The debtors executed and delivered a promissory note to the creditor, who had a perfected security interest in a planter and cultivator. The debtors then sold the planter and cultivator to a third party without informing the creditor. The third party did not make arrangements with the creditor to release the creditor’s lien, and the debtors did not turn over the proceeds from the sale to the creditor. The debtor filed a Chapter 12 bankruptcy petition. The bankruptcy court granted the creditor the ability to prosecute this case to recover the property that the debtor had transferred. The creditor then sued to determine its right of possession and request the delivery to it of the planter and cultivator.
In Stockmens Bank v. Double H P’ship, No. 4:25CV3004, 2025 WL 470469, 2025 U.S. Dist. LEXIS 27482 (D. Neb. February 12, 2025), the court entered an order of delivery to deliver the property to the creditor. The court, using the Nebraska Uniform Commercial Code, assessed the procedures in transferring collateral when a perfected security interest exists on that collateral. According to the Nebraska Uniform Commercial Code, a security interest continues to exist unless the secured party authorized disposition free of that security interest, and a security interest attaches to any identifiable proceeds of collateral. Neb. Rev. Stat. U.C.C. § 9-315. Here, the creditor did not authorize the disposition of the property free of the security interest, so the property was still subject to the creditor’s existing perfected security interest. The third party argued that there was a question of fact regarding whether that third party was a purchaser of goods in the ordinary course of business, an exception to the applicable Nebraska statute. However, the court found that the third party presented no evidence that the debtors were engaged in the business of selling this particular farm equipment. The court determined the debtors were in default on their obligations under the security agreement, and the creditor showed, by a preponderance of the evidence, that it was entitled to possession of the planter and cultivator. Conversely, the third party did not meet its burden to show why the property should not be delivered to the creditor, so the court entered an order requiring delivery of the property to the creditor.
By Ashley Boyce, [email protected]
Edited By Maycee Redfearn, [email protected]
Edited By Hayden Mariott, [email protected]