Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-06065/USCOURTS-ca10-92-06065-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

STATES COURT OF 

TENTH CIRCUIT 

OCTAGON GAS SYSTEMS, INC., 

Appellant, 

vs. 

ROY T. RIMMER, 

Appellee, 

MERIDIAN RESERVE, INC., 

Debtor. 

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FILL D 

n, "ted Statel Court of Appeals APPEAL1 Tenth Circuit 

MAY 2 7 1993 

ROBERT L. HOECKER 

Clerk 

No. 92-6065 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-91-1411-W) 

Thomas J. Moore (Christian C. Onsager, Adrienne O. McNamara with 

him on the brief), of Faegre & Benson, Denver, Colorado, for 

Appellant. 

John C. Platt (Joe E. Edwards, Joel W. Harmon with him on the 

brief), of Edwards, Sonders & Propester, Oklahoma City, Oklahoma, 

for Appellee. 

Before TACHA, SETH, and BALDOCK, Circuit Judges. 

BALDOCK, Circuit Judge. 

Octagon Gas Systems, Inc. ("Octagon") appeals from the 

decision of the United States District Court for the Western 

District of Oklahoma affirming the bankruptcy court's order 

Appellate Case: 92-6065 Document: 010110115785 Date Filed: 05/27/1993 Page: 1 
granting Appellee Roy T. Rimmer's motion for summary judgment. We 

have jurisdiction under 28 U.S.C. § 158(d). 

Poll Gas, Inc. ("Poll") was in the business of gathering and 

selling natural gas in Oklahoma. As part of its business, Poll 

owned and operated a gas gathering system ("the System"). Prior 

to 1976, Amcole Energy Corporation ("Amcole") owned ten percent of 

the Poll stock and four other shareholders owned the remainder of 

the stock. In May 1976, Amcole entered into an agreement with 

Poll's remaining four shareholders to purchase all of their 

shares. Pursuant to the terms of the purchase agreement ("the 

1976 Agreement") between Amcole and the other shareholders, the 

selling shareholders agreed to sell Amcole their 90% of the Poll 

stock and certain other assets. In exchange, Amcole transferred 

to each shareholder a proportionate "overriding royalty interest" 

in the gross proceeds received by Amcole from gas sold through the 

Poll System. As a result of the 1976 Agreement, Amcole became 

Poll's sole remaining shareholder. Approximately one-half of 

Rimmer's "overriding royalty interest" originates from the 1976 

Agreement. 

On May 31, 1982, Poll, assigned to SINA 79/80 Limited 

("SINA") an "overriding royalty interest" in the gross proceeds 

derived from the Poll System. The remaining half of Rimmer's 

"overriding royalty interest" arises from the 1982 Assignment. 

In 1983 and 1984, Rimmer purchased, from the original 

assignees, a portion of the "overriding royalty interests" created 

by the 1976 Agreement and the 1982 Assignment. Subsequently, on 

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January 28, 1987, Amcole, Poll, and Rimmer executed an agreement 

entitled Assignment of Overriding Royalty Interest ("1987 

Assignment"). See supra note 3. Pursuant to the parties' various 

cross-transfers, the 1987 Assignment provided that " ... Rimmer 

will own from this date forward a full Five Percent (5%) perpetual 

overriding royalty interest on all proceeds payable to [Poll] 

under the [System] II Appellant's App. at 83-86. 

In 1988, Poll commenced this Chapter 11 bankruptcy case. 

Prior to filing the petition in bankruptcy, Poll, pursuant to the 

1987 Assignment, paid Rimmer five percent of its proceeds from the 

sale of gas through the System. During the pendency of the 

bankruptcy estate, the bankruptcy trustee continued to pay this 

five percent interest to Rimmer. 

In January 1990, the bankruptcy court confirmed the trustee's 

reorganization plan. 1 Under the plan, the Poll System was 

conveyed to Norwest Bank Minnesota ("Norwest") or its designee, in 

satisfaction of Norwest's secured claim. The Plan provided that 

the Poll System would be transferred to Norwest "free and clear of 

liens, claims, interests, and encumbrances." Appellant's App. at 

130. Thereafter, Norwest conveyed the System to Octagon. After 

assuming control of the System, Octagon refused to recognize any 

interest held by Rimmer in the System gas sale proceeds and failed 

to make any payments to Rimmer. Consequently, this action was 

commenced by a creditor of Rimmer, Bonnet Resources Corporation, 

1 The Poll System included all gas purchase and sales contracts 

pursuant to which the System buys and sells gas and all accounts 

receivable from the sale of gas or gas liquids by the System. 

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alleging it is secured by Rimmer's interest in the System's gas 

sale proceeds. Rimmer subsequently brought a motion for 

intervention. The bankruptcy court granted Rimmer's motion and 

exercised jurisdiction to determine whether the Plan effectuated a 

transfer of Rimmer's five percent interest to Octagon, or whether 

Rimmer's interest survives as personal property owned by Rimmer. 

On cross motions for summary judgement, the bankruptcy court 

held that Rimmer owned a five percent interest in the proceeds of 

gas sold through the Poll System which was not affected by the 

Plan or the transfer of the Poll System to Octagon. The court, 

rejecting Octagon's argument that Article 9 of the Uniform 

Commercial Code ("U.C.C.") applied, reasoned that Rimmer's partial 

interest in the proceeds from the sale of gas was a "good" and 

amounted to a proportionate ownership right. The court found that 

Rimmer's interest was not property of Poll's bankruptcy estate and 

therefore could not be transferred by the estate to Octagon. The 

bankruptcy court granted summary judgment in favor of Rimmer, and 

the district court summarily affirmed. 

On appeal Octagon raises numerous issues, among them: (1) 

whether the bankruptcy court erred in finding that Rimmer had an 

interest in the Poll System gas sale proceeds, and (2) whether the 

bankruptcy court erred in determining that Article 9 of the U.C.C. 

was inapplicable to Rimmer's interest. Because we remand in order 

for the court to apply Article 9, we do not address Octagon's 

remaining issues. 

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We review a court's order granting summary judgment de novo. 

Applied Genetics Int'l, Inc. v. First Affiliated Sec .• Inc., 912 

F.2d 1238, 1241 (10th Cir. 1990). We examine the record to 

determine whether any genuine issue of material fact exists, and, 

if not, whether the substantive law was applied correctly. 

Hokansen v. United States, 868 F.2d 372, 374 (10th Cir. 1989) 

(citation omitted). 

I. 

Octagon argues that Rimmer had no enforceable interest in the 

Poll System gas sales proceeds. Octagon's only argument 

concerning this issue that merits extensive discussion pertains to 

the 1976 Agreement. 2 Octagon contends that because Poll was not a 

party to the 1976 Agreement, the portion of Rimmer's interest that 

derives from the 1976 Agreement is not an enforceable interest in 

the Poll System gas sale proceeds; rather it is only an 

enforceable interest against Amcole in the amount Amcole received 

2 As to Octagon's other arguments, we reject Octagon's 

contention that even if Rimmer had an interest in Poll's proceeds, 

he had no interest in Octagon's proceeds. If Rimmer had an 

interest in the Poll System's gas sale proceeds, it would have 

survived the sale of the System to Octagon. See supra note 1 

(Poll System ultimately conveyed to Octagon included accounts 

receivable from the System's sale of gas). Further, given our 

conclusions in part II, infra, we need not address Octagon's 

arguments that Rimmer did not "own" a five percent interest in 

Poll's proceeds. 

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from Poll. 3 

Whether or not Rimmer has an enforceable interest in the Poll 

System proceeds and the characterization of that claimed interest 

are matters of state law. See Paul v. Monts, 906 F.2d 1468, 1475 

(10th Cir. 1990). In construing the meaning of a written 

contract, the intent of the parties controls. Founders Bank & 

Trust Co. v. Upsher, 830 P.2d 1355, 1361 (Okla. 1992) (citing 

Okla. Stat. Ann. tit. 15, § 151-153 (West 1981)). Where the 

language of the contract alone does not clearly set forth the 

intent of the parties, the court may look to extrinsic evidence. 

See Panhandle Coop. Royalty Co. v. Cunningham, 495 P.2d 108, 112-

113 (Okla. 1971); Pollock Stores Co. v. Draper, 215 P.2d 843 

(Okla. 1950). 

Although Poll was not a party to the 1976 Agreement, the 

portion of Rimmer's interest that derives from the 1976 Agreement 

is an enforceable interest in the Poll System's gas sale proceeds. 

First, we hold that the intention of the parties is not clearly 

3 As a threshold matter, we agree with the bankruptcy court 

that the use of the term "overriding royalty interest" in the 

underlying transactions is technically incorrect for lack of an 

oil and gas leasehold estate. See Appellant's App. at 63. 

Nevertheless, the transactions created an enforceable interest in 

the Poll System's gas sale proceeds. See infra. 

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4 ascertainable from the writing alone. As a result, we look to 

the parties' course of dealing and the undisputed affidavit of one 

of the parties--Frank Cole, president of Arncole in 1976--which 

clearly indicate that the intent of the parties was to create 

enforceable interests in the Poll System's gas sale proceeds, not 

interests in proceeds Arncole received from Poll. Throughout the 

nearly fourteen years following the execution of the 1976 

Agreement, Poll itself, not Arncole, paid the owners of the 

interests conveyed in the 1976 Agreement their proportionate share 

of Poll's proceeds. According to Cole, the parties' intent was 

that Arncole's sole obligation with respect to the payment of the 

created interests arose from its status, following the 1976 

Agreement, as Poll's sole shareholder. The parties intended that 

the created interests were in Poll's proceeds, not in Poll 

proceeds received by Arncole. 

Of course, the 1976 Agreement could not have created 

interests in the Poll System gas sale proceeds unless the parties 

to the 1976 Agreement had the capacity to bind Poll to the 

Agreement and sell interests in Poll's proceeds, or unless Poll 

subsequently ratified the Agreement. Contracts involving all of a 

corporation's shareholders are binding on the corporation, 12B 

4 The language of the 1976 Agreement is ambiguous. For 

example, the Agreement specifies that the interests created in 

favor of the selling shareholders are interests in the proceeds 

received }2y Arncole through the Poll System. However, Arncole 

itself received, under the 1976 Agreement, one of these interests 

in the amount of ten percent. In other words, to give this phrase 

its literal effect, we would have to conclude that Arncole made an 

agreement to pay itself. 

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William M. Fletcher, Fletcher's Cyclopedia of the Law of Private 

Corporations, § 5743 (perm. ed. rev. vol. 1984), and under 

Oklahoma law in effect in 1976, shareholders had the right to 

authorize the disposition of corporate assets, Okla. Stat. Ann. 

tit. 18, § 1.164(b) (West 1971) (repealed 1986). Additionally, a 

corporation, by subsequent action, may ratify a contract entered 

in its behalf. East Ctr. Okla. Elec. Coop., Inc. v. Oklahoma Gas 

& Electric Co., 505 P.2d 1324, 1329 (Okla. 1973). We hold that 

under either theory, the 1976 Agreement created an enforceable 

interest in Poll's proceeds. 

All of Poll's shareholders and directors were parties to the 

1976 Agreement. This being the case, the shareholders had the 

capacity to dispose of Poll's assets and bind Poll to the 

Agreement. Because this was the intent of the parties, the effect 

of the 1976 Agreement was to create enforceable interests in 

Poll's proceeds. Alternatively, Poll's continuous payment of the 

interests over nearly fourteen years evidences its ratification of 

the 1976 Agreement. See Blunt v. Blunt, 176 P.2d 471, 472 (Okla. 

1947). Because we hold that the 1976 Agreement, in addition to 

the 1982 Assignment and the 1987 Assignment, created an 

enforceable interest in the Poll System gas sale proceeds, we 

uphold the bankruptcy court's determination that Rimmer had an 

interest in the Poll System's gas sale proceeds. 

II. 

Throughout this litigation, Octagon has maintained that 

Rimmer's interest is an "account" governed by Article 9 of the 

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U.C.C. as adopted by Oklahoma. Rimmer has conceded that his 

interest is an "account," but argues that regardless of Article 9, 

he "owns" the interest, not Poll, and therefore his interest has 

never been property of Poll's bankruptcy estate. The bankruptcy 

court held that Article 9 was inapplicable because Article 9 

provides a classification of interests for the purpose of 

determining competing secured interests, "not a classification for 

the creation of an ownership right in personal property." Order 

of July 26, 1991 at 6-7, In Re Meridian Reserve, Inc., No. BK -

88-06519-BH, (Bankr. W.D. Okla. July 29, 1990). 

"Article [9 of the U.C.C.] sets out a comprehensive scheme 

for the regulation of security interests in personal property and 

fixtures." Okla. Stat. Ann. tit. 12A, § 9-101 (West 1963) 

(Official Comment). The aim of Article 9 is "to provide a simple 

and unified structure within which the immense variety of 

present-day secured financing transactions can go forward with 

less cost and with greater certainty." Id. As a means towards 

achieving this end, Article 9 lays out the steps a party must take 

to create a valid security interest. See Okla. Stat. Ann. tit. 

12A, art. 9 pt. 2 (West 1963 & Supp. 1993). These steps include 

"attachment" of a security interest, and "perfection" of the 

interest. See Okla. Stat. Ann. tit. 12A, §§ 9-204, 9-302 to 9-305 

(West Supp. 1993). Article 9 also provides for priority among 

competing claims of purchasers and creditors of the debtor. See 

Okla. Stat. Ann. tit. 12A, art. 9 pt. 3 (West 1963 & Supp. 1993). 

Although Article 9 applies mainly to transactions intended to 

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create security interests, it also applies to sales of accounts, 

Okla. Stat. Ann. tit. 12A, § 9-102 (1) (b) (West Supp. 1993), 

because sales of wholly intangible interests in accounts create 

the same risks of secret liens inherent in secured transactions. 

See Dan T. Coenen, Priorities in Accounts: The Crazy Quilt of 

Current Law and a Proposal for Reform, 45 Vand. L. Rev. 1061, 

1073-74 (1992). 

As a starting point in our analysis, we must determine 

whether Rimmer's interest in the Poll System's gas sale proceeds 

is an "account" as defined by Article 9 of the U.C.C. as adopted 

by Oklahoma. See Okla. Stat. Ann. tit. 12A, §§ 9-101 to 9-507 

(West 1963 & Supp. 1993). Article 9 applies to transactions 

involving personal property. Okla. Stat. Ann. tit. 12A, 

§ 9-102(1) (West 1963). One form of personal property to which 

Article 9 applies is an "account" which is defined as "any right 

to payment for goods sold .. . which is not evidenced by an 

instrument or chattel paper." Okla. Stat. Ann. tit. 12A, § 9-106 

(West Supp. 1993). Section 9-105 (1) (h) states that "goods" 

includes "all things which are movable at the time the security 

interest attaches . but does not include ... minerals or the 

like, including oil and gas, before extraction." Id. § 9-

105(1) (h) (emphasis added). 

Natural gas, once extracted, becomes personal property in 

Oklahoma, Continental Supply Co. v. Marshall, 152 F.2d 300, 305 

(10th Cir. 1945), cert. denied, 327 U.S. 803 (1946), and as such, 

is subject to Article 9. Also, by negative implication, section 

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9-105(1) (h) indicates that minerals, including gas, following 

extraction, come within Article 9's definition of a "good." See 

In Re Fullop, 125 B.R. 536, 539-40 (Bankr. S.D. Ill. 1990), aff'd, 

133 B.R. 627 (S.D. Ill. 1991); Barkley Clark, The Law of Secured 

Transactions Under the Uniform Commercial Code, ,r 13.3[1] (1980). 

Here, the gas sold is extracted. Because extracted gas is a 

"good," Poll's right to payment for gas sold, as well as Rimmer's 

five percent interest in Poll's right to payment, is an account. 

Having determined that the interest acquired by Rimmer is an 

account under Article 9, it follows that Article 9 applies to 

Rimmer's five percent interest in the Poll System's gas sale 

proceeds (hereinafter referred to as "Rimmer's account"), even 

though the transactions giving rise to Rimmer's account were not 

intended to secure a debt. The U.C.C. Official Comment 2 to Okla. 

Stat. Ann. tit. 12A, § 9-102 (West Supp. 1993), explains that in 

the case of commercial financing on the basis of accounts, "the 

distinction between a security transfer and a sale is blurred, and 

a sale of such property is therefore covered by [9-102(1) (b)] 

whether intended for security or not. The buyer is then treated 

as a secured party and his interest as a security interest." 

(emphasis added). Section 9-102(1) (b) states that Article 9 

applies "to any outright sale of accounts." Further, the term 

"security interest" as defined by Article 9, expressly includes 

"any interest of a buyer of accounts," Okla. Stat. Ann. tit. 12A, 

§ 1-201(37) (West Supp. 1993), and "secured party" includes "a 

person to whom accounts . . . have been sold." Id. § 9-105 ( 1) (m) . 

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Additionally, section 9-105(1) (d) defines "debtor" as including 

"the seller of accounts, 11 and, under section 9-105 (1) (c), 

"collateral" includes "accounts ... which have been sold." 

These provisions clearly indicate that the buyer of an account is 

treated as a secured party, his interest in the account is treated 

as a security interest, the seller of the account is a debtor, and 

the account sold is treated as collateral. 5 

We must now determine whether the fact of Poll's bankruptcy 

alters the application of Article 9 to Rimmer's account. Under 

§ 541 of the Bankruptcy Code, the property of the bankrupt's 

estate includes, "all legal or equitable interests of the debtor 

in property as of the commencement of the case." In United States 

v. Whiting Pools, Inc., 462 U.S. 198 (1983), the Supreme Court, 

noting that§ 541 has an expansive scope, determined that§ 541 

merely defines what is included in the bankrupt's estate rather 

than placing a limit on the scope of the estate. Id. at 203. The 

Court also pointed out that, under§ 541, property of the 

bankrupt's estate includes any property subject to a security 

interest. Id. at 203-04. The impact of applying Article 9 to 

Rimmer's account is that Article 9's treatment of accounts sold as 

collateral would place Rimmer's account within the property of 

Poll's bankruptcy estate. Further, if it is determined that 

5 This application of Article 9 to sales of accounts has also 

been developed in case law. See~' Major's Furniture Mart, 

Inc. v. Castle Credit Corp., 602 F.2d 538 (3d Cir. 1979); United 

States v. Trigg, 465 F.2d 1264 (8th Cir. 1972), cert. denied, 410 

U.S. 909 (1973); In Re Flowers, 78 B.R. 774 (Bankr. D.S.C. 1986); 

In Re Cripps, 31 B.R. 541 (Bankr. W.D. Okla. 1983); Daly v. 

Shrimplin, 610 P.2d 397 (Wyo. 1980). 

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Rimmer's account was not properly perfected, then, upon Poll's 

filing of bankruptcy, the bankruptcy trustee as a lien creditor 

would have a security interest superior to that of Rimmer. 6 See 

In Re Reliance Equities, Inc., 966 F.2d 1338, 1344 (10th Cir. 

1992); United States v. Trigg. 465 F.2d 1264, 1269 (8th Cir. 

1972), cert. denied, 410 U.S. 909 (1973); In Re Cripps, 31 B.R. 

541, 543 (Bankr. W.D. Okla. 1983). 

Rimmer contends, and the bankruptcy court held, that because 

Rimmer "bought" the account, he had title to the account and 

"owned" the account, and Poll no longer had any ownership interest 

in the account. Therefore, Rimmer argues, when Poll filed for 

bankruptcy, Poll's bankruptcy estate did not include Rimmer's 

account. Although acknowledging that Article 9 applies to sales 

of accounts, Rimmer argues that when deciding whether the account 

is property of the bankrupt's estate, the sale of an account must 

be distinguished from the transfer of an account for security. 

Simply put, Rimmer's argument rests on the principle that he, not 

Poll, owned the account as of the date of the sale. 

We do not agree that the assignment of the account to Rimmer 

effectuated a transfer to Rimmer of all property interests in the 

account, leaving Poll with no property interest in Rimmer's 

account which the bankruptcy trustee could reach under 11 U.S.C. 

6 Under the Bankruptcy Code, the bankruptcy trustee has the 

rights of a hypothetical lien creditor. 11 U.S.C. § 544; see also 

4 Collier on Bankruptcy, ~r 544.02 (Lawrence P. King ed., 15th ed. 

1993). Accordingly, the trustee prevails over an Article 9 

claimant whose interest is unperfected as of the date of filing of 

bankruptcy. Okla. Stat. Ann. tit. 12A, § 9-301(1) (b) (West Supp. 

19 9 3) . 

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§ 541. Rimmer has advanced no sound argument, based either on 

post-U.C . C. case law or policy, as to why Article 9 should not be 

applied here. In fact, our review of the structure of Article 9, 

the available case law, and the policies underlying Article 9 and 

the Bankruptcy Code convinces us that a debtor's sale of an 

account, prior to filing for bankruptcy, does not necessarily 

place that account beyond the reach of the bankruptcy trustee. 

As the Eighth Circuit explained in United States v. Trigg, 

465 F.2d at 1268, Article 9 does not attempt to classify a 

debtor's interest in the collateral as a property right or a 

specific legal interest. Article 9 also does not speak in terms 

of who has title to collateral among competing parties. Id.; 

Okla. Stat. Ann. tit. 12A, § 9-101 (West 1963) (Official Comment) . 

Rather, Article 9 "focuses on the rights and duties of the secured 

party, the debtor, and third parties." Okla. Stat. Ann. tit. 12A, 

§ 9-101 (West 1963) (Official Comment); see also Trigg. 465 F.2d 

at 1268. Article 9 grants rights in the collateral to creditors 

in the event a secured party fails to perfect his interest, Okla. 

Stat. Ann. tit. 12A, § 9-301 (West Supp. 1993), regardless of the 

location of title and regardless of the debtor's or secured 

party's legal interest in the collateral. Id.; see also Trigg, 

465 F.2d at 1268. This Article 9 scheme applies with equal force 

to the sale of accounts. Article 9 treats the interest acquired 

by a buyer of accounts as a security interest and treats the buyer 

as a secured party. See supra. Accordingly, the seller or 

assignor of the account "does not part with all transferable 

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rights in [the] account[] even following an absolute assignment." 

Coenen, supra, at 1079. 

In Trigg, 465 F.2d 1264, the Eighth Circuit addressed a 

transfer of ownership argument as it applied to a tax lien. In 

that case, an account assignee argued that the assignment of 

accounts was a transfer of property rights in the accounts leaving 

no property rights 7 in the debtor which the United States could 

attach via a tax lien. Id. The court rejected the assignee's 

argument based on the applicability of Article 9 to the assignment 

of accounts. Id. Without defining what property rights the 

debtor retained after assigning the accounts, the court concluded 

that the assignment, "did not place the progress payments beyond 

the reach of the federal tax lien." Id. at 1269; accord Southern 

Rock, Inc. v. B & B Auto Supply, 711 F.2d 683, 685 (5th Cir. 

1983); see also Nevada Rock & Sand Co. v. United States Dept. of 

Treasury. 376 F. Supp. 161, 170-72 (D. Nev. 1974). Although the 

Bankruptcy Code defines property of a bankrupt's estate in terms 

of "legal or equitable interests of the debtor in property," 11 

U.S.C. § 54l(a) (1), rather than in terms of "property rights," we 

find Trigg and its progeny instructive and hold that because the 

transfer of ownership argument fails as to whether the debtor 

retains "property rights" that can be attached by a tax lien in 

accounts he has sold, the same argument must also fail in terms of 

7 Under the Tax Code, a United States tax lien attaches to a 

debtor's "property" or "property rights." 26 U.S.C. § 6321. 

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whether the debtor retains "legal or equitable interest" in the 

accounts sold for purposes of the Bankruptcy Code. 

In the context of bankruptcy cases, courts have dismissed 

arguments identical to the transfer of ownership argument Rimmer 

advances here. See~, In Re Flowers, 78 B.R. 774 (Bankr. 

D.S.C. 1986); In Re Cawthorn, 33 B.R. 119 (M.D. Tenn. 1983); In Re 

Cripps, 31 B.R. 541. In In Re Cripps, which involved the 

application of Article 9 under Oklahoma law, the petitioner, a 

buyer of accounts, argued that because the true nature of the 

transaction between herself and the debtor was a sale, she gained 

title to the accounts following the sale, and the accounts were 

her property, not property of the debtor's bankruptcy estate. Id. 

at 544. The court dismissed the petitioner's argument, stating 

that" [t]itle, for purposes of defining rights of parties, is of 

little relative consequence under [Article 9] ." Id. (citing 

Morton Booth Co. v. Tiara Furniture, Inc, 564 P.2d 210 (Okla. 

1977). The court went on to conclude that because Article 9 

applies to sales of accounts as well as assignments of accounts 

for security, the account was property of the debtor's estate 

regardless of the nature of the underlying transaction. Id . We 

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find the In Re Cripps court's reasoning to be sound. 8 

Finally, acceptance of Rimmer's transfer of ownership or 

title argument would allow an account buyer to benefit unfairly, 

at the expense of the bankrupt debtor's other creditors, from the 

debtor's filing for bankruptcy. For example, it is beyond dispute 

that, outside the realm of bankruptcy, a lien creditor would have 

rights in the accounts superior to the rights of the unperfected 

buyer of the accounts. See Okla. Stat. Ann. tit. 12A, § 9-301 & 

§ 9-312 (West Supp. 1993). However, under Rimmer's theory, once 

the debtor declares bankruptcy, the fact of bankruptcy alone 

places the accounts sold to the unperfected account buyer beyond 

the reach of the bankruptcy trustee and all of the bankrupt's 

8 Although we accept the reasoning behind In Re Trigg and In Re 

Cripps, we believe we must also address the Ninth Circuit case, In 

Re Contractors Egyipment Supply Co., 861 F.2d 241 (9th Cir. 1988). 

In In Re Contractors, the court implied that whether a bankruptcy 

estate retains a property interest in an account receivable 

depends on whether the underlying transaction was a sale or a 

security interest. Id. at 245. We do not adopt the court's 

reasoning for two reasons. First, the court relies, in part, on 

Article 2 of the U.C.C. which provides that a sale entails passage 

of title, id. (citing Arizona's version of U.C.C. § 2-106), and we 

find that Article 9, not Article 2, controls in this context. As 

explained above, the concept of title has no significance under 

Article 9 of the U.C.C., see Okla. Stat. Ann. tit. 12A, § 9-101 

(West 1963) (Official Comment) ("Rights, obligations and remedies 

under the Article do not depend on the location of title."), and 

furthermore, Article 2 applies to sales of goods, not to sales of 

accounts. Okla. Stat. Ann. tit. 12A, § 2-102 (West 1963). 

Second, the court's reasoning that a distinction must be made 

between a sale of accounts and an assignment of accounts for 

security was not necessary to its holding, because the court 

ultimately concluded that the underlying transaction was one for 

security and therefore Article 9 applied. In Re Contractors, 861 

F.2d at 245. We could find no cases that relied on In Re 

Contractors to defeat a bankruptcy trustee's claim to a debtor's 

accounts based on the theory that an earlier sale of the accounts 

had deprived the bankrupt of any interest in the account. 

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creditors. This result is contrary to the similar aims of Article 

9 and the Bankruptcy Code. The current Bankruptcy Code was 

designed, in part, to make bankruptcy law more congruent with the 

U.C.C. In Re Antweil, 931 F.2d 689, 693 (10th Cir. 1991), aff'd 

sub nom. Barnhill v. Johnson, 112 S. Ct. 1386 (1992). The policy 

behind Article 9 is to ensure certainty for creditors and provide 

notice of security interests to third parties. See Okla. Stat. 

Ann. tit. 12A, § 9-101 (West 1963) (Official Comment). Likewise, 

certain provisions of the Bankruptcy Code "are designed to protect 

creditors by eliminating secret liens." In Re Reliance, 966 F.2d 

at 1344 (citing 11 U.S.C. §§ 544, 546). In keeping with these 

policies, we hold that because, under Article 9, a sale of 

accounts is treated as if it creates a security interest in the 

accounts, accounts sold by a debtor prior to filing for bankruptcy 

remain property of the debtor's bankruptcy estate. 9 

Accordingly, we hold that the bankruptcy court erred in 

concluding that Article 9 was inapplicable to Rimmer's interest. 

The bankruptcy court must therefore readdress, in light of Article 

9, the central issue of whether the reorganization plan 

effectuated a transfer of Rimmer's interest to Octagon, or whether 

9 Of course, this is not to say that an account buyer with a 

perfected security interest in an account forfeits his interest 

upon the debtor's filing for bankruptcy. Although property 

subject to a security interest is property of the debtor's 

bankruptcy estate, secured creditors of the debtor are provided 

"adequate protection" for their interest. See 11 U.S.C. § 363(e) 

(providing that upon a secured creditor's request, bankruptcy 

court must place limits, as necessary to protect creditor, on 

trustee's power to sell, use, or lease property of the estate). 

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Rimmer's interest survives the Plan. The court must make findings 

regarding whether Rimmer's account was a perfected security 

10 interest--i.e., whether U.C . C. filings were required or made. 

The court must also determine the effect, if any, of the trustee's 

actions concerning Rimmer's account, and the effect, if any, of 

Rimmer's actions. For these reasons, we REVERSE the entry of 

summary judgment in favor of Rimmer and REMAND to the district 

court with instructions to vacate its judgment and remand the case 

to the bankruptcy court for further proceedings consistent with 

this opinion. 

10 The dissent implies that the application of Article 9 to the 

facts of this case automatically divests Rimmer of his interest. 

We do not agree that such a result is mandated. For example, upon 

remand, the court may determine that Rimmer retains his interest 

because no U.C.C. filing was required under Okla. Stat. Ann. tit. 

12A, § 9-302 (e) (West Supp. 1993) (no filing required if account 

assignment does not transfer a significant part of outstanding 

accounts of assignor). 

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92-6065 - OCTAGON GAS SYSTEMS, INC. v. ROY T. RIMMER, JR. 

SETH, Circuit Judge, dissenting: 

I must respectfully dissent from the majority opinion as I 

agree with the determinations made by the United States District 

Court for the Western District of Oklahoma and by the 

United States Bankruptcy Judge. Briefly, these were that the 

"interest" in issue was never part of the Poll, Inc. bankruptcy 

estate . The "interest" owned by Mr. Rimmer was in the proceeds of 

the sale of natural gas collected from producing wells and sold to 

distributors, especially to Oklahoma Natural Gas Company. It 

apparently was secured from Amcole. 

The Bankruptcy Court, in substance, held that Appellee Rimmer 

owns a separate and distinct interest in 5% of the proceeds of gas 

and liquids sold through the Poll Gas System, and that this 

interest was not in Poll's bankruptcy estate nor impacted by the 

Trustee's conveyance of the system. 

The "interest" of Rimmer which I consider is only that 

portion derived from what is referred to as the 1976 Agreement or 

the Agreement, which is herein described. By the Agreement 

undivided interests were sold by Amcole outright to "Sellers" who 

were Rimmer's predecessors. 

The Agreement was an outright sales agreement signed by all 

the stockholders and directors who thereby sold all their stock in 

Poll, Inc. (and two gas wells) to Amcole as Buyer. Amcole was 

also a stockholder in Poll. As consideration for the purchase of 

the stock in Poll, Inc., Amcole agreed to pay the purchase price 

Appellate Case: 92-6065 Document: 010110115785 Date Filed: 05/27/1993 Page: 20 
in full, and did so. This purchase price, as stated in the 

Agreement (including some cash also from Poll, Inc.), was: 

"an Override of the gross proceeds received by 

BUYER through Poll Gas Inc. from Oklahoma 

Natural Gas Company under their existing 

contract and any and all amendments thereto, 

and all other gas, and liquids purchased and 

sold, and all additional connections, gas 

processing and gathering facilities and 

systems, through the Poll Gas System ... [in 

three named counties in Oklahoma]." 

The "override" was to total 9% of the proceeds of gas sales and 5% 

of proceeds from sales of liquids. The Agreement said these were 

"to be owned" as therein divided among the three named individuals 

and two corporations. These were the former Poll, Inc. stockholders except for Amcole. 

The Agreement was to apply to any purchases of gas or liquids 

as well by the Oklahoma Natural Gas Company. The Agreement was 

filed in the county records. Appellee Rimmer was not one of these 

original sellers of stock, as mentioned, but bought interests from 

them. 

The rest of Rimmer's interest originated in later agreements 

with other parties. The interests there concerned were also 

called overriding royalties. 

We are concerned with Poll, Inc . as the Debtor, and its 

bankruptcy estate, not with Amcole. There remained nothing 

relating to the interests to go into the Poll bankruptcy estate. 

The ownership had passed by the 1976 Agreement to Amcole, and it 

as consideration agreed to and did create the "interests," as 

above described, out of what it bought--Poll Gas, Inc. I agree 

with the majority that enforceable interests were created by the 

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1976 Agreement including that owned by Rimmer, but I must disagree 

that they were part of the Poll bankruptcy estate. 

I. 

There is a significant aspect of the appeal which relates to 

the decision of the District Court, and of the Bankruptcy Court, 

that the "interests" of Rimmer were not part of the Debtor Poll, 

Inc. bankruptcy estate. 

The relationship of the parties and the early transactions, 

particularly the changes brought about by the 1976 Agreement, must 

be examined. The Agreement is the source of the particular 

interests here considered. Before the 1976 Agreement the Poll 

corporation gathered gas in the field, transported it, and sold 

much of it to Oklahoma Natural Gas Company under contracts. 

Amcole decided to acquire Poll, Inc. by the 1976 Agreement. Under 

the Agreement all stock of Poll which Amcole did not already own 

vested in Amcole as "Buyer." All stockholders and directors of 

Poll signed the 1976 Agreement. The majority holds that Poll, 

Inc. was bound by the Agreement, and I agree. 

The unusual part of the Agreement was that Amcole, as Buyer 

(of the stock), was obligated to use assets of Poll, that is, the 

gas sales contracts with Oklahoma Gas Company or the proceeds 

therefrom to pay the former Poll stockholders--the Sellers. To do 

this, and it was done, Amcole necessarily had to exercise 

ownership of these interests formerly of Poll, Inc. The actions 

of Amcole, and its performance as Buyer for its own benefit, 

demonstrated this ownership. It was the only way it could perform 

its obligation. "Control" of Poll could not do this. There would 

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be no ownership of the interests in question after the 1976 

Agreement remaining in Poll. Poll obtained no benefits under the 

Agreement and it lost assets. It undertook the duty to remit 

sales proceeds formerly its own. This was done in the capacity of 

a cestui gy_g_ trust as would arise under an oil payment or similar 

interest. It had a duty to remit and nothing more. See Corbin on 

Contracts, § 873 at 823 and§ 902 at 853. 

Thus the "interests," which the majority defines as 

"accounts" under the 1976 Agreement, passed to Amcole as part of 

the sale of Poll, Inc. U.C.C. § 9-104(e) Supp. They could not 

then be part of the Poll, Inc. estate. Whether they were part of 

the Amcole estate the record does not reveal. This is one of the 

elements supporting the District Court's holding that the 

interests were not part of the Poll estate. 

II. 

There is another reason why the Rimmer interest did not 

become part of the Poll estate. 

The use by the original parties to the 1976 Agreement, and 

the continued use of the term "override" in later agreements 

between successors to the interests as a description of the 

interests created, is significant and cannot be ignored. It was 

obvious that the parties adopted the accepted characteristics and 

consequences of "overrides" as applicable and descriptive of the 

interests created. This was a clear and obvious description for 

them to apply to the "interests." It was in commonly used terms 

in the business. They adopted and applied the consequences and 

characteristics of such an interest in their agreements. This was 

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clearly expressed, the intent was clear, and it can make no 

difference that the term is not applied to an interest of the type 

here concerned if its meaning they adopted and applied. We are 

not concerned with how the term may have been used by others. 

Certainly the 17+ years of "continued course of dealing" shows 

what the parties meant. See U.C.C. (with comments) § 1-102 and 

§ 1-105. 

It is apparent that the consequences, nature and scope of an 

"override" were adopted as descriptive as there were no time 

limits or period to restrict the perpetual term of such an 

interest and there was also no dollar limit. With such a 

permanent interest and without limits of time and money, the use 

or misuse of the term "override" was a clear expression or 

description. The nature and scope were well known and accepted. 

The years of "continued course of dealing" by the parties and 

successors adopted its meaning and this should be sufficient under 

the U.C.C. An "agreement" under the U.C.C. as to consequences 

which would otherwise flow from the provisions of the U.C.C. 

includes the effect of a course of dealing (§ 1-102, § 105). 

The intent of the parties must be applied. There is no 

indication whatever that the Agreement or the interests were in 

any way intended to be a security agreement. The course of 

dealing was the equivalent to an "agreement" of the parties as 

described in the U.C.C., which modifies the U.C.C. terms, and 

determines the real nature of the interests. 

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III. 

The position taken by the majority is that the interest of 

Mr. Rimmer was put in the Poll bankruptcy estate by Article 9 of 

the u.c.c. This position is based only on the theory that the 

interest fell within the Article 9 definition of an "account," and 

if it was an "account" it automatically was included in the 

Debtor's estate. This was, according to the majority, to follow 

regardless of the intention of the parties to the Agreement and 

the years of "course of dealing." When the definition was applied 

it was automatically something none of the parties intended, nor 

what it actually was as demonstrated over the 17 years. The 

record shows there was no debt, the interest was paid for in full, 

the intent was perpetual, and the interest had no dollar limit. 

There was no hint of commercial financing. 

To apply the "account" definition is to reverse the completed 

1976 sale and revest the interest in Poll. Rimmer apparently paid 

several hundred thousand dollars to buy the interest and the 

application of Article 9 would divest him of the interest. By all 

indications in the majority opinion he would become at most an 

unsecured creditor in the estate of the corporation which probably 

was never the source of interest to permit the application of 

Article 9. 

The consequences of the application of Article 9 demonstrates 

that it is not applicable. The U.C.C. by fiat cannot change the 

consequences and legal nature of a transaction contrary to the 

intent of the parties. 

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The most that the statute could do, in Article 9, and this 

may be what it does, is to require the consequences therein 

provided, that is, to require this to be a security transaction, 

unless~ contrary intention and purpose of the parties can be 

shown. 

I would affirm the trial court. 

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