Opinion ID: 393753
Heading Depth: 2
Heading Rank: 3

Heading: southland's authority to grant a lien on the settlement proceeds

Text: 16 Jonas argues that, as a matter of law, a security interest may not be created in a cause of action for tort. Section 9-104(k) of the Uniform Commercial Code, adopted in California, provides that the security interest provisions of the code do not apply to a transfer in whole or in part of any ... claim arising out of tort; . Cal.Com.Code § 9104(k) (Deering 1970). The parties, however, did not rely on the U.C.C. security interest alone, and provided for a lien on the potential lawsuit proceeds under California Code of Civil Procedure § 688.1 (Deering 1973). 6 Section 668.1 allows a court, in its discretion, to grant a judgment creditor a lien on a cause of action and any subsequent judgment awarded to the debtor. Therefore the stipulation between Southland and the Santiago Bank created a valid lien on the lawsuit proceeds, as long as Southland had authority to grant the lien. 17 We conclude that Southland did have this authority. At the time of the stipulation, Southland was the debtor in possession of the cause of action. As such, Southland acted as if it was the trustee, and had the power to dispose of the property or grant a lien, subject to court approval. § 342 of the Bankruptcy Act (formerly codified at 11 U.S.C. § 742). See 8 Collier on Bankruptcy P 6.30-6.32 (14th ed. 1978). The bankruptcy court approved the stipulation and the lien granted under section 668.1. Jonas, who was appointed trustee after the granting of the lien, is bound by the previous acts of Southland, the debtor in possession. In re Wil-low Cafeterias, 111 F.2d 83, 85-86 (2d Cir. 1940); Local Joint Exec. Bd., AFL-CIO v. Hotel Circle, Inc., 419 F.Supp. 778, 789-90 (S.D.Cal.1976); aff'd. 613 F.2d 210 (9th Cir. 1980); Collier, supra at P 6.32(4). Therefore Southland created a valid lien on the lawsuit proceeds in favor of Santiago, and this lien passed to the SBA.