In thе Matter of MIDDLE ATLANTIC STUD WELDING CO., Bankrupt. Appeal of TRU-FIT SCREW PRODUCTS CORP.
No. 73-1719.
United States Court of Appeals, Third Circuit.
Argued Jan. 18, 1974. Decided Aug. 7, 1974.
503 F.2d 1133
As useful as legislative history is as an aid to statutory cоnstruction, however, it should not be used to torture the plain meaning of the words of the statute as finally enacted. Whatever the subjective intent of the drafters, which is far from clear, we are not persuaded that under these circumstances proper statutory construction calls for a change in the meaning of a techniсal word over the bare space of eleven intervening words. As Justice Frankfurter stated in Greenwood v. United States, 350 U.S. 366, 374, 76 S.Ct. 410, 415, 190 L.Ed. 412 (1956):
[T]his is a case for applying the canon of construction of the wag who said, when the legislative history is doubtful, go to the statute.
We conclude that the plain meaning of
Having concluded that we have the power under
The Commission also argues that
Having considered all the circumstances of the case, we exercise our discretion and award Xerox an attornеy‘s fee of $3,000.
Jane R. Roth, David S. Swayze, Richard S. Layton & Finger, Wilmington, Del., for appellant.
John Biggs, III, Biggs & Battaglia, Wilmington, Del., for bankrupt.
John G. Mulford, Wilmington, Del., for trustee.
Before SEITZ, Chief Judge, and HASTIE and ALDISERT, Circuit Judges.
OPINION OF THE COURT
HASTIE, Circuit Judge.
In a proceeding for an arrangement under
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 аgreement.2 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 Commerсial Code,
At the time of the transactions now in question,
“. . . a security agreement may provide that collateral, whenever acquired, shall secure all obligations covered by the security agreement.”3
Two other Code sections guide proper judgment of the nature of the language necessаry so to provide.
“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,
Appellant argues that the agreement designating “all accounts receivable” as collateral reasonably identified after-acquired accounts, and thus сomplied with the Code requirements.4 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 writtеn by commentators about floating lien financing. DuBay v. Williams, 417 F.2d 1277, 1280 n. 2 (9th Cir. 1969) (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 Somе 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 receiva-
There is thus a rational basis for appellant‘s premise that many persons, on reading that the collateral for the seсurity agreement at bar is “all accounts receivable“, would be alerted that the parties may well have intended to include after-acquired accounts. That thought could be reinforced in this case by observation that the agreement explicitly secures after-arising liability.5 Thus, it is arguable that this particular agreement reаsonably identifies after-acquired accounts receivable as part of the collateral. Indeed, in rather similar situations two courts of appeals have affirmed with little discussion district court decisions for the secured creditors. In re Nickerson & Nickerson, Inc., 452 F.2d 56 (8th Cir. 1971), affirming 329 F.Supp. 93 (D. Neb.) (floating lien on inventory); In re Fibre Glass Boat Corp., 448 F.2d 781 (5th Cir. 1971), affirming 324 F.Supp. 1054 (S.D.Fla.) (inventory). In re Mitchell v. Shepherd Mall State Bank, 458 F.2d 700 (10th Cir. 1972), cited by appellees, is distinguishable because it did not involve after-acquired proрerty at all.
On the other hand, it is neither onerous nor unreasonable to require a security agreement to make clear its intended collateral. This position does not require the most exact and detailed description possible, but only a clear designation of any class of items intended to be collateral. The gеneral prohibition in pre-Code law on including after-acquired property as collateral heightens the sense of such a rule because, commerical practice of including after-acquired property in collateral notwithstanding, a subsequent lender might expect the parties to make explicit an intention to include this kind of property, both for precision and because of the law‘s historic hostility to such arrangements.
Further, a decision for appellant might well facilitate at least some abuse. Although it may be true that many, perhaps most, prospective lenders, on reading the present agreement, would obtain an unambiguоus explanation of its full meaning from the secured party, some might be misled and proceed without inquiry. The ease with which a secured party could eliminate the danger of misleading any reasonable subsequent lender suggests that in administering the Code the courts should require him to do so.
A requirement that intended inclusion of after-acquired aсcounts receivable be unambiguously expressed will not significantly conflict with any important Code policies, and will support some. It will produce simpler, clearer and more certain law for all parties.
This appeal involves a question as yet infrequently adjudicated. Hence, our decision here cannot disturb any gеnerally understood judicial interpretation of the Code. Affirmance will not require a return to the law of magic words. Neither will it go to the opposite extreme of flexibility urged by the appellant. It will be in keeping with the observation in the Comment to
Last, this decision respects reasonable commercial need and expectation. The validity of after-acquired property clauses is recognized. Only the implication of such a clause through ambiguous language is rejected. It is hard to see how much implication would promоte satisfactory conduct of business affairs. Moreover, there is a logical trap regard-
The judgment will be affirmed.
SEITZ, Chief Judge (dissenting).
The majority holds that a secured party obtains no security interest, as against third parties, in the debtor‘s accounts receivable acquired after еxecution of a security agreement and filing of a financing statement absent an explicit declaration of such interest‘s creation in the documents. Requiring a security agreement explicitly to declare the parties’ creation of a security interest in after-acquired property of many types both simplifies interpretation of such agreements and insures third parties of adequate notice of the extent of a perfected security interest in the debtor‘s property. I dissent, however, because I believe that the agreement involved here sufficiently notified interested persons that the Secured Party had a perfected interest in “all of Debtor‘s Accounts Receivable,” including after-acquired accounts.
Financing of inventories and of accounts receivable has for years been the particular province of the “floating lien.” Fluid financing arrangements in these areas are obviously necessary because the nature of specific inventory items or accounts is likely to vary daily, although the total value of a business’ inventory or accounts may remain reasonably stable for long periods. It would, thus, be commercially reasonable to anticipate, unless the financing statement indicated otherwise, that security interests in inventory or accounts would include after-acquired property, even though the presumption would be reversed for other property.
The Code generally mandates that courts interpret its provisions in light of what is commercially reasonable.
In line with the mandate of the UCC that it be given a commercially reasonable interpretation I wоuld not read the Code as requiring an explicit statement to perfect an interest in after-acquired inventory or accounts, even though the requirement may not seem onerous to this Court—the Code enjoins courts to interpret its provisions in a commercially reasonable manner rather than to require businessmen to follow judicial decisions and comply with them so long as they are not onerous. We deal in commercial litigation with matters of contract; few requirements will be onerous in themselves, but we cannot reasonably expect businessmen to fulfill the onerous task of familiarizing themselves with all the pertinent case law before taking any actiоn in the conduct of their businesses.
To justify the imposition of its explicit declaration requirement, the majority relies on pre-Code hostility to the use of after-acquired property as collateral. Whatever hostility existed prior to the UCC is irrelevant to our decision. The Code clearly authorizes security interests in after-acquired property and abolishes many of the technical rules of pre-Code law. The Financing Statement and Security Agreement make debtor‘s receivables security for its liabilities to the secured party. They define “Receivables” to mean “all of Debtor‘s Accounts Receivable” and “Liabilities” to mean “all indebtedness of Debtor to Secured
HASTIE
CIRCUIT JUDGE
Notes
” . . . a security agreement may provide that any or all obligations covered by the security agreement are to be secured by after-aсquired collateral.”