Opinion
No. 77-344-BK-JE-H
January 24, 1980
Former Bankruptcy Act — Automatic Stay — Relief from Validity of Liens
A creditor had no greater rights in the collateral of the bankrupt than its predecessor, the bank, since an examination of the status of liens indicated that the bank terminated its original financing statement. Accordingly, the receiver and debtor were entitled to sell all of the assets of the bankrupt's estate "free and clear" of the unsecured claim of the creditor. Further, relief from the automatic stay under Bankruptcy Rule 601 was denied insofar as the creditor's alleged lien was not a valid first lien of the bankrupt's assets. See Rule 601 at ¶ 20,171.
[Digest of Opinion]
The creditor's complaint seeks a determination of the amount, priority and validity of its alleged security interest in and to certain assets of the bankrupt, and for relief from the automatic stay under Bankruptcy Rule 601. The receiver submitted a counterclaim to "sell free and clear" of the creditor's alleged lien.In April of 1976, the bankrupt executed a security agreement in which a bank was given a first security interest in all the equipment, accounts, notes, contract rights, chattel paper, goods, inventory, machinery, substitutions, additions, and whatever was received when collateral or proceeds were sold. The note was further secured by a security agreement. The bank perfected the security interest in this collateral by filing a financing statement with the Secretary of State. It is further alleged that the promissory note was secured by a collateral assignment of a lease.
Thereafter, the bank sold, assigned and transferred the note, security agreements and financing statements and the collateral assignment of the lease to the creditor. The creditor is the owner and holder of the promissory note which is in default.
The receiver produced evidence that the original financing statement was terminated by the bank recording a termination statement with the Secretary of State. Evidence of the Bank's intent to terminate was further found in the assignment recorded with the Secretary of State, which assigns only the financing statement.
Consequently, on the date that the receiver was appointed, an examination of the status of liens indicated that the creditor, or its predecessor, the bank, did not have a validity perfected security interest. The receiver, borrowed money on certificates, relying on the fact that no liens appeared of record with the Secretary of State for the creditor or the bank on the date he was appointed. Accordingly, the creditor has an unsecured claim. Under these circumstances, the receiver and debtor may sell free and clear of this unsecured claim.