The lender obtained a perfected security interest in the debtor’s accounts receivable in exchange for a loan provided by the original lender to the debtor. The lender filed UCC-1 financing statements to perfect its interest in the accounts receivable on October 22, 2013. The debtor then entered into an indemnity agreement for surety bonds with the indemnitor, which granted it a security interest in the lender’s accounts receivable and allegedly placed certain accounts receivable in a trust for the indemnitor. The indemnitor filed a UCC-1 financing statement perfecting its interest in the accounts receivable on March 10, 2021. The debtor defaulted on its loan with the lender, and the lender took the accounts receivable funds from the debtor’s bank account pursuant to the loan agreement. The indemnitor sent a demand letter to the lender demanding the return of the funds because they had been held in a trust for the indemnitor’s benefit. The indemnitor alleged that it was entitled to the funds because the trust shielded the funds (which were trust property) from the lender’s security interest in the debtor’s accounts receivable. However, the lender argued that no trust had been created and, therefore, it had the superior interest in the funds under the rules of priority. Both the lender and the indemnitor filed motions for summary judgment.
In Markel Ins. Co. v. Origin Bancorp, Inc., 663 F. Supp. 3d 670 (N.D. Tex. 2023), the district court granted the lender’s motion and denied the indemnitor’s, holding that no trust had been created and the lender’s security interest was superior to the indemnitor. First, the court held that the lender had a perfected security interest. To establish a perfected security interest in collateral, a party must show (1) that its interest attached to the collateral and (2) that it has properly perfected its interest against other parties. Here, the lender’s interest attached after it gave a loan to the debtor (providing value), the debtor had rights in the accounts receivable, and the security agreement had been signed by the debtor listing the accounts receivable. The interest was then perfected when the lender filed the financing statement and filed continuation statements every five years. Second, the court held that the lender’s security interest took priority over the indemnitor’s because it was first in time. Next, the court held that the indemnity agreement language lacked actual intent to create an express trust and was merely an attempt to work around creditor-priority rules. The court explained that in determining whether a trust is created it must look to the document as a whole rather than just look for “magic” trust language. However, a lack of terms essential to a trust can indicate a lack of intent. Additionally, the court must consider whether the words impose an obligation on the trustee and also must consider the certainty of the trust property and beneficiary. The court found that here, the parties used generic trust language and indicated no intent to create a trust; specifically, the terms “beneficiary” or “grantor” do not appear anywhere, “trustee” only appeared once, and there was no provision prohibiting commingling of the funds in the trust with other funds. Finally, the court held that because the lender’s security interest was superior, it was entitled to the funds over the indemnitor’s security interest in the funds.
By Kristin Meurer [email protected]
Edited By Ashley Boyce [email protected]
Edited By Hayden Mariott [email protected]