Unsecured Transferee From Debtor’s Deposit Account Takes Free Of Factor’s Claim To The Account As Proceeds

LexisNexis (May 14, 2019, 11:48 AM EDT) -- In a notable case from New Jersey, a factoring company (LAF) financed an attorney’s lawsuit and filed a financing statement to notify the world of advances it had made. The attorney then went to another financer (Law Cash) and got an unsecured loan to finish the litigation. Which financer had priority to the proceeds of the lawsuit settlement? The court ruled that the unsecured creditor prevailed to the extent that it had received checks drawn on the debtor’s deposit account, under the powerful take-free rule of UCC 9-332(b). It made no difference that Law Cash never bothered to check the UCC records. We think the decision is correct....