## Facts

- A common debtor, Annlick Farm Supply, Inc., granted Allied Capital security interests in its inventory and accounts receivable to secure two separate loans, and Allied filed UCC financing statements.
- In April 2001, Allied assigned the financing statements and related rights for the second loan to First National Bank of Mifflintown, which then extended revolving credit to the debtor under that loan.
- In July 2001, Allied assigned the financing statements and related rights for the first loan to InterBusiness Bank, N.A.
- After the debtor defaulted on the second loan, First National collected accounts receivable and liquidated inventory.
- Creditors initiated involuntary bankruptcy proceedings against the debtor.
- InterBusiness sued First National claiming a superior Article 9 interest in the inventory and accounts receivable and sought the proceeds First National obtained.
- First National filed a third-party action against Allied, alleging Allied had assured First National it had priority.
- Separately, InterBusiness held a mortgage on the debtor’s real property and previously purchased that real property at a sheriff’s sale in execution proceedings, raising the question whether InterBusiness’s secured debt was satisfied and its Article 9 interest extinguished.

## Issues

1. Whether a party may obtain a priority perfected security interest through assignment of another secured party’s security interest and UCC filings.
2. Whether financing statements describing collateral as “goods” and “accounts” sufficiently perfect an interest in the debtor’s “inventory” and “accounts receivable.”
3. Whether a secured party’s Article 9 security interest in personal property collateral is extinguished under Pennsylvania law when the secured debt is satisfied through the secured party’s acquisition of the debtor’s real property at an execution sale.

## Decision

- The court answered all three issues “yes” at the dispositive-motions stage.
- Assignment of a perfected security interest and its financing statement can transfer perfected status and priority to the assignee.
- A financing statement’s generic references to “goods” and “accounts” are sufficient to cover inventory and accounts receivable for notice-filing purposes.
- When the underlying secured obligation is satisfied under Pennsylvania law by acquisition of the debtor’s real property in execution proceedings, the related Article 9 security interest in personal property is extinguished.
- These rulings defeated InterBusiness’s asserted superior claim to proceeds from the debtor’s inventory and accounts receivable collected and liquidated by First National.

## Legal Principles

- Under Article 9, an assignee may step into the assignor’s position, including the benefit of the assignor’s perfected security interest and filed financing statement, subject to ordinary priority rules.
- Financing statements operate as notice filings; collateral descriptions need only reasonably identify the collateral and may use broad categories that encompass common subcategories.
- “Goods” can include “inventory,” and “accounts” can include “accounts receivable,” for purposes of a financing statement’s collateral description.
- A security interest is an incident of the secured debt; if the debt is satisfied, the security interest securing that debt is extinguished by operation of law.

## Conclusion

The court held that priority may be obtained and maintained through assignment of a perfected Article 9 interest and its filings, that broad financing-statement descriptions can perfect interests in inventory and receivables, and that satisfaction of the underlying debt in execution proceedings extinguishes the related personal property security interest, defeating InterBusiness’s asserted priority claim.


InterBusiness Bank, N.A. v. First Nat'l Bank of Mifflintown, 318 F. Supp. 2d 230 (M.D. Pa. 2004)