|
| Consider, for example, a junior secured party in the business of |
| financing or buying accounts who fails to undertake a search to |
| determine the existence of prior security interests. Because a |
| search, under the usages of trade of that business, would enable it |
| to know or learn upon reasonable inquiry that collecting the |
| accounts violated the rights of a senior secured party, the junior |
| may fail to meet the good-faith standard. See Utility Contractors |
| Financial Services, Inc. v. Amsouth Bank, NA, 985 F.2d 1554 (11th |
| Cir. 1993). Likewise, a junior secured party who collects accounts |
| when it knows or should know under the particular circumstances |
| that doing so would violate the rights of a senior secured party, |
| because the debtor had agreed not to grant a junior security |
| interest in, or sell, the accounts, may not meet the good-faith |
| test. Thus, if a junior secured party conducted or should have |
| conducted a search and a financing statement filed on behalf of the |
| senior secured party states such a restriction, the junior's |
| collection would not meet the good-faith standard. On the other |
| hand, if there was a course of performance between the senior |
| secured party and the debtor which placed no such restrictions on |
| the debtor and allowed the debtor to collect and use the proceeds |
| without any restrictions, the junior secured party may then satisfy |
| the requirements for being a holder in due course. This would be |
| more likely in those circumstances where the junior secured party |
| was providing additional financing to the debtor on an on-going |
| basis by lending against or buying the accounts and had no notice |
| of any restrictions against doing so. Generally, the senior |
| secured party would not be prejudiced because the practical effect |
| of such payment to the junior secured party is little different |
| than if the debtor itself had made the collections and subsequently |
| paid the secured party from the debtor's general funds. Absent |
| collusion, the junior secured party would take the funds free of |
| the senior security interests. See Section 9-332 [Maine cite |
| section 9-1332]. In contrast, the senior secured party is likely |
| to be prejudiced if the debtor is going out of business and the |
| junior secured party collects the accounts by notifying the account |
| debtors to make payments directly to the junior. Those collections |
| may not be consistent with "reasonable commercial standards of fair |
| dealing." |
