## Facts

- Tracy’s Flowers and Gifts, Inc. obtained a loan from First Bank of South Arkansas in 1999.
- Tracy’s Flowers signed, and First Bank filed, a UCC-1 financing statement listing the debtor and secured party and describing collateral including inventory and equipment.
- The loan paperwork included a promissory note and the filed UCC-1, but no separate document titled “security agreement.”
- Tracy’s Flowers filed bankruptcy in 2000, and First Bank filed a proof of claim asserting a perfected security interest in the described collateral.
- The Chapter 7 trustee challenged the bank’s secured status, asserting the bank lacked an enforceable security interest because there was no authenticated security agreement meeting Arkansas UCC § 9-203.
- First Bank argued the financing statement, alone or together with related loan documents under a composite-document theory, satisfied the security-agreement requirement.

## Issues

1. Whether the filed financing statement, alone or together with other loan documents, constituted an authenticated security agreement under Arkansas UCC § 9-203.
2. If no enforceable security interest attached, whether the trustee could avoid the bank’s claimed lien under 11 U.S.C. § 544.

## Decision

- The court held First Bank did not have an enforceable security interest in the debtor’s inventory and equipment because there was no authenticated security agreement satisfying Arkansas UCC § 9-203.
- The financing statement functioned as notice filing and, without language showing a grant of a security interest, did not serve as a security agreement.
- Applying the composite-document approach, the court found the note and financing statement still lacked written language evidencing the debtor’s intent to grant a lien.
- Because the bank’s interest was unenforceable and therefore unperfected, the trustee could avoid it under § 544.
- First Bank’s claim was treated as unsecured.

## Legal Principles

- A security interest is enforceable against the debtor and third parties only if the debtor authenticates a security agreement that describes the collateral (or the secured party possesses the collateral pursuant to agreement).
- A financing statement generally provides notice and does not create a security interest unless it contains language objectively indicating the debtor’s intent to grant a security interest in identified collateral.
- Under a composite-document theory, multiple transaction documents may be read together, but they must still contain written evidence of a grant of a security interest; subjective expectations cannot replace the writing requirement.
- A bankruptcy trustee may use 11 U.S.C. § 544 to avoid an unperfected or unenforceable security interest and preserve the collateral for the estate.

## Conclusion

The court ruled that a filed UCC-1 describing collateral, without granting language and without any other authenticated writing evidencing a lien grant, did not satisfy Arkansas’s security-agreement requirement; accordingly, the trustee avoided the bank’s unperfected asserted security interest and the bank was left with an unsecured claim.


In re Tracy’s Flowers & Gifts, Inc., 264 B.R. 1 (Bankr. W.D. Ark. 2001)