RFC Capital Corporation v. EarthLink, Inc.
Ohio Court of Appeals
55 U.C.C. Rep. Serv. 2d 617 (2004)
RFC Capital Corporation (RFC) (plaintiff) held a security interest in the customer base of Internet Commerce & Communications, Inc. (ICC) after loaning it $12 million. ICC contracted to sell that customer base to EarthLink, Inc. (EarthLink) (defendant), falsely assuring EarthLink that RFC had already released its security interest. In fact, RFC had only agreed to release the collateral once ICC fully performed its obligations under their security agreement, which ICC never did; only a fraction of the promised customers transferred, and EarthLink stopped paying ICC. RFC sued EarthLink for impairing its collateral interest, and a jury awarded RFC $6 million, which EarthLink appealed, arguing RFC had already released its interest.
Whether, under the Uniform Commercial Code, a condition imposed by a secured creditor on its authorization for disposition of collateral must be satisfied before the debtor can sell the collateral free of the creditor's security interest.