ITT Commercial Finance Corp. v. Tech Power, Inc.

Appellant and third party claimant Everex Systems, Inc., appeals from the trial court’s conclusion that Everex did not hold a security interest in the deposit account of its debtor, Tech Power, Inc. As a result of the ruling, Everex’s claims were deemed subordinate to the those of plaintiff and respondent ITT Commercial Finance Corporation, a judgment creditor of Tech Power. At issue is whether the holder of a perfected security interest in the inventory of a debtor holds a security interest in the proceeds from the sale of that inventory when they have been commingled in a bank account with other funds. Because we agree that tracing of proceeds into a commingled fund is allowable under the California Uniform Commercial Code, and that Everex presented sufficient evidence to identify the funds as having been derived from sale of inventory, we reverse the decision of the trial court.

Factual and Procedural Background

In December of 1991, ITT entered into an agreement for wholesale financing with a company known as Computerland. Under the agreement, ITT acted as Computerland’s floor plan financier and held a security interest in Computerland’s “inventory, . . . machines,…