Id., (quoting First National Bank and Trust Co. of Augusta v. McElmurray, 120 Ga. App. 134, 138, 169 S.E.2d 720, 724 (1969)). See also Matter of Emergency Beacon Corp., 665 F.2d 36, 40 (2nd Cir. 1981); Northwestern Bank v. First Va. Bank of Damascus, 585 F. Supp. 425, 429 (W.D.Va. 1984); J. White R. Summers, Uniform Commercial Code ยง 23-4 at 916 (2nd ed. 1980); 79 C.J.S.Supp. Secured Transactions ยง 12 at 18 (1974 Supp. 1983). Thus a debtor possesses sufficient rights in collateral if the true owner agrees to the debtor's use of the property as security or if the true owner is estopped to deny creation of the security interest. Northwestern Bank v. First Va. Bank of Damascus, 585 F. Supp., at 429.
Although the term "rights in the collateral" is not defined in the Code, and has been viewed broadly by courts on occasion, see, e.g., Kinetecs Technology Int'l Corp. v. Fourth Nat'l Bank, 705 F.2d 396 (10th Cir. 1983) ("the Code clearly does not require that a debtor have full ownership rights"), it clearly contemplates some property interest in goods, not mere bare possession acquired from a bailee under a transaction of entrustment. Sitkin Smelting, 639 F.2d at 1217-18; Northwestern Bank v. First Virginia Bank, 585 F. Supp. 425, 428-29 (W.D.Va. 1984) ("Mere possession by the debtor is insufficient to establish a right in the collateral upon which to base a security interest. . . . The debtor must acquire some ownership interest in the collateral before a valid security interest arises"); see generally James J. White Robert S. Summers, Uniform Commercial Code ยง 23-5 (3d ed. 1988), at 263 ("if the transaction [endowing debtor with possession] were merely a bailment . . . the law would be clear: the bailed goods would be returned to the owner"); Hillman, supra, at ยถ 18.03[1]. Since mere possession of goods under a transaction of entrustment clothes a debtor with no "rights in the collateral" to which a security interest can attach, within the meaning of Mass.Gen.L. ch. 106, ยง 9-203(1)(c), the Banks acquired no enforceable lien in the scallops by virtue of their security interests in Gloucester's after-acquired inventory.
(emphasis added). At least one court has adopted the bank's view. Northwest Bank v. First Va. Bank of Damascus, 585 F. Supp. 425 (W.D.Va. 1984). We cannot agree with the bank, however.
Defs.' Reply at 3. Although some courts take the position that an affirmative defense may not be raised for the first time in a motion for summary judgment, see. e.g., Roe v. Sears, Roebuck Co., 132 F.2d 829, 832 (7th Cir. 1943) (holding that defendant may not raise unpleaded affirmative defense on motion for summary judgment "unless relieved from his default" occasioned by his failure to plead the defense), the prevailing view is that a party may do so, especially where the plaintiff has notice of the defense, Northwestern Bank v. First Virginia Bank, 585 F.Supp. 425, 429 (W.D.Va. 1984). However, this is not the case here, as the defendants did raise the defense of worker's compensation exclusivity in their respective answers to the complaint.
This Court affirms the concept that a security interest cannot be created unless the debtor has rights in the collateral which can be assigned. Matter of Emergency Beacon Corp., 665 F.2d 36, 40 (2d Cir. 1981); Northwestern Bank v. First Virginia Bank of Damascus, 585 F. Supp. 425, 428 (W.D.Va. 1984). Yet the Bank merely assumes, just because it applied BFI's deposit towards outstanding loans, that the Bank rather than BFI legitimately had rights in that deposit.
The debtor must have some ownership interest in the collateral before a security interest arises. Northwestern Bank v. First Virginia Bank of Damascus, 585 F. Supp. 425, 429 (W.D.Va. 1984). In Kinetics Technology Corp. v. Fourth National Bank of Tulsa, 705 F.2d 396, 398 (10th Cir. 1983), the Tenth Circuit noted, however, that a debtor need not have full ownership rights for attachment to occur.
Therefore, "a debtor possess sufficient rights in collateral if the true owner agrees to the debtor's use of the property as security or if the true owner is estopped to deny creation of the security interest." Cook, 63 F.2d at 798 (citing Northwestern Bank v. First Va. Bank of Damascus, 585 F. Supp. 425, 429 (W.D. Va. 1984)); Pubs, Inc., 618 F.2d at 436. Here, the owner's consent is what removes the sale proceeds from the bailment context.
In Northwestern Bank v. First Virginia Bank, three entrepreneurs individually signed the security agreement with First Virginia Bank, but the corporate signatories were missing. The court held that since the debtor-corporation did not sign the security agreement, it failed to meet the first requirement of Va. Code ยง 8.9-203(1), and was unenforceable. 585 F. Supp. 425, 428 (W.D.Va. 1984). The security agreement in this case is signed by Bain, but not by the debtor.
]" First Nat. Bank c. Co. v. Smithloff, 119 Ga. App. 284, 290 (5) ( 167 S.E.2d 190) (1969). See also Northwestern Bank v. First Va. Bank of Damascus, 585 F. Supp. 425 (W.D. Va. 1984) (citing First Nat. Bank c. Co. v. Smithloff, supra, as controlling authority). Construing the evidence most strongly against the Bank, the instrument belonging to Midstates was merely in possession of Williams, who also happened to be a corporate officer of ACES. The Bank produced no unrebutted evidence that Midstates had consented to the pledge of its instrument as security for ACES's debt or that estoppel or some other special rule demanded a finding, as a matter of law, that the certificate of deposit had been taken for value.