## Facts

- Delta-T Corporation owned scrap steel that it kept at a remote storage facility.
- In August 2009, Applied Process Technology International, LLC (APTI) perfected a security interest in all of Delta-T’s tangible and intangible personal property, but the collateral description excluded Delta-T’s inventory.
- On December 4, 2009, Delta-T accepted a purchase order to sell a portion of the scrap steel.
- On January 5, 2010, Delta-T accepted a second purchase order to sell the remainder of the scrap steel.
- The steel stayed at the remote facility until the purchasers paid for and took delivery in January 2010.
- On January 15, 2010, DCR Construction, Inc. (DCR), a judgment creditor of Delta-T, served writs of garnishment seeking to capture the proceeds of the two steel sales.
- Delta-T filed bankruptcy in November 2010, and Clara Swanson was appointed Chapter 7 trustee.
- The trustee sought to recover the funds subject to DCR’s garnishment, contending that, under Virginia’s UCC, the sale transactions created “accounts” (rights to payment) and that a perfected Article 9 security interest in those accounts and their proceeds arose before DCR’s garnishment lien.

## Issues

1. Under Virginia’s UCC, did Delta-T’s acceptance of the two purchase orders create “accounts” (rights to payment for goods sold) in favor of Delta-T?
2. Were the funds DCR garnished identifiable “proceeds” of those accounts within the meaning of Article 9?
3. If so, did the earlier-perfected Article 9 security interest in Delta-T’s accounts and proceeds have priority over DCR’s garnishment lien, which arose upon service of the writs?

## Decision

- The court held that the steel sale transactions gave Delta-T rights to payment that qualified as Article 9 “accounts.”
- The court determined that the money targeted by DCR’s garnishment represented proceeds of those accounts.
- Because the Article 9 security interest in Delta-T’s accounts (and identifiable proceeds) was perfected before DCR served its writs of garnishment, the secured claim had priority over DCR’s garnishment lien.
- The court ruled in favor of the trustee as to entitlement to the garnished sale proceeds.

## Legal Principles

- Under Article 9, an “account” includes a right to payment for goods sold, whether or not the right has been earned by performance.
- A security interest may attach to after-acquired accounts if the security agreement covers accounts and the secured party perfects by filing an appropriate financing statement.
- Even if a security interest excludes “inventory,” it may still cover the debtor’s payment rights arising from the sale of that inventory (accounts), depending on the collateral description.
- Article 9 continues a perfected security interest in identifiable proceeds of collateral, including cash proceeds traceable from an account.
- A judgment creditor’s garnishment lien generally arises when the writ of garnishment is served, and it is subordinate to an earlier perfected security interest in the same collateral and identifiable proceeds.

## Conclusion

In *Swanson v. Applied Process Technology International, LLC (In re Delta-T Corp.)*, the bankruptcy court held that Delta-T’s steel sales created Article 9 “accounts,” the garnished funds were proceeds of those accounts, and an earlier perfected security interest in accounts and proceeds had priority over DCR’s later garnishment lien, so the trustee was entitled to the garnished sale proceeds.


Swanson v. Applied Process Technology International, LLC (In re Delta-T Corp.), 475 B.R. 495 (2012)