In re Energy Contractors, Inc.

• Decision Date: 14 December 1984
• Docket Number: Bankruptcy No. 84-00427.
• Parties: In re ENERGY CONTRACTORS, INC.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Middle District of Louisiana

45 B.R. 181 (1984)

In re ENERGY CONTRACTORS, INC.

Bankruptcy No. 84-00427.

United States Bankruptcy Court, M.D. Louisiana.

December 14, 1984.

Whit M. Cook, II, Baton Rouge, La., for debtor/respondent.

Eugene R. Preaus, New Orleans, La., for creditor/movant.

WESLEY W. STEEN, Bankruptcy Judge.

REASONS FOR JUDGMENT

Mercantile Texas Credit Corporation ("Mercantile") filed this motion for relief from the stay, asserting an assignment of the Debtor's pre-petition accounts receivable. The Court has determined to deny the motion for relief from the stay on the grounds that Mercantile's security interest is invalid and not effective against third parties under Louisiana law. The assignment of accounts receivable is invalid because Mercantile failed to file a proper Statement of Assignment of Accounts Receivable as required by La.R.S. 9:3103 I. Facts

A. Energy Contractors, Inc. ("Energy Contractors") was incorporated June 11, 1981; it was, and is, domiciled in East Baton Rouge Parish, Louisiana.

B. On August 12, 1981, Energy Contractors entered into a loan and security agreement with Mercantile Texas Credit Corporation. The loan and security agreement has an accounts rider that supplements the agreement with respect to accounts receivable. The accounts rider, however, appears to be more in the nature of the loan commitment between Mercantile and Energy Contractors in which Mercantile establishes its obligation (albeit almost precatory in nature) to fund loans to Energy Contractors. The loan and security agreement provides, in pertinent part, as follows:

". . . Borrower hereby grants to Lender a security interest in and to all of Borrower\'s . . . existing and future Accounts . . . whether Accounts are acceptable or unacceptable to Lender and whether Accounts are scheduled to Lender . . . or not . . . and all proceeds and product of and accessions to . . . the foregoing . . . "

The address of the Borrower in paragraph 2.3 of the loan and security agreement is stated to be 4939 Jamestown Avenue, Baton Rouge, Louisiana. It is unclear, however, from the loan and security agreement whether the designation of an address in Baton Rouge, Louisiana, is intended as a designation of a "place of business" (the significance of which will be explained later) or whether the designation of that address has some other purpose, such as an address for a notice under the contract, an address for maintenance of records and allowance of the Lender's inspection of those records, or merely a warranty by the Borrower. The specific wording of the contract appears to contemplate that the designation of the address is more intended as a warranty by the Borrower than as a designation of a "place of business" under the definition of La.R.S. 9:3101(6).

C. A Statement of Assignment of Accounts Receivable dated March 15, 1983, was recorded on April 4, 1983, in East Baton Rouge Parish. In this statement, Energy Contractors' place of business is given as 4939 Jamestown Avenue, Baton Rouge, Louisiana.

D. A Statement of Assignment of Accounts Receivable dated August 4, 1983, was recorded in St. Landry Parish on August 11, 1983. In this statement, Energy Contractors' place of business is given as 137 East Park, Eunice, Louisiana.

E. On September 29, 1983, by an addendum to the loan and security agreement and accounts rider, the address of Energy Contractors was changed to 137 East Park, Eunice, St. Landry Parish, Louisiana.

F. No Statement of Assignment was ever recorded in East Baton Rouge Parish (Energy Contractors' domicile) listing Eunice, Louisiana, as its place of business.

G. According to David Boyd, Assistant Vice President of Mercantile, the pre-petition debt of Energy Contractors to Mercantile was $435,900.14 (including both principal and interest) plus $204.68 per diem. According to Calvin Smith, testifying for the Debtor, the amount was $419,295.15 principal as of the date of filing; Mr. Smith did not have a figure for accrued interest. Therefore, the Court concludes that the figure of $435,900.14 is the correct amount due as of the date of filing according to the testimony of David Boyd.

H. It appears that the total accounts receivable alleged by Mercantile as pledged to secure its debt have a face value of $540,912.86. According to expert testimony, the collectibility of those accounts is as follows:

                                            Approximate
                Status of Collectibility     Amount  
                Questionable                   $137,000
                Worthless                      $179,000
                Good                           $145,000
                

II. Law and Application of Law to Facts

The difficulty in this case arises because Mercantile attempted to use a Uniform Commercial Code form to effect an assignment of accounts receivable under Louisiana law. The form apparently was not designed with Louisiana law in mind, and that fact causes great difficulties. The difficulties are compounded because the Louisiana assignment of accounts receivable law is insufficiently clear and specific. The combination of using the wrong form with an ambiguous law makes the judicial role difficult indeed.

The Louisiana Assignment of Accounts Receivable Law was amended in 1983, effective August 30, 1983, by Act 319 of the 1983 Legislature. Revised Statutes 9:3110 as enacted in the new statute provides that an assignor or an assignee of accounts receivable ". . . made or perfected prior to the effective date of this part may elect to come under the provisions of this part by filing a notice of assignment and by otherwise complying with this part." No evidence was presented at trial to indicate that any action was taken to elect to come under the provisions of the new statute. Therefore, all references in this opinion will be to the statute as it existed prior to August 30, 1983, but, as will be shown by references in the opinion, it appears that the result would not be different under the new statute.

Mercantile contends that it has a general assignment of accounts receivable existing as of August 12, 1981, and arising subsequent to that date. R.S. 9:3102 provided that a general assignment of accounts receivable would be valid between the parties and against third parties with respect to existing accounts as well as with respect to accounts arising in the future provided two requirements were met: First, the parties must somehow evidence the assignment in one of the three ways specified in 9:3105;¹ second, the assignor or the assignee must record a Statement of Assignment of Accounts Receivable in the parish of the assignor's domicile.² Before looking at those requirements, however, one must first consider two important definitions: "place of business" and "general assignment."

Revised Statutes 9:3101(6) defines "place of business" as the ". . . location . . . of the particular establishment . . . at or from which accounts receivable are either contracted with debtors or recorded on account records of assignor, or at which it is contemplated that such accounts will be contracted or recorded."

Revised Statutes 9:3101(7) defines "general assignment" to mean the assignment of existing and future accounts ". . . arising out of specified operations conducted by the assignor at a place of business . . ." Emphasis supplied.

It is generally conceded by the parties that Jamestown Avenue in Baton Rouge, Louisiana, was the registered office of the corporation, but its principal place of business and the place from which business operations were conducted was in Eunice, Louisiana. While there appears to be little dispute between the parties with respect to this issue, it is also supported by the evidence. First, on August 11, 1983, the parties executed Exhibit H, a Statement of Assignment of accounts receivable that was later recorded in St. Landry Parish; this listed Eunice as the place of business of Energy Contractors. Second, Exhibit C (Amendment 2 to the loan and security agreement) amends paragraph 2.3 of the agreement as of September 23, 1983, to state the place of business of the company to be Eunice, Louisiana. Third, Exhibit M is a stack of invoices covering the period roughly from November, 1983, through June, 1984. These all clearly show the address of the business as Eunice, Louisiana, and show payments being made to Dallas, Texas (presumably to Mercantile directly). Accordingly, it appears that "place of business" for purposes of the assignment of accounts receivable was Eunice, Louisiana.

These definitions and facts being established, the Assignment of Accounts Receivable Law can be applied as follows: First, the statute defines a general assignment of accounts receivable as being an assignment of specified operations at a place of business.³ Second, it requires that the statement of accounts receivable specify the place of business.⁴ The documentation in this case is fatally insufficient in both areas, but particularly in the latter. We will discuss them, however, in the order stated.

The Louisiana Statement of Accounts Receivable Law provides that a general assignment is an assignment of receivables from specified operations at a place of business. The documentation in this case does not specify any business operations. Nor does it contain a statement to the effect that account receivables from all businesses are assigned. The documentation merely states that all of the debtor's "accounts" are assigned.⁵

If the parties to a contract intend that all of a debtor's accounts receivable are to be assigned, it might seem superfluous to require the debtor to specify the business operations from which the accounts are generated. Nevertheless, the statute states that a general assignment means an assignment of specified operations at a place of business.⁶ The statute nowhere explains the significance of using the word "specified" nor of using the word "a" place of business. Since the requirement of specified operations is in the statute, and since this is a statute granting a lien, it...