Opinion ID: 1185677
Heading Depth: 1
Heading Rank: 1

Heading: were the funds collected contract rights or proceeds of accounts?

Text: An account is defined as any right to payment for goods sold  a right earned by performance regardless of whether payment be due. [5] A contract right, as distinguished from an account, is any right to payment under a contract not yet earned by performance. [6] Contract rights may be regarded as potential accounts which ripen into accounts by an effected performance. [7] In all instances here under review the coal had been shipped to the customer pursuant to a purchase order. Performance of the contract took place when the goods were received. Thus the right to payment  once having been earned by contract performance  operates to transform a contract right into an account. [8] In the view of the trial court, the contract was not complete and the right to payment nonetheless remained a contract right until the customer had determined the BTU content of the coal. This is so because the price for the coal shipped was subject to adjustment and hence uncertainty until the customer had determined the BTU content of the coal received. According to the trial court, the Bank's security applied only to accounts and proceeds thereof and did not attach to the credits claimed by the Broker. Broker contends here that only where all identifiable contingent claims which can be asserted against a contract right have been extinguished does the contract right ripen into an accounts receivable. It argues that in order for the contract right to be extinguished not only must the BTU content be determined but also (a) negotiations with respect to the BTU penalties must be completed, (b) monies must be received from the customer and (c) offsets must have been deducted for its overpayments to Lamb. We cannot accede to the Broker's view. The Code allows for open-ended price term contracts to be binding and conclusive agreements even though the price is unsettled. [9] The uncertainty of the price of goods shipped does not alter the fact that performance was complete and the right to payment had been earned. It is performance rather than calculations of an exact price which is the key factor in determining when an account comes into legal existence. The fact that a customer or a third party may have a defense to the payment in full of that claim, or a contingent claim by way of setoff, does not prevent an account from coming into existence upon the seller's performance. We therefore hold that funds collected by the Broker from Lamb's customers were proceeds of accounts within the meaning of the Code.