Investors Thrift v. AMA CORP.

California Court of Appeal Oct 18, 1967 No. Civ. 666Published

Before: Stone

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Holding. The court held that a contract for the sale of accounts receivable containing provisions for the repurchase of insolvent or disputed accounts does not constitute a loan or a secured transaction under attachment statutes, and that the plaintiff was entitled to a writ of attachment based on the defendant's failure to provide required indemnity.

Issues

Whether a contract for the sale of accounts receivable with repurchase provisions for insolvent or disputed accounts constitutes a loan or a secured transaction.
Whether the plaintiff's right to withhold funds in a reserve account or demand indemnity rendered the debt secured, thereby precluding a writ of attachment.

Disposition. affirmed

Quotations verified verbatim against the opinion

“a guarantee of the validity of accounts implemented by an agreement to repurchase “uncollectible or disputed accounts” did not, per se, render the transaction a loan.”

“the mere fact that an account receivable is personal property does not mean that the particular accounts receivable in this case are being held as security for the sums due from the defendants to the plaintiff.”

STONE, J.

Defendants appeal from an order denying their motion to dissolve a writ of attachment. By agreement dated March 15, 1965, defendant AMA Corporation, doing business as Bella Vista Community Hospital, agreed to sell its accounts receivable to plaintiff, Investors Thrift, an industrial loan company located in Fresno. The individual defendants, Herman Kaye and Dolores Kaye, guaranteed AMA’s faithful performance of the contract.

In less than five months after execution of the contract, August 5, 1965, plaintiff filed a complaint alleging a number of reasons for. terminating the contract. Plaintiff obtained and caused to be levied a writ of attachment, which defendants moved to dissolve. The trial court denied the motion. Defendants then moved to vacate the order, and renewed their motion to dissolve the attachment. These motions were

[203]

heard by a different judge, who denied both of them. This appeal followed.

Appellants argue, first, that the transaction was a loan, not a sale, and,

a fortiori,

the assignment of accounts constituted security for the loan.

The contract is couched in terms of a sale of accounts, yet certain provisions, as appellants point out, are consistent with an agreement for a loan as well as for a sale. One such provision required appellant seller to guarantee payment of so-called insolvent accounts assigned to respondent buyer even though the buyer continued to hold them for collection. We do not think this provision of the agreement is controlling. No financing agency can be expected to either buy accounts or to make a loan upon an assignment of accounts without protecting itself against valueless accounts by a guarantee of this character. In any event, it is not the guarantee, or promise to reimburse, that constitutes “security,” but the assigned account that is held. From its very designation, an insolvent account is not “security” in the sense the term is used in the attachment statutes.

The same reasoning applies to disputed accounts which the seller agreed to buy back from respondent. A disputed account that depends for its validity upon the outcome of a lawsuit is not a liquidated account. Hence a disputed account is not security Avithin the rationale of Code of Civil Procedure section 537.

Investors Thrift v. AMA CORP.

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STONE, J.

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