Thorp Commercial Corp. v. Northgate Industries, Inc.

In 1971, Franklin National Bank (the Bank) lent Northgate Industries, Inc. (Northgate) money. Pursuant to a security agreement, the Bank took a security interest in collateral including all of Northgate’s accounts receivable and proceeds. The security agreement considered ongoing financing arrangements, as the agreement purported to secure payment of all indebtedness existing or to be created afterward. In 1971, the Bank also filed a financing statement describing the collateral as “assignment accounts receivable” and “proceeds.” In 1972, Thorp Commercial Corp. (Thorp) (plaintiff) entered into a security agreement with Northgate covering collateral that included Northgate’s accounts receivable and specifying coverage of both existing accounts and subsequently acquired accounts. Thorp also filed a financing statement identical to its security agreement. Subsequently, both the Bank and Thorp made further loans to Northgate. When Northgate’s business failed, Northgate was indebted to both the Bank and Thorp. Thorp sued the Bank and others (defendants) alleging common-law fraud and violations of federal securities laws. The Bank filed a counterclaim against Thorp for conversion, alleging that the funds Thorp received from Northgate belonged to the Bank because the Bank had a prior perfected security interest in the proceeds of Northgate’s accounts receivable by virtue of its 1971 security agreement and financing statement. The district court focused on the word “assignment” and found that the Bank’s 1971 financing statement covered only accounts receivable in existence at that time. Accordingly, the district court ruled that Thorp had priority pursuant to its prior perfected interest in the accounts in question and dismissed the Bank’s counterclaim. The Bank appealed.