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Helms v. Certified Packaging Corp. - 551 F.3d 675 (7th Cir. 2008)

Rule:

UCC § 9-203(b)(3)(A) provides that a security interest is enforceable against a subsequent creditor (or, a trustee in bankruptcy accorded the status of a hypothetical secured creditor) only if the debtor has authenticated a security agreement that provides a description of the collateral. The purpose of the financing statement is to place would-be subsequent creditors on notice that a creditor has a security interest in the debtor's property; it is the security agreement that defines that interest and by defining limits it. UCC § 9-102(a)(73); Therefore, less detail is required in the financing statement. UCC § 9-504

Facts:

Sarah Michaels, Inc., a manufacturer of bath products and a customer of a packaging manufacturer named Certified Packaging Corporation, declared bankruptcy together with affiliated corporations unnecessary to discuss separately. The trustee in bankruptcy brought an adversary proceeding against Certified seeking to avoid transfers that Michaels had made to that company to pay for packaging. The trustee obtained a default judgment for some $2 million but, in an effort to collect the judgment, collided with LaSalle Bank. Lasalle Bank was an assignee of a loan to Certified and claimed a security interest in Certified's assets. LaSalle in turn assigned its claim to CPC Acquisition, which is the successor to Certified and which has intervened in the bankruptcy proceeding to assert the priority of its lien over the trustee's judgment lien.

Issue:

Were the claims part of the bank's security interest?

Answer:

Yes

Conclusion:

The Seventh Circuit held that nowhere in the loan agreement was there even an allusion to the manufacturer's two tort claims. The agreement did not mention them, and while it purported to grant the bank a security interest in after-acquired property, pursuant to UCC § 9-204, such a grant was ineffective when the property was a commercial tort claim.

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