UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
DOYLE and GLADYS LANCASTER, No. 98-14048
AMERICAN LAND CONSERVANCY,
v. A.P. No. 99-1062
BLUE LAKE FOREST PRODUCTS, et al.,
Memorandum on Motions for Summary Judgment
The principal issue in this adversary proceeding is the validity of plaintiff American Land
Conservancy's claimed security interest in the cash proceeds of timber cut from the real property of
debtors and defendants Doyle and Gladys Lancaster. The Lancasters sold the timber to defendant Blue
Lakes Forest Products. The payment from Blue Lakes is being held in counsel's trust account pending
resolution of this adversary proceeding. The Lancasters and defendant Six Rivers national Bank
argue that ALC's security interest was not properly perfected. The Lancasters allege that an
assignment agreement they signed within 90 days of their bankruptcy in order to facilitate the cutting
of the timber was preferential. ALC and the Lancasters have filed countermotions for summary
The only argument made by the Lancasters is that they never signed a security agreement.
They appear to have poor memories. ALC having produced the agreement, the Lancasters' motion
will be denied.
ALC's perfection if its security interest, and its rights in relation to the Bank, are much more
problematical. The Bank holds a junior deed of trust on the real property as well as a security interest
in the Lancasters' accounts receivable. It alleges that its security interest in the timber proceeds is
senior to that of ALC.
Both ALC and the Bank obtained and filed UCC-1 financing statements. ALC's was filed on
February 14, 1997, with the Mendocino County Recorder. The Bank's was filed on August 15, 1995,
with the California Secretary of State.
California Commercial Code § 9401(b) provides that when the collateral is timber to be cut,
the proper place to file in order to perfect a security interest is the office where a mortgage on real
estate would be recorded, thus, ALC had a perfected security interest in the timber under this statute
until it was cut
Once the timber was cut, § 9401(b) became irrelevant. ALC's rights were thereafter governed
by Commercial Code § 9306, dealing with the proceeds of collateral.(1)
Section 9306(3) provides that a
security interest becomes unperfected 10 days after the debtor has received the proceeds of the sale of
the collateral unless at least one of four exceptions apply.
The first exception, provided in subsection (a), is not applicable because the office for filing a
financing statement for cut timber or receivables is different than the office for filing the statement for
timber to be cut. The former is the office of the Secretary of State, the latter is the County Recorder.
This subsection only applies where the place for perfection of both the collateral and its proceeds is the
same. 4 White & Summers, Uniform Commercial Code
Ed.), § 31-11, p. 150.
The third exception, provided in subsection (c), deals with a kind of property not at issue here.
The fourth exception, provided in subsection (d), is that the security interest in the proceeds is
perfected with in the 10 day period. This section does not apply because ALC did not file a financing
statement with the Secretary of State.
ALC relies on the second exception, provided in subsection (b), which directs that a security
interest does not expire as to proceeds if "[a] filed financing statement covers the original collateral
and the proceeds are identifiable cash proceeds."
It appears undisputed that the proceeds at issue in this case are identifiable cash proceeds.
They are held in the trust account of the Lancaster's attorney by order of court, and have not been
commingled. Since a properly filed statement covered the timber before it was cut, and since the
proceeds of the sale are identifiable, ALC has a perfected interest in the proceeds pursuant to
Commercial Code § 9306(3)(b).
Since the parties have not briefed the priority issue between ALC and the Bank, the court will
not resolve any such disputes at this time and may consider a request for abstention, since that issue
does not impact the bankruptcy estate. However, since ALC's security interest in the proceeds of the
timber is valid, court will resolve the preference and related issues summarily. The court finds that the
Lancasters' memory lapses have not created a triable issue of fact as to the lack of a security
The Lancasters' counterclaim alleges that an assignment they executed within 90 days of their
bankruptcy filing, in order to facilitate the harvesting of the timber, created rights in ALC which
constituted an avoidable transfer. Since ALC had a valid security interest before the assignment, the
assignment created no new rights. Therefore, there was no preferential transfer. Summary judgment
will therefore be granted in favor of ALC and against the Lancasters on the preference claim.
To reiterate, the court will order as follows:
1. It shall be deemed without substantial controversy in this adversary proceeding that ALC
has a valid security interest in the proceeds of the sale of the timber.
2. The Lancasters' motion for summary judgment will be denied.
3. ALC's motion for summary judgment, as to the preference claim of the Lancasters, will be
4. The court will make no order at this time as to the priority claims of ALC and the Bank
against each other.
Counsel for ALC shall submit an appropriate form or order which counsel for the Lancasters
and the Bank have approved as to form.
Dated: August 9, 1999 ____________________________
United States Bankruptcy Judge
1. Since perfection is not by filing with the county recorder after the timber has been cut, the fact
that the cut timber was sold to a buyer in another county is irrelevant. ALC is not, as argued by the
Lancasters and the Bank, rendered unperfected because it did not file in the buyer's c