In re Northview Corp.
| Decision Date | 24 July 1991 |
| Docket Number | Bankruptcy No. LA 90-05319 GM,LA 90-05232-GM and 90-05324-GM.,BAP No. CC-90-1729/1772-VJP |
| Citation | 130 BR 543 |
| Parties | In re NORTHVIEW CORPORATION; Calmark Motel Holding Corporation; and Calmark Hospitality Systems, Inc., Debtors. GREYHOUND REAL ESTATE FINANCE COMPANY, Appellant, v. OFFICIAL UNSECURED CREDITORS' COMMITTEE and Northview Corporation, Appellees. OFFICIAL UNSECURED CREDITORS' COMMITTEE, Cross-Appellant, v. GREYHOUND REAL ESTATE FINANCE COMPANY, Cross-Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Shelton L. Freeman, Phoenix, Ariz. and Harry D. Hochman, Los Angeles, Cal., for Greyhound Real Estate Finance Co.
Don Willenburg, Los Angeles, Cal., for Northview Corp.
Mary E. Itin, Los Angeles, Cal., for Official Unsecured Creditors' Committee.
Before VOLINN, JONES and PERRIS, Bankruptcy Judges.
These are cross-appeals from an order holding that creditor Greyhound Real Estate Finance Company ("Greyhound") has a perfected security interest in pre-bankruptcy revenues generated by two of debtor's hotels, but that it has no security interest in the post-petition revenues. Greyhound appeals the order insofar as it deprives it of a security interest in the post-petition hotel revenues. The Official Unsecured Creditors' Committee ("the Committee") appeals that portion of the order which finds Greyhound to have a security interest in pre-petition hotel revenues.
Debtor Northview Corporation ("Northview"), previously known as Vagabond Motor Hotels, owns or controls approximately 38 motels throughout the Southwest and West. On September 29, 1988, Northview assigned the leases to two of the hotels in Woodland Hills and Sacramento, California to a Northview subsidiary, Calmark Properties, Inc. ("Calmark"). On October 19, 1988, Greyhound entered into a $3.6 million loan agreement with Calmark. To secure the loan, Calmark executed in Greyhound's favor two leasehold deeds of trust (collectively referred to herein as "deed of trust") in the Woodland Hills and Sacramento leases.
The deeds of trust contained broadly worded security provisions which gave Greyhound security interests in both real and personal property owned by the trustor, Calmark. One of these provisions is found in the "Granting Clauses" and provides in relevant part as follows:
subject to the absolute assignment thereof to the Beneficiary pursuant to Article III hereof, the Lease, all income, rents, royalties, revenues, issues, profits, fees, and other proceeds of the Trust Property and all of Trustor\'s right, title, and interest of Trustor, now or hereafter acquired, as lessor or seller, as the case may be, in and to all leases, subleases, sales contracts, installment sales agreements and purchase money notes pertaining to the Trust Property, or any part thereof, and all security documents related to any of the foregoing; . . .
The agreement also contains a specific assignment of rents provision which states, inter alia, as follows:
Trustor hereby absolutely assigns and transfers to Beneficiary all the right, title and interest of Trustor in and to the lease and all existing and future lease agreements, subleases, occupancy agreements and use agreements relating to the Trust Property or any part thereof . . . and all income, rents, royalties, revenues, issues, profits, fees, and other proceeds (including, without limitation, room sales) from the Trust Property. . . .
Article 3.2 of the agreement, entitled "Security Agreement," states in pertinent part:
To the extent any of the Trust Property is property covered by the Uniform Commercial Code ("UCC Property"), this Deed of Trust constitutes a security agreement and Trustor hereby grants to Beneficiary, as secured party, a security interest in the Trust Property and the proceeds thereof in favor of Beneficiary for the purpose of securing Performance of the Obligations. This security interest shall be self-operative with respect to the UCC property, but the Trustor will execute and deliver on demand such security agreements, financing statements and other instruments as Beneficiary may reasonably request in order to impose and/or perfect the lien and security interest hereof more specifically upon any of the UCC Property.
Greyhound filed two identical UCC-1 Financing Statements (collectively referred to herein as "the financing statement") regarding its personal property interests in both hotels with the California Secretary of State. It also recorded its leasehold deeds of trust and assignments of rents with respect to both hotels. The financing statement covers, inter alia, the following collateral:
All income, rents, royalties, revenues, issues, profits, fees and other proceeds of the Property, including, without limitation, all of the right, title and interest of Debtor now or hereafter acquired, as lessor or seller, as the case may be, in and to all leases, sales contracts, installment sales agreements and purchases of money notes pertaining to the Property. . . .
On March 1 or 2, 1990, Calmark reconveyed the two hotel leases back to Northview apparently out of a concern that the original conveyances might be deemed fraudulent conveyances. Greyhound contends that these reconveyances were made without its knowledge or consent.
Northview filed a Chapter 111 petition on March 6, 1990. Shortly thereafter, Greyhound filed a motion to condition the debtor's use of cash collateral based on its alleged security interest in the revenues generated by the Woodland Hills and Sacramento hotels. In a Memorandum of Opinion dated May 17, 1990, the bankruptcy court held that the hotel revenues are, under both California and Arizona law,2 personal property and that any security interest in such property must be perfected by the filing of a financing statement. It further held that Greyhound had not filed its financing statement and therefore held an unperfected security interest.
Greyhound moved for reconsideration of the trial court's decision which was granted in part. In a Memorandum of Opinion dated July 24, 1990, the trial court determined that it had previously erred in finding that Greyhound had not filed a financing statement. As a result, it allowed Greyhound's security interest in all pre-petition hotel revenues. However, it held that Bankruptcy Code § 552 does not allow Greyhound to claim a security interest in the hotel accounts generated after the filing of the bankruptcy petition and disallowed a lien on such cash accounts arising post-petition.
Both Greyhound and the Committee filed notices of appeal in this case. Appellee Northview did not appeal the trial court's decision.
The Committee's appeal raises the following issue: did the description of Greyhound's collateral in the security agreement create any security interest in the hotel revenues?
Greyhound's appeal raises a second issue: does Code § 552 prevent Greyhound from retaining its security interest in revenues generated after the filing of the bankruptcy petition?3
This case involves questions of law and fact. Legal issues are reviewed de novo, and factual findings are left undisturbed unless clearly erroneous. Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986).
This question raises two sub-issues: (1) whether the deed of trust created any security interest in hotel revenues; and (2) whether Greyhound's financing statement was sufficient under the California Uniform Commercial Code Annotated ("Commercial Code") to perfect such a security interest.
Commercial Code § 9203(1)(b) provides that one of the prerequisites for the creation of a valid security interest is "a security agreement which contains a description of the collateral." "The primary function of 9-203 is that of a statute of frauds; it is designed mainly to minimize disputes over whether there was an agreement and over what collateral it could have covered." Northwest Acceptance Corp. v. Lynnwood Equipment, Inc., 841 F.2d 918, 921 (9th Cir.1988) (quoting J. White & R. Summers, Uniform Commercial Code, § 23-3, at 910 (2d Ed.1980)). A description of collateral, whether personal property or real estate, is sufficient if it "reasonably identifies what is described." Cal.Comm. Code § 9110 (Deering 1970).
The trial court held several hearings on the question of Greyhound's alleged security interest and struggled with the ambiguous language of the deed of trust. The trial court ultimately determined that Article 3.1(a) of the deed of trust, entitled "Assignment of Rents," created a security interest in hotel revenues. This section states in part that Calmark assigns and transfers to Greyhound "all income, rents, royalties, revenues, issues, profits, fees and other proceeds (including, without limitation, room sales). . . ." The trial court concluded that these words "can have no other meaning than the monies that are collected by the hotel for use of its rooms." It relied in part on California Civil Code § 1644 (Deering 1971) which requires that the words of a contract "be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage. . . ."
Under the Commercial Code, the test to determine whether particular collateral is subject to a security agreement is one of reasonableness and not whether a term of art is used. "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 Commercial Code are met." In re Amex-Protein Dev. Corp., 504 F.2d 1056, 1058-59 (9th Cir.1974). In this case, the Assignment of Rents provision quoted above...
To continue reading
Request your trial