## Facts

- Tiremix, Inc. (Tiremix) operated a tire and tube sales business and generated accounts receivable from customer purchases.
- In 1986, Tiremix borrowed money from National City Bank, Northeast (NCB) and granted NCB a security interest in Tiremix’s accounts receivable.
- NCB perfected its security interest by filing UCC financing statements in 1986 and maintained continuous perfection by filing a continuation statement when required.
- In 1988, Tiremix entered into a consignment agreement with Specialty Tires of America, Inc.’s (Specialty) predecessor in interest to consign tires and tubes to Tiremix for resale.
- The consignment agreement required Tiremix to hold proceeds from sales of the consigned tires and tubes in trust for Specialty’s predecessor.
- The agreement also required Tiremix to pay Specialty’s predecessor monthly for all consigned tires and tubes sold during the prior month, whether those sales were for cash or on credit.
- In February 1991, NCB loaned Tiremix additional money, took a security interest in all of Tiremix’s accounts receivable, and filed additional financing statements.
- In July and August 1991, Specialty’s predecessor filed financing statements covering the consigned tires and tubes and any accounts receivable generated by Tiremix’s sale of those goods.
- After Tiremix experienced financial problems, NCB notified Tiremix’s account debtors of NCB’s security interest, directed them to make future payments directly to NCB, and collected more than $200,000 in receivables, including receivables tied to sales of consigned goods.
- NCB sued Tiremix and Specialty, seeking a declaratory judgment that NCB’s security interest in Tiremix’s accounts receivable was superior to any interest claimed by Specialty.
- The trial court granted summary judgment to NCB. Specialty appealed and argued, among other things, that Tiremix lacked sufficient rights in the receivables from consigned goods for NCB’s security interest to attach, and that the trial court wrongly treated the consignment as a disguised security interest.

## Issues

1. Did Tiremix have sufficient “rights in” accounts receivable generated by sales of consigned goods for NCB’s Article 9 security interest in accounts receivable to attach?
2. If NCB’s security interest attached, did NCB’s earlier perfection give it priority over Specialty’s later-filed claimed interest in those accounts receivable, regardless of whether the transaction was a true consignment or a security interest?

## Decision

- The Court of Appeals of Ohio affirmed the summary judgment for NCB.
- Tiremix had sufficient rights in the accounts receivable generated by sales of the consigned goods for NCB’s security interest in accounts to attach.
- NCB’s perfected security interest in Tiremix’s accounts receivable was superior to Specialty’s claimed interest in those receivables.
- The result did not depend on whether Specialty’s arrangement was a true consignment or a security interest; either way, NCB had priority in the accounts receivable under the UCC rules governing accounts.

## Legal Principles

- A security interest in accounts receivable attaches when the debtor has rights in the accounts, including enforceable rights to payment from customers arising from credit sales.
- A consignee’s obligation to remit proceeds to a consignor (including an agreement to hold proceeds “in trust”) does not, by itself, prevent the consignee from having rights in the accounts receivable created by the consignee’s sales to its customers.
- Priority between competing interests in accounts receivable is generally determined by Article 9 priority rules, including first-to-file/first-to-perfect, when the competing claimants assert security interests in the same receivables.
- A lender with a continuously perfected, earlier-filed security interest in “all accounts receivable” has priority over a consignor (or a consignor’s successor) that later files financing statements claiming an interest in receivables generated from sales of consigned goods.

## Conclusion

The court held that Tiremix’s customer-payment rights from credit sales of consigned tires and tubes were sufficient “rights in” the accounts for NCB’s security interest to attach, and that NCB’s earlier, continuously perfected security interest in all of Tiremix’s accounts receivable had priority over Specialty’s later-filed claim to receivables arising from the consigned goods, without regard to whether the arrangement was characterized as a true consignment or a security interest.


National City Bank v. Specialty Tire of America, Inc., 672 N.E.2d 232 (1996)