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Bankruptcy | Case Law | Secured Transactions

SECURED TRANSACTIONS

1. Article 9

1(a). Assignment

2. 9-105

2a 9-109

3. 9-201

4. 9-203

5. 9-504(3)

6. CCP §726

7. CCP §780

8. CCP §1717

9. Michigan Law

10. Perfection of Security Interest

11. §506

12. §506(a)

13. §506(b)

14. §506(c)

15. §552(b)

16. 35 U.S.C. §261

17. Washington Law

18. Tracing of proceeds

19. §1325 (hanging paragraph)

20 Ipso facto clauses

21. Misc

1. Article 9

In re Penrod, 611 F.3d 1158, 1163 (9th Cir. 2010)

Negative equity on trade-in vehicle that was rolled into the amount financed for purchase

of the new vehicle was not sufficiently connected to the purchase price to establish a purchase

money security interest. “A seller or lender can obtain a purchase money security interest only for

new value, and closely related costs. Old value simply does not fit within that rubric.”

In re Commercial Money Centers, Inc., 392 B.R. 814 (9th Cir. BAP 2008)

A surety bond was a supporting obligation, not an “instrument” under Nevada 9-102(1).

In re Pacific/West Communications Group, Inc., 301 F.3d 1150 (9th Cir. 2002)

Security interest in general intangibles did not extend to commercial tort causes of action

under old Article 9. Under California's 2001 version of Article 9, a security interest may be taken

in proceeds of a tort action.

In re CFLC, Inc., 166 F.3d 1012 (9th Cir. 1999)

Mere sending of preprinted invoices without further agreement between parties did not

create Art. 9 security interest.

1(a).

In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007)

Purchase money character of security interest not affected by an assignment.

2. 9-105

In re Omega Environmental, Inc., 219 F.3d 984 (9th Cir. 2000)

Bank perfected its security interest in a certificate of deposit through possession under

Virginia's 9-304 and 305, because a certificate of deposit is an instrument under 9-105, even

though it bears the legend “nontransferable”.

In re Kirkland, 91 B.R. 551 (9th Cir. B.A.P. 1988), aff’d. 915 F.2d 1236 (9th Cir. 1990)

1. Guarantors are entitled to notice of sale of collateral under 9-105(1)(d)

2. Waiver of right ineffective prior to default

2a 9-109

In re Commercial Money Center, Inc., 350 B.R. 465 (9th Cir. BAP 2006)

Payment streams stripped from equipment leases are payment intangibles, even though the

underlying leases are chattel paper. As such, they were subject to automatic perfection under

section 9-303(3), but only if the assignment of the payment stream was a true sale. Assignments

here were loans, not sales.

3. 9-201

In re Coupon Clearing Services, Inc., 113 F.3d 1091 (9th Cir. 1997)

Secured creditor had given debtor adequate right in the collateral to meet 9201. Coupon

cash not subject to trust or bailment.

4. 9-203

In re Bakersfield Westar Ambulance, 123 F.3d 1243, (9th Cir. 1997)

1. Bank may obtain a security interest in its own customer’s deposit account under Article

9. The security interest attaches to the customer’s general intangible against the bank.

2. However, the description in the security agreement was inadequate under 9-203

5. 9-504(3)

In re Alcock, 50 F.3d 1456 (9th Cir. 1995)

Guarantor could be discharged because of SBA’s subordination of its lien priority without

notice to guarantor.

6. CCP §726

In re Kearns, 314 B.R. 819 (9th Cir. B.A.P. 2004), aff’d, 201 Fed. Appx. 473 (9th Cir. 2006).

Lender retained enforceable lien on borrower’s real property after exercising nonjudicial

foreclosure against vehicle; “one-action/security first” rule not violated.

Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230 (9th Cir. 1994)

Receiver’s sale of townhouse and furniture and payment of the proceeds to the secured

creditor was not a violation of California CCP § 726. The creditor did not obtain a personal

money judgment against the debtor or execute on unencumbered assets. There is no rule that

prohibits a secured creditor from collecting on its “additional” collateral before foreclosing on its

“primary” real property security. See Cal. Complaint. Code § 9501(4) (the mixed collateral

statute)

Metropolitan Life Ins. Co. v. Sunnymead Shopping Ctr. Co. (In re Sunnymead Shopping Ctr. Co.),

178 B.R. 809 (9th Cir. 1995)

Creditor’s acceptance of adequate protection payments does not violate the one-action rule.

Relying in part on Bayside Developers, the B.A.P. has ruled that the secured creditor’s acceptance

during the Chapter 11 case of cash collateral rents as a form of adequate protection is to an

“action” within the meaning of Cal. CCP § 726, which would later bar foreclosure on the real

property or a deficiency judgment. Acceptance of rent payments as adequate protection does not

violate the “one action” or “security first” principles of § 726

Great Am. First Sav. Bank v. Bayside Developers, 43 F.3d 1230 (9th Cir. 1994)

Receiving proceeds of additional collateral does not violate one-action rule.

7. CCP §780

In re Prestige Limited Partnership-Concord, 234 F.3d 1108 (9th Cir. 2000)

Secured creditor who violated CCP § 780 by pursuing a guarantor who was deemed just

another co-obligor on the note still retains an unsecured claim against the debtor. The deficiency

claim was not waived under CCP § 580(a) because the property was not sold.

8. CCP §1717

In re Hassen Imports Partnership, 256 B.R. 916 (9th Cir. B.A.P. 2000)

1) Debtor was not entitled to attorney fees under CCP § 1717, since the dispute in question

was not an action on a promissory note, but an action on confirmation of a plan, which is governed

by federal bankruptcy law; 2) bankruptcy court erred in finding that secured creditor was entitle to

the default rate of interest in the note, since the creditor “failed to demonstrate that the default rate

reasonably compensated it for losses arising from the default;” 3) secured creditor was entitled to

fees under § 506(b)for pursuing collection of note from guarantors.

9. Michigan Law

In re Turley, 172 F.3d 671 (9th Cir. 1999)

Share in racing association is not a “certificated security” under Art. 8 of the UCC

(Michigan law).

10. Perfection of Security Interest

In re Commercial Money Centers, Inc., 392 B.R. 814 (9th Cir. BAP 2008)

Secured creditor did not perfect security interest in equipment lease payments by

possession under 9-313 or by filing a financing statement.

In re First T.D. & Investment, Inc. 253 F.3d 520 (9th Cir. 2001)

Assignment of collateral notes and trust deeds to investors may be perfected in California

without possession and thus cannot be avoided under the strong arm clause.

In re Cybernetic Services, Inc., 252 F.3d 1039 (9th Cir. 2001), cert. denied, 534 U.S. 1130 (2002)

Creditor perfected security interest in debtor’s patent by filing financing statement with

California Secretary of State rather than with Patent & Trademark Office.

In re Southern California Plastics, Inc., 165 F.3d 1243 (9th Cir. 1999)

Allowance of claim is not equivalent to a judgment for purposes of perfecting an

attachment lien. Attachment liens “can be created and continue to exist only in the cases and to the

extent to which the California Legislature by statutory enactment has authorized their creation and

continued existence.”

In re Vigil Bros. Construction, Inc., 193 B.R. 513 (9th Cir. B.A.P. 1996)

Significant assignment of accounts receivable to creditor triggers commercial requirement

to perfect security interest

In re Cortez, 191 B.R. 174 (9th Cir. B.A.P. 1995)

Secured creditor’s unperfected and unavoided deed of trust survives discharge order

Mastro v. Witt, 39 F.3d 238 (9th Cir. 1994)

Security interest in proceeds of a land sale contract is a general intangible which must be

perfected by filing a UCC financing statement with the secretary of state. Recording the security

interest in the county real property records will not perfect lien.

In re Park at Dash Point, L.P., 985 F. 2d 1008 (9th Cir. 1993)

Prospective statutory amendment providing for perfection of mortgagee/assignee’s security

interest in rents may be applied retroactively

In re Raiton, 139 B.R. 931 (9th Cir. B.A.P. 1992)

Security interest in stock - how perfected by possession

In re Hillside Associates Ltd Partnership, 121 B.R. 23 (9th Cir. B.A.P. 1990), appeal dismissed,

990F.2d 1258 (9th Cir. 1933)

Lien against nursing home’s contract rights not perfected against patient revenues

In re Copper King Inn, Inc., 918 F.2d 1404 (9th Cir. 1990)

Creditor did not have a perfected security interest in bankrupt debtor’s property because

financing statement did not mention its name

In re Boogie Enterprises, Inc., 866 F. 2d 1172 (9th Cir. 1989)

Financing statement describing collateral for loan as “personal property” was insufficient

under California law, to perfect creditor’s security interest in proceeds of lawsuit settlement

In re Softalk Publ. Co., Inc., 856 F.2d 1328 (9th Cir. 1989)

Financing statement that contained no description of the collateral, but only identified

proceeds from the collateral was insufficient to perfect security interest under California law

11. §506

In re Pletz, 221 F.3d 1114 (9th Cir. 2000)

Under Oregon law, chapter 13 debtor's interest in property held by debtor and nondebtor

spouse as tenants by the entirety had to be valued under § 506 to reflect concurrent interests of

both spouses.

12. §506(a)

In re 1441 Veteran St., 154 F.3d 1103 (9th Cir. 1998), cert. denied, 144 F.3d 1288 (9th Cir. 1998)

The court of appeals reversed a judgment of the district court. The court held that under

§506(a), a debtor cannot “strip down” a creditor’s lien based on the valuation of an asset for

reorganization purposes, when the bankruptcy court denies confirmation of the reorganization plan

and allows the creditor to pursue its state-law remedies.

13. §506(b) (see also attorney fees, supra)

In re Imperial Coronado Partners, Ltd., 96 B.R. 997 (9th Cir. B.A.P. 1989)

506(b) - prepayment premium may be allowed as a reasonable fee

14. §506(c)

In re Los Gatos Lodge, Inc., 278 F.3d 890 (9th Cir. 2002)

A bankruptcy trustee may not surcharge a creditor under § 506(c) after the creditor's

secured claim has been disallowed

In re Debbie Reynolds Hotel and Casino, Inc., 255 F.3d 1061 (9th Cir. 2001)

1. Postpetition lender had no standing to object to $50,000 payment to debtor-inpossession's

counsel out of proceeds of sale agreed to by another secured creditor;

2. Under 506(c), the party that has rendered a benefit to the secured creditor is properly

reimbursed for that benefit out of secured collateral.

Hartford Underwrites Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 120 S.Ct. 1942 (2000)

Only a trustee may invoke § 506(c) to charge a secured creditor with the expenses of

preserving the estate, not an administrative claimant.

In re Compton Impressions, Ltd., 217 F.3d 1256 (9th Cir. 2000)

Services sought to be surcharged by the debtor-in-possession under § 506(c) were not

necessary, nor did they quantifiably benefit the bank, nor did the bank consent to the charges.

Hartford Underwrites Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 120 S.Ct. 1942 (2000)

Only a trustee may invoke § 506(c) to charge a secured creditor with the expenses of

preserving the estate, not an administrative claimant.

506(c) -

In re Palomar Truck Corp., 951 F.2d 229 (9th Cir. 1991), cert. denied, 506 U.S. 821 (1992)

In re Glasply Marine Industries, Inc., 971 F.2d 391 (9th Cir. 1992)

In re Jenson, 980 F.2d 1254 (9th Cir. 1992)

In re Cascade Hydraulics and Utility Service, Inc., 815 F.2d 546 (9th Cir. 1987)

In re James E. O’Connell Co., Inc., 893 F.2d 1072, 1074 (9th Cir. 1990)

15. §552(b)

In re Skagit Pacific Corp., 316 B.R. 330 (9th Cir. B.A.P. 2004)

“Proceeds of post-petition accounts receivable do not fall within the § 552(b) proceeds

exception.”

In re Northview Corp., 130 B.R. 543 (9th Cir. B.A.P. 1991)

Revenues from hotel are accounts, not rents for purposes of § 552(b)

In re Bering Trader, Inc. 944 F.2d 500 (9th Cir. 1991)

Prepetition security interest in accounts, general intangibles and proceeds does not extend

to rents received postpetition under a vessel subcharter. Security interest in “accounts” is not the

same as a security interest in “rents” for purposes of § 552(b).

16. 35 U.S.C. §261

In re Cybernetic Services, Inc., 252 F.3d 1039 (9th Cir. 2001), cert. denied, 534 U.S. 1130 (2002)

“...[A] security interest in a patent that does not involve a transfer of rights of ownership is

a “mere license” and is not an assignment , grant or conveyance” within the meaning of 35 U.S.C.

§ 261. And because § 261 provides that only an “assignment, grant or conveyance shall be void”

as against subsequent purchasers and mortgagers, only transfers of ownership interests need to be

recorded with the PTO.”

17. Washington Law

In re Filtercorp, Inc., 163 F.3d 570 (9th Cir. 1998)

Under Washington law, security agreement that grants interest in “inventory” or “accounts

receivable” presumptively includes after-acquired inventory or accounts receivable.

In re Heide, 915 F.2d 531 (9th Cir. 1990)

Right to receive payments under real estate contract subject to perfection under Article 9

(Washington law)

18. Tracing of proceeds

In re Skagit Pacific Corp., 316 B.R. 330 (9th Cir. B.A.P. 2004)

Because secured creditor did not use the Lowest Intermediate Balance of any other

recognized tracing method as required under new 9-315, secured creditor did not meet its burden

of proving that its security interest extended to proceeds of accounts receivable.

19. §1325 (hanging paragraph)

In re Penrod, 392 B.R. 835 (9th Cir. BAP 2008)

1) A lender’s payoff of the deficiency on the trade-in is not secured by the purchase money

security interest in the new car, and is not thereby protected by the hanging paragraph.

2) “[T]he hanging paragraph protects that portion of the lender’s debt allocable to the car

purchased, and does not protect that portion of the debt that is allocable to negative equity.”

In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007)

Under the “hanging paragraph,” chapter 13 debtor was required to pay the full contract

price of his automobile. Trial court held that § 1322(b) remained applicable, and the debtor could

alter the interest rate and monthly payments. The BAP did not address this issue, since the creditor

did not pursue it on appeal.

20. Ipso facto clauses–enforceability

In re Dumont, 383 B.R. 481, 489 (9th Cir. 2009)

“Ride through” option under pre-BAPCPA law (In re Parker, 139 F.3d 668 (9th Cir.

1998)) was eliminated in 2005. “At least where the debtor has not attempted to reaffirm, our

decision in Parker has been superceded by BAPCPA.” (Emphasis added)

21. Misc

Ta Chong Bank v. Hitachi High Technologies America, 610 F.3d 1063 (9th Cir. 2010)

Buer of goods from debtor could not be sued by debtor’s factor for having failed to comply

with a notice pursuant to 9-406 of the UCC to pay factor rather than debtor, where factor’s security

interest had been found avoidable as a preference.

In re Choo, 273 B.R. 608 (9th Cir. B.A.P. 2002)

Failure to prove that secured party saved foreclosure costs from the trustee's sale of the

property failed actual benefit test.

In re Prestige Ltd. Partnership - Concord, 164 F.3d 1214 (9th Cir. 1999)

The court held that under California law, a creditor waives its security interest in a debtor’s

ground lease by attaching a guarantor’s unpledged assets in a separate state-court action.

In re Yepremian, 116 F.3d 1295 (9th Cir. 1997)

State deposition testimony of prior unrecorded joint venture agreement is insufficient to

establish priority of equitable interest over subsequent recorded interest

In re CFLC, Inc., 209 B.R. 508 (9th Cir. B.A.P. 1997), aff’d, 166 F.3d 1012 (9th Cir. 1999)

Creditor does not have security interest or lien in property of customer’s bankruptcy estate

despite evidence of customer’s receipt and payment of invoices containing terms for general lien

in goods

In re Taffi, 96 F.3d 1190 (9th Cir. 1996), cert. denied, 117 S. Ct. 2478 (1997)

Residence retained by debtor in bankruptcy proceeding valued at fair market value (In re

Mitchell overruled)

In re McDonell, 204 B.R. 976 (9th Cir. B.A.P. 1996), aff’d, 164 F.3d 630 (9th Cir. 1998)

Recordation of certified copy of federal judgment created valid judgment lien

In re Kim, 130 F.3d 863 (9th Cir. 1997)

Valuation of security interests in business equipment and lease based on worth of

equipment not business as a whole.

In re Decker, 199 B.R. 684 (9th Cir. B.A.P. 1996)

Secured creditor’s lien against debtor’s property senior to IRS lien

In re Leisure Time Sports, Inc., 194 B.R. 859 (9th Cir. B.A.P. 1996)

Secured party cannot transfer interest in loan collateral to third party separately from

underlying debt - party who did not assign debt deemed to have done so

In re Ehrle, 189 B.R. 771 (9th Cir. B.A.P. 1995)

Sale proceeds of real property are not covered by a deed of trust

In re Auza, 181 B.R.63 (9th Cir. B.A.P. 1995)

“Dragnet clauses” in security instruments executed by debtors did

In re Crosby, 176 B.R. 189 (9th Cir. B.A.P. 1994), aff’d. 85 F.3d 634 (9th Cir. 1996)

Secured party properly deemed not to have retained collateral in full satisfaction of

debtor’s obligation absent written notice, unreasonably delay, or manifested intention to accept

collateral in satisfaction of debt. Also commercially reasonably sale

In re Days California Riverside Limited Partnership, 27 F.3d 374 (9th Cir. 1994)

1. Room revenues are rents, not accounts

2. Food and drink revenues are accounts, not rents

In re Stoumbos, 988 F. 2d 949 (9th Cir. 1993), cert. denied, 510 U.S. 867 (1993)

1. Failure of security contract to make reference to after-acquired property is not a security

interest in same. Security contract did not refer to “inventory” or “all inventory”

Lomas Mortgage USA v. Wiese, 980 F.2d 1279 (9th Cir. 1992), vacated, 508 U.S. 958, 113 S.Ct.

2925 (1993)

Hypothetical costs of sale not factored into amount of secured claim. Balbus followed.

In re Southland & Keystone, 132 B.R. 632 (9th Cir. B.A.P. 1991)

PACA claimants hold superior security to bank’s blanket security over debtor’s account

receivable

In re Robert B. Lee Enterprises, Inc., 980 F.2d 606 (9th Cir. 1992)

Assignee of secured creditor has sam priority as secured creditor as to future advances it

makes

In re Kirkland, 915 F. 2d 1236 (9th Cir. B.A.P. 1990)

Defaulting guarantor was “debtor” entitled to notice before creditor’s sale of collateral

under California Commercial Code. No waiver of notice found.

Crocker National Bank v. Emerald, 221 Cal. App. 3d 852 (1990)

Secured creditor barred from obtaining deficiency judgment unless collateral is sold in

commercially reasonable manner

In re Estreito, 111 B.R. 294 (9th Cir. B.A.P. 1990)

Lienholder’s interest on advances limited by deeds of trust reference to rate allowed by law

Newman v. First Security Bank of Bozeman, 887 F.2d 973 (9th Cir. 1989)

Secured creditor lien remains intact post bankruptcy

In re Falk Farms, Inc., 88 B.R. 254 (9th Cir. B.A.P. 1988)

True lease v. Disguised security agreement

In re Dettman, 84 B.R. 662 (9th Cir. B.A.P. 1988)

Creditor which had prepetition security in proceeds and general intangibles had valid

security interest in crop diversion proceeds.