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First National Mercantile Bank & Trust Co. v. Mammoth Spring Distributing Co. (In re Mammoth Spring Distributing Co.)
Citations: 139 B.R. 205; 18 U.C.C. Rep. Serv. 2d (West) 584; 1992 Bankr. LEXIS 586Docket: Bankruptcy No. 90-15286F; CMS No. 91-1112M
Court: United States Bankruptcy Court, W.D. Arkansas; January 17, 1992; Us Bankruptcy; United States Bankruptcy Court
On June 20, 1990, Mammoth Spring Distributing Co. Inc. filed for Chapter 7 bankruptcy. Jill R. Jacoway was appointed as the interim trustee, succeeded by Claude R. Jones. First National Mercantile Bank and Trust Company sought relief from the automatic stay to foreclose on a security interest in a tax refund obtained by the trustee. The court confirmed its jurisdiction under 28 U.S.C. 157(b)(2)(B) and the relevant facts were stipulated. First National holds a secured claim of $364,124.21 against the debtor, with additional interest accruing. The bank has a valid perfected security interest in various collateral types listed in an attached exhibit, including tax refunds and accounts receivable, with a first lien status. The trustee recovered a $7,236.95 tax refund related to prepetition losses, received in June 1991. First National contended that its security interest extends to this refund due to the debtor's prepetition rights, while the trustee argued that the estate only acquired an interest postpetition when an amended return was filed, invoking 11 U.S.C. 552(a). The discussion references Missouri law, indicating that a security interest in general intangibles attaches when the debtor acquires rights in those intangibles, supported by case law. The security agreement between the debtor and First National granted First National a security interest in after-acquired general intangibles, with First National providing loan proceeds to the debtor before the tax refund accrued. Under Missouri law (400.9-108), a security interest in after-acquired property is considered taken for new value if the debtor acquires rights in the property in the ordinary course of business. The debtor's inchoate right to a tax refund from prepetition losses constitutes property of the estate under 11 U.S.C. 541, as the right accrued before the bankruptcy petition was filed. The loss-carryback refund claim is connected to the debtor's pre-bankruptcy past, qualifying it as property under former Bankruptcy Act provisions. Consequently, the debtor's interest in the tax refund allows First National's lien to attach. The parties acknowledged that First National's claim surpasses the tax refund amount, leaving no equity for unsecured creditors. The motion for relief from stay is granted, ordering the trustee to abandon $7,236.95 plus interest to First National, and permitting First National to foreclose its security interest in that amount. Additionally, 11 U.S.C. 552(a) states that property acquired post-petition is not subject to pre-petition security agreements.