National City Bank v. Specialty Tire of America, Inc.

672 N.E.2d 232 (1996)

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National City Bank v. Specialty Tire of America, Inc.

Ohio Court of Appeals
672 N.E.2d 232 (1996)

Facts

Tiremix Inc. (defendant) borrowed money from National City Bank, Northeast (NCB) (plaintiff) and gave NCB a security interest in its accounts receivable. NCB perfected its interest by filing the requisite financing statements in 1986 and maintained its perfected interest by filing a continuation statement when necessary. In 1988, Tiremix entered into a consignment agreement with Specialty Tires of America, Inc.’s (Specialty) (defendant) predecessor in interest in which Specialty’s predecessor agreed to consign tires and tubes to Tiremix for sale. The agreement required Tiremix to hold proceeds from the sale of the consigned tires and tubes in trust for Specialty’s predecessor. Moreover, the agreement required Tiremix to pay Specialty’s predecessor monthly for all consigned tires and tubes sold, whether for cash or on credit, during the previous month. NCB loaned Tiremix more money in February 1991, took a security interest in all of Tiremix’s accounts receivable, and filed the requisite financing statements. Specialty’s predecessor filed financing statements in July and August 1991 covering any accounts receivable generated by Tiremix’s sale of the consigned tires and tubes. Thereafter, Tiremix experienced financial problems. Accordingly, NCB notified Tiremix’s account debtors of its security interest, directed the account debtors to make all future payments directly to NCB, and collected over $200,000. NCB subsequently sued Tiremix and Specialty and sought a declaratory judgment that its interest in Tiremix’s accounts receivable had priority over Specialty’s interest. The trial court found that Specialty was required to comply with the Uniform Commercial Code (UCC) Article 9 provisions governing the creation and perfection of security interests because the consignment of goods to Tiremix represented a disguised security interest. Specialty appealed, disputed the trial court’s finding, and argued that Tiremix did not have rights in the accounts receivable generated by the sale of the consigned tires and tubes, such that NCB’s interest had never attached.

Rule of Law

Issue

Holding and Reasoning (Dickinson, J.)

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