In fact, Mallory was decided long before the UCC's enactment, and therefore bears not at all on the Code's breadth. Moreover, the decision could not have extended any common-law principle to personal property leases because the only lease before the court involved real estate. The AFSA's second case, United States v. Samel Refining Corp., 461 F.2d 941 (3d Cir. 1972), is equally unavailing. The quoted portion, which again examined a security deposit paid under a real, not a personal, property lease, says nothing about the UCC. The court merely stated that "the relationship of a tenant to the landlord with respect to a security deposit is that of creditor and debtor."
Liberty cites a number of cases from other jurisdictions holding that a security deposit creates a debtor-creditor relation at common law, with the landlord taking title to the moneys; but no matter how the relation might be characterized at common law, the Minnesota statute supercedes any contrary common law. Mendelson-Silverman, Inc. v. Malco Trading Corp., 146 Misc. 215, 260 N.Y.S. 881, 882 (Sup.Ct. 1932), aff'd, 238 App. Div. 852, 262 N.Y. 991 (1933), aff'd, 262 N.Y. 621, 188 N.E. 92 (1933); United States v. Samel Refining Corp., 461 F.2d 941, 943 (3d Cir. 1972); Povey v. Colonial Beacon Oil Co., 294 Mass. 86, 200 N.E. 891 (1936). Other jurisdictions characterize security deposits as bailments at common law. See, e.g., Rasmussen v. Helen Realty Co., 92 Ind. App. 278, 168 N.E. 717, 721 (1929) (en banc); see 3A G. Thompson, Commentaries on the Modern Law of Real Property 429 (1981 ed. J. Grimes rev.).
The Berg Court, however, concluded that matured or not, both the hourly billing and contingency fee contracts are "contract rights," defined as "any right to payment under a contract not yet earned by performance." Id. at *9 (citing United States v. Samel Refining Corp., 461 F.2d 941, 942 (1972) (defining "contract rights" under Pennsylvania law)). Therefore, the fee contracts constituted "accounts" under the Uniform Commercial Code.
See e.g., Mallory Associates, Inc. v. Barving Realty Co., Inc., 300 N.Y. 297, 90 N.E.2d 468 (1949). Courts have expounded on the debtor/creditor relationship to hold that a security deposit does not create a pledge but rather creates a "contract right." See U.S. v. Samel Refining Corp., 461 F.2d 941, 943 (3d. Cir. 1972) (applying Pennsylvania law to landlord/tenant relationship); Korens v. R.W. Zukin Corp., 212 Cal.App.3d 1054, 261 Cal.Rptr. 137 (1989) (held landlord did not have implied duty to pay interest on security deposit under theory that payment of deposit created trust or pledge relationship). See also, In re Empire Laundry, Inc. of Lynn, 27 U.C.C.Rep.Serv.2d 715, 722, 1995 WL 584514 (Bankr.D.Mass.
This court agrees with plaintiff's contention. See also Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 498, 57 S.Ct. 569, 81 L.Ed. 755 (1937); United States v. Samel Refining Corp., 461 F.2d 941, 943, n. 4 (3d Cir. 1972); In Re Linda Coal and Supply Co., 255 F.2d 653, 656-657 (3d Cir. 1958). The defendant's post-trial brief is silent on the issue of timeliness of raising the section 404 issue.
We recognize that 9-306(1), itself, clearly states that the word proceeds includes 'the account arising when the right to payment is earned under a contract right'. Compare, United States v. Samel Refining Corporation, 313 F.Supp. 684, 687 (E.D.Pa.1970), aff'd, 461 F.2d 941 (3d Cir. 1972). We conclude, however, that, at least with regard to contract right collateral, a proper interpretation of 9-306 limits proceeds, in the case of performance of the contract, to situations where the proceeds are received by the debtor upon the debtor's performance of the contract.
Contract rights were, and presumably still are, defined as "any right to payment under a contract not yet earned by performance and not yet evidenced by an instrument or chattel paper." United States v. Samel Refining Corp., 3d Cir., 461 F.2d 941, 942 (1972) (applying Pennsylvania law). It is, in other words, "a right to payment to be earned by future performance under an existing contract."