply’s accounts receivable and liquidated its inventory. Subsequently, Annlick Farm Supply’s creditors initiated involuntary bankruptcy proceedings against the company. During bankruptcy proceedings, InterBusiness filed a complaint, which asserted that InterBusiness’s interest in Annlick Farm Supply’s inventory and accounts receivable was superior to First National’s interest and sought remittance of the proceeds from First National’s liquidation of the assets. First National filed a third-party complaint against Allied Capital for fraud and misrepresentation based on Allied Capital’s alleged assurances that First National would have priority over any other interests in the collateral. Allied Capital moved to dismiss the third-party complaint and claimed that InterBusiness did not have a perfected security interest in the collateral.