197 Conn.App. 459
Conn. App. Ct.2020Background
- Factor King, LLC (plaintiff) is a factoring company that entered into a combined factoring-and-security agreement with AEG of New England, LLC (AEG). The agreement gave Factor King an option to purchase eligible AEG accounts and a continuing first‑priority security interest in all AEG accounts receivable (purchased or unpurchased).
- Factor King exercised its purchase option for two Bristol Enterprises invoices, notified the account debtor, and received payment on those purchased invoices under UCC § 42a‑9‑406.
- On September 19, 2016, Factor King sent the Housing Authority for the City of Meriden (defendant) a notice asserting that AEG had assigned all present and future accounts receivable to Factor King and demanding payment to Factor King.
- The Housing Authority paid $2,217,750 directly to AEG on an invoice that Factor King had not purchased; Factor King sued, invoking § 42a‑9‑406 and seeking the diverted payment.
- The trial court granted summary judgment for the Housing Authority and denied Factor King’s summary judgment motion; Factor King appealed. Factor King did not allege AEG defaulted or seek to foreclose its security interest.
- The appellate court affirmed: it held that Factor King’s security interest did not constitute an assignment of the amount due and thus did not trigger § 42a‑9‑406 rights; notice alone was insufficient absent an actual assignment or purchase of that specific receivable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Factor King was entitled to payment under § 42a‑9‑406 for an invoice it had not purchased | Factor King argued its notice plus its status as assignee of AEG’s accounts receivable (via the security interest) made it the § 42a‑9‑406 "assignee" entitled to payment | Housing Authority argued § 42a‑9‑406 requires assignment of the amount due (or purchase of the specific account); a security interest in accounts does not transfer the amount due | Held: § 42a‑9‑406 requires assignment of the amount due or a purchased account; a security interest in an account does not assign the amount due, so no right to payment arose |
| Whether the factoring/security agreement transferred ownership of unpurchased accounts or merely a security interest | Factor King contended the agreement and notice effectuated an assignment of the account at issue | Housing Authority argued the agreement gave Factor King only an option to purchase certain accounts and separately a security interest as collateral; unpurchased accounts remained AEG’s | Held: The agreement granted a purchase option (discretionary) and separately a security interest; unpurchased accounts were collateral, not transferred receivables |
| Whether the notice of assignment alone obligated the account debtor to pay the putative assignee | Factor King argued its notice was adequate under § 42a‑9‑406 to redirect payment | Housing Authority argued notice is ineffective unless there has been an actual assignment of the amount due | Held: Notice alone is insufficient; § 42a‑9‑406 protects payors only when the amount due has been assigned to the assignee |
| Whether denial of Factor King’s summary judgment was erroneous given granting of defendant’s summary judgment | Factor King contended the court should have granted its motion | Housing Authority relied on the lack of any genuine dispute that Factor King was never assigned that invoice amount | Held: Denial affirmed — no genuine issue that the required assignment of the amount due never occurred |
Key Cases Cited
- Cruz v. Visual Perceptions, LLC, 311 Conn. 93 (2014) (principles for contract interpretation and ambiguity)
- Wozniak v. Colchester, 193 Conn. App. 842 (2019) (statutory‑construction framework: plain meaning and context)
- Forest Capital, LLC v. BlackRock, Inc., [citation="658 F. App'x 675"] (4th Cir. 2016) (interpreting UCC § 9‑406 to require an actual assignment of receivables before an assignee may collect)
- Brookridge Funding Corp. v. Northwestern Human Services, 175 F. Supp. 2d 355 (D. Conn. 2001) (describing factoring transactions and their mechanics)
- Kindred Nursing Centers East, LLC v. Morin, 125 Conn. App. 165 (2010) (procedural rule on appealability when a final judgment is entered against a party who also had a denied motion for summary judgment)