## Facts

- Charles David Cunningham and Charity Lynn Cunningham filed a joint Chapter 7 bankruptcy case.
- Before filing, they made 12 separate Best Buy purchases of consumer goods using a Best Buy–branded credit card account issued by HSBC Bank Nevada, N.A. (later succeeded by Capital One, N.A.).
- Each transaction generated a receipt listing the specific items bought and indicating payment type “BBY CARD/HSBC”; most receipts were signed by a debtor.
- The debtors signed a credit card application on the date of the first purchase; in small-print language within a paragraph, it stated the debtors granted a purchase-money security interest (PMSI) in goods purchased on the account and agreed to the cardholder agreement.
- The cardholder agreement was mailed after the application/initial purchase and was not signed; it contained a clause stating the debtors granted a PMSI in goods purchased with the card.
- Capital One claimed a PMSI in all goods purchased on the account based on the application, cardholder agreement, and receipts read together.
- The debtors moved for an order determining the property was not subject to any security interest or, alternatively, to redeem the property under 11 U.S.C. § 722.

## Issues

1. Whether the application, cardholder agreement, and receipts together constituted an authenticated security agreement creating an enforceable PMSI under Kansas U.C.C. § 9-203.
2. Whether collateral described only as “goods purchased on the account” or “goods purchased with your card” is a sufficient description of consumer-goods collateral under Kansas U.C.C. § 9-108.
3. If the security interest was unenforceable, what relief was appropriate on the debtors’ motion, including whether redemption under 11 U.S.C. § 722 was necessary.

## Decision

- The court granted the debtors’ motion in part and denied it in part.
- It held that the generic collateral descriptions “goods purchased on the account” and “goods purchased with your card” were insufficient to allow attachment and enforceability of a security interest in consumer goods.
- Because the asserted PMSI did not validly attach, Capital One could not enforce a security interest in the Best Buy consumer goods in the bankruptcy case.
- The court’s ruling provided relief determining the goods were not subject to the asserted lien; any redemption request was addressed in light of the conclusion that no enforceable security interest existed.

## Legal Principles

- Under Kansas U.C.C. § 9-203, a security interest is enforceable against a debtor only if value is given, the debtor has rights in the collateral, and the debtor authenticates a security agreement that reasonably describes the collateral.
- Under Kansas U.C.C. § 9-108, the sufficiency of a collateral description in consumer transactions is strictly applied; “property type” or similarly generic descriptions are not sufficient for consumer goods.
- Descriptions such as “goods purchased on the account” or “goods purchased with your card” do not reasonably identify specific consumer goods as collateral and therefore do not support attachment of a PMSI.
- Multiple writings may be considered together in limited circumstances, but documents that do not clearly grant a lien and do not provide a specific, objectively determinable identification of consumer-goods collateral do not satisfy Article 9’s description and authentication requirements.

## Conclusion

The bankruptcy court held that a store-card lender cannot create an enforceable PMSI in consumer goods using fine-print, generic collateral language referring to “goods purchased” on the account or with the card, even when paired with sales receipts; without a sufficiently specific consumer-goods description, the security interest does not attach and is unenforceable in the Chapter 7 case.


In re Cunningham, 489 B.R. 602 (Bankr. D. Kan. 2013)