The plaintiff, Dixie L. Ellefson, appeals from a district court ruling that authorized a bank-garnishee to release her garnishment of two bank account funds belonging to Centech Corporation. Winnebago, an intervenor in these proceedings, was an assignee of a security agreement that covered the collateral from which the funds were derived. Winnebago was also the assignee of what was purported to be a pledge that allegedly gave the assignor a lien on the funds in the bank accounts. By virtue of the security agreement and purported pledge, Winnebago claimed it had a right to the funds that was superior to Ellefson’s garnishment claim. Ellefson contends the district court erred in rejecting her contention that any security interest in the funds was (1) waived or (2) at least limited by Iowa Code section 554.9306(4)(d)(ii) (1995). We disagree and affirm.
Centech Corporation was a Minnesоta corporation doing business in Iowa. Cen-tech, a closely held corporation, engineered and manufactured a wide range of products from pregnancy detectors for pigs to computer equipment.
On February 25, 1994, Republic Acceptance Corporation extended credit to Cen-tech according to the terms of an accounts receivable financing agreement. This indebtedness was secured by a security agreement dated February 25, 1994 (Security Agreement). The Security Agreement granted Republic a security interest in all of Centech’s then-existing as well as future accounts, contract rights, other rights to payment, inventory, equipment, general intangibles, and “proceeds of any and all of the foregoing property.” Republic perfected its security interest in the collateral by filing financing statements with the Iowa Secretary оf State.
Centech purchased assets of North Iowa Electronics from Winnebago Industries, Inc. and thereafter bégan operating in Garner, Iowa, under the trade name North Iowa Electronics. Republic eventually financed this purchase, and Winnebago guaranteed Centech’s debt to Republic.
In 1996, Centech was experiencing severe financial difficulties. These financial difficulties prompted a forbearance agreement in September 1996 (Forbearance Agreement) between Centech and Republic. In this agreement, Centech acknowledged (1) it owed Republic $4,674,628, (2) it was in default, and (3) Republic was entitled to- foreclose on the collateral -secured by the Security Agreement. Republic agreed to forebear from exercising its rights and remedies under -certain conditions to allow Centech to continue its operations while sеeking a buyer for its business. One of the conditions prohibited Centech from selling collateral without Republic’s prior approval other than in the ordinary course of business.
The Forbearance Agreement was contingent on (1) Centech depositing all of its funds into an account at Clear Lake Bank & Trust in Garner and pledging that account to Republic, (2) Centech executing a repossession and occupancy agreement, and (3) Winnebago loaning Centech $125,-000 for operating expenses.
Pursuant to the Forbearance Agreement, Centech deposited its funds into two bank accounts at the Clear Lake . Bank. Centech thereafter executed an assignment of accounts agreement (Assignment of Accounts Agreement) on September 11, 1996. In the Assignment of Accounts Agreement, Centech stated that for value received it assigned, pledged and granted a security interest to Republic in Centech’s right, title and- interest in the two bank accounts. The Assignment of Accounts Agreement stated it was to secure Cen-tech’s debt to Republic under the Security Agreement.
The Assignment of Accounts Agreement prohibited Centech from transferring any monies from the two accounts without pri- or written consent from Republic. The Agreement expressly provided, however, that this restriction
shall not be construed ... to restrict [Centech’s] right to transfer funds in accordance with the Security Agreement ... or to withdraw any funds from the Operating Account in the ordinary course of business prior to demand being made by [Republic] for payment.
The Agreement also provided that [u]nder no circumstances shall the Depository be required to determine whether any conditions of payment or delivery to [Republic] or any restrictions on transfer or withdrawal of funds by [Centech] have been satisfied or whether the funds paid or property delivered in accordance with any ... direction have been properly applied by the Depository. ...
Additionally, the Assignment of Accounts Agreement provided that (1) the obli
At the same time that the Assignment of Accounts Agreement was signed, Centech and Republic executed a repossession and occupancy agreement (R. & 0. Agreement). Under this last agreement, Cen-tech agreed to deliver to Republic possession of all of the collateral covered by the Security Agreement and the Assignment of Accounts Agreement on October 10, 1996 (Republic later extended this date to January 10, 1997) or upon Centech’s earlier default of the Forbearance Agreement.
Republic thereafter notified the Clear Lake Bank & Trust of the assignment of the two bank accounts, and the bank acknowledged acceptance of the terms of the Assignment of Accounts Agreement. Later in September 1996, Winnebago made the $125,000 loan to Centech.
On January 27,1997, Ellefson obtained a default judgment against Centech for $167,306.25 for claims brought under the federal Americans with Disabilities Act and similar Iowa employment discrimination statutes. Ellefson obtained the judgment in the United States District Court for the Northern District of Iowa. At Republic’s direction, Centech made no defense of the action.
Because Centech did not pay its debt to Republic by the due date under the Forbearance Agreement, Republic sold the North Iowa Electronics assets to Midwestern Electronics pursuant to an agreement for the sale of collateral dated January 27, 1997. This sale was done in accordance with the R. & O. Agreement and apparently with Winnebago’s consent.
On February 6 Republic assigned to Winnebago all its right, title, and interest in the Security Agreement, the Forbearance Agreement, and the Assignment of Accounts Agreement as well as various financing statements filed with the Iowa Secretary of State, which perfected Republic’s security interest. Ellefson does not contend that this assignment to Winnebago was ineffective to transfer all of Republic’s interests under these agreements to Winnebago. By the assignment, Republic sold to Winnebago the debt Centech owed to Republic. The assignment released Winnebago from its prior guarantee of Centech’s indebtedness to Republic and entitled Winnebago to receive all payments on that indebtedness from Centech.
Meanwhile, on February 18, 1997, Ellef-son’s default judgment was transferred to the Iowa District Court for Cerro Gordo County, and an execution of judgment issued on March 20, 1997. On March 25 the Cerro Gordo County Sheriff served notice of garnishment on the Clear Lake Bank & Trust. The notice requested garnishment of any and all bank accounts owned by Centech.
In its answers to the garnishment interrogatories, the bank acknowledged it had a total of $123,615.36 in Centech’s two accounts. The bank asserted that, before the service of the garnishment notice, Cen-tech had assigned all its right, title, and interest in the two accounts to Republic and that thereafter Republic had assigned all of its right, title, and interest in these accounts to Winnebago. The bank further asserted that Republic and Winnebago “claim a first lien position on both accounts and that the security has been perfected by filings with the Iowa Secretary of State under the provisions of the Iowa Commercial Code.”
On May 28 Winnebago filed a petition for intervention, asserting a superior lien to the two bank accounts. More specifically, Winnebago alleged that as assignee of the Security Agreement it acquired a security interest in all of Centech’s accounts, inventory, equipment, and general intangibles and that the security interest had been perfected by proper filings with the secretary of state. Winnebago further alleged that, as assignee of the Assignment of Accounts Agreement, it acquired all of
In its ruling, the district court stated that Ellefson claimed entitlement to either all, or a portion, of the two bank account funds under two separate theories. First, Winnebago’s security interest in the funds was waived by provisions in the Assignment of Accounts Agreement and by expenditures Republic allowed Centech to make from the two bank accounts. Second, Winnebago’s security interest in the two bank account funds was limited by Iowa Code section 554.9306(4)(d)(ii) (limiting scope of security interest once insolvency proceedings are instituted) because the sale of Centech’s assets constituted “insolvency proceedings.”
The district court ruled against Ellefson on both theories. The court concluded that Winnebago’s security interest in the two bank accounts was superior to Ellef-son’s garnishment claim and authorized the bank to release the two bank account funds to Winnebago.
Ellefson' appealed. She contends the district court erred in failing to find as a matter of law that the language of the Assignment of Accounts Agreement and the conduct of the parties constituted a waiver of any security interest that Winnebagо may claim in the two bank account funds. She also contends that the district court erred as a matter of law in finding that Winnebago’s security interest was not limited by Iowa Code section 554.9306(4)(d)(ii).
II. Scope of Review.
This action arose out of a garnishment proceeding, which “is merely a species of attachment.”
Padzensky v. Kinzenbaw,
To the extent this appeal concerns matters of contract construction, our review is at law.
See Fashion Fabrics of Iowa, Inc. v. Retail Investors Corp.,
Winnebago is the intervenor in these proceedings and claims its rights to the bank account funds are superior to Ellefson’s garnishment rights. When an intervenor claims a superior right to garnishment funds, the intervenor has the burden to establish its priority to the funds.
Padzensky,
III. Issues.
A. Waiver.
1. The Assignment of Accounts Agreement. In the district court the focus was on the Assignment of Accounts Agreement. Ellefson contends that the district court erred in failing to find as a matter of law that the language' of the Assignment of Accounts Agreement and the conduct of the parties constituted a waiver of a security interest, which Winnebago claims in the two bank account funds.
The language she relies on provides the following. First, the bank was, under no circumstances, required to make any inquiries as to any check or withdrawal of funds that Centech made from these accounts. Second, the bank could assume any. check or withdrawal that Centech made from these accounts was an expenditure made in the ordinary course of business unless the bank was notified to the contrary.
In further support of her contention, Ellefson points to (1) testimony from the bank that it understood Centech was allowed the use of these accounts until the bank was notified otherwise, (2) lack of any evidence that any such notification was ever given, and (3) uncontroverted evidence that Centech made large and unusual payments without prior approval from, or objection by, Republic.
As garnishor, Ellefson insists that under the law she stands in the shoes of Centech so that if Centech has a right to demand of the bank funds from the two bank accounts, she has that same right. For this reason, Ellefson concludes the bank, as garnishee, was obligated to honor her garnishment.
The district court found that Ellefson failed to prove her waiver claim. Whether the district court was correct turns on оur determination of the status of the Assignment of Accounts Agreement under the Iowa Uniform Commercial Code [hereinafter UCC] and the legal nature of the Agreement.
a. Status of the Assignment of Accounts Agreement under the UCC. In the Assignment of Accounts Agreement, Cen-tech states that it “assigns, pledges and grants a security interest” to Republic in Centech’s right, title, and interest “in two bank accounts.” In response to Ellefson’s waiver argument, Winnebago contends this language constituted a “completed pledge” of the two accounts to Republic and established a lien in favor of itself as assignee of the Assignment of Accounts Agreement. Winnebago further contends its lien was superior to Ellefson’s garnishment claim.
Assuming for the moment that what we have here is a pledge, we must first decide whether one can even establish under the UCC a security interest, that is, a lien in bank accounts. The pertinent рrovision on this question is found in Article 9 (secured transactions) of the UCC, more specifically, Iowa Code section 554.9104(0: “This Article does not apply: ... i to a transfer of an interest in any deposit account (section 554.9105, subsection 1).... ” (Emphasis added.) Iowa Code section 554.9105(l)(e) pertinently defines a deposit account to mean “a demand, time, savings, passbook or like account with a bank.... ”
In line with the majority rule, this court has held that the quoted language in section 554.9104(0 prohibits the use of bank accounts, such as a checking account, as original collateral under the UCC.
Domain Indus., Inc. v. First Sec. Bank & Trust Co.,
This, however, does not prohibit a creditor from creating a lien in bank accounts at common law. Authority for this proposition is found in Iowa Code section 554.1103, which provides:
Unless displaced by the particular provisions of this chapter, the principles of law and equity, including the law-merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions. ■
See also
Iowa Code Ann. § 554.1103 cmt. 3 (West 1995) (“The listing given in this section is merely illustrative; no listing could be exhaustive.”);
Willow City Farmers Elevator v. Vogel,
We conclude that the common law as to pledges is alive and well in Iowa and that pledges can serve as a security device for creditors.
b. Nature of the Assignment of Accounts Agreement. We turn to the common law on pledges. A comprehensive discussion of common-law pledges is found in Alphonse M. Squillante, Pledge As a Security Device, 87 Com. L.J. 618 (1982), 88 Com. L.J. 7 (1983) [hereinafter Squil-lante].
The author notes that “[t]wo of the most essential requirements of a pledge at common law was the presence of consideration in the transaction, usually in the form of a debt or some other obligation, and the transference of the property to the possession of the pledgee for that party to hold as collateral to secure the debt.” Squil-lante, 87 Com. L.J. at 620. The author further notes that a “pledge is a security device but it is not a possessory lien, though possession is essential for its enforceability and validity.” Squillante, 88 Com. L.J. at 7.
-Additionally, at common law,
[t]he transfer of possession to the pledgee provided the necessary evidence to prove the existence of the contract and, at the same time, gave notice to potential third party creditors that the collateral was in the possession of the pledgee because it was encumbered to secure some debt or obligation due from the pledgor to the pledgee. Without possession the interest of the pledgee would be thought of as no more than a secret lien and as a consequence of that the lien would be unenforceable.
Squillante, 87 Com. L.J. at 621.
Possession in the pledgee is therefore “an essential ingredient” to a pledge. Squillante, 88 Com. L.J. at 79. Such possession “must be absolute, unequivocal, and exclusively” in the pledgee. Id. Possession in its simplest form at common law meant the possessor was “free to do with the thing anything which the law permits” and free “to exclude others from doing the same things.” Id. at 80.
Delivery is an element of possession.
Id.
In its simplest sense, delivery is the “actual, physical, manual, turning over of the pledged personalty to the pledgee or some third party.”
Id.
at 160. In addition, when the property is incapable of manual delivery, for example an intangible, there can be a constructive delivery. Constructive delivery means trаnsferring the “means by which [the pledgee] may
When a pledge was completed according to these common-law rules, the hen created by the pledge was enforceable against' claims of the pledgor’s creditors. Id. at 81. Conversely, when one or more of the elements of an effective pledge was missing, the pledge would be invalid and unenforceable against such claims. Squil-lante, 87 Com. L.J. at 621.
From this discussion it is readily apparent that at common law Ellefson’s waiver argument would likely carry the day for her. Commenting on this precise issue, one writer has noted:
[Prior to the adoption of the UCC], [i]f a secured party authorized or acquiesced in his debtor receiving procеeds and depositing them in his bank account, such authorization or acquiescence could well be viewed as inconsistent with the assertion of a security interest. The conduct could be construed as amounting to nothing more than rebanee on the debtor’s personal promise to pay. The secured party could be said to have “waived” his security interest.... In some states, in fact, if the secured party consented to the debtor’s use of any part of the proceeds as his own, the law of mortgages on merchandise applicable to inventory collateral and Benedict v. Ratner,268 U.S. 353 [45 S.Ct. 566 ,69 L.Ed. 991 ] (1924) applicable to accounts collateral would result in loss of the security interest on the remaining original collateral as weh.
Robert H. Skilton,
The Secured Party’s Rights in a Debtor’s Bank Account Under Article 9 of the Uniform Commercial Code,
1 S. Ih. U. L.J. 120, 129-30 (1977) [hereinafter Sküton];
see also Kilgore v. State Bank,
Our case law on pledges is consistent with these rules.
See Briley v. Madrid Improvement Co.,
Finding no applicable statutory provisions, the court applied the common law applicable to pledges and their priorities.
Id.
at 392-93,
Given this defect, Republic and therefore Winnebago, its assignee, had no lien by virtue of any pledge. The district court erred in concluding otherwise.
Absent the lien, Republic was, as between it and Ellefson, a mere general creditor as to the two bank accounts and therefore had no rights to them. The situation is no different from the one in which a garnishment is served on a judgment debtor’s bank where the debtor has a checking account. In that situation, the right of the judgment creditor is measured by the right of the debtor-depositor.
What Cheer Sav. Bank v. Mowery,
Here, the bank was obligated to pay any check Centech wrote and honor any request by Centech for withdrawal of funds from the accounts. By virtue of the garnishment, Ellefson stepped into Cen-tech’s shoes. The bank was therefore obligated to honor Ellefson’s garnishment unless some other agreement dictated otherwise.
That brings us to the Security Agreement.
2. The Security Agreement. The district court found1 that the Security Agreement granted Republic a security interest in the proceeds from the sale of secured collateral, citing Iowa Code section 554.9306(2). The court also found that “proceeds” are whatever is received upon the sale, exchange, collection, or other disposition of collateral, citing Iowa Code section 554.9306(1). Additionally, there was testimony that virtually all of the proceeds in the accounts came from the disposition of the collateral covered by the Security Agreement. The district court’s findings together with this testimony lead us to conclude the district court implicitly found that Republic and Winnebago, as its as-signee, had a continuing security interest in the proceeds of the two bank accounts that was superior to that of Ellefson’s garnishment claim. If the district court was correct, we may uphold its judgment on this basis.
a. Status of the Security Agreement under the UCC. As we did with the Assignment of Accounts Agreement, we must decide the status of the Security Agreement under the UCC. Again, this is a legal question for us to decide.
The Security Agreement granted Republic a security interest in Centech’s existing as well as future accounts, inventory, equipment, and “proceeds of any and all of the foregoing property.” Republic perfected the security interest by filing a financing statement with the secretary of state. This is important because under the UCC a security interest is not enforceable against the debtor and third parties and does not attach unless (1) the debtor has signed a security agreement containing a description of the collateral, (2) value has been received, аnd (3) the debtor has rights in the collateral. Iowa Code § 554.9203. Additionally, the creditor must file with the secretary of state a financing
In this case, it is uncontroverted that all of these requirements were met. Therefore, Republic had a security interest in the collateral mentioned in the Security Agreement and in the proceeds from that collateral. It is also uncontroverted this security interest attached and became a lien on the collateral before the garnishment was served.
We have already determined that the UCC does not apply to the creation.of an original security interest in a debtor’s bank account. However, in
Domain
this court held that pursuant to two UCC provisions — Iowa Code sections 554.9104(£). and 554.9306 — bank accounts to the extent they include identifiable proceeds from the sale of collaterаl are subject to the lien that originally encumbered the collateral itself.
Section 554.9104 pertinently provides:
This article does not apply ... 1. to a transfer of an interest in any deposit account (section 554.9105, subsection 1), except as provided with respect to proceeds (section 55^.9306) ....
(Emphasis added.)
Iowa Code section 554.9306(1) defines “proceeds” to include “whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.” This provision also defines “cash proceeds” to include “[m]oney, checks, deposit accounts and the like” and “noncash proceeds” to include “[a]ll other proceeds.”
Iowa Code section 554.9306(2) provides in relevant part:
[A] security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.
(Emphasis added.)
A security agreement therefore allows a creditor a continuing security interest in the proceeds from the sale of collateral even though those proceeds find their way into a bank account. The creditor, however, must identify those proceeds as coming from the sale of the collateral.
With respect to any waiver argument that might be urged because of the commingling of collateral sale proceeds in a bank account, Iowa Code section 554.9205 provides:
A security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor ... to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collаteral.
This section repeals the rule of
Benedict v. Ratner,
Under these authorities, Republic had a continuing security interest in the proceeds of the two bank accounts to the extent those proceeds came from the sale or other disposition of the collateral covered by the Security Agreement. This continuing security interest was unaffected by (1) Centech’s use of those proceeds in its business or (2) Republic’s failure 'to require Centech to account for the proceeds. Therefore, as to the Security Agreement, the district court correctly found that Ellefson had not established her waiver argument.
b. Identifying or tracing the proceeds. As mentioned, the district court found that the Security Agreement granted Republic á security interest in the proceeds from the sale or other disposition of the collateral. And we agree with that construction of the Security Agreement. Additionally, it is uncontroverted the security interest attached to the proceeds and was perfected before the garnishment was served.
But, as Ellefson points out, the district court did not take the next step to determine whether Winnebago had identified or traced the proceeds in the two bank accounts as coming from the sale or other disposition of the collateral covered by the Security Agreement. Winnebago, as in-tervenor, had the burden to make thаt showing.
See Padzensky,
We follow what is known as the “lowest intermediate balance rule” for identifying or tracing proceeds in a commingled fund account.
See C & H,
As mentioned, there was testimony that except for several deposits, virtually all of the cash that came into the accounts represented customer payments of accounts receivables generated from the sale of Centech’s goods or services. In fact, Ellefson so stipulated before trial. And as Winnebago points out, all but one of the exceptions related to refunds that were covered by the Security Agreement. The remaining exception was the $125,000 loan from Winnebago to Centech made in September 1996. The evidence shows that the $125,000 deposit was made six months prior to the garnishment and that, in the intervening six months, sums far in excess of $125,000 were transferred into and out of the accounts.
Ellefson did.not file а motion for enlargement of findings under Iowa Rule of Civil Procedure 179(b). We therefore may assume as fact an unstated finding that is
Iowa Code section 554.9201 provides that “[ejxcept as otherwise provided by this chapter a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.” It has been said that this provision has two roles: “(1) as a general validation of the terms of the security agreement between the рarties, and (2) as a keystone priority rule, tilting the scales in favor of the secured party versus purchasers and creditors of the debtor,: in cases not otherwise provided for.” Skil-ton, at 202; see also Iowa Code Ann. § 554.9201 cmt.
The Security Agreement gave Winnebago, as assignee of Republic, a security interest in the proceeds of the two bank accounts. That security interest was perfected before the date of the garnishment and was effective against Centech as of that date. As a garnishor, Ellefson had no greater rights to the funds in the accounts than Centech.
See Verschoor v. Miller,
B. Limitation as provided by Iowa Code section 554.9306(4)(d)(ii). El-lefson attempts to save her claim by contending that Iowa Code section 554.9306(4)(d)(ii) limited Winnebago’s security interest in the proceeds of the two bank accounts. The district court rejected this contention, and so do we.
When insolvency proceedings are instituted, the security interest of a creditor holding a perfected security interest in cash proceeds continues as to all undepo-sited, uncommingled and identifiable cash proceeds. See Iowa- Code § 554.9306(4)(a)-(c). However, once these cash proceeds are deposited in a general account, the UCC sets out a formula to determine the seсured creditor’s interest in the commingled account. See Iowa Code ‘ § 554.9306(4)(d). ’ Section 554.9306(4)(d)(ii) provides:
4. In the event of insolvency proceedings instituted by or against a debt- or, a secured party with a perfected security interest in proceeds has a perfected security interest only in the following proceeds:
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d. in all cash and deposit accounts of the debtor, in which proceeds have been commingled with other 'funds, but the perfected security interest under this paragraph “d” is
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ii. limited to an amount not greater than the' amount of cash proceeds received by the debtor within ten days before the institution of the insolvency proceedings less the sum of (I) the payments to the secured party on account of cash proceeds received by the debtor during such period and (II) the cash ■proceeds received by the debtor during such period to which the secured party is entitled under paragraph “a” through “c” of this subsection 4.
On January 27, 1997, Republic sold assets of North Iowa Electronics to Midwestern Electronics. Those assets were owned by Centech and covered by the Security Agreement. On April 16, 1997, which was approximately three weeks after the garnishment, Winnebago sold to R & D Technical Services assets also owned by Centech and covered by the Security Agreement. The question before the district court was whether the two sales were insolvency proceedings as Ellefson contended they were.
Iowa Code section 554.1201(22) defines “insolvency proceedings” tо include “any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate the estate of the person involved.”
1. Assignment for the benefit of creditors. An assignment for the benefit of creditors “is a voluntary transfer by a debtor of his or her property to an assignee in trust for the purpose of applying the property or proceeds thereof to the payment of his or her debts.” 6 Am. Jur.2d Assignments for Benefit of Creditors § 1, at 278 (1999). The object of “such an assignment is to afford an equal distribution of the assignor’s estate to all of his creditors in proportion to their claims.” Id. Transactions that appear to be an assignment for the benefit of creditors “may be distinguished on the basis that they lack the element of [a] trust....” Id. § 2, at 279.
Fromme v. Jones, an early Iowa case interpreting an Iowa statute regulating assignments for the benefit of creditors, generally agrees that these are the characteristics of such an assignment:
A general assignment for the benefit of creditors under this provision is a different thing from that of a chattel mortgage. An assignment passes the property beyond the control of the debt- or. It is made in contemplation of insolvency. It requires the intervention of a trustee. If the property assigned is insufficient to pay the whole of the indebtedness, there must be a pro rata distribution of the avails of the property assigned.
Here, the Security Agreement granted Republic a security interest in substantially all of Centech’s assets. Centech, by executing the Security Agreement, did not transfer its propеrty to a trustee for the purpose of applying the proceeds from the sale of the property equally among all of its creditors. Rather, Centech executed the Agreement to provide Republic security for the debt Centech owed it. The two sales were not made in contemplation of insolvency or to provide a fund to pay all of Centech’s creditors in proportion to their claims. Rather, the two sales were made pursuant to the Security Agreement to satisfy Centech’s debt to Republic and Winnebago. The sales, therefore, did not constitute an assignment for the benefit of creditors.
2. Other proceedings intended to liquidate or rehabilitate the estate of the person involved. This latter part of the insolvency definition, we think, refers to those kinds of proceedings that accomplish the same result that an assignment for the benefit of creditors accomplishes. In reaching that conclusion, we apply a rule of statutory construction known as
“ejusdem generis.”
According to this rule, when specific words (here, “assignment for
The word “proceeding” injects a limitation as seen from the following definition of the word:
In its ordinary acceptation, or general sense, ... “proceeding” means the form and manner of conducting judicial business before a court or judicial officer....
... In a more particular or restricted sense, the term “proceeding,” means any application to a court of justice ... for any remedial object.
1A C.J.S. Actions § 7(a), at 318-19 (1985). Therefore, the words “other proceeding intended to liquidate or rehabilitate the estate of the person involved” contemplate something similar to an assignment for the benefit of creditors with the additional requirement that that something has to.he under the supervision of a court.
We find support for our conclusion in those instances when courts have applied provisions comparable to section 554.9306(4)(d)(ii). All have involved bankruptcies,
see, e.g., In re SMS, Inc.,
Because the sales here did not constitute an assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate Centech’s estate, the limitations under section 554.9306(4)(d)(ii) have no application to this case.
See Citizens Nat’l Bank v. Mid-States Dev. Co.,
IV. Disposition.
In sum, we conclude Winnebago, as as-signee of Republic, had a continuing security interest in the proceeds of the two bank accounts. That interest was superior to Ellefson’s garnishment claim. The two sales of Centech’s assets were not an assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate Centech’s estate. Therefore, Iowa Code section 554.9306(4)(d)(ii) had'no application to this case. The district court did not err in authorizing the bank to release the funds in the two bank accounts to Winnebago, the intervenor.
AFFIRMED.
LARSON, J., concurs in the result only.