Summary of a Recent
Judicial
Development in
Secured Transactions
Unresolved Material Facts Preclude Summary Judgment
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Toombs, No. 3:01-BK-30784M, 2002 WL 32115829 (Bankr. E.D. Ark. Sept. 25, 2002), the United States Bankruptcy Court for the Eastern District of Arkansas denied a creditor's motion for summary judgment because the facts in the record were insufficient to determine whether a valid security agreement had been executed.
Background
Debtors filed for Chapter 13 bankruptcy in April 2001, and the Peoples Bank of Paragould filed this adversary proceeding to determine the validity of its claims. Id. at *1.
Arguments
The Bank argued that its security interest extended to certain government agricultural payments made to the Debtor post-petition, pursuant to 11 U.S.C. § 552(b)(1). Id. at *2.
The Trustee argued that the Bank's security interest in after-acquired property was cut off pursuant to 11 U.S.C. § 552(a), and that § 552(b)(1) did not apply because the government payments were not "proceeds" within the meaning of that subsection. Id.
Analysis and Holdings
Under Arkansas law, a security interest in after-acquired property of a debtor may be created by a valid security agreement, and such security interests are perfected when they have attached and the applicable steps for perfection have been performed. Id. at *3. The proper way to perfect security interests in government agricultural benefits is to follow the provisions of UCC Article 9. Id. The court found that the facts presented were insufficient to determine whether a valid security agreement was created, and stated that that issue had to be resolved before they could determine whether the Debtors had sufficient rights in the collateral for the Bank's security interest to attach. Id. at *3-4. Therefore, because there were material facts left unresolved, the court denied the Bank's motion for summary judgment. Id. at *4.
The case was decided on September 25, 2002.