## Facts

- Flores de New Mexico, Inc. operated a floriculture business in Las Cruces, New Mexico, growing cut roses and other flowers in greenhouses on land subleased from New Mexico State University.
- Approximately 60,000 rose bushes were planted in the ground inside three greenhouses; the bushes were perennial, had extensive root systems, and produced for about seven years.
- Flores borrowed about $1.1 million from Banda Negra International, Inc., executing a loan agreement and security agreement; Banda Negra filed UCC financing statements in April 1988 describing the collateral consistent with the security agreement.
- Banda Negra later filed separate financing statements purporting to cover Flores’s accounts receivable and proceeds, but Flores did not execute a separate security agreement granting an interest in accounts receivable.
- Flores filed Chapter 11 on April 12, 1989.
- The bankruptcy court authorized a sale of substantially all assets free and clear of liens, with liens attaching to proceeds to the same extent and validity pending later determination.
- At a court-approved auction on October 5, 1989, Flores’s assets (including greenhouses, rose bushes, equipment, and supplies) were sold as a package for $900,000 to Aldershot of New Mexico, Inc., contingent on a new lease with the University; the sale closed.
- Flores, as debtor-in-possession, filed an adversary complaint objecting to Banda Negra’s secured claim and contesting whether Banda Negra held perfected interests in the rose bushes, accounts receivable, and related sale proceeds.

## Issues

1. Whether the rose bushes planted in the ground were collateral in which Banda Negra held a perfected security interest under Article 9, or instead required different perfection treatment due to their attachment to realty.
2. Whether Banda Negra obtained and perfected a security interest in Flores’s accounts receivable and proceeds where it filed financing statements but lacked a security agreement covering accounts.
3. How to value the assets sold at auction for purposes of determining secured status in the sale proceeds.

## Decision

- The court treated the $900,000 auction price as the value of the assets sold.
- Banda Negra held a valid perfected security interest in specified personal property, including a prefabricated office building and a computer system.
- Banda Negra failed to properly perfect a security interest in the rose bushes.
- Banda Negra failed to perfect a security interest in Flores’s accounts receivable.

## Legal Principles

- A properly conducted, court-approved auction sale price may be used as persuasive evidence of asset value in bankruptcy.
- Perfection depends on the collateral’s legal classification; plant-based collateral grown in the ground may require perfection steps different from ordinary goods depending on its relationship to the realty.
- A financing statement is a notice filing and does not, by itself, create a security interest; without an authenticated security agreement (or another method of attachment recognized by Article 9), there is no attachment and thus no perfected interest in the described collateral.
- In bankruptcy, the debtor-in-possession may challenge and defeat unperfected or unattached asserted liens when determining entitlement to sale proceeds.

## Conclusion

The bankruptcy court valued the package sale at the $900,000 auction price and limited Banda Negra’s secured claim to collateral it properly attached and perfected, rejecting secured status in the rose bushes and accounts receivable due to improper perfection and the absence of a security agreement covering accounts.


In re Flores de N.M., Inc., 151 B.R. 571 (Bankr. D.N.M. 1993)