Opinion
No. 77B 2513
March 22, 1979
Trustee — Lien Creditor — Perfected Security Agreement
Where a bankrupt executes and delivers to a creditor, in return for a loan, a general security agreement in all the bankrupt's personal property now or hereafter owned, for indebtness to occur from time to time which is to remain in effect until written notice is received, and that security interest is perfected by the appropriate filing, the security interest is not extinguished when the original loan accompanying it is paid off, such that a subsequent loan was secured and the trustee did not have the right, under Section 70c, to attack the creditor's continuing security interest.
In December 1974, the bankrupt had executed and delivered to the creditor a general security agreement providing in part, that the bankrupt, "from time to time," expects or has become indebted to the creditor and that as security for the payment and performance of such obligations the bankrupt grants to the creditor a security interest "in all of the personal property of the . . . [bankrupt] now accrued or hereafter acquired and whereever located." Additionally, there is a provision set forth in the general security agreement denominating the agreement as a "continuing" one that "shall remain in full force and effect until written notice" by the bankrupt to the creditor has been received by the latter that the agreement has been revoked. Financing statements were filed by the creditor in the appropriate places. The loan made by the creditor to the bankrupt in December 1974 was fully paid by the bankrupt in January of 1976. In July 1977, the creditor loaned the bankrupt a further sum which loan the bankrupt defaulted on and which is the subject of this controversy. The trustee maintained that because there was a zero balance on the loan under the 1974 agreement, the security interest had been extinguished. Further, the trustee contended that separate loan transactions thereafter between the parties were evidenced by notes which contained provisions that the bankrupt pledged its property in the possession of the bank, as security, thus showing that the creditor did not consider the July 1977 loan to have been secured under the 1974 general security agreement for which the creditor did not file a separate financing statement. Therefore, the trustee argued, the security interest was unperfected and under Section 70c of the Bankruptcy Act, the trustee, as an ideal lien creditor, had superior title to the property and proceeds in question.
The court found that because the perfected 1974 general security agreement specifically provided for future advances, and by its terms, was a "continuing agreement" until revoked by the bankrupt, in the absence of a revocation, neither the extinguishment of the loan advanced in connection with the 1974 agreement, nor the fact that no financing statement was filed in connection with the later July 1977 loan, resulted in any legal impediments to the creditor's continued security interest in the bankrupt's property. The court further reasoned that the creditor remained, since perfection of the 1974 general security agreement, continously secured from the time of the filing of the original financing statements for future advances including the July 1977 loan involved here. Therefore, the court concluded that there could be no creditor who could, at the time of the then debtor's filing of the petition, have the right to void the creditor's continuing interest, and thus the trustee may not attack it under Section 70c. See Sec. 70c [§ 544(a)] at ¶ 9512.