Metropolitan National Bank v. La Sher Oil Company

In 1998 Metropolitan National Bank (the bank) (defendant) loaned money to North Little Rock Materials (Little Rock) and perfected a security interest in Little Rock’s accounts and accounts receivables along with the proceeds generated from these accounts. On April 15, 2001, the bank agreed to loan Little Rock an additional $100,000. The bank perfected a security interest in this transaction as well. Both Little Rock and its debtors made deposits into the account at the bank, and bills were paid from the account. On April 24, 2001, one of Little Rock’s creditors, La Sher Oil Co. (La Sher) (plaintiff) secured a judgment against Little Rock for $133,967.44. La Sher served the bank with a writ of garnishment against Little Rock’s account. The bank filed an answer, noting its perfected security interest in the account, which contained proceeds from Little Rock’s accounts receivables, and filed a motion to quash the garnishment. La Sher responded to the bank’s motion to quash and argued that some of the money in Little Rock’s account was not proceeds, although La Sher presented no evidence to that effect. When Little Rock could not produce invoices conclusively identifying which deposits were from proceeds of its accounts receivables, the court ruled that the bank had not produced evidence identifying which of the commingled funds were proceeds subject to its security interest and refused to quash La Sher’s garnishment. The bank appealed, arguing that the trial court erred in determining that the funds in Little Rock’s account could not be classified as identifiable proceeds.