only those of us of a simple unsecured creditor this fundamentally misses aipcs interest as the owner of the underlying fuel and therefore the owner of the resulting receivables in this case the cash that's at issue was in the possession of pettitte oil the debtor or consarn he only through a mistake the customer's erroneous lee sent to their remittances to the wrong address despite instructions to send it directly to aipcs lockbox they seem to made that mistake a lot yeah i think probably because they had a history of dealing with parallel as my speculation if they were repeat customers that would explain but but for some reason nobody seems to sort of say don't do this again i mean this seems to the their standard practice i mean we're talking millions of dollars that were all that the actual time frame which has happened before we got to the bankruptcy petition was only a month or two i thinks the accounts receivable which is by far the largest amount at issue consignment that's intended to be a security interest because the courts if they find it's intended be a security interest can conclude that the property actually belongs to the consarned right but if it's going to be as unsigned goods in order to protect their security  lien interest in the goods but ninety one one makes it clear that competing lean interest must be attaching at the time when the consarned he still has possession of the goods and that's explicit language from nine three one nine from or remains entitled to all the rights it would have under a common law bailment that includes all the proceeds and if we don't construe ninety one night and that way what you're doing is whether there is perfection the rights and proceeds they flow from nine three one nine which creates a legal fiction that the consarn he has the right to give someone else an interest in the goods but ninety one nine doesn't sa definition of consignment that a true consignment is a bailment so that would be a strange concept because normally in a bailment ownership of the underlying poppy and therefore the proceeds remains with the baby or the in i it's in the record as i'm sure the court knows but not only is this what would be expected under the law but it was what was implemented in practice the actual invoices to the cost at the end users of the fuel in purchasers single true consignment which is a bailment into a secure transaction but that's completely contrary to the scheme of the uniform commercial code which treats security interests as securing a right to payment or a the performance of an obligation that's the definition of a security interest in section one two or one of the code but on the other hand we have we have a true  performance obligation you know i can imagine that the security system would work differently from the way it set up i get all of that and it does seem to me different in the sense of the impact on the real world in the sense of the what other predators have in mind as they land and so on to try and figure other secretly ends with respect to property i get all that on the other hand as i read the i c c it's the issues with the u c c it seems to be treating the cash proceeds identically the goods i'm looking print for example at nine das three to four b which says quote a perfected p m s i an inventory has priority over conflicting security interest in the same inventory comes also has priority and identifiable cash proceeds sounds as though the u c c is not distinguishing between the inventory and the cash proceeds well you are that is true once we have a  competing interest to deal with in other words if well i do what we do well we don't when the goods are gone that's our argument at the point in time when the trustee becomes a hypothetical being creditor on the in the goods it has a right to follow that into identifiable proceeds as well but wouldn't but failing to do that then what happens well then you have i p c owning its receivables and how does a how does a creditor get a write in receivables when consigned goods are gone it's not very much of a stretch to say that creditor concedes all of aipcs receivables in a fee have nothing to do with these goods that the whole mechanism by which a competing creditor gets rights is ninety one nine and if we don't acknowledge them writing it out of the entire code and the error below was that the court treated it as if this were a sale and therefore all of the rights associated with these goods including the rights of the proceeds of the goods transferred to pet it while impaired oil was then in a position to grant liens i can use another example let's say that we're dealing with a lending relationship it's pretty clear that if a lender makes an umbrella loan with all the security you can ask for all the goods that receivables the intangibles all the proceeds and it's perfected and then along comes a consarn or an it doesn't file it and we concede that point we concede that by saying that the trustee gets the value of the goods even if the money wasn't collected that income would incorporate all the proceeds of the goods that were in existence on the petition date ok now you're five minutes i'd like to may please the court andrew morton on behalf of the catherine ellis the trustee your honour's this appeal is about how article nine applies to give the trustee in bankruptcy superior rights in the property to the that is the subject of this dispute nine one zero nine a expressly provides that article nine applies to a consignment as the term consignment is defined in article nine it defines secured party to include a consigner defined security interest in article one which mr sato quoted but in completely security interest also includes quote any interest of a consigner in a transaction that is subject to article nine as a result all of article nine's provisions governing perfection and priority in goods and in proceeds of goods also apply equally to all of a consigner has interests as security interests that arise out of a consignment here i concedes as they just did again an argument that is provided by article nine the subject transaction here is a consignment as defined by article nine and so is governed by article nine and that i p c failed to file financing statement to perfect its interests arising the under also as required by article nine so here article nine applies it provides that i p c was a secured party whose rights and collateral constituted perfected security interests subject to subordination and avoidance by the trustee exercising her rights and powers as a hypothetical judicially and creditor under section five forty four a one of the bankruptcy code that was the result reached by the bankruptcy court and by the baptists unanimously affirming because it is compelled as a matter of law by the plain text of article nine and we therefore ask this court to affirm and that's in a nutshell the statutory argument that we've made it's in our briefs and the relevant sections are described in there and i'd be to talk about them rather than focus more on that i'd like to turn back to a couple of the points that mr sawyer made in the opening argument and and a question that you posed judge fletcher about well doesn't  treat the interests of a consigner and of other creditors essentially the purchase money security interesting goods and the proceeds of those goods isn't that all one in the same under section nine three two four and the answer is yes it is  and this is discussed in the back opinion below this distinction that the i p c has attempted to draw between a consignment for security as opposed to a true consignment subject article nine based simply on the fact that there consignment doesn't purport to create a security interest and so is somehow treated differently is meaningless by definition a true consignment that is subject to article nine doesn't purport to create a security interest that's the point that's why it's in the definitions that way because if it did purport to create a security interest we wouldn't have to do that it would just be governed by article nine because then you have a security interest so nevertheless i p c contends that it somehow creates this purchased many security interests but only for limited purposes and that's also directly contrary to the text of the statute nine one three in capsulated the whole idea and flat out says a consigner under a consignment transaction the security interest that it holds is a purchase money security interest in inventory and that's the way that the u c c in article nine reaches the result that i think you are getting out about preventing secret liens which is that it simply transforms the consigner under a consignment that fits within the definitions of article nine into really no different from any other purchase money  security lender with an interest in inventory but for one exception which isn't relevant in this appeal and that has to do with the remedies as against the debtor those aren't additional here and the code simply recognizes in an exit point and that's what nine three one nine does is one three one nine is the provision of the code that gets that gets the consigner out from under article nine but only in the circumstance where the consigner is seeking to repossess its goods and all it does then is it says after the consigner has a stablished that it has a superior interest to all other creditors under article nine and only then in goods then at that point if it wants to exercise its remedies against the debtor it doesn't need to use the remedies that are described in part six of article nine it can exercise its contractual remedies but none of that's relevant here nine three one nine doesn't do what i p c says in terms of bifurcating the world into this universe where article nine applies for part of a consignment transaction just as to goods but then somehow when the goods are converted to proceeds article nine suddenly doesn't apply anymore even though article nine sets forth a great deal of provisions including section one three two four that describe exactly what happens to security interests including purchase money security interest in inventory when goods are sold and turned into proceeds the offer am out of article nine is that the remedy point it isn't at the point of how we describe proceeds and that's what leads i think to this difficult and frankly irreconcilable conflict in i p c s own position and it was described again here today at argument which is well the proceeds which are cou suitable that are generated by the sale of consigned goods i p c argues those proceeds the nature of our right as a consigner in them is one in the same as the as the interest we would have in goods and i should add by the way that they cite no authority for this proposition and in fact it's contradicted by the comments to the prior version of article nine this is also discussed in the back up in the comments to old section nine one one four explain that it was generally understood that consigner is don't have a continuing interest in their proceeds and in fact are generally satisfied with that because what their main concern is is about inventory so they take this position that well somehow we nevertheless have essentially the interest of the consigner in goods we also have the same type of interest in receivables as though we had consigned those to even though they even though they haven't and once the goods are sold we get that right back and because we get that right back and there's nothing to deem that the debtor has those rights nobody interest because the debtor owns nothing well that is difficult to square with aipcs concession that in fact other creditors can get a security interest and to take ahead of i p c in the receivables but only if they have a continuing interest in proceeds so they say there are in fact two types of article nine secured creditors one which they say can take an interest in receivables proceeds from the sale of goods and that would be a creditor that had a preexisting security interest in the goods and then it continues under nine three one five in proceeds but they say oh but the debtor actually doesn't have sufficient rights to grant security interests so no security interest can attach  and they point to the situation with the trustee here in the hypothetical offered earlier about the difference between a floor lender and how somehow that floor lender can get rights ahead of i p c not just in goods but in proceeds of goods as long as  preexisting interest in inventory but then somehow the same lender that brings in the same security interest can't get those same that same interest and this seems to be premised on the idea that while the debtor can't grant it right because now the debtor has already entered into this arrangement with the consigner so it doesn't have the right to granted but that isn't the issue the isn't the issue isn't whether the debtor is granting a security interest or not the question is whether a security interest can attach it all and either it can or it can whether it arises out of a grant under a security agreement or by operation of law as a lien creditor or as a continuing interest in proceeds and so this this problem i think is irreconcilable and we've tried to illustrate that with a similar hypothetical that we've tested as an appendix to our brief where we gave an example of some of the problems that this creates and in that in their reply p c tries to address that hypothetical which involved three creditors secured party one which takes an interest only in receivables as original collateral a second secured party that takes an interest only in inventory and then a is well there's no evil work here as between the consigner the un perfected consigner and the factor that seeks to take an original interest in receivables even if even if they come prior because well the  debtor should know that it can't pledge those those receivables to the factor but what they kind of ignore completely is but what happens if there's this other creditor in here that also takes an interest but a different interest in inventory and  c s conceded that well if that creditor perfected and the consigner didn't then they take ahead of i p c not just in the inventory but in receivables proceeds the problem though is what about the factor that happens to be perfected prior to that inventory financer so aipcs position is well we lose to the second perfected secured party  in in proceeds and in inventory but in the absence of a consigner that second perfected secured party would lose to the first perfect and secured party and this is the circularity problem that is created by i p c s position so it isn't just a matter of i p c sort of turning the code on its head and asking section nine three one eight to do a great deal more work not only that it does but then what it needs to do but that's kind of evidence in the result that we see all th is they've said well the drafters of the uniform commercial code solved the problem of secret liens that are held by consigner as an inventory and that's great and then somehow wash their hands of it and having eliminated that problem created a new one which is the secretly in of consigner is in proceeds and this is just completely contrary to the entire purpose for which the code was drafted it's entirely contrary to how consignments are treated and maybe most importantly of all it's contrary to all the language that's found in article nine article nine as i said at the beginning defines the consigner into all of these roles defines a consigner is a secured party that way when we see the term secured party throughout article nine we don't have to draw distinction between secured parties and consigner zz all consigner secured parties not all secured parties are consigner xin the reason is because there's there is one exception whereby a consigner can exercise its its remedies but again this isn't about remedies as against the debtor this is merely about perfection and relative priority as against other creditors and the code no distinction between when  security interest taxes in terms of whether it can attach at all either it can attach or it can't and at that point we then just go to the priority rules that are found in section nine three two two and those very clearly say that a perfected security interest in property takes a head of an unprotected security interest and having done that we turn to nine three one seven and nine three one seven says that a security interest that is lower in priority under ninety three to two can be subordinated and from there we turn to five forty four of the bankruptcy code it grants the trustee as a lien creditor the same rights and powers as a judicial lien creditor this is straightforward application of the priority and perfection rules of article nine and this attempt to kind of turn the code upside down and create an exit from it where there is done really kind of subverts the whole thing i think unless there are any questions about that i'll briefly summarize  in short we wouldn't be here if i p c had just filed a financing statement or that's the that's the point of this whole thing and that's really the problem that's why the bankruptcy court below denied a constructive trust when they saw that is the bankruptcy court said look you had an adequate remedy at law and you didn't avail yourself of it and we don't give people constructive trusts and turn the bankruptcy code priority system upside down just for the benefit of sophisticated parties who draft consignment agreements as i p c did in this case and then fail to perfect their interests so aipcs attempt to escape the consequences of its own negligence have to be rejected it offers this parochial interpretation for which it cites no case authority it's very difficult i find to square with the text of the code and frankly it leads to results that are incoherent unfair and as i said a textual splaying this in in a short comment toward the end of its opinion it simply pointed out though that to accept aipcs argument about article nine three one nine s a the court would have to believe that the drafters of the uniform commercial code silently negated all of the other provisions that they just set forth that that bring the consigner in through these definitions apply the perfection rules apply the priority rules and apply the rules governing continuing interest in proceeds the principles of notice and fairness that are embodied by the uniform commercial code and they're consistent with the plain text of the law and for all those reasons and the others discussed in our briefs in the decisions below we respectfully request that this court to affirm judgment in favor of the trustee ok thank you thank you and you briefly and i p c does concede that it did not file a financing statement therefore it loses on the goods that were in the possession of the consarned and all the proceeds of the goods but again to reiterate a point there is no authority in the uniform commercial code for consol to grant a separate security interest in i p c s receivables that's independent of possession of the goods there's just simply no authority  and the comment to the actual definition of consignment which is where we start in article nine is comment fourteen to you section nine just want to makes it clear that that security interests and  not the same thing it says that a consignment there's three types of consignments one is a consignment that's excluded from the u c c because it involves small transactions or an evolving consumer goods or that type of thing the second is a consignment that's intended for security and the the comment says these consignments are not bailment but secured transactions accordingly all of article or division nine applies to them so that is th consignment in which the court made a finding that this was not a transaction to secure a performance obligation or payment obligation it was not a sale it was a bailment and the third part the third type is a true consignment that meets the definition of section one hundred two a twenty that's what we have here it's what the court found we have here it's a bailment that's not intended as security to secure an obligation so we have to look at section nine dash three one nine because it's a bail made in which i p so c owns all the property unless there's a provision that says no there's some special rights that creditors can have and that section is nine three one nine and it as i said it has to do with possession of goods that can be rights to payment for goods that have been consigned to you those rights belong to the consarn or and although it's not precisely on point out for the court to the value media case from the dollar bankruptcy court side in our materials it makes it clear that by not filing  financing statement the consignor or does not lose its ownership of the fuel well that doesn't loan lose its ownership of the consigned goods the fuel here how does it lose its right to the receivables well i think the i think the point that the of the bat was that you didn't lose you didn't lose your ownership you did lose priority you have competing you can have competing rights on a lot of money obviously in the question for the bankruptcy courts to determine the priority so you you just got out a line you were entitled to be first in line didn't perfect and so your you ended up second well but i would yes let me to address money very briefly to use maybe an imperfect analogy if i go to a hotel and i accidently remove  wallet there and has some cash in it but the hotel's in possession of it and in the hotel files bankruptcy but it's clear that cash is mine because it's in my wallet and it's you know does that trusty or a living creditor get to take the wallet and the cash i think that's an absurd result and yes that's right was not the same question well with respect to proceeds if i have an iou from somebody that says i owe you mr sato x dollars and this hotel it's left at the or i'll just leave it there ok fair enough but again i back up to if nine three one nine has any meaning it has to define at what point these competing rights attach they don't attach when the goods are out of possession of the consarn and if they did we've got to go back and look at all the transactions that happened before this predator ever came on the scene could be millions of dollars why don't those belong to the trustee because that's a completed transaction there was no competing creditor on the scene it was a bailment i p c gets to keep its cash and receivables that are generated until the time when the competing creditor comes on the scene and gets