SCALLOP PETROLEUM COMPANY v. Banque Trad-Credit Lyonnais

• Citation: 690 F. Supp. 184
• Decision Date: 02 May 1988
• Docket Number: No. 86 Civ. 1967 (LLS).,86 Civ. 1967 (LLS).
• Parties: SCALLOP PETROLEUM COMPANY, A DIVISION OF SCALLOP CORPORATION, Plaintiff, v. BANQUE TRAD-CREDIT LYONNAIS [FRANCE] S.A., BAII Banking Corporation, Banque Arabe Et International d'Investissement, Belcher Company of New York, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

690 F. Supp. 184

SCALLOP PETROLEUM COMPANY, A DIVISION OF SCALLOP CORPORATION, Plaintiff, v. BANQUE TRAD-CREDIT LYONNAIS FRANCE S.A., BAII Banking Corporation, Banque Arabe Et International d'Investissement, Belcher Company of New York, Inc., Defendants.

No. 86 Civ. 1967 (LLS).

United States District Court, S.D. New York.

May 2, 1988.

COPYRIGHT MATERIAL OMITTED

Rogers & Wells, New York City (Joseph Spain, of counsel), Rogers & Wells, Los Angeles, Cal. (Marcia B. Pine, of counsel), for defendants BAII Banking Corp., and Banque Arabe Et Intern. d'Investissement.

Belcher Oil Co., Hasbrouck Heights, N.J. (Frank Leavitt, of counsel), Haight, Gardner, Poor & Havens, New York City (Richard Ashworth, of counsel), for plaintiff.

Latham & Watkins, New York City (Job Taylor, III, of counsel), for defendant Banque Trad-Credit Lyonnais France S.A.

OPINION AND ORDER

STANTON, District Judge.

In this interpleader action, contesting creditors claim priority in the same collateral. Two of them whose interests substantially coincide, defendants BAII Banking Corporation ("BAII New York") and Banque Arabe et Internationale d'Investissement ("BAII Paris") (collectively "BAII"), move for and are granted summary judgment pursuant to Fed.R.Civ.P. 56 dismissing the claim of their competing defendant Banque Trad-Credit Lyonnais France S.A. ("Banque Trad") to the collateral.

FACTS

The following facts are stipulated. Will Petroleum, Inc. ("Will"), a Texas corporation, was in the business of oil trading until it filed under Chapter 11 of the Bankruptcy Code on January 29, 1986. Before then, both BAII New York, a New York corporation, and BAII Paris, a French corporation, provided Will with financing under various arrangements. Will had a security agreement (undated), a continuing letter of credit agreement (August 6, 1984), and a revolving credit note (September 24, 1985) with BAII New York, and a general security agreement (December 13, 1982) and an agreement for the issuance of irrevocable letters of credit (August 6, 1984) with BAII Paris. Both security agreements covered all of Will's inventory, documents, accounts, and their proceeds. UCC-1 financing statements were filed by BAII New York in Texas (August 16, 1984), New Jersey (August 19, 1984), and New York (October 2, 1984), and by BAII Paris in Texas (October 10, 1985), New Jersey (November 21, 1984), and New York (November 21, 1984).

In early January 1986, Will bought approximately 312,000 barrels of oil from Selm SPA (the "Cargo"). These were loaded on the M.V. Himalaya in Italy on January 5, 1986. Before shipment, Selm SPA obtained a letter of credit for approximately $7,500,000 in its favor for Will's account. On January 16, 1986 Will asked Banque Trad to "buy out" this loan. Will's telex to Banque Trad stated that "purchase/payment confirmation" would issue from Will's two buyers of the Cargo, and Will provided Banque Trad with the bill of lading for the Cargo. Banque Trad and Will did not execute any security agreements, and Banque Trad did not file a UCC-1 financing statement.

From January 24 through 28, 1986, the Himalaya discharged the Cargo. Almost 110,000 barrels were delivered to storage tanks of Belcher Oil Company of New York ("Belcher") in Bayonne, New Jersey (the "Belcher Oil"), and 198,000 barrels (the "Scallop Oil") to Scallop Petroleum Company ("Scallop") in Linden, New Jersey. Banque Trad and Will surrendered the bill of lading to the Himalaya's cargo master on January 23, 1986.

On Will's instructions Belcher confirmed that none of the Belcher Oil would be released without Banque Trad's telexed orders, and on January 29, 1986 Belcher issued to Banque Trad a non-negotiable warehouse receipt covering the Belcher Oil.

Will filed its Chapter 11 petition on January 29, 1986, and on January 31 Will advised Scallop that the funds due Will in payment for the Scallop Oil (approximately $4,266,964.00) were the property of Will's bankruptcy estate and should not be paid until further notice.

On February 5, 1986 the owner of the Himalaya caused an arrest of approximately 40,000 barrels of the Belcher Oil. On March 4, 1986 Belcher purchased for $1,097,242.83 the barrels of oil not subject to the arrest (the "Belcher Fund"). On April 21, 1986 Banque Trad, BAII, the Himalaya's owner, and Manufacturers Hanover Trust Company (as escrow agent) entered into an escrow agreement: the arrested oil was sold for $540,072.50 and the proceeds thereof deposited into an escrow account (the "Escrow Fund").

An Agreed Order Authorizing Abandonment of Inventory and Modification of Automatic Stay Against Acts Against Property (the "Agreed Order") was entered in Will's Chapter 11 case on February 13, 1986. The Agreed Order includes both the Scallop Oil and the Belcher Oil.

Scallop interpled the amount of $4,036,090.84 (the "Scallop Fund")¹ into the Bankruptcy Court for the Southern District of Texas on March 6, 1986. The interpleader action and the interpleader fund were transferred to this court on May 7, 1986. On September 10, 1986 the interpleader action was consolidated with this action.

Will currently owes BAII Paris over $12,900,000, BAII New York over $25,000,000, and Banque Trad $7,500,000. The funds which all claim (the "collateral") total just over five million dollars: the $4,036,090.84 Scallop Fund, the $1,097,242.83 Belcher Fund, and the $540,072.50 Escrow Fund, less $275,000 paid to the Himalaya's owner.

DISCUSSION

Each of BAII Paris, BAII New York, and Banque Trad asserts that it has a perfected security interest in the collateral. Each also asserts that its status entitles it to priority over the others. To determine which has priority, the nature of each creditor's interest must be examined.

I. Nature of Creditors' Interests

A. BAII New York

The Uniform Commercial Code (the "UCC") sets forth the "three basic prerequisites to the existence of a security interest: agreement, value, and collateral.... When all of these elements exist, the security agreement becomes enforceable between the parties and is said to `attach.' Perfection of a security interest will in many cases depend on the additional step of filing a financing statement." (UCC § 9-203(1), Comment 1)

Generally, two documents are required to perfect a security interest: an agreement granting a security interest in the collateral and a financing statement signed by both parties and filed for the public record. Their respective purposes are to show the debtor's intent to grant a security interest and to provide notice. In the Matter of Bollinger Corp., 614 F.2d 924, 926 (3d Cir.1980). "Since the financing statement alone meets the basic section 9-203 requirements of a writing, signed by the debtor, describing the collateral," id. at 928, all that is needed is another document demonstrating intent. Bollinger held that a promissory note and a financing statement satisfied section 9-203:

When the parties have neglected to sign a separate security agreement, it would appear that the better and more practical view is to look at the transaction as a whole in order to determine if there is a writing, or writings, signed by the debtor describing the collateral which demonstrates an intent to create a security interest in the collateral. 614 F.2d at 926.

See also In Re Numeric Corp., 485 F.2d 1328 (1st Cir.1973) (financing statement and Board resolution showing debtor's intent).

BAII New York asserts that since September 1984 it has had a valid, perfected security interest in Will's inventory, accounts, documents, and their proceeds by virtue of its security agreement, continuing letter of credit agreement, revolving credit note, and UCC-1 financing statements. All these documents were signed by Gary Ettelman. Although the security agreement is undated, BAII New York contends that it was signed by September 1984, and that by early 1985 BAII New York realized it was not dated. (Declaration of Nadeem Fayyaz of Dec. 9, 1986 and its Exhibit E) Banque Trad requests cross-examination of the two BAII New York officers who support that assertion.

Putting aside the security agreement, the revolving credit note executed by Will and BAII New York before Banque Trad financed Will's purchase from Selm SPA demonstrates Will's intent to grant a security interest in favor of BAII New York.² The revolving credit note provides:

In addition to all of its other rights ..., BAII New York shall have a lien on and a security interest in any property of Will which may from time to time be deposited with or held for the credit or benefit of Will.... BAII New York may, at its option, apply any property in which it shall have such a lien or security interest to the payment and/or reduction, in whole or in part, of the Liabilities, whether or not then due.

The filed financing statements and the revolving credit note taken together meet the requirements of section 9-203(1). Accordingly, BAII New York had a perfected³ security interest in all of Will's assets, at least to the extent of "the Liabilities" owed it under the revolving credit note, which attached to the Cargo when Will purchased the oil from Selm SPA in early January 1986.⁴

B. BAII Paris

BAII Paris asserts that the December 13, 1982 security agreement and the August 6, 1984 agreement for the issuance of irrevocable letters of credit (both signed by Will's President, Richard Willis), and the three UCC-1 financing statements satisfy the requirements of UCC section 9-203(1).

Article III, Section 5 of Will's by-laws, adopted on April 1, 1982, provides⁵:

Specifically, any transaction to be entered into by the President on behalf of the corporation involving an excess of $10,000 shall require approval of the Board of Directors, prior to consummation. ... He may agree upon and execute any deeds, mortgages, bonds, contracts or other obligations in the name of the corporation.

A resolution of Will's sole director on April 1, 1982 states:

... the President is hereby

...