1 United States Court of Appeals,

Fifth Circuit.

No. 96-60199.

In The Matter of BILOXI PRESTRESS CONCRETE, INC., Debtor,

W.C. FORE TRUCKING CO., INC., Appellant,

v.

BILOXI PRESTRESS CONCRETE, INC., Appellee.

Oct. 28, 1996.

Appeal from the United States District Court for the Southern District of Mississippi.

Before REYNALDO G. GARZA, JOLLY and DeMOSS, Circuit Judges.

PER CURIAM:

This case presents the question whether an unsecured debt, assigned for purposes of collection

only to an assignee holding a secured debt arising from the same transaction, may, by virtue of that

assignment, become a secured debt of such assignee. After reviewing the record, studying the briefs

and considering the argument s presented to this court, we have concluded that the district court

correctly affirmed the bankruptcy court's conclusion that the unsecured debt remained unsecured

following the assignment.

The bankruptcy court issued a thorough and well-reasoned opinion that sets out the correct

analysis in this case. We therefore attach the bankruptcy court opinion as Appendix "A" and adopt

that opinion as the opinion of this court.

AFFIRMED.

APPENDIX A

IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN

DISTRICT OF MISSISSIPPI

SOUTHERN DIVISION

In re Biloxi Prestress Concrete, Inc.

Biloxi Prestress Concrete, Inc., Plaintiff1 Numbering here is not exactly as it appears in the submitted stipulation. Additionally,

references to attached exhibits are omitted.

2 v.

W.C. Fore Trucking, Inc., Defendant

No. 9109988 SEG

Adversary No. 930823 SC

OPINION

EDWARD R. GAINES, Bankruptcy Judge.

The matter before the Court is the complaint filed by the debtor to determine t he secured

status, to recover or set aside pref erent ial t ransfers and to object to the proof of claim W.C. Fore

Trucking, Inc. This opinion is restricted to the issue of the secured status of W.C. Fore Trucking,

Inc. Having considered the pleadings, the memoranda submitted by counsel, and the trial testimony,

the Court is of the opinion that the claim of W.C. Fore Trucking, Inc. is unsecured.

I. FACTS

1. Biloxi Prestress Concrete, Inc., the debtor herein, filed a petition for relief under Chapter

11 of Title II of the United States Code on November 8, 1991.

2. On February 1, 1993 the debtor filed this adversary complaint against W.C. Fore Trucking,

Inc. pursuant to sections 503, 506 and 547(b) to determine secured status and to recover or set aside

preferential transfers and objection to proof of claim.

3. Briefs were subsequently submitted to the Court by the parties and the matter was set for

trial.

4. A stipulation

of fact s was entered into and submitted to the Court prior to trial which

included the following stipulations: 1

(a) Immediately prior to April 1, 1991, Biloxi Prestress Concrete, Inc. was indebted to W.C.

Fore Trucking Co., Inc. in the amount of $360,838.91.

(b) Immediately prior to April 1, 1991, Biloxi Prestress Concrete, Inc. was indebted to Coast3

Materials Co. in the amount of $624,334.36.

(c) W.C. Fore is a principal officer, director and stockholder in both W.C. Fore Trucking Co.,

Inc. and Coast Materials Co.

(d) Prior to April 1, 1991, W.C. Fore advised management at Biloxi Prestress Concrete, Inc.

that neither Coast Materials Co. nor W.C. Fore Trucking, Inc. would provide concrete products or

transportation to Biloxi Prestress unless they were assured of payment for same in the future.

(e) At the time the demand was made by W.C. Fore, the Sovran Bank/Tennessee (now known

as the NationsBank of Tennessee) had a first lien on all the Debtor's assets including b y way of

illustration but not limitation inventory and accounts receivable.

(f) On or about April 24, 1991, the Debtor entered into a security agreeme n t which was

executed by Fore, Coast and the Debtor . UCC financing statements were filed by Coast with the

Secretary of State and the Chancery Clerk of the Second Judici al District of Harrison County,

Mississippi on July 12, 1991.

(g) The NationsBank was not a signatory to the initial agreement.

(h) Later, on or about August 31, 1991, after mo difying so me o f t he t erminology in the

original security agreement the NationsBank executed the agreement.

(i) The security agreement, the UCC financing statements and the assignment from Fore to

Coast are the documents upon which Coast and Fore base their claims that Coast is a secured party

herein. Fore admits that it does not hold a secured claim.

(j) Fore did not file UCC financing statements with either the Secretary of State of the State

of Mississippi or the Chancery Clerk of the Second Judicial District of Harrison County, Mississippi.

(k) The Coast amended proof of claim includes the claims of Fore.

( l ) Prior to the filing of the original petition here, Coast had never attempted to collect any

of Fore's accounts receivable owed by Biloxi Prestress Concrete.

(m) Prior to the filing of the original petition for relief by the Debtor on November 8, 1993

[sic], the Debtor had treated the claims of Coast and Fore separately and had itemized them4

separately on invoices to Biloxi's customers.

(n) Tit le t o the receivables has not been transferred to Coast. Fore continues to claim the

receivables as its property and such are carried on the books of For e as its assets. The Bi l oxi

receivables were assigned by Fore to Coast for the purposes of collection only.

( o ) Coast has not paid Fore for the assignment of any of the Fore accounts nor has it assumed

the indebtedness owed by the Debtor to Fore. Such was not assigned to Coast for the purposes of

securing any transaction between Coast and Fore. Said assignment was for collection purposes only

and Coast claims no ownership position in same.

(p) Under the provisions of the assignment, Coast is merely acting as the collection agent for

Fore.

(q) Coast does not carry the Fore accounts on its books or records and does not claim sodify

the terms of the agreement.

5. On July 2, 1992, a proof of claim was filed by W.C. Fore Trucking, Inc. in the amount of

$534,541.00 which asserted a secured claim.

6. On February 11, 1993, subsequent to the filing on Febru ary 1, 1993, of the debtor's

complaint to determine secured status and objection to claim of W.C. Fore Trucking, Coast Materials

amended its proof of claim to include the claims of Fore as part of its claim.

7. Subsequent to the presentation of evidence, the parties requested that the Court hold its

ruling in abeyance due to renewed settlement discussions. Subsequently the parties notified the Court

that no settlement had been reached. Supplemental briefs were submitted by the parties to summarize

their prospective positions and the matter was submitted to the Court for resolution.

II. CONCLUSIONS

The matter before the Court is a core proceeding under 28 U.S.C. § 157. The Court has

jurisdiction pursuant to 28 U.S.C. § 1334.

The only issue submitted to the Court is whether or not the perfec t ed security interest of

Coast Materials attaches to the debts owed by the debtor to W.C. Fore Trucki ng, Inc. for2 Issues raised in the briefs regarding whether the security interest of Fore attached and was

enforceable and whether the collateral description was sufficient pursuant to Miss.Code Ann. §

75-9-203 (Supp.1994) need not be determined here. Fore has stipulated to the Court that it does

not hold a secured claim.

3 This section is made applicable to a debtor in possession under 11 U.S.C. § 1107.

5 transportati on charges. The debtor does no t co nt est the validity of the security interest of Coast

Materials as to debts owed to Coast Materials by the debtor. Additionally, the Court has previously

sustained the debtor's objection to the proof of claim of W. C. Fore as to secured status based on

W.C. Fore's stipulation that it does not have an independent security interest.

The security agreement in issue granted a purchase money security interest to Coast as

follows:

BILOXI PREST RESS CONCRETE, INC., a Mississippi business corporation,

hereinafter called "Biloxi",

... hereby grants to COAST MATERIALS CO., hereinafter called

"Coast", a security interest in Debtor's inventory containing materials furnished by Coast on or after April 1, 1991, whether now owned or hereafter acquired, and any and all products

and proceeds thereof, herein called "Collateral", subject to the terms and conditions stated

herein. The security interest granted is a purchase money security interest.

Security Agreement at p. 1. The agreement further provides the following:

Debtor desires to purchase, on open account from Coast and from W.C. Fore Trucking, Inc.,

("Fore"), concrete, and the transportati on of finished goods which contain the products furnished by

Coast. Such purchases and transportation charges shall be secured hereby. The parties hereto agree

that this Security Agreement APPENDIX A—Continued

is effective as of April 1 , 1991. The obligations secured by this Agreement are concrete and

t ransportation charges incurred by the Debtor on or after April 1, 1991. No concrete or

transportati on charges incurred by the Debtor prior to April 1, 1991, will be secured hereby. No

interest owed by the Debtor to Coast or Fore will be secured hereunder.

Security Agreement at p. 1. The agreement clearly indicates an intent that transpo rt ation charges

were to be secured, as conceded in the debtor's brief. 2

The debtor argues that Fore's claims are unsecured and are subordinate to the estate based

on Mis s .Code Ann. § 75-9-301(1)(b) which provides that an unperfected security interest is

subordinate to a person who becomes a lien creditor before the security interest is pe rfected, and

Section 544(a)(1) 3 of the Bankruptcy Code which gives the trustee the rights and powers of a lien

creditor.6

Although it i s admit t ed by Fore that it filed no UCC financing statements, Fore and Coast

present the argument that Coast Materials is the holder of a secured cl aim for all material a nd

transportati on charges at issue. The following argument is made in the brief submitted to the Court:

The issue is no t whether Fore was vested with a security interest under the parties'

documents. That was not necessary, because Coast was so vested. The Debtor has not

contested the agreement in so far as it relates to Coast.

The parties' transaction was structured so that Coast was granted a li en in Biloxi

Prestress' inventory and finished product for concrete and transportati on charges related to

the product. The receivables otherwise due for transportation charges were assigned and

vested in Coast ...

Original Brief of Coast Materials Company and W.C. Fore Trucking Company Inc. at p. 6.

The assignment of receivables from W.C. Fore Trucking to Coast Materials states as follows:

"W.C. Fore Trucking, Inc., hereby assigns to Coast Materials Co. all accounts receivable which are

affected by the Security Agreement effective April 1, 1991, for purposes of collection". No date was

contained in the assignment.

Fore and Coast argue that Article 9, requiring filing of UCC financing statements, is not

applicable to the transactions here because the assignment was made for collection purposes only.

Fore cites the pertinent section of the Uniform Commercial Code as follows:

§ 75-9-104. Transactions excluded from chapter.

This Chapter does not apply

(f) to a sale of accounts or chattel paper as part of a sale of the business out of which they

arose, or an assignment of accounts or chattel paper which is for the purpose of collection

only .....

Miss.Code Ann. § 75-9-104 (1972).

It is clear from the wording of this statute cited to the Court that Article 9 does not apply to

assignments made for collection purposes only. Therefore, the singular transaction of the assignment

from F o re t o Coast for collection purposes is exempt from the provisions of Article 9. However,

transactions relating to the creation or perfection of security interests, rather than to assignments of

receivables for c o llect ion, are not governed by the language of this statute and, therefore, remain

subject to the provisions of Article 9, absent other controlling provisions. The transaction between7

the parties here resulting in the creation of a securit y int erest in the debtor's inventory is the

transaction that is pivotal to the Court's decision as to whether there is a perfected security interest

covering transportati on charges incurred by the debtor. Arti cl e 9, therefore, applies to those

transactions. The assignment of receivables was admittedly for collection only and not for the

purposes of securing any transaction between Fore and Coast. Therefore, whether Article 9 applies

to the assignment transaction is essentially irrelevant to a determination regar ding whether the

underlying claim for transportation charges is secured.

Fore argues, further, that even if the transaction falls within the purview of Article 9 of the

Uniform Com

mercial Code, there is an alternative ground to support the validity of the security

interest claimed by Coast in the debtor's finished product securing all material and transportati on

charges. Fore cites Miss.Code Ann. § 75-9-302(1)(e) which provides that:

§ 75-9-302. When filing is required to perfect security interest; security interests to which

filing provisions of this chapter do not apply.

(1) A financing statement must be filed to perfect all security interests except the

following:

(e) an assignment of accounts which does not alone or in conj unction wi th other

assignments to t he same assignee transfer a significant part of the outstanding

accounts of the assignor;

Miss.Code Ann. § 75-9-302(1)(e) (1972). Fore submits that the assignment constituted a nominal

amount of the receivables of Fore Trucking.

The parties have stipulated that the assignment here is for collection purposes only. In light

o f Miss.Code Ann. § 75-9-104, discussed above, which provides that Article 9 does not apply t o

assignments for collection only, Section 75-9-302(1)(e) appears applicable only to assignments that

were not for collection only, since it indicates that Article 9 would control but for the stated

exception. Furthermore, under the facts of this case, the issue of perfection is pertinent as it relates

to the security interests of either Coast or Fore, rather than to the assignment from Fore Trucking to

Coast Mat erials. Therefore, the Court concludes that Section 75-9-302(1)(e) cited above is not4 Fore and Coast have cited Bramble Transportation, Inc. v. Sam Santer Sales, Inc., 294 A.2d

97, 101 (Del.Super.Ct.1971), aff'd, 294 A.2d 104 (Del.1972), and Architectural Woods, Inc. v.

State, 88 Wash.2d 406, 562 P.2d 248 (1977) to support the position that Article 9 is inapplicable

to the facts of this case. For reasons cited in this opinion, the arguments made are not pertinent to

the integral transaction at issue and analysis of these cases is found to be unnecessary.

5 The debtor cites several cases in arguing that as assignee can take no greater rights than those

held by the assignor. Cases cited include Vittert Construction and Investment Co. v. Wall

Covering Contractors, Inc., 473 S.W.2d 799 (Mo.Ct.App.1971); York v. Ottusch, 412 F.Supp.

819 (W.D.Wis.1976); Indiana Lumbermen's Mut. Ins. Co. v. Curtis Mathes Mfg. Co., 456 So.2d

750 (Miss.1984); Smith v. Copiah County, 232 Miss. 838, 100 So.2d 614 (1958). The debtor's

brief also indicates there is an apparent conflict between the ruling in In re King-Porter Co., 446

F.2d 722 (5th Cir.1971) and this general principal. However, determination regarding the

application of this general principal is not necessary to the conclusion reached by the Court herein.

The thrust of the debtor's argument on this point appears to be that Coast Materials could not

obtain, by virtue of assignment, a secured claim that is greater than the unsecured claim of Fore

Trucking. However, Fore Trucking has conceded that it does not have a secured claim. Any

security held by Coast is held by virtue of its own previously obtained and perfected security

interest, and not through any assignment from Fore.

6 As pointed out by debtor's counsel, an oversecured creditor is only entitled to receive the

amount of its claim.

8 applicable to the circumstances here. 4

As previously stated, a critical point to the issue placed before the Court for determination

is the fact that the assignment was for collection purposes only, and was not a substantive assignment

of debt to Coast Materials, assigning ownership and title to the debt owed by Biloxi Prestress to Fore

Trucking. 5 Even under the assumption that the language in the agreement between the part ies is

broad enough to have created for Coast Materials a security interest in the debtor's finished product

or inventory for transportati on char ges, Co ast is, nevertheless, only entitled to enforce a security

interest to the extent it is owed a debt. 6 As is made clear in the stipulation, the debt for transportation

charges is not owed to Coast Materials. It is owed to Fore Trucking. Coast Materials has a valid

and perfected security interest, by virtue of supporting documentation and the filed UCC financing

statements, on the debt it is owed for materials, to the extent it is secured by value pursuant to 11

U.S.C. § 506(a). Fore Trucking does not have a valid and perfected security interest on the debt it

is owed for transportati on charges. The assignment of receivables fro m Fo re to Coast was for7 The case of In re King-Porter Co., 446 F.2d 722 (5th Cir.1971) was cited in the briefs

submitted to the Court. As pointed out by the debtor, however, that case is not factually

analogous because the assignment in King-Porter was not an assignment for collection purposes

only.

8 The debtor has argued that Coast Materials has not provided value as required under

Miss.Code Ann. § 75-9-203(1) for perfection and attachment of security interests since the

assignment to Coast was not a substantive assignment. As previously stated, it has been

stipulated that the assignment was for collection only and discussion of this section is not

necessary. Additionally, since the debtor does not contest the security interest as to debts owed

to Coast for materials provided, it is uncontested that Coast provided value for attachment of the

security interest as to its own debts.

9 collection purposes only. 7 It did not provide authorization for Coast to collect and keep as it own

the debt owed to Fore, but rather to collect merely as Fore's agent. 8 The umbrella of Coast Material's

security interest is not broad enough to extend to a debt owed to a separate entity. The arguments

made by Coast and Fore do not provide sufficient basis or authority upon which the Court co uld

recast the unsecured claim of Fore as a secured claim of Coast Materials.

In the case of In re E.A. Fretz Co., 565 F.2d 366 (5th Cir.1978), the Fifth Circuit offered the

following comments:

Republic recognizes that the UCC clearly con t emplates and sanctions floating

collateral (after-acquired property of the debtor) and fl o ating debt (future advances).

However, the UCC does not, according to Republic, contemplate "floating secured parties,"

that is, an open-ended class of creditors with unsecured and unperfected interests who, after

the debtor's bankruptcy can assign their claims to a more senior lienor and magically secure

and perfect their interests under an omnibus security agreement and financing statement. We

agree with Republic ...

Surely floating debt and floating co llateral provide all the uncertainty any creditor

should be required to suffer. When floating secured parties are wading in the wings,

clairvoyance, not mere knowledge, would be essential. We are unwilling to impose on any junior secured creditor, with knowl edge or without, the additional risk that, at a date

subsequent to his perfection, any affiliat e of the senior creditor or any stranger to it unnamed

as secured parties in a security agreement or a financing statement could be metamorphosed

in t o senio r secured parties by virtue of an assignment "or otherwise," pre- or postbankruptcy. We also decline t o impose upon a junior secured creditor the burden of a

frequent check to determine whether any unsecured parties have secretly assigned their claims

to a senior secured party whose interest has been perfected.

In re E.A. Fretz Co., 565 F.2d 366, 369, 372 (5th Cir.1978). Additionally, the Court made further

comments as follows:

Neither the Bankruptcy Judge nor Revlon has explained to our satisfaction precisely9 The Court recognizes that the referenced case is not factually analogous as to exact issues.

There may be differences with the subject case as to whether the creditor actually had a security

interest, although unperfected, and whether an assignment occurred prior to bankruptcy or after

bankruptcy, as well as other differences. The comments are cited for the purpose of showing the

apparent inclination of the Fifth Circuit not to extend benefits obtained from perfecting security

interests by filing in accordance with provisions of the Uniform Commercial Code to unintended

parties or claims.

10 how (by abracadabra, sleight of hand, baptism or otherwise?) this perfected secured status

arose. Mystical, magical miracles are rare, even in Texas. The naked conclusion that the

indebtedness of the Revlon subs was secured by their parents' security interest does not hold

water; it simply avoids the real question of how the transmutation could have occurred within

th e t erms of the UCC. Moreover, we know of no Code provision which would sanction

perfection of a nonexistent security interest by assignment, pre- or post-bankruptcy.

565 F.2d at 374, n. 23. 9 Moreover, in footnote 22, the Court offered the following, "Clearly the

assignments were necessary. Prior to assignment, how could Revlon have had a lien to secure debt

not owed directly to it?" 565 F.2d at 374. Under the facts of this case, there was no assignment to

Coast Materi als transferring to it the debt owed by Biloxi Prestress to Fore Trucking. The

assignment made was for collection purposes only.

Based on the foregoing analysis and pursuant to 11 U.S.C. §§ 544 and 1107, the Court

co ncludes that the debtor in possession is entitled to a determination that the debt owed by Biloxi

Prestress Concrete, Inc. to W.C. Fore Trucking, Inc. is an unsecured debt.

A judgment will be entered consistent with these findings and conclusions pursuant to Federal

Rule of Bankruptcy Procedu re 9021 and Federal Rule of Civil Procedure 58. This opinion shall

constitute findings and conclusio ns pursuant to Federal Rule of Bankruptcy Procedure 7052 and

Federal Rule of Civil Procedure 52.

This the 7th day of November, 1994.