Amex-Protein Development Corp., In re

• Citation: 15 U.C.C.Rep.Serv. 286,504 F.2d 1056
• Decision Date: 19 September 1974
• Docket Number: No. 73-3119,AMEX-PROTEIN,73-3119
• Parties: 15 UCC Rep.Serv. 286 In the Matter ofDEVELOPMENT CORPORATION, Bankrupt. M. NOLDEN, Trustee of Estate of Bankrupt, Appellant, v. PLANT RECLAMATION, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1056

504 F.2d 1056

15 UCC Rep.Serv. 286

In the Matter of AMEX-PROTEIN DEVELOPMENT CORPORATION, Bankrupt.

M. NOLDEN, Trustee of Estate of Bankrupt, Appellant, v. PLANT RECLAMATION, Appellee.

No. 73-3119.

United States Court of Appeals, Ninth Circuit.

Sept. 19, 1974.

Harvy W. Hoffman, Jr., Hoffman & Kelly, San Francisco, Cal., for appellant.

Matthew Koppel, San Francisco, Cal., for appellee.

Before MERRILL and TRASK, Circuit Judges, and FERGUSON, ^* District judge.

OPINION

PER CURIAM:

This is an appeal filed pursuant to 24 of the Bankruptcy Act (11 U.S.C. 47) from a judgment of the district court holding that a valid and enforceable security interest was created under the provisions of the Uniform Commercial Code.

We adopt the following opinion of the Honorable George B. Harris, United States District Judge for the Northern District of California:

'This matter is on review from an Order of the Referee which declared invalid a security interest claimed by petitioner Plant Reclamation, a creditor of the bankrupt, in certain personal property in the possession of the bankrupt.

'Plant Reclamation had sold equipment to the bankrupt on open account, but on October 16, 1972, substituted a promissory note for the open account indebtedness and caused a financing statement to be signed and filed. The parties intended to create a security interest in the property sold as collateral for the note, and the Referee so found.

'The promissory note included the following line: 'This note is secured by a Security Interest in subject personal property as per invoices.' The words 'subject . . . as per invoices' were handwritten in an otherwise typewritten sentence; the testimony before the Referee established that such words were added by an officer of the bankrupt in order to tie the security interest to the personal property that had been sold to the bankrupt by Plant Reclamation. The invoices referred to in the promissory note were the only ones submitted by Plant Reclamation.

'The financing statement named Plant Reclamation as the secured party and recited that it covered the following types or items of property:

1-- Dorr Oliver 100 Sq. Ft. Vacuum Filter

1-- Chicago Pheumatic Vacuum Compression

1-- Stainless Steel Augar and Drive

1-- Nichols Micro 7' dryer

1-- Tolhurst Centerfuge 26 inch.

Discussion

I. Did the Promissory Note 'Create or Provide for' a Security Interest?

'This issue turns on whether there has been compliance with the following pertinent sections of the California Commercial Code ('Cal.Com.C.') which govern the creation and enforcement of a security interest:

Section 9105(1)(h):

'Security agreement' means an agreement which creates or provides for a security interest; Section 1201(37):

'Security interest' means an interest in personal property or fixtures which secures payment or performance of an obligation. * * * Section 9203:

(1) Subject to the provisions of Section 4208 on the security interest of a collecting bank and Section 9113 on a security interest arising under the division on sales, a security interest is not enforceable against the debtor or third parties unless (a) The collateral is in the possession of the secured party; or (b) The debtor has signed a security agreement which contains a description of the collateral . . ..

'The Referee denied the claim of Plant Reclamation on the single ground that no security interest had been 'granted' pursuant to the language of the promissory note, as a result of which there had been a failure to comply with the 'creates or provides for' requirement of Cal.Com.C. 9105(1)(h). The referee concluded:

Creative words do not exist in the note before me. The language relied upon is passive, descriptive and informative, much like a financing statement; it is not active or creative; it does not grant or provide for. As such it is analogous to Needle (v. Lasco Industries, Inc., 10 Cal.App.3d 1105, 89 Cal.Rptr. 593 (1970)) and Shelton (v. Erwin, 472 F.2d 1118 (8th Cir. 1973)) rather than Nunnemaker (Transp. Co. v. United California Bank, 456 F.2d 28 (9th Cir. 1972)).

Accordingly, I conclude that the promissory note is not a security agreement under 9105(1)(h) and that a security agreement enforceable under 9203(1)(b) has not been proven. * * *

' The court recognizes that, pursuant to General Order 47 in Bankruptcy, it is bound to accept the Referee's findings of fact unless they are clearly erroneous. Here, however, the facts are not in dispute, and the court remains free to examine the legal conclusions of the Referee and to reject them if they are erroneous. In re Gregory Mobile Homes, Inc., 347 F.Supp. 528, 529 (M.D.Ga.1972); In re Christian and Porter Aluminum Company,316 F.Supp. 1340, 1342 (N.D.Cal.1970).

'Cal.Com.C. 9105(1)(h) defines a security agreement as one which 'creates or provides for' a security interest. The Referee found the above-quoted words to be synonymous with the word 'grant' and therefore to require active language. A fair reading of the statute, however, will not bear such a restrictive interpretation.

'It is a matter of basic statutory construction that statutes are to be given 'such effect that no clause, sentence or word is rendered superfluous, void, contradictory, or insignificant.' Ruiz v. Morton, 462 F.2d 818, 820 (9th Cir. 1972). In addition, absent persuasive reasons to the contrary, statutory words are to be given their ordinary meanings. Id.

'Cal.Com.C. 9105(1)(h) nowhere uses the word 'grants' nor is that word a synonym for either 'creates' or 'provides for' or for all of the quoted words together.

'Webster's Third New International Dictionary (3d ed. 1965) defines 'create' as a transitive verb with the following meanings inter alia: ¹

1: to bring into existence * * * 2: to cause to be or to produce by fiat or by mental, moral, or legal action * * * 3: to cause or occasion * * *

'Provide' is defined as a transitive verb with the following meanings inter alia:

2a: to fit out or fit up * * * 3: STIPULATE * * *

and as an intransitive verb with the following meanings inter alia:

1a: to take precautionary measures: make provision-- used with against or for * * * 2: to make a proviso or stipulation * * *

'Grant' is defined as a transitive verb with the following meanings inter alia:

1a: to consent to carry out for a person: ALLOW, ACCORD * * * 2: GIVE, BESTOW, CONFER * * *

' Thus the requirement of Cal.Com.C. 9105(1)(h) may be satisfied not only when a security interest is caused to be or brought into existence, but also when provision or stipulation is made therefor.

' No magic words or precise form are necessary to create or provide for a security interest so long as the minimum formal requirements of the Code are met. See Barney v. Rigby Loan & Investment Co., 344 F.Supp. 694, 697 (D.Idaho 1972); Evans v. Everett, 279 N.C. 352, 183 S.E.2d 109, 113 (N.C.1971). This liberal approach is mandated by an expressed purpose of the secured transaction provisions of the Code:

The aim of this Article is to provide a simple and unified structure within which the immense variety of present-day secured financing transactions can go forward with less cost and with greater certainty.

The Article's flexibility and simplified formalities should make it possible for new forms of secured financing, as they develop, to fit comfortably under its provisions . . .. Comment to U.C.C. and Cal.Com.C. 9101.

'The court in In re Center Auto Parts, 6 U.C.C.Rep. 398 (C.D.Cal.1968) upheld the validity of a promissory note as a security agreement by reading the two together. The promissory note merely recited that, 'This note is secured by a certain financing statement,' and the court found that such was sufficient to 'create or provide for' a security interest within the meaning of 9105(1)(h).

'A similar result was reached in a case involving the North Carolina version of the U.C.C., Evans v. Everett, supra, wherein the debtor gave a promissory note which recited: 'This note is secured by Uniform Commercial Code financing statement of North Carolina' and wherein a similarly worded financing statement was thereafter filed. The court found that since a security agreement could serve as a financing statement, there was no sound reason why the converse should not be true. The court held that the financing statement before it qualified as a security agreement.

By the same token any written agreement signed by a debtor which recites that certain personalty is being encumbered as security for a debt ought to operate as a security agreement under Code 25-9-105(1)(h). 18 Ark.L.Rev. 30, 34.

While there are no magic words which create a security interest there must be language in the instrument which 'leads to the logical conclusion that it was the intention of the parties that a security interest be created.' In Re Nottingham, 6 U.C.C.Rep. 1197, 1199 (U.S.D.C.Tenn.1969), 183 S.E.2d 113.

'Other cases which have reached a like ersult and which support the position taken here include In re Wambach, 343 F.Supp. 73, 75 (N.D.Ill.1972), and cases cited therein; Cheek v. Caine & Weiner Company, 335 F.Supp. 1319, 1320 (C.D.Cal.1971); In re Carmichael Enterprises, Inc., 334 F.Supp. 94, 104-105 (N.D.Ga.1971), affirmed, 460 F.2d 1405 (5th Cir. 1972).

'The cases relied upon by the trustee and cited by the Referee are not persuasive. Shelton v. Erwin, supra, dealt with the contention that an automobile bill of sale or a title application therefor or both together adequately set forth the intent of the parties to create or provide for a security interest and did in fact create or provide for same under pertinent Missouri statutes. In finding no security agreement, the court simply reaffirmed the principle that a single piece of paper-- here the title application and later certificate of title were being treated as a financing statement-- could not serve as a security agreement without containing the requirements for such. There was...