Opinion ID: 1142705
Heading Depth: 3
Heading Rank: 3

Heading: Piecara

Text: Gray's defaults in the Piecara loans are equally apparent. To be sure, there is nothing per se improper about a banker securing a credit by taking a security interest in contract rights or an assignment of accounts or the like. [8] We are unimpressed with USB's constant carping that such collateral was worthless until Piecara performed and that Gray was somehow supposed to have confirmed that Piecara had earned payments under his subcontract before he released loan proceeds. On the other hand, there are risks associated with this receivables form of collateral not associated with more tangible security, and a prudent loan officer must reasonably assess and control these risks. These risks are exacerbated where, as here, the subcontract is to be performed some 1500 miles away. Here Gray's defaults become apparent. He made no inquiry of the financial responsibility of the prime contractor or the owner. A prudent loan officer taking such collateral will give notice of his bank's interests to the prime contractor and the owner and demand that all payments due under the subcontract be routed through the bank. Gray did none of this, nor did he monitor performance of the subcontract and have Piecara remit as his company was paid. Gray failed to perfect USB's security interest, a matter no doubt controlled by the Uniform Commercial Code as enacted in Arizona and any other applicable jurisdiction. Moreover, it appears clear the value of his collateral was far below what prudently should have been required for a credit of this size. We accept the Chancery Court's holding Gray breached his duty of care to USB in handling the Piecara loans.