United States District Court, M.D. Pennsylvania
April 23, 2004.
INTERBUSINESS BANK, N.A., Plaintiff
FIRST NATIONAL BANK OF MIFFLINTOWN, Defendant v. ALLIED CAPITAL CORPORATION, et al., Third-Party Defendants
The opinion of the court was delivered by: CHRISTOPHER CONNER, District Judge
Presently before the court in this Uniform Commercial Code ("U.C.C.")
case are several dispositive motions in which the parties seek
recognition of their respective security interests in certain collateral
of a common debtor as superior to others. Plaintiff, InterBusiness Bank,
N.A. ("InterBusiness"), contends that defendant, First National Bank of
Mifflintown ("First National"), lacked a valid interest in the
"inventory" and "accounts receivable" of the debtor and yet collected and
liquidated those assets in derogation of plaintiff's superior interest.
Defendant disagrees, asserting that assignments from third-party
defendants, Allied Capital Corporation and its subsidiary and successor
corporations (collectively "Allied Capital"), were effective to give it a
priority interest in the collateral. Defendant further argues that
plaintiff does not possess a security interest in the collateral because (1) the documents defining
plaintiff's interest refer only to "goods" and "accounts," not
"inventory" and "accounts receivable," and (2) any interest that
plaintiff had in the collateral was extinguished when plaintiff obtained
satisfaction of the underlying debt in state court execution proceedings
relating to a separate mortgage agreement between plaintiff and the
The questions presented in the motions are (1) whether parties may
obtain priority security interests through assignment, (2) whether
generic references in a financing statement to "goods" and "accounts" are
effective to cover an interest in "inventory" and "accounts receivable"
of the debtor, and (3) whether a security interest in collateral is
deemed extinguished by operation of Pennsylvania law when the secured
party purchases the real property of the debtor during execution
proceedings on the underlying debt. For the reasons that follow, these
questions must all be answered in the affirmative. Finding that the
complaint states a valid claim for relief and that material questions of
fact remain, the court will deny the cross-motions for summary judgment
(Docs. 13, 20) and the motion to dismiss (Doc. 10). I. Statement of Facts*fn1
At the heart of this controversy are two loans made by Allied Capital,
a financing corporation, to Annlick Farm Supply, Inc. ("Annlick Farm
Supply"), a business in central Pennsylvania. The first of these loans,
in the amount of one million dollars ($1,000,000), was made in December
2000 pursuant to a loan agreement between the parties. (Doc. 1 ¶¶ 4-8;
Doc. 1, Ex. A; Doc. 15 ¶ 1-10; Doc. 21 ¶¶ 1-2; Doc. 22 ff 1-10;
Doc. 32 ¶¶ 1-2). As collateral, Allied Capital accepted a mortgage on
real property owned by Annlick Farm Supply and an interest in its
accounts, inventory, equipment, and other property. This interest was
memorialized by a mortgage agreement and a security agreement, both of
which were executed by the parties on December 22, 2000. (Doc. 1 ¶ 5;
Doc. 1, Ex. B; Doc. 15 ¶¶ 1-10; Doc. 21 ¶ 3; Doc. 22 ¶¶ 1-10;
Doc. 32 ¶ 3; Doc. 34, Ex. A ¶¶ 4-6). Allied Capital also filed a
financing statement, identifying the collateral in which it claimed a
1. The collateral includes (but is not limited
to) all property, tangible and intangible, now
owned or hereafter acquired by Debtor including,
without limitation, machinery, equipment, tools,
furniture, fixtures and rents: 4. All goods, furniture, fixtures, building and
other materials, tools, supplies, and other
tangible personal property of every nature now
owned or hereafter acquired by Debtor and used,
intended for use, or usable in the construction,
development, or operation of the Property, whether
located on the Property or elsewhere, together
with all accessions thereto, replacements and
substitutions therefor and proceeds thereof;
5. The right to use the trademark or trade name
of Debtor and symbols or logos used in connection
therewith, or any modifications or variations
thereof, in connection with the operation of the
improvements existing or to be constructed on the
Property, together with all accounts, all
contracts and contract rights and all plans,
specifications, licenses, permits and other
general intangibles (whether now owned or
hereafter acquired, and including proceeds
thereof) relating to or arising from Debtor's
ownership, construction, use, operation, leasing
or sale of all or any part of the Property. . . .
(Doc. 1, Ex. B). The statement was filed with state and local
government offices in January and February 2001. (Doc. 1 ¶ 5; Doc. 15
¶¶ 1-10; Doc. 21 ¶¶ 4-6; Doc. 22 ¶¶ 1-10; Doc. 32 ¶¶ 4-6).
Soon after making the first loan, Allied Capital made a second loan to
Annlick Farm Supply in the amount of $1,250,000.*fn2 The parties
executed another security agreement, giving Allied Capital an interest in
the inventory and accounts of the business as collateral for the second
loan. (Doc. 1 ¶¶ 9-10; Doc. 15 ¶¶ 11-12; Doc. 21 ¶¶ 9-12; Doc.
22 ¶¶ 11-12; Doc. 32 ¶¶ 9-12). Soon thereafter, Allied Capital
filed a second financing statement identifying the collateral claimed
under the second security agreement: All tangible and intangible property of the
Debtor, whether now owned or hereafter acquired,
wherever located, including, but not limited to,
the Debtor's interest now owned and hereafter
acquired in the following types or items of
(ii) all inventory of every nature, kind and
description. . . .
(iii) all accounts, accounts receivable, [and]
contract rights . . . arising out of the sale,
lease or consignment of goods, or the rendition of
services by the Debtor. . . .
(Doc. 1, Ex. E). This second financing statement was filed with
state and local government offices in January and February 2001, after
Allied Capital had filed the financing statement relating to the first
loan agreement. (Doc. 1, Ex. E; Doc. 15 ¶¶ 5, 7, 9, 12-13; Doc. 22
¶¶ 4, 11; Doc. 22 ¶¶ 5, 7, 9, 12-13; Doc. 32 ¶¶ 4, 11).
In a series of subsequent transfers, certain interests held by Allied
Capital arising from the first and second loans were assigned to other
corporations. All of the interests arising under the first loan,
including the loan agreement, mortgage agreement, security agreement, and
initial financing statement, were assigned to InterBusiness on July 30,
2001. (Doc. 1 ¶¶ 6-8; Doc. 15 ¶¶ 1-10, 17; Doc. 21 ¶¶ 7-8; Doc.
22 ¶¶ 1-10, 17; Doc. 32 ¶¶ 7-8). With respect to the second loan,
Allied Capital retained its interests in the loan and security
agreements, and transferred only its interest in the second financing
statement. Through amendments filed with the appropriate government
offices, Allied Capital's interest in this second financing statement was assigned to First National in April 2001.*fn3 (Doc.
1 ¶ 13; Doc. 15 ¶ 17; Doc. 21 ¶ 11; Doc. 22 ¶ 17; Doc. 32
In May 2001, First National extended to Annlick Farm Supply a revolving
line of credit in the amount of $500,000 (later increased by $200,000)
pursuant to a loan agreement between the parties. They also executed a
security agreement giving First National an interest in "all inventory
and accounts" as collateral for the loan. (Doc. 1 ¶ 12; Doc. 15 ¶¶
14-16; Doc. 21 ¶ 14; Doc. 22 ¶¶ 14-16; Doc. 32 ¶ 14).
In July 2002, Annlick Farm Supply defaulted on its obligations under
the loan agreement between it and First National. Soon thereafter, First
National collected the accounts receivable of Annlick Farm Supply and
liquidated its inventory, garnering approximately $450,000. (Doc. 1 ¶¶
22-23; Doc. 4 ¶¶ 22-23; Doc. 21 ¶¶ 19-20; Doc. 32 ¶¶ 19-20).
In October 2002, other creditors of Annlick Farm Supply commenced
involuntary bankruptcy proceedings against the company. InterBusiness
moved for relief from the automatic stay to allow it "to exercise its
state law rights and remedies against the Collateral and Real Property"
of the debtor. (Doc. 34, Ex. A at 4). The bankruptcy court granted the
request, and InterBusiness obtained judgment by confession against
Annlick Farm Supply in a Pennsylvania trial court for sums owing under
the loan agreement between the parties. (Doc. 34, Ex. B; Doc. 40 ¶¶ 2-4). A writ of execution was issued, and the real
property subject to the mortgage agreement was sold to InterBusiness on
May 1, 2003. (Doc. 34, Exs. B, C; Doc. 40 ¶¶ 2-4). Following its
purchase, InterBusiness did not file a petition to fix the fair market
value of the property or take other action to determine the debt, if any,
still owed by Annlick Farm Supply. (Doc. 34, Ex. D).
InterBusiness filed the complaint sub judice on December 12,
2003. (Doc. 1). The complaint asserts that InterBusiness's security
interest in the inventory and accounts receivable of Annlick Farm Supply
is superior to that of First National, and demands remittance of the
proceeds of the liquidation of those assets. (Doc. 1 at 8). First
National then filed a third-party complaint against Allied Capital,
including claims of fraud and misrepresentation based on Allied Capital's
alleged assurances that First National would obtain a first-priority
position through assignment of the second loan financing statement. (Doc.
Soon thereafter, Allied Capital filed a motion to dismiss, claiming
that, under the allegations of the original complaint, InterBusiness did
not have a perfected security interest in the inventory and accounts
receivable of Annlick Farm Supply. (Docs. 10, 11). First National then
filed a motion for summary judgment, incorporating and "amplif[ying]" the
argument that InterBusiness lacked an interest in the collateral. (Doc.
14 at 3 n.1). InterBusiness responded with a cross-motion for summary
judgment, claiming that it had a priority interest and was entitled to
judgment as a matter of law. (Docs. 20, 25). The last of the multiple briefs and exhibits supporting and opposing the motions
was filed on April 8, 2004. (Doc. 39).
II. Standard of Review
Concurrent resolution of cross-motions for summary judgment can present
a formidable task. See 10A CHARLES ALAN WRIGHT ET AL., FEDERAL
PRACTICE AND PROCEDURE § 2720 (3d ed. 1998). Federal Rule of Civil
Procedure 56 mandates that the court view all facts in the light most
favorable to the non-moving party, giving that party the benefit of all
reasonable inferences. See FED. R. CIV. P. 56; Schnall v.
Amboy Nat'l Bank, 279 F.3d 205, 209 (3d Cir. 2002). However, the
Rule does not explain the proper practice when the plaintiff and the
defendant are both non-moving parties. See FED. R. CIV. P. 56;
10A WRIGHT ET AL., supra, § 2720. Inferences to which a
party is entitled with respect to the opponent's motion may not be
granted with respect to its own. United States v. Hall,
730 F. Supp. 646, 648 (M.D. Pa. 1990). In such circumstances, Rule 56 requires
two statements of the "facts" of the same case, a proposition that may
counsel separate opinions on the respective motions. See Rains v.
Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir. 1968); Hall,
730 F. Supp. at 648; 10A WRIGHT ET AL., supra, § 2720.
Similarly problematic is simultaneous review of motions for summary
judgment and for dismissal. Federal Rules of Civil Procedure 12(b)(6) and
56 both mandate equivalent standards of review, requiring
consideration of all facts in the light most favorable to the non-moving
party, but they prescribe significantly different scopes of
review. See 5A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1366 (2d ed. 1990).
Rule 12(b)(6) strictly limits the court to the face of the pleadings, aided
only by materials relied upon in the complaint or otherwise of
unquestioned validity. FED. R. CIV. P. 12(b)(6); In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997):
Oshiver v. Levin. Fishbein. Sedran & Berman, 38 F.3d 1380,
1384 n.2 (3d Cir. 1994). In contrast, Rule 56 not only permits the court
to consider extrinsic evidence, but requires the non-moving party to
produce such evidence when a material element of the claim is in doubt.
FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
Fortunately, these distinctions are without difference in the present
case. The basic facts of the case, as alleged in the pleadings, are
substantially undisputed and have been borne out by the declarations and
exhibits of the parties. Whether the complaint or the evidence is viewed
in the light most favorable to plaintiff, defendant, or third-party
defendants, the same conclusions generally inhere. The few evidentiary
discrepancies that do exist may be noted as necessary, satisfying the
dictates of Rules 12(b)(6) and 56 while permitting efficient resolution
of the instant motions. See FED. R. CIV. P. 1 ("These rules
. . . shall be construed and administered to secure the just, speedy,
and inexpensive determination of every action."); 10A WRIGHT ET AL.,
supra, § 2720. III. Discussion*fn4
Article 9 of the U.C.C., first enacted in Pennsylvania in 1953,
see Act of Apr. 6, 1953, Pub.L. No. 3, 1953 Pa. Laws 1,
overhauled the formalistic common law secured transactions regime,
installing a simplified and functional set of terms and procedures for
creating and enforcing secured interests in property. 13 PA. CONS. STAT.
§ 9101 cmt. (1999); 4 JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM
COMMERCIAL CODE § 30-1 (4th ed. 1995). In return for the extension of
credit or other financing arrangements, the "secured party" is entitled
to take a "security interest" in the "collateral" of the "debtor." 13 PA.
CONS. STAT. §§ 9102, 9203 (2002); id. §§ 9105, 9203
(19991: see also id. § 9101 cmt; 4 WHITE & SUMMERS,
supra, §§ 31-1 to-3. The precise form of the transaction is
relatively immaterial. Id. So long as the exchange includes the
provision of credit and the release of an interest in property as
security for the debt, Article 9 generally applies. Id.;
see 13 PA. CONS. STAT. § 9203 (2002); id. §
9203 (1999); see also id. § 9101 cmt.
Among the most important concepts in the U.C.C. secured transactions
system are "attachment" and "perfection." 4 WHITE & SUMMERS,
supra, § 31-1. By attaching certain assets of the debtor,
the creditor gains a security interest in those assets that may be
enforced against the debtor in the event of default. 13 PA. CONS. STAT. §§ 9203, 9601 (2002); id. §§ 9203, 9504-9505
(1999). Only through attachment may a creditor gain the right to collect
and liquidate specific assets of the debtor. Id. §§ 9203,
9601 (2002); id. §§ 9203, 9504-9505 (1999); 4 WHITE &
SUMMERS, supra, §§ 34-1, 34-5. Attachment generally requires
execution of a "security agreement" that reasonably identifies the assets
offered by the debtor as collateral for the extension of credit. 13 PA.
CONS. STAT. §§ 9108, 9203 (2002); id. §§ 9110, 9203
Closely related to attachment is "perfection." See 4 WHITE
& SUMMERS, supra, § 31-1. By perfecting an interest,
the creditor is entitled to take "priority" in the collection and
liquidation of the assets of the defaulting debtor as against other
creditors with unperfected security interests in the same collateral. 13
PA. CONS. STAT. §§ 9317, 9322 (2002); id. §§ 9301, 9312
(1999); 4 WHITE & SUMMERS, supra, §§ 31-1, 37-1. A
creditor that violates priority rules, liquidating assets in which it
holds a subordinate interest, may be liable to a party with a superior
perfected interest. See Chrysler Credit Corp. v. Smith,
643 A.2d 1098, 1102 (Pa. Super. 1994). cited in In re Varsity
Sodding Serv., 139 F.3d 154, 156 (3d Cir. 19981: see also
13 PA. CONS. STAT. §§ 9317, 9322 (2002); id §§ 9301, 9312 (1999); 4
WHITE & SUMMERS, supra, §§ 31-1, 37-1. Perfection
requires (1) attachment and (2) the filing of a financing statement with
state and local government offices indicating the debtor, the secured
party, and the collateral attached.*fn5 13 PA. CONS. STAT. §§ 9308(a),
9310(a), 9502 (2002); id. §§ 9302, 9303(a), 9402 (1999). The
steps may be completed in any order, meaning that a party may file a
financing statement covering collateral before the party gains a security
interest in the assets, but the interest will be perfected only when both
requisites are satisfied. Id. §§ 9308(a), 9310(a), 9502
(2002); id. §§ 9302, 9303(a), 9402 (1999); Credit
Alliance Corp. v. Jebco Coal Co., 688 F.2d 10, 13 (3d Cir. 1982);
Heights v. Citizens Nat'l Bank, 342 A.2d 738, 742-45 (
Pa. 1975); 4 WHITE & SUMMERS, supra, §§ 31-1.37-1.
When two or more parties hold perfected security interests in the same
collateral, priority is determined according to the dates of filing of
the parties' respective financing statements. 13 PA. CONS. STAT. §
9322(a)(1) (2002); id. § 9312(e)(1) (1999): see also
Credit Alliance, 688 F.2d at 13; Heights, 342 A.2d at
742-45. Under this "pure race" system, the party who holds the
first-filed statement covering the collateral takes priority over other
creditors. 4 WHITE & SUMMERS, supra, § 33-4;
see 13 PA. CONS. STAT. § 9322(a)(1) (2002); id.
§ 9312(e)(1) (1999): see also Chrysler Credit Corp. v. B.J.M.,
Jr., Inc., 834 F. Supp. 813, 830 (E.D. Pa. 1993); Heights,
342 A.2d at 742-45. It does not matter when the interest was perfected or
whether the party held a security interest at the time of filing. 13 PA. CONS. STAT. §§ 9308(a), 9310(a), 9502(d) (2002); id.
§§ 9302, 9303(a), 9402(a) (1999); see also Credit Alliance,
688 F.2d at 13; Heights, 342 A.2d at 742-45. Between two
creditors with perfected interests in the same collateral, the party with
the first-filed statement generally enjoys priority rights to collect
and liquidate the collateral in satisfaction of the debt. 13 PA. CONS.
STAT. §§ 9308(a), 9310(a), 9322(a)(1), 9502 (2002); id.
§§ 9302, 9303(a), 9312(e)(1), 9402(a), (d) (1999);
Bigelow-Sanford. Inc. v. Sec.-Peoples Trust Co., 450 A.2d 154,
156 (Pa. Super. 1982), cited in Chrysler Credit,
834 F. Supp. at 830; 1 BARKLEY CLARK, THE LAW OF SECURED TRANSACTIONS UNDER
THE UNIFORM COMMERCIAL CODE ¶¶ 2.11(2), 2.16 (1994 & Supp. 2003);
4 WHITE & SUMMERS, supra, §§ 31-1, 31-19, 37-1.
From this relatively simple outline emerges a host of intricate issues
with respect to the existence and priority of the conflicting claims of
InterBusiness and First National in the inventory and accounts receivable
of Annlick Farms. Each party claims that the other failed to satisfy the
requirements for perfection. In addition, First National alleges that,
subsequent to attachment, InterBusiness attained full satisfaction of its
debt through purchase of the debtor's real estate in execution
proceedings, extinguishing any security interest that it held and giving
First National first priority in collection.
Further complicating these difficult questions are choice-of-law issues
arising from major revisions to Article 9 enacted in Pennsylvania in
2001. See Uniform Commercial Code Modernization Act of 2001,
Pub.L. No. 123, 2001 Pa. Laws 18. These amendments significantly altered
several provisions of Article 9, including those governing priority and perfection. See 13
PA. CONS. STAT. § 9101 cmt. 4 (2002) (providing summary of
revisions). The effective date of the revised Article was July 1, 2001.
Id. § 9701. Because the transactions and events involved in
the present case occurred both before and after this date, the question
becomes whether the revised or former Article 9 should apply.
To resolve such issues, the amendments include a number of "transition"
provisions governing choice of law when transactions straddle the
effective date of the revised Article. See id. §§ 9700-9710.
Section 9709 prescribes the version of Article 9 applicable to determine
perfection and priority in the instant case:
Revised [Article] 9 determines the priority of
conflicting claims to collateral. However, if the
relative priorities of the claims were established
before Revised [Article] 9 takes effect, Former
[Article] 9 determines priority.
Id. § 9709. This section functions as a grandfather
clause, protecting interests that enjoyed priority under former Article 9
but would lose that status under the revised provisions. See
id. § 9709 cmt. 1. It ensures that "the mere taking effect of
[revised Article 9] does not of itself adversely affect the priority of
conflicting claims to collateral." Id.; Harry C. Sigman &
Edwin E. Smith, Revised U.C.C. Article 9's Transition Rules:
Insuring a Soft Landing, 55 Bus. LAW. 1065, 1103-06 (2000).
Whether the relative priorities of conflicting claims were
"established" before revised Article 9 took effect hinges on whether the
respective security interests were perfected prior to the Article's
effective date. See 13 PA. CONS. STAT. § 9709 cmt. 1
(2002); Dan L. Nicewander, Summarizing the UCC Article 9
Revisions, CONSUMER FIN. L.Q. REP., Spring-Fall 2001, at 128, 131; Sigman
& Smith, supra, at 1103-06. Priority depends primarily on
perfection. 13 PA. CONS. STAT. § 9322 (2002); id. §
9312 (1999). As soon as all conflicting security interests are perfected,
priority among the claims is established. Id. §
9322 (2002); id. § 9312 (1999); see also id. §
9709 cmt. 1 (2002); Sigman & Smith, supra, at 1103-06. If
all competing claims were perfected under former Article 9, then those
provisions continue to govern perfection and priority even after the
effective date of the revised Article.*fn6 13 PA. CONS. STAT. §
9709(a) (2002); Sigman & Smith, supra, at 1103-06.
The choice-of-law inquiry is thus subsumed within an examination of
perfection and priority. If the security interests of both InterBusiness
and First National were perfected prior to July 1, 2001, the former
Article applies and determines their respective priorities. See
13 PA. CONS. STAT. § 9709(a) (2002). The court will first address
this issue and then, applying the appropriate version of Article 9,
determine which party has an enforceable priority interest in the
collateral at issue.
A. Perfection and Priority Under Former Article
Whether and when the parties attained perfected security interests
depend on the validity and effect of the various assignments from Allied
Capital, on which each party relies to support its claim. Article 9 adopts a liberal
attitude towards assignment of security interests, not only recognizing
the inherent validity of such transactions but endowing the assignee with
priority rights held by the assignor. See id. §
9302 (1999): Himes v. Cameron County Constr., Corp., 444 A.2d 98, 99
& n.1, 100 (Pa. 1982). Once perfected, a security interest can be
assigned freely without adverse effect on perfection or priority. 13 PA.
CONS. STAT. §§ 9302, 9303(a), 9402(a) (1999); 4 WHITE & SUMMERS,
supra, §§ 31-1, 31-19, 37-1: see also Heights, 342
A.2d at 45. In other words, an interest that is perfected by one party
does not lose this status in subsequent assignments.*fn7 13 PA. CONS.
STAT. § 9302(b) (1999): Heights, 342 A.2d at 45.
Through assignment, InterBusiness obtained a perfected security
interest. As part of the first loan to Annlick Farm Supply, Allied
Capital executed a security agreement and filed a financing statement in
February 2001, thus perfecting its interest in collateral identified in
the statement. See 13 PA. CONS. STAT. §§ 9302, 9303(a), 9402
(1999). These assets, including the obligations owed under the first loan
agreement, were subsequently assigned to InterBusiness. These assignments
altered the identity of the secured party, but not the perfected status
of the interest. See id. § 9302(b). Clearly, the security interest
later assigned to InterBusiness was perfected as of February 2001.
Whereas InterBusiness was assigned Allied Capital's entire perfected
interest, including the underlying loan agreement and financing
statement, First National was assigned only the financing statement filed
with respect to the second loan. Assignment of a financing statement
alone, achieved through a publicly filed amendment naming the assignee as
secured party of record, is ineffective to transfer a perfected interest
in the collateral at issue. Perfection requires both attachment and a
properly filed financing statement. Id. §§ 9302, 9303(a),
9402. Without attachment, there can be no perfection. Id.
Assignment of a "bare" financing statement, divorced from any
underlying security interest, is nonetheless a valuable asset. As
discussed previously, among perfected interests, priority is determined
from the date of the first-filed financing statement. See id. 5
9312(e)(1): 4 WHITE & SUMMERS, supra, 5 33-4. It matters
not whether the financing statement was filed before or after the
security interest attached or whether the current secured party filed the
statement initially. 13 PA. CONS. STAT. § 9402(a), (d) (1999):
see also In re Robert B. Lee Enters., Inc., 980 F.2d 606,
608-09 (9th Cir. 19921: In re Camp Town. Inc., 197 B.R. 139,
142-43 (Bankr. D.N.M. 1996); Corporate Financers. Inc. v. Voyageur
Trading Co., 519 N.W.2d 238, 241-42 (Minn. Ct. App. 1994).
Regardless of subsequent amendments to the secured party of record, a
financing statement continues to provide notice to creditors of a claimed
security interest in the debtor's collateral from the date on which it is
filed. See Robert B. Lee, 980 F.2d at 608-09; Camp
Town, 197 B.R. at 142-43; Corporate Financers, 519 N.W.2d
at 241-42; 1 CLARK, supra, ¶¶ 2.11(2), 2.16. Assignments
affect neither the filing date of the statement nor the ability of
subsequent assignees to take the superior priority status that
accompanies an earlier filing date. See 13 PA. CONS. STAT.
§§ 9302, 9303(a), 9402(a), (d) (19991: see also Camp Town,
197 B.R. at 142-43; Corporate Financers, 519 N.W.2d at 241-42;
1 CLARK, supra, ¶¶ 2.11(2), 2.16; 4 WHITE & SUMMERS,
supra. §§ 31-1, 31-19, 37-1. Whatever the path followed, as
soon as a party holds a security interest (arising through attachment of
collateral) and is named as a secured party in a financing statement
covering the collateral, the interest is perfected and priority is
established as of the original date of filing. 13 PA. CONS. STAT. §§
9302, 9303(a), 9402(a) (1999): see also Robert B. Lee, 980 F.2d
at 608-09; Camp Town, 197 B.R. at 142-43; Corporate
Financers, 519 N.W.2d at 241-42; 4 WHITE & SUMMERS,
supra, §§ 31-1, 31-19, 37-1.
By assignment of the financing statement from Allied Capital and
execution of its own security agreement with Annlick Farm Supply, First
National gained a perfected interest in the collateral of Annlick Farm
Supply. The financing statement eventually transferred to First National
was initially filed by Allied Capital as part of the second loan to
Annlick Farm Supply. At the time of its assignment, an amendment was
filed substituting First National as the secured party of record. That
First National did not have a security interest in the collateral when it
received the financing statement is immaterial, since the prerequisites
for perfection may be satisfied in any order. 13 PA. CONS. STAT. §§ 9302, 9303(a), 9402(a) (1999). As soon as First National made
its own loan to Annlick Farm Supply in May 2001, attaching the collateral
through execution of a security agreement, the interest was perfected.
In arguing that First National could not acquire a perfected security
interest through the second loan financing statement without concurrent
assignment of the second loan and security agreements, InterBusiness
misapprehends the nature and purpose of a financing statement. A
financing statement does not relate to particular security interest, to
which it is inextricably bound following perfection. Rather, it serves
only to mark certain collateral of the debtor as potentially subject to a
claim. See 13 PA. CONS. STAT. §§ 9302, 9303(a), 9402(a)
(19991: see also Robert B. Lee, 980 F.2d at 608-09; Camp
Town, 197 B.R. at 142-43; Corporate Financers, 519 N.W.2d
at 241-42; 4 WHITE & SUMMERS, supra, §§ 31-1, 31-19,
37-1. Financing statements cover collateral, not security interests.
See 13 PA. CONS. STAT. §§ 9302, 9303(a), 9402(a) (1999).
Once filed and effective to perfect a certain interest, the statement may
be assigned freely, with or without assignment of the original security
interest, and used by subsequent creditors to perfect different interests
in the same collateral. Camp Town, 197 B.R. at 142-43:
Corporate Financers, 519 N.W.2d at 241-42; see also
13 PA. CONS. STAT. §§ 9302, 9303(a), 9402(a), (d) (1999). It is thus
immaterial that First National received a "bare" financing statement,
without assignment of the security interest evinced by the second loan
and security agreements. Once it acquired a security interest in the
collateral covered by the statement, First National's new interest was perfected, regardless
of the ownership of the original security interest.
Both parties in this case perfected their respective security interests
prior to July 1, 2001, the effective date of revised Article 9. Thus,
former Article 9 governs priority of the claims at issue. See
id. § 9709(a) (2002). Because the financing statement assigned
to InterBusiness was filed before the one assigned to First National,
InterBusiness enjoyed a priority perfected interest in the collateral
described in the financing statement. See id. § 9312(e)(1)
(1999). The priority of this interest remained unchanged by enactment of
revised Article 9. See id. § 9709(a) (2002).
B. Description of Collateral
Concluding that InterBusiness held a priority security interest in
certain collateral of Annlick Farm Supply does not, of course, answer the
question of what particular assets this interest covered. A financing
statement is effective to perfect a security interest only to the extent
that the statement adequately describes the collateral at issue.
Id. §§ 9401-9402 (1999); 1 CLARK, supra, ¶
2.09(c); 4 WHITE & SUMMERS, supra, § 31-18(d). Whether
InterBusiness can claim an interest in the "inventory" and "accounts
receivable" of Annlick Farm Supply hinges on whether the financing
statement assigned to it, identifying an interest in "goods" and
"accounts," satisfies the description requirements of former Article
9.*fn8 Section 9402 of the former Article establishes the minimum requirements
for a description of collateral:
A financing statement is sufficient if it . . .
contains a statement indicating the types . . . of
13 PA. CONS. STAT. § 9402 (1999). Under this provision, the
statement must identify the collateral by "type."*fn9
Unfortunately, former Article 9 does not provide a definition for the
term. See id. § 9105. While the Third Circuit has held that
description by "type" mandates more specificity than references to "all
assets of the debtor." see In re Bennet Co., 588 F.2d 389
(3d Cir. 1978), neither federal nor Pennsylvania courts have reached
consensus as to the permissible level of generalization. See 1
CLARK, supra, ¶ 2.09(c); 4 WHITE & SUMMERS,
supra, § 31-18(d).
Issues of statutory interpretation are customarily resolved by resort
to the plain meaning of the terms, as found in general reference
materials. See 1 PA. CONS. STAT. § 1921 (2002): Ramich
v. Worker's Comp. Appeal Bd., 770 A.2d 318, 322 (Pa. 2001): see
also Carter v. United States, 530 U.S. 255, 271 (2000). Consulting
these sources in this case, however, raises more questions than it
answers. A multitude of entries appear under the heading "type," none of
which limits its meaning in an appreciable way. See WEBSTER'S THIRD NEW
INTERNATIONAL DICTIONARY 2302 (Philip Babcock Gove ed., 1993) (defining
"type" as, inter alia, "something that serves as a symbolic
representation," "a figurative representation," "a distinctive mark or
sign," "qualities common to a number of individuals that serve to
distinguish them as an identifiable class or kind," and "a particular
kind, class, or group"). Incorporating these broad definitions as the
meaning of "type" for purposes of section 9402 would eviscerate any
restrictive effect of the term, permitting any description, no matter how
broad, to suffice. This would render the term superfluous. See
1 PA. CONS. STAT. § 1921(a) (2002) ("Every statute shall be
construed, if possible, to give effect to all its provisions."): TRW
Inc. v. Andrews, 534 U.S. 19, 31 (2001) ("It is `a cardinal
principle of statutory construction' that `a statute ought, upon the
whole, to be so construed that, if it can be prevented, no clause,
sentence, or word shall be superfluous, void, or insignificant.'")
(quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)).
Although the statute does not provide an explicit definition of "type,"
other provisions offer interpretive clues. Words draw meaning from those
around them, and context sheds light on language otherwise obscured.
See United States v. Cleveland Indians Baseball Co.,
532 U.S. 200, 217-18 (2001) ("[S]tatutory construction `is a holistic
endeavor' and . . . the meaning of a provision is `clarified by the
remainder of the statutory scheme . . . [when] only one of the permissible
meanings produces a substantive effect that is compatible with the rest of
the law.'") (quoting United Sav. Ass'n of Tex. v. Timbers of Inwood
Forest Assocs., Ltd., 484 U.S. 365, 371 (1988)1: see also 1 PA. CONS. STAT.
§ 1922 (2002). Within the general application sections of former
Article 9 appears a list of defined phrases, identifying the parties to
secured transactions, the documents employed, and most
importantly for these purposes-the categories of collateral that may be
involved. 13 PA. CONS. STAT. §§ 9105-9107, 9109, 9115 (1999). Among
these terms are "goods" and "accounts." Id. Although Article 9
does not expressly title them as such, these defined terms may be deemed
"types" of collateral, reference to which satisfies section 9402.
Courts and commentators have struggled with this issue.*fn10 See
Bennet Co., 588 F.2d at 392 (identifying issue but declining to
resolve it as unnecessary to disposition of the case); Richard C. Tinney,
Annotation, Sufficiency of Description of Collateral in Financing
Statement Under UCC §§ 9-110 and 9-402, 100 A.L.R.Sd 10 (1980
& Supp. 2000) (collecting cases). Authorities finding such references
inadequate to meet the U.C.C. description requirement stress the need for
specificity in transactions. In re Lehner, 303 F. Supp. 317,
319-20 (D. Colo. 1969), aff'd, 427 F.2d 357 (10th Cir. 1970); 1 GRANT GILMORE,
SECURITY INTERESTS IN PERSONAL PROPERTY § 15.3 (1965); J. HONNOLD,
CASES AND MATERIALS ON THE LAW OF SALES AND SALES FINANCING 507 (3d ed.
1968)). Those to the contrary emphasize the notice function of the
financing statement, arguing that use of the terms defined in Article 9
adequately describes the claimed interest to alert creditors of the need
for further investigation. See In re Dillard Ford. Inc.,
940 F.2d 1507, 1512 (11th Cir. 1991); 1 CLARK, supra, ¶
The latter interpretation, accepting the defined terms as "types" of
collateral for purposes of section 9402, offers the only viable method
for limiting the scope of "type" and remaining within the bounds of the
statute. While Article 9 ascribes a broad meaning to several of the
enumerated categories of collateral, these definitions are sufficiently
limited to give potential creditors notice of whether a security interest
may exist. See 13 PA. CONS. STAT. § 9105 (1999). Construing
these categories as "types" of collateral provides both courts and
parties with a standardized method by which to determine whether a
statement satisfies the description requirement and perfects a security
interest in particular collateral. See 1 PA. CONS. STAT. §
1927 (2002) ("Statutes uniform with those of other states shall be
interpreted and construed to effect their general purpose to make uniform
the laws of those states which enact them.").
The alternative would be an ad hoc analysis of each specific
term used in every financing statement to decide whether, based on
evanescent guidelines, it constitutes a "type" of collateral. Such
inquiries would engender doubt in the commercial community and defeat the central purpose of the U.C.C.:
uniformity in transactions. See 13 PA. CONS. STAT. §
1102(b) (19991: see also 1 PA. CONS. STAT. §§ 1922(1), 1927
(2002) (providing that statutes should be construed to avoid absurd
results and achieve uniformity): Griffin v. Oceanic Contractors.
Inc., 458 U.S. 564, 575 (1982) (" [I]nterpretations of a statute
which would produce absurd results are to be avoided if alternative
interpretations consistent with the legislative purpose are available.").
Interpreting "types" of collateral to include the terms defined in
Article 9 finds additional support in the official commentary. Comments
to the general definitions section of former Article 9 state:
For some purposes the Code makes distinctions
between different types of collateral
[such as] . . . "goods" . . . "accounts" and
"general intangibles". . . .
13 PA. CONS. STAT. § 9105 cmt. 3 (1999) (emphasis added).
Subsequent provisions explicitly refer to other terms listed in the
general application sections as "type[s] of collateral." See
id. § 9105 cmt. 4 (referring to the "type of collateral
called `chattel paper'"); id. § 9105 cmt. 5 ("`Deposit
account' is a type of collateral. . . . "). Hence, the drafters expected
"goods" and "accounts," and other categories of collateral defined in
former Article 9, to constitute "types" of collateral as the phrase is
used in section 9402. This evidence of legislative intent is particularly
weighty when the plain meaning of the term provides little interpretive
guidance. See 1 PA. CONS. STAT. §§ 1921-1922, 1939 (2002)
(providing for use of legislative history and official comments in
interpretation of Pennsylvania statutes); Ross v. Hotel Employees Int'l Union, 266 F.3d 236
, 245 (3d Cir.
2001) (relying on legislative history to construe ambiguous provision).
The court therefore holds that reference to the terms defined in former
Article 9 of the U.C.C. satisfies the requirement of description by
"type." Accord Dillard Ford, 940 F.2d at 1512; In re
Varney Wood Prods., Inc., 458 F.2d 435, 436-38 (4th Cir. 19721:
see also Bennet Co., 588 F.2d at 392 (suggesting but not
deciding that such descriptions are sufficient). The financing statement
assigned to InterBusiness covers "goods" and "accounts." As defined in
the U.C.C., "goods" include "inventory," see 13 PA. CONS. STAT.
§ 9109(4) (1999), and "accounts" include "the ordinary commercial
account receivable," see id. § 9106 cmt. Thus, reference to
the "goods" and "accounts" of the debtor presumptively includes the
inventory and accounts receivable of Annlick Farm Supply.
First National argues that, even if the references to "goods" and
"accounts" suffice to cover inventory and accounts receivable, the
financing statement assigned to InterBusiness includes additional
limiting language that restricts the scope of the terms. See, e.g.,
In re Toppo, 474 F. Supp. 48, 51 (W.D. Pa. 1979): In re John
Oliver Co., 91 B.R. 643, 645-46 (Bankr. D.N.H. 1988); 4 WHITE &
SUMMERS, supra, § 31.18. The statement refers to " [a] 11
goods . . . used, intended for use, or usable in the construction, development, or operation of the
Property" and to "all accounts . . . relating to or arising from
Debtor's ownership, construction, use, operation, leasing or sale of
all or any part of the Property." (Doc. 1, Ex. B (emphasis added)).
First National asserts that the emphasized phrases demonstrate that the
"goods" and "accounts" covered by the financing statement are limited to
those relating directly to the property, such as the fixtures attached to
the property (goods) or rents obtained through leasing of the premises
The language cited by First National does not support such a
restrictive interpretation. The first financing statement covers all
goods and accounts arising from the "use" and "operation" of the
property. The property, in this case, was the site of Annlick Farm
Supply. By operating from and using this property to facilitate
commercial transactions, Annlick Farm Supply was able to obtain assets in
the forms of inventory and accounts receivable. The emphasized language,
rather than aiding First National, actually supports the opposing
position that the financing statement provided clear notice of a
potential security interest in the collateral at issue.*fn11
See 13 PA. CONS. STAT. §§ 9312 cmt. 5, 9402 cmt. 2 (1999):
In re Blue Ridge Motel Assocs., 106 B.R. 81, 82 (Bankr. W.D.
Pa. 1989). Through the financing statement, InterBusiness held a
perfected and priority interest in the inventory and accounts receivable
of Annlick Farm Supply.*fn12
C. Satisfaction of the Underlying Debt
That a party attains a priority perfected interest in collateral does
not, of course, ensure that its right will remain undisturbed thereafter.
Assignment or satisfaction of the underlying debt obligation extinguishes
the party's security interest.*fn13 See, e.g., Auerbach v. Corn
Exch. Nat'l Bank & Trust Co., 148 F.2d 709, 711-12 (3d Cir.
19451: Savoy v. Beneficial Consumer Discount Co., 468 A.2d 465.
467-68 (Pa. 1983). Satisfaction not only precludes enforcement of the
security interest against the debtor, but also bars enforcement of
priority rights against other creditors. Rights of priority against other
creditors are grounded in, and dependent upon, rights of attachment
against the debtor. 13 PA. CONS. STAT. §§ 9201(a), 9322, 9608(a), 9615(a) (2002); 1 CLARK,
supra, ¶ 3.02; 4 WHITE & SUMMERS, supra,
§ 33-4. Without a security interest, there can be no priority
First National suggests that the debt underlying InterBusiness's
security interest in the collateral of Annlick Farm Supply was satisfied
by operation of the Pennsylvania Deficiency Judgment Act, 42 PA. CONS.
STAT. § 8103 (2002). The Act provides, in pertinent part, as follows:
(a) General rule. Whenever any real
property is sold . . . to the judgment creditor in
execution proceedings and the price for which such
property has been sold is not sufficient to
satisfy the amount of the judgment, interest and
costs and the judgment creditor seeks to collect
the balance due on said judgment, interest and
costs, the judgment creditor shall petition the
court to fix the fair market value of the real
property sold. The petition shall be filed as a
supplementary proceeding in the matter in which
the judgment was entered [within six months
following execution and delivery of sheriff's deed
for the property sold in connection with the
(b) Effect of failure to give notice.
Any debtor . . . who is neither named in the
petition nor served with a copy thereof or notice
of the filing thereof as prescribed by general
rule, shall be deemed to be discharged from all
personal liability to the judgment creditor on the
debt, interest and costs. . . .
(d) Action in absence of petition. If
the judgment creditor shall fail to present a
petition to fix the fair market value of the real
property sold within [six months] after the sale
of such real property . . . the debtor . . . may
file a petition, as a supplementary proceeding in
the matter in which the judgment was entered, in
the court having jurisdiction, setting forth the
fact of the sale, and that no petition has been
filed within [six months after the sale of such
real property] to fix the fair market value of the
property sold, whereupon the court, after notice
as prescribed by general rule, and being satisfied
of such facts, shall direct the clerk to mark the
judgment satisfied, released and discharged. Id.; see also id. § 5522. A judgment creditor that
purchases real property of the debtor at an execution proceeding but
fails to file a petition to fix value within six months thereafter is
deemed to have accepted the purchase as full satisfaction of the
judgment. See id. §§ 5522, 8103; Marine Midland Bank v.
Surfbelt, Inc., 718 F.2d 611
, 613 (3d Cir. 1983): First Nat'l
Consumer Discount Co. v. Fetherman, 527 A.2d 100, 105 (Pa. 1987).
It cannot reasonably be disputed that InterBusiness failed to comply
with the Pennsylvania Deficiency Judgment Act. InterBusiness obtained
judgment by confession against Annlick Farm Supply in a Pennsylvania
trial court for sums owing under the first loan agreement and
subsequently purchased the real property securing the debt at a sheriff's
sale on May 1, 2003. Delivery of the deed triggered InterBusiness's
obligation to file a petition to fix value within six months,*fn14
establishing the amount of debt satisfied by the purchase and the debt
still remaining. InterBusiness did not file such a petition. More difficult than finding non-compliance is determining its effect.
Pennsylvania courts have consistently held that expiration of the
six-month window gives rise to an "irrebuttable presumption that the
creditor was paid in full in kind," but the superior court has recently
suggested in dicta that this presumption is not" activate [d]" until the
debtor files a petition to mark the judgment satisfied pursuant to
subsection (d) of the Act. First Fed. Sav. & Loan Ass'n of
Carnegie v. Keisling, 746 A.2d 1150, 1158 (Pa. Super. 2000);
accord Commonwealth Bank & Trust Co. v. Thomas,
577 A.2d 627, 631 (Pa. Super. 1990). Compare 42 PA. CONS. STAT.
§ 8103(b) (2002) ("Any debtor . . . who is neither named in the
petition nor served with a copy thereof or notice of the filing thereof
as prescribed by general rule, shall be deemed to be discharged from all
personal liability to the judgment creditor on the debt. . . . ")
with id. § 8103(d) ("If the judgment creditor shall fail to
present a petition to fix the fair market value . . . within [six months]
after the sale of such real property . . . the debtor . . . may file a
petition . . . to mark the judgment satisfied, released and
discharged."). Neither Annlick Farm Supply nor another party filed a
petition to mark the judgment satisfied in the state court execution
proceedings. Therefore, only if the presumption of full satisfaction
arises without action of the debtor or other parties is the debt owed to
InterBusiness deemed satisfied for purposes of this case.
In First National Consumer Discount Co. v. Fetherman,
527 A.2d 100 (Pa. 1987), the Supreme Court of Pennsylvania held that the
Deficiency Judgment Act is self-executing. In Fetherman, the
judgment creditor failed to file a petition to fix value within six months after the sale of the debtor's real
property. Id. at 104. Thereafter, the debtor asked the creditor
to enter the judgment satisfied of record, pursuant to Pennsylvania
statutory provisions requiring a "judgment creditor who has received
satisfaction of any judgment[,] . . . at the written request of the
judgment debtor, . . . [to] enter satisfaction in the office of the clerk
of the court where such judgment is outstanding." 42 PA. CONS. STAT.
§ 8104(a) (2002) (emphasis added). When the judgment creditor refused
to comply with the request, the debtor sought damages under the statute.
Fetherman, 527 A.2d at 104; see 42 PA. CONS. STAT.
§ 8104(b) (2002) ("A judgment creditor who shall willfully or
unreasonably fail without good cause or refuse . . . to comply with a
request pursuant to subsection (a) shall pay to the judgment debtor . . .
liquidated damages [in the amount specified hereunder].").
The supreme court held that the judgment creditor had a statutory duty
to honor the debtor's request to mark the judgment satisfied after
expiration of the six-month limitations period. Fetherman, 527
A.2d at 105. Even though the debtor had not filed a petition to mark the
judgment satisfied, the court held that the judgment creditor's failure
to file a timely petition to fix value immediately gave rise to the
"irrebuttable presumption" that it had received full satisfaction of the
debt. Id. at 103-05. Because the debt had been satisfied as of
this time, the creditor was statutorily obliged to seek discharge of the
judgment upon request of the debtor, and an award of damages was
appropriate. See id. Under the Pennsylvania Deficiency Judgment Act, as interpreted by the
Supreme Court of Pennsylvania in Fetherman. InterBusiness's
failure to file a petition to fix value within six months of the real
estate sale conclusively establishes satisfaction of the debt owed by
Annlick Farm Supply.*fn15 See 42 PA. CONS. STAT. § 8103 (20021: Fetherman, 527 A.2d at
105; see also Erie, 304 U.S. at 79-80. Because both the
mortgage agreement and the security agreement were based on this debt,
its satisfaction extinguishes the security interest in the collateral now
claimed by InterBusiness.
Nevertheless, InterBusiness claims that its security interest remains
effective because the interests in the real property and collateral,
although based on the same debt, arose through separate agreements. Such
an argument elevates form over substance. But see 13 PA. CONS.
STAT. § 9101 cmt. (1999) ("The scheme of the Article is to make
distinctions, where distinctions are necessary, along functional rather
than formal lines."); 4 WHITE & SUMMERS, supra, § 30-2
("Substance generally reigns over form."). A security interest is
effective only to the extent that the underlying debt obligation remains
outstanding. See Auerbach, 148 F.2d at 711-12; Savoy,
468 A.2d at 467-68. InterBusiness's security interest in the collateral
of Annlick Farm Supply was based entirely on the same debt underlying the
mortgage agreement. When that debt was deemed satisfied by operation of
the Pennsylvania Deficiency Judgment Act, the security interest in the
collateral was extinguished. See 13 PA. CONS. STAT. §§ 1201,
9203, 9513 (2002);*fn16 Auerbach, 148 F.2d at 711-12;
Savoy, 468 A.2d at 467-68. The formal existence of two separate agreements is immaterial to the substantive analysis of the
validity of the security interest
This principle also compels rejection of InterBusiness's proposed
analogy to Horbal v. Moxham National Bank, 697 A.2d 577 (
Pa. 1997) (per curiam). In Horbal, an equally divided Supreme Court
of Pennsylvania affirmed the lower courts' conclusion that a judgment
creditor's failure to file a petition to fix value in accordance with the
Pennsylvania Deficiency Judgment Act did not preclude the creditor from
liquidating a certificate of deposit also held as security on the
underlying debt. Id. at 578-79. InterBusiness seizes on this
case for the proposition that non-compliance with the Act does not
extinguish the creditor's right to enforce "separate" agreements
providing "additional" security on the same debt.
Neither the supreme court nor the lower court opinions in
Horbal stand for the holding espoused by InterBusiness. To the
contrary, the outcome in Horbal hinged on the conclusion
(accepted by three justices of the supreme court) that the certificate of
deposit was a negotiable instrument controlled by Article 3, rather than
Article 9, of the U.C.C. See id. at 582-83; see also
id. at 585 (opinion in support of reversal). From this conclusion,
the justices reasoned that the instrument was effective to transfer
full ownership rights to the creditor on the date of default.
Id. at 583-84. The certificate of deposit, and the funds that
it represented, ceased to be the personal property of the debtor and
became the property of the creditor immediately upon default, regardless
of when the creditor actually liquidated the certificate. Id.
The subsequent satisfaction of the underlying debt by operation of the
Deficiency Judgment Act eliminated the creditor's right to enforce the
debt obligation. Id. But, according to the court, it did not
affect the creditor's ability to liquidate the certificate of deposit,
which it "owned" upon the debtor's default. Id.
Unlike Horbal, InterBusiness seeks to enforce a security
interest concededly governed by Article 9. Neither party asserts, nor
could they, that the security agreement at issue is a "negotiable
instrument" or that this case somehow implicates Article 3 of the U.C.C.
See id. at 583-86 (explaining requisites for negotiable
instruments). Ownership of the collateral did not pass immediately upon
default from Annlick Farm Supply to InterBusiness; rather, InterBusiness
gained a right to enforce a security interest in that property.
Cf. 13 PA. CONS. STAT. §§ 9611, 9624(a) (2002) (providing
debtors a right to notification before disposition of collateral by
secured party). As discussed previously, this interest was premised on a
debt that was subsequently satisfied by operation of the Deficiency
Judgment Act. Thereafter, the security interest was extinguished.
InterBusiness has received the relief that it requests, and its claim
for these amounts is now moot. While a finding of mootness would
ordinarily compel dismissal of the claims, or the entire case, such
action would be premature in this circumstance. See 5A WRIGHT
& MILLER, supra, § 3533.2. First National did not move
for summary judgment on grounds of satisfaction. Rather, it raised the
issue only as a defense to InterBusiness's motion. Finding the debt
satisfied by operation of Pennsylvania law rests on a view of the facts
in the light most favorable to First National, as the non-moving party,
and the issue has received inadequate briefing to permit final resolution.*fn17 See
10A WRIGHT ET AL., supra, § 2720; see also supra
Part II (explaining cross-motion practice). Considering the record at
this stage of the proceedings, the court can conclude only that
InterBusiness is not entitled to judgment as a matter of law.
Both InterBusiness and First National acquired valid and enforceable
perfected interests in the inventory and accounts receivable of Annlick
Farm Supply through the assignment of interests from Allied Capital.
First National violated InterBusiness's priority status under Article 9
of the U.C.C. by collecting and liquidating those assets, but evidence
suggests that InterBusiness subsequently obtained full satisfaction of
its debt by operation of the Pennsylvania Deficiency Judgment Act.
Because material questions of fact with respect to the validity of
plaintiff's claims remain outstanding, the cross-motions for summary
judgment and the motion to dismiss must be denied.
An appropriate order will issue. ORDER
AND NOW, this 23rd day of April, 2004, upon consideration of the
cross-motions for summary judgment of plaintiff and defendant (Docs. 13,
20) and the motion to dismiss of third-party defendants (Doc. 10), and
for the reasons stated in the accompanying memorandum, it is hereby
ORDERED that the motions (Docs. 10, 13, 20) are DENIED.