UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CHARLES LINTON WELLS
DEBTOR CASE NO. 90-00265
This matter is before the Court on the motions for relief from the automatic stay of creditors Greenup County Bank and First American Bank as they relate to the debtor's partnership interest in the "Lakeland I-4 Trust" and the "Hotel Associates Partnership Venture". The debtor had previously assigned to these creditors the "proceeds, profit and/or income to be derived from [his] ownership interest" in these entities, pursuant to an Assignment executed on April 24, 1989. The Assignment identifies the second entity as the "Quality Inn Limited Partnership".
The Court is not confronted here with an assignment of rents provision in a mortgage, although some of the language in the Assignment is similar to that found in a typical assignment of rents provision. Neither of the creditors holds a mortgage on property in which the debtor has a partnership interest. The promissory note executed by the debtor and Greenup County Bank shows that the referenced partnership interests of the debtor were pledged as security for that loan. The First American Bank promissory note does not indicate that the debtor gave a security interest in any property.
The movants contend that the Assignment constitutes a conveyance of all of the debtor's right, title and interest in and to the proceeds of his ownership interests, as stated above. The trustee herein has responded that the creditors have a security interest in the proceeds, and that no conveyance took place. The trustee further argues that in order to perfect a security interest in the proceeds, the creditors would have been required to record it pursuant to the provisions of the Uniform Commercial Code.
The arguments put forth on both sides are based on the language of the Assignment itself, without reference to case or statutory law. It sets out certain indebtednesses of the debtor to each of the creditors pursuant to the referenced promissory notes, and provides that each of the creditors "...has required [the debtor] to provide security for the payment of the ... indebtedness". (Emphasis added.) The Assignment goes on to provide that the debtor
...assigns, transfers and sets over unto [the creditors] all proceeds, profits and/or income to be derived from [the debtor's] ownership interest in the aforesaid Lakeland I-4 Trust and Quality Inn Limited Partnership and [the debtor] hereby agrees to pay said proceeds, profits and/or income as herein set forth, upon receipt of same,...
This Assignment shall remain in full force and effect as long as the hereinabove described indebtedness ... remains unpaid.
It appears to the Court that the language of the Assignment and the security provision of at least one promissory note evidences an intention that the Assignment be considered a secured transaction. Pursuant to KRS 355.9-102(2), Article 9 applies to "security interests created by contract including pledge, assignment, ..." KRS 355.1-201(37) defines a "security interest" as "an interest in personal property or fixtures which secures payment or performance of an obligation." The Assignment being considered herein appears to come within the purview of these statutes.
This Court therefore agrees with the trustee that the Assignment was intended to secure the indebtednesses of the debtor to the creditors, and as such it was required to be perfected by filing pursuant to KRS 355.9-302. It was not perfected, and the creditors are therefore unsecured as to the partnership interests. Their motions for relief from stay should therefore be overruled. An order in conformity with this opinion will be entered separately.
By the Court -
William R. Palmer, Jr., Esq.
Patricia Meigs Pitt, Esq.
Donald L. Frailie, Esq., Trustee