Opinion ID: 1185677
Heading Depth: 1
Heading Rank: 2

Heading: the nature of the secured creditor's claim against the debtor's broker

Text: Perfection of the Bank's security interest continued in force after Lamb had moved its records to Texas. This is so because the Bank properly filed in that state. [10] The Broker perfected no security interest in Lamb's accounts' proceeds or in Lamb's inventory to secure its loan to Lamb made pursuant to the October 1974 contract. The Broker's claim to priority in the funds is based on its asserted status as Lamb's account debtor. The trial court, following the provisions of § 9-318(1)(a), [11] determined that the Bank's interest in the accounts' proceeds was subject to all claims and defenses arising out of the Lamb/Broker contract. An account debtor is defined as the person who is obligated on an account, chattel paper, contract right or general intangible. [12] Where the collateral is an account, contract right, chattel paper or general intangible, the original obligor is called the account debtor. [13] Here the Broker was neither obligated to buy the coal nor obligated on the purchase order. The purchase order represented a contract for sale between Lamb and another. It did not include the Broker as a party. The status of the Broker was clearly not that of an account debtor nor that of any other kind of debtor in the common-law and U.C.C. sense. [14] Stripped of all the excess verbiage, the Broker simply seeks here credit for the difference between money remitted on invoices and the amount collected after BTU adjustments had been made. In collecting the funds and advancing payments the Broker was acting as a common-law agent. [15] The rights between Lamb and the Broker, inter se, are not governed by the Code but rather by the principles of common-law agency. [16] If this action had been one for equitable accounting between Lamb and the Broker, there would be no doubt about the correctness of the Broker's position. The allowance sought for advanced payments (in excess of collections) would be a proper offset. [17] Were we not to allow the Broker the same benefit in this action by Lamb's creditor, we would be, in effect giving the assignee-Bank a greater right in the proceeds than that which Lamb could have asserted for itself. The absurdity of this result is at once apparent. The Bank can have no greater right in the accounts' proceeds than its assignor-Lamb. [18] If the law were otherwise, the Bank  qua secured creditor  could create for itself rights in proceeds its very own assignor would be powerless to harness. The Broker, in its capacity as an agent, was liable to Lamb for no more than the proceeds collected less, of course, the sales commission. [19] The Bank, having no greater right in the proceeds than Lamb, can claim no interest in excess of the total funds collected less proper credits. We need not reach for decision the issue of whether the Bank could assert priority over the Broker's claim to the $1.25 tonnage fee. By the Lamb/Broker contract that fee was to be used for repayment of the Broker's start-up loan. The Bank simply lays no claim to a priority in that fee. [20] While the reasons given by the trial court for its ruling were incorrect, the judgment is free from error. Affirmed.