Weir-Penn Inc.

1 After United Bank filed its motion, the Chapter 7 trustee sold the assets subject to United
Bank’s purported security interest for $21,000. Resolution of the motion for relief from the stay will
resolve whether or not United Bank is entitled to the sale proceeds. All the parties consented to
adjudicate United Bank’s lien rights using this procedure.
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: )
)
WEIR-PENN, INC., ) CASE NO. 06-56
)
Debtor. )
MEMORANDUM OPINION
United Bank, Inc. (“United Bank”), filed a motion for relief from the automatic stay of the
Bankruptcy Code to repossess convenience store property and enforce its security rights under State
law.1 Thomas H. Fluharty, the Chapter 7 trustee (the “Trustee”) for Weir-Penn, Inc. (the “Debtor”),
opposes the motion on the basis that United Bank is not a secured creditor because it cannot produce
an authenticated security agreement. The Debtor joins in the Trustee’s objection.
The court held a telephonic hearing in this matter on March 23, 2006, in Wheeling, West
Virginia, at which time the court took the motion under advisement and ordered supplemental briefing.
That briefing is now complete, and for the reasons stated herein, the court will grant the motion.
I. BACKGROUND
The Debtor operated Convenient Food Mart # 3818 in Weirton, West Virginia. On October
31, 1997, the Debtor borrowed $110,000 from United Bank, which allegedly took a security interest in
the Debtor’s assets, including: equipment, inventory, and accounts. United Bank filed a UCC-1
Dated: Wednesday, June 28, 2006 2:16:25 PM
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2 The West Virginia Commercial Code was adopted from the Uniform Commercial Code;
when the court cites to opinions from other states interpreting that state’s commercial code, it does so
with the understanding that the foreign state has adopted the same subsections from the Uniform
Commercial Code as West Virginia.
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financing statement on November 6, 1997, but it cannot produce a copy of the security agreement
purportedly executed by the Debtor. Anthony J. Gentile, Sr., the market president for United Bank,
signed an affidavit on February 21, 2006, stating that the security agreement could not be located, and
that it had likely been destroyed in a September 2004 or January 2005 flood.
The Debtor refinanced the October 31, 1997 loan twice: first, on July 8, 1999, for $40,135;
then on September 10, 2002, for $110,000. United Bank filed a UCC-3 continuation statement on
September 9, 2002. When the Debtor defaulted on the note on January 12, 2006, the payoff amount
was $66,747.
On February 10, 2006, the Debtor filed its Chapter 7 bankruptcy petition. On March 21,
2006, the assets subject to United Bank’s alleged security interest were sold by the Trustee for
$21,000. Those funds are being held by the Trustee pending the determination of United Bank’s lien
rights, if any, in the proceeds.
II. DISCUSSION
United Bank asserts that the absence of a separate, written security agreement signed by the
Debtor does not negate its security interest in the Debtor’s convenience store assets. United Bank
contends that the Debtor signed the financing statement listing the collateral subject to its interest –
satisfying the writing requirement – and that the associated documentary evidence establishes the intent
of the parties to give United Bank a security interest in the same categories of collateral listed on the
financing statement.
The West Virginia Commercial Code (the “Commercial Code”)2 sets forth the requirements to
create an enforceable security interest:
[A] security interest is enforceable against the debtor and third parties with respect to
the collateral only if:
(1) Value has been given;
(2) The debtor has rights in the collateral or the power to transfer rights in the
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collateral to a secured party; and
(3) One of the following conditions is met:
(A) The debtor has authenticated a security agreement that provides a
description of the collateral . . . .
W. Va. Code § 46-9-203(b).
Here, there is no dispute that subsections (1) and (2) are satisfied. Without an authenticated
security agreement that provides a description of the collateral, however, United Bank does not have an
enforceable security interest. E.g., Mid--Eastern Electronics, Inc. v. First Nat'l Bank, 455 F.2d
141, 146 (4th Cir. 1970) (“[P]ursuant to § 9-203(1)(b), a security agreement was required in order for
the security interest to be enforceable.”); In re Hoyt's, Inc., 117 B.R. 226, 228 (Bankr. N.D. W. Va.
1990) (same).
The Commercial Code defines a “security agreement” as “an agreement that creates or
provides for a security interest.” W. Va. Code § 49-9-102(a)(76). No requirement exists that
there be a separate written document labeled “security agreement” that has express language granting a
security interest: once a debtor signs the financing statement the writing requirement is met, and the
determination of whether the parties intended to create a security interest is an issue of fact that is
garnered by reviewing “a collection of documents, no one of which contains granting language, but
which in the aggregate disclose an intent to grant a security interest in specific collateral.” Terry M.
Anderson, Marianne B. Culhane, and Catherine Lee Wilson, Attachment and Perfection of Security
Interests Under Revised Article 9: A "Nuts and Bolts" Primer, 9 Am. Bankr. Inst. L. Rev. 179,
188 (2001). See also In re Numeric Corp., 485 F.2d 1328, 1331 (1st Cir. 1973) (providing that any
writing, “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, . . . satisfies both the formal
requirements of the statute [9-203] and the policies behind it.”); Bank of Am. v. Outboard Marine
Corp. (In re Outboard Marine Corp.), 300 B.R. 308, 321 (Bankr. N.D. Ill. 2003) (rejecting the
theory that a security agreement must contain express words of grant as being fiercely criticized, too
formalistic, unsupported by legislative history and grammatical logic, and ultimately discarded by courts
and commentators).
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In this case, the Debtor has signed a financing statement indicating that the Debtor may have
granted United Bank a security interest in the categories or types of property listed. A considerable
number of cases have held that a financing statement alone – the purpose of which is only to provide
notice that a creditor may, or may not, have a security interest in the listed property – cannot double as
a security agreement. E.g., Mid-Eastern Electronics, Inc. v. First Nat'l Bank, 380 F.2d 355, 256
(4th Cir. 1965) (stating that a financing statement is only notice that a security interest is claimed with the
acquiescence of the debtor). Outboard Marine Corp., 300 B.R. at 322 (citing cases that hold a
financing statement, by itself, cannot double as a security agreement); Gibson County Farm Bureau
Coop. Ass'n v. Greer, 643 N.E.2d 313, 320 (Ind. 1994) (“[W]e are not willing to go so far as to hold
that a standard-form UCC-1 financing statement alone is, as a matter of law, sufficient evidence that the
parties intended to create a security interest . . . .”). Because a signed financing statement is deemed to
satisfy the Statute of Frauds, however, the only other purpose behind requiring an “authenticated
security agreement” is evidentiary as it relates to the intent of the parties to grant the creditor identifiable
security. W. Va. Code § 46-9-203 cmt. 3 (“Under subsection (b)(3), enforceability requires the
debtor's security agreement and compliance with an evidentiary requirement in the nature of a statute of
frauds.”); Numeric Corp., 485 F.2d at 1332 (“[A]lthough a standard form financing statement by itself
cannot be considered a security agreement, an adequate agreement can be found when a financing
statement is considered together with other documents.”).
Sufficient evidence exists in this case to establish the intent of the parties to create a security
interest in the categories or types of property listed on the Debtor’s financing statement. The
September 10, 2002 promissory note states:
9. SECURITY. This Loan is secured by separate security instruments prepared
together with this Note as follows:
Document Name Parties to Document
Deed of Trust - Leasehold . . . Weir-Penn, Inc.
and by the following previously executed, security instruments or agreements: UCC
Financing Statement on all business assets bearing file # 048209 recorded 11/16/1997
with the WV Secretary of State and executed by Weir-Penn, Inc as debtor and United
National Bank (nka United Bank, Inc.) as Secured Party.
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3 Two additional documents exist that support the court’s conclusion that the promissory note
and the financing statement, taken together, satisfy the requirement of an authenticated security
agreement. First, the Debtor apparently executed a corporate resolution granting Mr. Cottrill, the
Debtor’s president, the authority to execute a security agreement with United Bank. The authorization is
neither signed by the corporate secretary that purportedly conferred the authorization, nor is it dated.
The second document is the waiver of lien rights of the Debtor’s landlord in favor of United Bank. The
Debtor was not a party to that agreement. The documents support the conclusion, however, that the
Debtor intended to grant a security interest to United Bank and that United Bank believed that it had
obtained one from the Debtor.
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(Doc. No. 16, Exhibit C).
Accordingly, the September 10, 2002 promissory note, which is also signed by the Debtor,
contains a security clause that states that the loan is secured by “previously executed, security
instruments or agreements.” The only item listed under this clause is the UCC Financing Statement.
Taken together, the note evidences the intent of the parties to create a security interest (“This Loan is
secured by . . . .”), and the financing statement, incorporated by reference in the security clause of the
promissory note, provides a description of the collateral.3 E.g., In re Bollinger Corp., 614 F.2d 924,
927-28 (3rd Cir. 1980) (holding that the financing statement alone met the requirement for a writing
signed by the debtor and describing the collateral, and that the promissory note evidenced the intention
of the parties to create a security interest in the listed collateral); FD&S v. United States, 574 F. Supp.
699, 702 n.11 (S.D. W. Va. 1983) (using the loan agreement and financing statement to prove the
intent of the parties to grant a security interest in collateral in the absence of a separate written security
agreement); In re Center Auto Parts, No. 214, 187-FW, 1968 U.S. Dist. LEXIS 12834 at *4-5
(C.D. Cal. Aug. 23, 1968) (concluding that the promissory note, which stated: “This note is secured by
a certain financing statement,” when combined with the financing statement itself, satisfied the
requirement for a security agreement).
III. CONCLUSION
The financing statement signed by the Debtor meets the basic § 9-203(b)(3)(A) requirements
that there be a writing, signed by the Debtor, describing the collateral. The intent of the parties to
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create a security interest in the collateral listed on the financing statement is gleaned from the September
10, 2002 promissory note, which states that the note is secured by the financing statement.
Accordingly, the Court will grant United Bank relief from the automatic stay to recover the proceeds of
the sale of the collateral securing its September 10, 2002 loan to the Debtor.
The court will enter a separate order pursuant to Fed. R. Bankr. P. 9021.
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