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ASSOCIATES DISCOUNT CORPORATION v. OLD FREEPORT BANK (06/24/66)

decided: June 24, 1966.

ASSOCIATES DISCOUNT CORPORATION
v.
OLD FREEPORT BANK, APPELLANT



Appeal from decree of Court of Common Pleas of Allegheny County, Oct. T., 1962, No. 3381, in case of Associates Discount Corporation v. Old Freeport Bank (now Keystone Bank).

COUNSEL

Alice Dobson, with her Abraham Fishkin, for appellant.

Donnell D. Reed, with him Gerard H. Hamilton, for appellee.

William H. Wood, J. Colvin Wright, and William A. Schnader, Pennsylvania Commissioners on Uniform State Laws, for amicus curiae.

Musmanno, Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice Cohen.

Author: Cohen

[ 421 Pa. Page 610]

Appellant, Old Freeport Bank (Bank), loaned money to Hood Motors, Inc. for the purpose of financing the purchase of new automobiles by Hood (Dealer). In addition to a trust receipt security agreement, these loans were secured by DX or dealer titles which were

[ 421 Pa. Page 611]

    issued for each automobile financed. On each such title an encumbrance was noted in favor of Bank. One such automobile was sold by Dealer to a buyer (Buyer) who made a cash payment and executed a bailment lease security agreement obligating himself to pay the sum of $2,101.20 to Dealer in liquidation of the balance of the purchase price.

Dealer sold the bailment lease for $1775 to Associates Discount Corporation (Discounter), a company in the business of buying chattel paper from dealers. Discounter took possession of the bailment lease in the ordinary course of its business, paid Dealer for the lease by check, which check Dealer turned over to Bank with instructions to deliver the DX title covering the sold automobile to Discounter so that a new title could be obtained. Bank refused to turn over the DX title to Discounter and instead used the DX title as a lever to induce Buyer to execute a second bailment lease in favor of Bank. Bank then required Buyer to make payments in liquidation of the second bailment lease to it rather than to Discounter under the bailment lease Discounter had purchased from Dealer.

There is no evidence that any security agreements were ever filed or perfected.

Bank urges upon us that the check for $1775 (which was drawn by Discounter and which was delivered by Dealer to Bank) was credited by Bank to other obligations owed by Dealer to Bank and therefore that it had a right to hold the title to secure the indebtedness of the Dealer due Bank arising out of the inventory-financed automobile. However, if the payments made by Buyer to Bank should have been made to Discounter and Bank has no claim to such payments, equity will declare Bank a constructive trustee of such funds to ...


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