## Facts

- National Bank of Alaska, N.A. (NBA) made Seaway Express Corporation (Seaway) a revolving line of credit secured by Seaway’s inventory and accounts receivable, including “proceeds.”
- NBA perfected its security interest in Seaway’s personal property by filing a UCC financing statement.
- Seaway held an overdue account receivable exceeding $1 million against Anchorage Fairbanks Freight Service, Inc. (AFFS) and sued to collect.
- Seaway settled the AFFS dispute by transferring the AFFS account to AFFS in exchange for a parcel of real property in Auburn, Washington (Auburn property).
- NBA knew of the proposed settlement but neither consented nor objected.
- After the Auburn property transfer, NBA asked Seaway to grant and record a deed of trust in NBA’s favor; Seaway refused, and NBA never obtained or recorded any real-property security instrument.
- Seaway filed Chapter 11 bankruptcy, later converted to Chapter 7, with Warren L. Erickson appointed trustee.
- The Auburn property was sold in the bankruptcy case free and clear of liens; sale proceeds were held pending determination of NBA’s claimed interest.
- The bankruptcy court granted summary judgment to the trustee; the Bankruptcy Appellate Panel affirmed.

## Issues

1. Whether NBA’s perfected Article 9 security interest in the AFFS account and its “proceeds” extended, with perfected status, to the Auburn real property Seaway received in exchange for the account and to the proceeds from the property’s sale.
2. Whether NBA held an enforceable or perfected interest in the Auburn property under Washington real property law that could defeat the Chapter 7 trustee.

## Decision

- The Ninth Circuit affirmed summary judgment for the trustee.
- The court held that NBA’s Article 9 perfection as to accounts and proceeds did not perfect an interest in the Auburn property because Article 9 does not apply to interests in real property.
- The court held that NBA failed to perfect any real-property interest under Washington law because it did not obtain and record a deed of trust or other signed, recordable instrument from Seaway.
- Because NBA’s claimed interest in the Auburn property was unperfected, the trustee could defeat it; NBA therefore had no priority in the Auburn property or the sale proceeds.

## Legal Principles

- UCC Article 9 governs security interests in personal property and does not, by itself, create or perfect a lien in real property acquired by a debtor in exchange for collateral.
- A creditor claiming an interest in real property must comply with state real-property conveyance and recording rules; perfection of personal-property collateral under Article 9 is not a substitute.
- Under Washington law, an unrecorded real-property interest is ineffective against a subsequent good-faith purchaser; a bankruptcy trustee may assert equivalent priority to avoid unperfected real-property interests.
- Contractual restrictions on a debtor’s disposition of collateral do not automatically convert into a perfected property interest in substituted real estate absent a valid, recorded real-property lien.

## Conclusion

The Ninth Circuit held that a lender’s perfected security interest in accounts receivable and “proceeds” did not give it a perfected interest in real property the debtor accepted in settlement, and the lender’s failure to obtain and record a real-property security instrument left its claim avoidable by the Chapter 7 trustee, eliminating any priority to the property’s sale proceeds.


Nat’l Bank of Alaska v. Erickson (In re Seaway Express Corp.), 912 F.2d 1125 (9th Cir. 1990)