Nunnemaker Transp. Co. v. United California Bank

• Decision Date: 11 February 1972
• Docket Number: No. 24064.,24064.
• Parties: In the Matter of NUNNEMAKER TRANSPORTATION CO., Inc., William P. Grover, Trustee, Appellant, v. UNITED CALIFORNIA BANK, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

456 F.2d 28 (1972)

In the Matter of NUNNEMAKER TRANSPORTATION CO., Inc., William P. Grover, Trustee, Appellant, v. UNITED CALIFORNIA BANK, Appellee.

No. 24064.

United States Court of Appeals, Ninth Circuit.

February 11, 1972.

Clayton Rost (argued), of Thoits, Lehman & Hanna, Palo Alto, Cal., Mathews, Traverse & McKittrick, Eureka, Cal., for appellant.

William Holton (argued), John K. Derham, Joseph A. Kiernan, Rodney G. Commons, San Francisco, Cal., for appellee.

Before ELY, WRIGHT and TRASK, Circuit Judges.

TRASK, Circuit Judge:

This is an appeal by the trustee in bankruptcy from a denial, by both the referee and the district court, of a request for a turnover order with respect to $10,400 paid to Appellee, United California Bank, by an account debtor of the bankrupt within four months immediately prior to the filing of the petition in bankruptcy. This court's jurisdiction is conferred by 11 U.S.C. § 47.

Nunnemaker Transportation Company, Inc. (hereinafter, the bankrupt) had an account with Nilsen Feed Company (Nilsen) for whom it did hauling in the course of its trucking business. On or about February 23, 1967, United California Bank (the bank) made a loan to the bankrupt in the principal sum of $15,000 evidenced by a promissory note executed by the bankrupt and guaranteed by Nilsen on said date. At the same time, to secure repayment of the loan, the bankrupt orally assigned to the bank a security interest in the future payments due on its account with Nilsen to the extent of $2,600 per month. These arrangements were evidenced by a letter of the same date, executed by all the parties to the transaction, which reads as follows:

"UNITED CALIFORNIA BANK Eureka Office, 605 Fourth Street Eureka, California 95502 Tel. 443-6321 February 23, 1967 Mr. Alan Nilsen Nilsen Company 502 Broadway Eureka, California 95501

Dear Alan:

In accordance with our credit arrangements with Nunnemaker Transportation Company, you are asked to remit $2,600 per month of the collect freight revenues payable to Nunnemeker sic Transportation Company direct to United California Bank, P.O. Box M, Eureka, California.

These funds are to be applied to the Note of this date in the amount of $15,000.00 executed by Nunnemaker Transportation Company, Inc., and guaranteed by Nilsen Company.

Sincerely /s/ F. W. Bloomer F. W. Bloomer Assistant Manager FWB/aed THE ABOVE ARRANGEMENTS ARE IN ACCORDANCE WITH OUR LOAN AGREEMENT OF FEBRUARY 23, 1967. NUNNEMAKER TRANSPORTATION COMPANY, INC. By: /s/ Clyde Nunnemaker Clyde Nunnemaker, President THE ABOVE ARRANGEMENTS HEREBY ACKNOWLEDGED BY NILSEN COMPANY. By: /s/ Alan Nilsen Alan Nilsen Date: February 23, 1967"

No financing statement with respect to this asserted security interest was filed.

On July 10, 1967, the bankrupt filed its petition in bankruptcy. During the four months preceding the filing of the petition, $10,400 was paid by Nilsen to the bank. The trustee filed a petition with respect to these payments seeking an order to have the bank turn them over. The referee determined that the payments were not transfers of property for an antecedent debt made within four months preceding the filing of bankruptcy and therefore not a voidable preference under section 60b of the Bankruptcy Act, 11 U.S.C. § 96(b). The district court affirmed the determination of the referee.

The issue before this court is whether the payments made by Nilsen to the bank pursuant to Nunnemaker's order, of moneys otherwise due Nunnemaker, the bankrupt, constituted a voidable preference within the meaning of § 60a and 60b of the Bankruptcy Act.

In DuBay v. Williams, 417 F.2d 1277, 1286 (9th Cir. 1969), we stated that:

"Section 60a(1) of the Bankruptcy Act (11 U.S.C. § 96a(1)) defines a `preference\' as (1) a transfer of any property of the debtor, (2) to or for the benefit of a creditor, (3) for or on account of an antecedent debt, (4) while the debtor is insolvent, (5) within four months of bankruptcy, (6) which enables the creditor to obtain a greater percentage of his debt than some other creditor of the same class. Section 60b permits the trustee to avoid a preference if the creditor had reasonable cause to believe that the debtor was insolvent at the time of the transfer."

In order to avoid the preference, the trustee must succeed in having all the above issues resolved in his favor. 3 Collier on Bankruptcy ¶ 60.02 (14th ed. T. Moore & L. King 1971). Here, only two elements are challenged: (1) whether the payments made by Nilsen to the bank were transfers of property within four months of bankruptcy, and (2) whether the transfers were for or on account of an antecedent debt.

(1) Transfer Within Four Months.

Section 60a(2) of the Bankruptcy Act provides that "a transfer of property . . . shall be deemed to have been made or suffered at the time when it became so far perfected that no subsequent lien upon such property obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee." This determination requires us to look to state law, DuBay v. Williams, supra, at 1287, in this case Division 9 of California's version of the Uniform Commercial Code (Cal.Com.Code §§ 9101-9507).¹

Under California law, a lien creditor without knowledge can obtain superior rights over an "unperfected" security interest. Cal.Com.Code § 9301(1)(b).² In order for a security interest to become "perfected" the interest must "attach" and, with a few exceptions, a financing statement must be filed. Cal. Com.Code §§ 9303(1), 9302(1). However, before discussing these elements of perfection, there is a threshold question as to whether the asserted security is an enforceable one.

(a) The Security Agreement.

At the outset the trustee claims that the bank was not in the position of a secured party as to the future payments due on the account which the bankrupt had with Nilsen because there was no "security agreement" between the bank and the bankrupt. We disagree.

Under the applicable California law, "a security interest is not enforceable against the debtor or third parties unless . . . the debtor has signed a security agreement which contains a description of the collateral. . . ." (Emphasis supplied). Cal.Com.Code § 9203 (1) (b). A "security agreement" is defined as "an agreement which creates or provides for a security interest." Cal. Com.Code § 9105(1) (h).³ Thus, in order for the bank to stand in the position of a secured party there must be a written agreement signed by the debtor which creates or provides for a security interest and which contains a description of the collateral.

The district court held that the effect of the bankrupt's signed acknowledgment of the existence of a prior oral agreement was to make the letter a sufficient memorandum of a security agreement to satisfy the statute of frauds requirement of that section.

It is to be noted that both the oral loan agreement and the written letter agreement were entered into the same day and are each a part of one entire transaction. The letter of February 23, 1967, identifies the evidence of debt as a promissory note "of this date in the amount of $15,000.00" (the obligation secured); it states that it was executed by Nunnemaker Transportation Company, Inc., and guaranteed by Nilsen Company (identifies the debtor); it directs Nilsen Company to remit $2,600 per month to the bank "of the collect freight revenues payable to Nunnemaker Transportation Company" from Nilsen (the collateral); finally, it states that the funds are to be "applied to the Note" (attached to the collateral). The letter states that "the above arrangements are in accordance with our loan agreement of February 23, 1967," thus establishing that it is not a gratuitous arrangement but a formal agreement, and it is signed by officers of the debtor, the lender-creditor, and the third-party debtor whose payments due to the bankrupt constitute the collateral which was assigned to the lender-creditor.

The letter agreement does contain all of the necessary requirements of a "security agreement," notwithstanding the district court's opinion that it does not "comply literally" with Section 9203 (1) (b). Appellant relies upon Needle v. Lasco Industries, Inc., 10 Cal.App.3d 1105, 89 Cal.Rptr. 593 (1970), wherein the court held that a financing statement signed by the debtor and containing a description of the collateral of the secured party was not sufficient as a "security agreement" within the meaning of Section 9105(1) (h) because there was nothing in the statement constituting a "grant" of a security interest. The financing statement was informational only to advise creditors whether, and to what extent, the debtor may have encumbered his assets. Here, on the contrary, the letter not only contains the information, but states that the arrangements detailed therein "are in accordance with our loan agreement." Needle further suggests that the financing statement and the security agreement may be in the same document. They are here.

(b) Perfection of the Security Interest.

Having determined that there was a security agreement and that it was adequate to create a security interest in the bank in the collateral offered as security, we return to an examination of the question whether that security interest has become "perfected." Only if it has been, can it be deemed to have been transferred to the bank so that it may remain superior to that claimed by the trustee under Section 60a(2) of the Bankruptcy Act.

"Perfection" for this purpose as defined in Cal.Com.Code § 9303(1) is accomplished when the security interest has "attached" and when (with significant exceptions later to be noted) a financing statement has been filed. "Attach" is used simply to indicate the point in time when the security interest in favor of the bank as the secured party is created in the debtor's property consisting of payments due from Nilsen. In order to determine...