## Facts

- The Cortland Savings and Banking Company (Cortland Bank) loaned 21st Century Concrete Construction, Inc. (21st Century) $1,000,000.
- The loan was governed by a promissory note and a commercial security agreement that granted Cortland Bank a security interest in multiple 21st Century assets, including a deposit account maintained at Cortland Bank.
- Cortland Bank perfected its security interest by filing a UCC-1 financing statement.
- Platinum Rapid Funding Group, Ltd. (Platinum) later advanced about $1.4 million to 21st Century under three merchant cash-advance agreements.
- Under those agreements, 21st Century authorized Platinum to withdraw weekly payments from 21st Century’s deposit account at Cortland Bank.
- Over roughly one year, Platinum received $869,250 via withdrawals from the deposit account.
- 21st Century later defaulted on its loan to Cortland Bank, and Cortland Bank obtained a judgment against 21st Century for about $1,000,000.
- Cortland Bank sued Platinum seeking return of the $869,250, asserting conversion, impairment of a security interest, unjust enrichment, and tortious interference with contract, and alleging collusion between Platinum and 21st Century.
- Both parties moved for summary judgment. The trial court denied Platinum’s motion and granted partial summary judgment to Cortland Bank on conversion, impairment of security interest, and tortious interference, reasoning Cortland Bank retained a security interest in the deposit-account funds; the trial court did not decide the collusion allegation.
- Platinum appealed to the Ohio Court of Appeals, Eleventh Appellate District.

## Issues

1. Under UCC § 9-332(b) (as adopted in Ohio), does a transferee that receives funds from a debtor’s deposit account take the funds free of a secured party’s security interest absent collusion with the debtor?
2. May a secured party recover those transferred funds from the transferee through tort claims such as conversion, impairment of security interest, and tortious interference when the transfer occurred through the debtor’s authorized withdrawals and collusion has not been established?

## Decision

- The court of appeals reversed the trial court’s partial summary judgment for Cortland Bank and reversed the denial of Platinum’s summary-judgment motion, and remanded.
- The court held that the UCC rule for transfers of funds from a deposit account generally cuts off a secured party’s security interest in the transferred funds when they are paid to a transferee, unless the transferee acted in collusion with the debtor.
- Because the trial court granted judgment to Cortland Bank without resolving collusion and because Cortland Bank’s tort theories could not be used to bypass the UCC’s treatment of deposit-account transfers, summary judgment for Cortland Bank was improper.

## Legal Principles

- Under UCC § 9-332(b), a transferee of funds from a deposit account takes the funds free of a security interest in the deposit account unless the transferee acted in collusion with the debtor in violating the secured party’s rights.
- A secured party cannot avoid UCC § 9-332 by relabeling a dispute over a deposit-account transfer as conversion, impairment of security interest, or tortious interference when the funds were transferred by debtor-authorized withdrawals and collusion has not been established.
- Conversion requires a superior possessory right to the specific property at the time of the alleged conversion; where Article 9 provides that transferred deposit-account funds are taken free of a security interest (absent collusion), the secured party lacks the necessary superior right against the transferee.
- Summary judgment for a secured party is improper where statutory transferee protection applies and the exception (collusion) has not been decided or proven as a matter of law.

## Conclusion

The Ohio Court of Appeals reversed and remanded after holding that, under UCC § 9-332(b), Platinum as a transferee of funds from 21st Century’s deposit account generally took those funds free of Cortland Bank’s security interest absent collusion, and Cortland Bank could not obtain summary judgment on tort claims that would effectively impose liability inconsistent with that statutory rule.


Cortland Savings and Banking Co. v. Platinum Rapid Funding Group, Ltd., 106 UCC Rep. Serv. 2d 886 (2021)