Opinion ID: 474027
Heading Depth: 1
Heading Rank: 5

Heading: Did the Bank Have a Perfected Security Interest in a

Text: 68 Later-Acquired Subsidiary's Receivables? 69 The next significant issue is whether the Bank held a perfected security interest in reimbursements payable to AMH of the Greenbelt, Inc., a company acquired as a subsidiary of the Debtor after execution of the original security agreement. The bankruptcy court found that 70 The trustee's challenges to the payments attributable to AMH of the Greenbelt, aggregating $493,310.87, are more troublesome. At the time the original financing arrangements were made by debtor and the bank on June 12, 1979, that entity was not in existence and the six homes which were under its umbrella were not owned by the debtor. They were acquired by the debtor later in 1979. The AMH of the Greenbelt entity never executed a security agreement, the loan agreement, and the financing statement. 71 Memorandum and Order at 21-22. 72 The Bank concedes that neither its loan agreement nor its security agreement or financing statements included AMH of the Greenbelt. See Appellee's Brief at 28. However, the Bank argues that regardless of the fact that the Loan Agreement may not have been amended to provide for the new entity nor the execution of formal security agreements and financing statements, AMH of the Green Belt, Inc. was included in the financing arrangements dealing with the handling of the warrants and the checks from the State of Texas with the bank in Austin. Id. In other words, the Bank relies simply on the fact that a letter to another bank, signed by the Debtor and the Bank, mentions AMH of the Greenbelt along with the other institutions in whose accounts the Bank had a perfected security interest. But as counsel for the Bank acknowledged at oral argument, the reference to AMH of the Greenbelt in this correspondence was not an amendment to the security agreement. 73 The Bank argues further--apparently on the theory that an executed security agreement was unnecessary--that AMH of the Greenbelt merely blended in with all other entities and organizations of the Debtor.... [It] fell into the fold and operated in the exact same manner as all previously existing entities and of all entities who executed the loan documents back in June, 1979. Appellee's Brief at 27-28. Since the proceeds of all the Debtor's affiliates' accounts receivable--including those of AMH of the Greenbelt--were funneled through one account at the Bank, the Bank maintains that it duly perfected its security interest in the proceeds and accounts receivable of AMH of the Greenbelt merely by taking possession of them. Id. at 30. The Bank cites no case authority for this proposition (or, for that matter, for any other point in its entire section on AMH of the Greenbelt). However, it does quote Tex.Bus. & Com.Code Sec. 9.203(a)(1) as follows: 74 ... a security interest is not enforceable against the debtor or third parties unless (1) the collateral is in the possession of the secured party.... 75 This is, of course, equivalent to arguing: Something is not an apple unless it is red. This tomato is red. Therefore this tomato is an apple. 16 76 We conclude that the Bank did not have a valid security interest in the accounts receivable of AMH of the Greenbelt, Inc. or in the proceeds of those accounts receivable. The Bank has, at best, an unperfected security interest in the AMH of the Greenbelt accounts, no matter what was originally intended between it and the Debtor. See In re McBee, 714 F.2d 1316, 1321 (5th Cir.1983) (critical inquiry in assessing whether a security interest is perfected is whether a reasonably prudent subsequent creditor would have discovered the prior security interest); Johnson Controls, Inc. v. City of Cedar Rapids, Iowa, 713 F.2d 370, 375 (8th Cir.1983) (we are to determine the parties' intent from what they said and not from what they meant to say); In re S.O.A.W. Enterprises, Inc., 32 B.R. 279 (Bankr.W.D.Tex.1983); Matter of Munzenreider Corp., 34 B.R. 82 (Bankr.M.D.Fla.1983). The Trustee may avoid as preferential payments made on an account that was not covered by a properly perfected security interest. 11 U.S.C. Sec. 544(a); Tex.Bus. & Comm.Code Sec. 9.301; In re Ken Gardner Ford Sales, Inc., 23 B.R. 743 (E.D.Tenn.1982). We therefore remand this issue for a factual determination as to the amounts from the AMH of the Greenbelt accounts that were applied to the Debtor's loan balance during the preference period; after such a determination has been made the district court is to enter judgment in favor of the Trustee in that amount.