Court Opinion

ID: 9857538
Source: CourtListenerOpinion
Date Created: 2023-09-24 15:08:46.809911+00
Date Added: 2024-06-11T09:47:55.955663
License: Public Domain

ON MOTION FOR REHEARING
At Dallas, Texas on the 9th day of January, 1987 came on before the court the motion of RepublicBank Dallas, N.A. (“Re-publicBank”) for rehearing of its earlier motion to segregate cash collateral and for other relief. Having considered the issues, the arguments of counsel, and the pertinent authority, the court is of the view that the relief requested by RepublicBank should be denied in its entirety.
A bankruptcy court is a court of equity and equity accords full relief to a party entitled. This court is of the view that, *770given the persistent characterization by Re-publicBank of the court’s earlier Findings of Fact and Conclusion of Law and Orders entered pursuant thereto as addressing solely its position regarding cash collateral, the court should, and hereby does, make it clear that the security interest asserted by RepublicBank is avoided under 11 U.S.C. § 544 and 11 U.C.S. § 105 as amended by Pub.L. No. 99-554 (1986).
In the court’s Findings of Fact and Conclusions of Law, entered on September 29, 1986, the court found that RepublicBank was the holder of an unperfected security interest and subordinate to the rights of the Debtor-in-Possession in his capacity as trustee under 11 U.S.C. § 1107. 11 U.S.C. § 544, Tex.Bus. & Comm.C. § 9.301 (Vernon Supp.1986). The Findings of Fact and Conclusions of Law were entered in response to RepublicBank’s cash collateral motion and the Debtor-in-Possession’s assertion of its “strong arm” powers. The court concluded that the interests of the Debtor-in-Possession in certain mortgage servicing agreements were such as might be assigned, and thus the strong arm powers of the Debtor-in-Possession would reach these rights and bring them into the estate. The court adheres to that conclusion today.
The case, at bottom, is simple and answered by the simple maxim: “bankruptcy cuts off unrecorded equities.” Republic-Bank no longer maintains that the security interest was an absolute assignment, but they assert that the court erred in concluding that the collateral was within the reach of the strong arm powers.
We consider the rights of the Debtor-in-Possession under 11 U.S.C. § 544(a)(l)-(2). State law defines the character of the federal law rights accorded the Debtor-in-Possession under 11 U.S.C. § 544. Commercial Credit Co. v. Davidson (In re Chancellor) 112 F.2d 54 (5th Cir.1940). These rights were described by Judge Holmes in In re Waynesboro Motor Co., 60 F.2d 668, 669 (S.D.Miss.1932), as providing the Debt- or-in-Possession with “the character of the ideal creditor, irreproachable and without notice, armed cap-a-pie with every right and power conferred by a state upon its most favored creditor.” The law of Texas provides that unperfected consensual liens on personalty are subject to the rights of lien creditors, including the bankruptcy trustee. Tex.Bus. & Comm.C. § 9.301(a)(2Hc) (Vernon Supp.1986). In the official commentary to this section, the drafters state: “The section rejects the rule applied in many jurisdictions in pre-code law that an unperfected security interest is subordinated to all creditors, but requires the lien obtained by legal proceedings to attach to the collateral before the security interest is perfected.” (Comment 3). The drafters further state: “[T]his article does not permit a secured party to file or take possession after another interest has received priority under subsection [(a)] and thereby protect himself against the intervening interest.” (Comment 5).
RepublicBank argues in its brief in support of the motion for rehearing that: (1) garnishment is the only available remedy under the strong arm powers of the Debt- or-in-Possession, and (2) all of the contract rights to income that were unmatured as of the date of bankruptcy were contingent and thus not subject to garnishment. This argument is, of course, no more than a variation of its earlier assertion that such contract rights were not subject to execution. RepublicBank would have the court posit the hypothetical strong arm creditor out serving writs on every mortgagor serviced by the Debtor and then limited to writs effective on the date of bankruptcy and no more. The court prefers to follow the statute and place the hypothetical strong arm creditor wherever he may need to be, replete with any incidentals, process, papers, proof, or whatever is required to make him the “ideal creditor”. Fifth Third Union Trust Co. v. Kennedy, 185 F.2d 833 (2d Cir.1950); In re Martin, 6 B.R. 827 (Bankr.C.D.Cal.1980). Thus, we are not so concerned with what misfortune could befall a lien creditor in Texas as we are with what relief such a creditor may be entitled to. It is the Debtor-in-Possession exercising the strong arm power that is *771entitled under federal law to the court’s indulgence on this point, not the unperfect-ed secured creditor. In re Mosley, 55 B.R. 341 (Bankr.W.D.Ky.1985).
Thus we reject RepublicBank’s argument that garnishment is the only state law process available under the facts of this case. The court has already noted in its Findings of Fact and Conclusions of Law that an interest in property capable of assignment may be subjected to execution unless the interest is so remote or contingent that a court deems it to be in the interests of justice to prevent execution. Moser v. Tucker, 87 Tex. 94, 26 S.W. 1044 (1894). In this regard we note the provision for a court to aid in the collection of judgments through judicial proceedings. Tex.Civ. Prac. & Rem.C. § 31.002 (Vernon 1986). This statute covers property, including present or future rights to property, that (1) cannot readily be attached or levied on by ordinary legal process and (2) is not exempt. See Hennigan v. Hennigan, 666 S.W.2d 322 (Tex.Civ.App. — Houston [14th Dist.] 1984) writ ref’d n.r.e. 677 S.W.2d 495 (Tex.). Likewise, we note Tex.Civ.Prac. & Rem.C. § 34.001(b) (Vernon 1986), which permits multiple successive writs of execution to be issued and thereby indefinitely extend the life of the judgment lien. Maddox v. Summerlin, 92 Tex. 483,49 S.W. 1032 * (1899); Cf. Hochstadler v. Sam, 73 Tex. 315, 11 S.W. 408 (1889) (addressing attachment by creditor on a simple contract). Even if we accept RepublicBank’s contention that the strong arm powers must be determined as of the commencement of the case only,1 it is plainly obvious that either with the aid of a court or a levy of execution at that moment, the judgment lien could be sustained indefinitely. Thus, in this case there is no possibility that RepublicBank could ever attain the position of priority it would have had with a perfected security interest. Tex.Bus. & Comm.C. § 9.301(a) (Vernon Supp.1986).
Considering the character of the rights of the Debtor-in-Possession in the mortgage servicing agreements and the state law procedures for execution thereon, the court is constrained to say that the rights of the Debtor-in-Possession under 11 U.S.C. § 544 have such continuing priority that all potential realization of those rights must inure to the estate. Counsel for Debtor-in-Possession is directed to prepare an appropriate order.

. The statutory requirement for determining the rights of the trustee (debtor-in-possession) under § 544(a) at the commencement of the case appears to stem from the holding in Lewis v. Manufacturers National Bank, 364 U.S. 603, 81 S.Ct. 347, 5 L.Ed.2d 323 (1961). 4B Collier on Bankruptcy ¶ 70.51 (14th Ed. 1967).