APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE.
Seitz, Chief Judge; and Hastie and Aldisert, Circuit Judges. Seitz, Chief Judge, dissenting.
In a proceeding for an arrangement under Chapter XI of the Bankruptcy Act, Tru-Fit Screw Products Corporation has appealed from the district court's order affirming the referee's determination that the lien of a security agreement under which appellant was the secured party did not attach to the debtor's accounts receivable acquired after the date of the agreement.
On May 31, 1971 Middle Atlantic Stud Welding Co., now the debtor, executed a promissory note, two security agreements, and a financing statement in favor of appellant. One of the security agreements, which described various equipment as collateral, secured the amount of the note, and is not in question here. The other granted appellant a security interest in "all Receivables and proceeds thereof as security for the Liabilities". This agreement defined Receivables as "all of Debtor's Accounts Receivable", and Liabilities to mean "any and all indebtedness of Debtor to Secured Party of every kind and description, now existing or hereafter arising". The financing statement mirrored the security agreement.*fn1
The referee and the district court found that appellant and debtor intended the agreement to establish a security interest in after-acquired accounts receivable as well as those in existence on the date of the agreement.*fn2 They found that the parties intended to create and secure a long-term, ongoing, supplier-manufacturer relationship. Both tribunals, held however, that the absence of explicit reference to after-acquired accounts defeated appellant's claimed security interest under the Uniform Commercial Code, § 9-204.
At the time of the transactions now in question, section 9-204(3) of the Code stated, with exceptions not relevant here, that:
". . . a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement."*fn3
Two other Code sections guide proper judgment of the nature of the language necessary so to provide. Section 9-110 states:
"For the purposes of this Article any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described."
The Comment advises courts not to require the most exact and detailed description possible, but to be satisfied with a description that enables identification of the intended collateral. More generally, but in the same vein, section 1-102 suggests liberal construction to the end that underlying purposes and policies be promoted, including simplification and clarification of the law and continued expansion of commercial practices. The Comment adds that narrow as well as broad constructions are appropriate, depending upon the purposes and policies involved in a particular issue.
Appellant argues that the agreement designating "all accounts receivable" as collateral reasonably identified after-acquired accounts, and thus complied with the Code requirements.*fn4 We now consider this issue in light of the present commercial practice of accounts receivable financing and possible abuse to which the statute, as appellant would apply it, might be subject.
As the Uniform Commercial Code gained nationwide acceptance much was written by commentators about floating lien financing. DuBay v. Williams, 9th Cir. 1969, 417 F.2d 1277, 1280 n. 2 (collecting commentary). The practice seems both familiar and important in the commercial world. E.g. Henson, "Proceeds" Under The Uniform Commercial Code, 65 Colum. L. Rev. 232 (1965); Coogan & Gordon, The Effect Of The Uniform Commercial Code Upon Receivables Financing -- Some Answers and Some Unresolved Problems, 76 Harv. L. Rev. 1529, 1530 n. 2. (1963). Certainly current commercial practice makes wide use of floating lien financing on inventory and accounts receivable. A seller who contemplates a long term relationship often will extend credit in return for a lien on buyer's inventory and receivables. The scheme is likely to ...