APPEAL FROM UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA Bankruptcy No. 76-0282 D.C. Civil No. 79-0260
Before Adams, Rosenn and Sloviter, Circuit Judges.
This appeal from a district court review of an order in bankruptcy presents a question that has troubled courts since the enactment of Article Nine of the Uniform Commercial Code (U.C.C.) governing secured transactions. Can a creditor assert a secured claim against the debtor when no formal security agreement was ever signed, but where various documents executed in connection with a loan evince an intent to create a security interest? The district court answered this question in the affirmative and permitted the creditor, Zimmerman & Jansen, to assert a secured claim against the debtor, bankrupt Bollinger Corporation in the amount of $150,000. We affirm.
The facts of this case are not in dispute. Industrial Credit Company (ICC) made a loan to Bollinger Corporation (Bollinger) on January 13, 1972, in the amount of $150,000. As evidence of the loan, Bollinger executed a promissory note in the sum of $150,000 and signed a security agreement with ICC giving it a security interest in certain machinery and equipment. ICC in due course perfected its security interest in the collateral by filing a financing statement in accordance with Pennsylvania's enactment of Article Nine of the U.C.C.*fn1
Bollinger faithfully met its obligations under the note and by December 4, 1974, had repaid $85,000 of the loan leaving $65,000 in unpaid principal. Bollinger, however, required additional capital and on December 5, 1974, entered into a loan agreement with Zimmerman & Jansen, Inc. (Z&J), by which Z&J agreed to lend Bollinger $150,000. Z&J undertook as part of this transaction to pay off the $65,000 still owed to ICC in return for an assignment by ICC to Z&J of the original note and security agreement between Bollinger and ICC. Bollinger executed a promissory note to Z&J, evidencing the agreement containing the following provision:
Security. This Promissory Note is secured by security interests in a certain Security Agreement between Bollinger and Industrial Credit Company . . . and in a Financing Statement filed by (ICC) . . ., and is further secured by security interests in a certain security agreement to be delivered by Bollinger to Z and J with this Promissory Note covering the identical machinery and equipment as identified in the ICC Agreement and with identical schedule attached in the principal amount of Eighty-Five Thousand Dollars. ($85,000).
No formal security agreement was ever executed between Bollinger and Z&J. Z&J did, however, in connection with the promissory note, record a new financing statement signed by Bollinger containing a detailed list of the machinery and equipment originally taken as collateral by ICC for its loan to Bollinger.
Bollinger filed a petition for an arrangement under Chapter XI of the Bankruptcy Act in March, 1975 and was adjudicated bankrupt one year later. In administrating the bankrupt's estate, the receiver sold some of Bollinger's equipment but agreed that Z&J would receive a $10,000 credit on its secured claim.
Z&J asserted a secured claim against the bankrupt in the amount of $150,000, arguing that although it never signed a security agreement with Bollinger, the parties had intended that a security interest in the sum of $150,000 be created to protect the loan. The trustee in bankruptcy conceded that the assignment to Z&J of ICC's original security agreement with Bollinger gave Z&J a secured claim in the amount of $65,000, the balance owed by Bollinger to ICC at the time of the assignment. The trustee, however, refused to recognize Z&J's asserted claim of an additional secured claim of $85,000 because of the absence of a security agreement between Bollinger and Z&J. The bankruptcy court agreed and entered judgment for Z&J in the amount of $55,000, representing a secured claim in the amount of $65,000 less $10,000 credit received by Z&J.
Z&J appealed to the United States District Court for the Western District of Pennsylvania, which reversed the bankruptcy court and entered judgment for Z&J in the full amount of the asserted $150,000 secured claim. The trustee in bankruptcy appeals.*fn2
Under Article Nine of the U.C.C., two documents are generally required to create a perfected security interest in a debtor's collateral. First, there must be a "security agreement" giving the creditor an interest in the collateral. Section 9-203(1)(b) contains minimal requirements for the creation of a security agreement. In order to create a security agreement, there must be: (1) a writing (2) signed by the debtor (3) containing a description of the collateral or the types of collateral. Section 9-203, Comment 1. The requirements of section 9-203(1)(b) further two basic policies. First, an evidentiary function is served by requiring a signed security agreement and second, a written agreement also obviates any Statute of Frauds problems with the debtor-creditor relationship. Id. Comments 3, 5. The second document generally required is a "financing statement," ...