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The absence of a document titled "security agreement" is not fatal to a creditor's claim of a secured interest. In the First Circuit, as in others, it is not necessary that a debtor have signed a formal security agreement, if there are documents which collectively establish an intention to grant a security interest in the collateral. A writing or writings, regardless of label, which adequately describes the collateral, carries the signature of the debtor, and establishes that in fact a security interest was agreed upon would satisfy both the formal requirements of the statute and the policies behind it.
Debtor Jeffrey M. Rowe petitioned for relief under the United States Bankruptcy Code. The creditor Lake Equipment Leasing, Inc. filed a motion for relief from stay. The creditor claimed a security interest in the truck and in a plow, presenting as evidence an equipment lease for the plow, a certificate title for the truck, and a limited power of attorney. The court held a hearing.
Should the court grant the creditor’s motion for relief from the stay to proceed against the debtor’s truck and plow?
No, as to the truck; yes, as to the leased plow.
The court denied the creditor’s motion for relief from the stay to proceed against the debtor’s truck. The court noted that under Revised Article 9 of the Uniform Commercial Code (hereinafter "U.C.C."), a security interest was not enforceable unless certain conditions are satisfied, one of which required the debtor to authenticate a security agreement that provided a description of the collateral. However, it was not necessary that the debtor have signed a formal security agreement, if there were documents which collectively established an intention to grant a security interest in the collateral. In this case, there was no evidence that the parties executed a security agreement with respect to the truck. Moreover, none of the three documents presented by the creditor, i.e., lease for the plow, a certificate title for the truck, and a limited power of attorney, contained any language which could be construed as granting a security interest in the truck. With regard to the plow, the court granted the creditor’s motion. Based upon the language of Mass. Gen. Laws ch. 106, § 1-201(37) and the factors often considered, the court found that the equipment lease for the plow was in fact a true lease and not an installment sales contract. According to the court, the debtor could not terminate the agreement without incurring an obligation to pay all the rent due. Although the creditor's UCC financing statement was defective under Mass. Gen. Laws ch. 106, § 9-503 because it was filed under a trade name, the creditor's filing would still be enforceable against the debtor.