2017-2018 Commercial Law Developments, Part I.a (personal Property Secured Transactions)

• Publication year: 2018
• Author: Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup

2017-2018 Commercial Law Developments, Part I.A (Personal Property Secured Transactions)1

Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup

A. Scope of Article 9 and Existence of a Secured Transaction

1. General

• South Lafourche Bank & Trust Co. v. M/VNOONIE G, 2017 WL 2634204 (E.D. La. 2017) - Federal law requires that a preferred ship mortgage state "the amount of the direct or contingent obligations." It is sufficient if the mortgage states the maximum amount that may be secured. Because the mortgage indicated that it secured a line of credit up to a maximum principal amount of $900,000, the mortgage was effective.
• In re Climate Control Mechanical Services, Inc., 570 B.R. 673 (Bankr. M.D. Fla. 2017) - A secured party with a perfected security interest in the accounts of the debtor, a general contractor, encumbered the debtor's right to the amounts withheld but now due to the debtor under a construction contract. The amounts had not been earmarked for payment of a subcontractor.
• In re Johnson, 2017 WL 2399453 (6th Cir. BAP 2017) - A security agreement describing the collateral as "the payment, proceeds, and rights under and related to" the debtor's contract to play hockey failed to comply with California Labor Code § 300(b), governing assignments of wages. The security agreement failed to state that there was no other assignment in connection with the transaction. Accordingly, no security interest attached.
• Bank of the Pacific v. F/V ZOEA, 2017 WL 823298 (W.D. Wash. 2017) - The federal Ship Mortgage Act preempts a Washington state law that prohibits the creation of a security interest in commercial shellfish and food fish permits. A preferred ship mortgage granted by the limited liability company covered a Dungeness crab permit appurtenant to a vessel attached to the permit. It did not matter that the owner of the company had the permit titled in his own name and later sold the permit. The owner held title in trust for the limited liability company and the preferred ship mortgage attached and had priority over the rights of the buyer.

2. Insurance 3. Consignments

• In re TSAWD Holdings, Inc., 565 B.R. 292 (Bankr. D. Del. 2017) - Because there was a factual issue about whether a retailer was generally known by its creditors to be substantially engaged in selling the goods of others, summary judgment was not appropriate on whether a transaction by which sporting goods were delivered to a retailer for sale was a "consignment" within the meaning of Article 9, and therefore whether the retailer had the power to grant a security interest in the sporting goods. Although the security agreement provided that it covered only property owned by a retailer, that limited language would not necessarily prevent the security interest from attaching to goods subject to an Article 9 consignment.
• Mellen, Inc. v. Biltmore Loan and Jewelry-Scottsdale, LLC, 247 F. Supp. 3d 1084 (D. Ariz. 2017), appeal filed, (9th Cir. Apr. 4, 2017) - The owner of a 4-carat diamond left the diamond "on memo" with a jeweler. The transaction was not a consignment under Article 9 because the agreement provided that the jeweler held the goods "only for examination and inspection by prospective purchasers," and that the jeweler "acquire[d] no right or authority to sell, pledge, hypothecate or otherwise dispose of" the diamond. Consequently, the pawn broker that bought the diamond from the jeweler did not obtain title under UCC § 9-319. Even if the transaction had been a consignment, the pawn broker purchased the diamond not from the jeweler, but from another person who claimed that the jeweler was his agent.

[Page 25]

4. Real Property

• Bowling v. Appalachian Federal Credit Union, 2017 WL 461258 (Ky. Ct. App. 2017) - A credit union's mortgages on a married couple's land did not encumber the couple's manufactured home situated on the land because the mortgages did not list the home. The home remained personal property due to the fact that the couple had not filed an affidavit of conversion and surrendered the certificate of title for the home.
• Schroeder v. Haberthur, 401 P.3d 319 (Wash. Ct. App. 2017) - The Washington Deed of Trust Act could be interpreted consistently with Article 9 of the U.C.C., under which timber to be cut is not a "crop." Thus the debtor's forest land was not agricultural property exempt from nonjudicial foreclosure.
• In re Gracy, 689 F. App'x 590 (10th Cir. 2017) - A manufactured home that was anchored to piers and slabs by metal strips and connected to utilities through underground lines was a fixture under the common law even though the certificate of title for the home had not been surrendered. The state statute providing that a manufactured home becomes a fixture if placed on a permanent foundation and the certificate of title is surrendered does not prevent a manufactured home from becoming a fixture in other ways.
• In re Smith, 2017 WL 6372471 (Bankr. W.D. Ky. 2017) - The debtor constructed two pole barns on his property using pole barn nails. The nails have rings shanks making removal impossible. The pole barns were permanent fixtures and thus the mortgagee of the real property had a lien on the insurance proceeds resulting from the destruction of the barns. The barns were not personal property and...