Apr 13 2021

Ucc-1 Subordination Agreement

Finally, the Court considered the documents underlying Peabody`s claim to the equipment and its impact on the agreement. One of the requirements for developing a securities interest under UCC (b) (3) (A) is that in addition to filing a financing return, a debtor must have certified a guarantee contract containing a description of the security. Peabody has never submitted a certified safety agreement. In response to the lack of a security agreement, the bank attempted to use the “composite document theory” to maintain Peabody`s priority claim. The composite document theory replaces other documents as evidence that a security contract has been signed by the debtor. In this case, the bank provided the financing statement and the agreement, both of which provided the security agreement as evidence that the security agreement and security interest were related to the equipment. The Court did not agree with the use of the Bank`s financing declaration and the agreement as a replacement for a security agreement. In reviewing the funding statement, the Tribunal found that the funding statement did not contain a specific description of the aircraft, but that it stated that it was interested in all of S Coal`s equipment. Since it is not necessary for the description of a funding statement to be consistent with the description of the corresponding security agreement, the court found that it was not clear that the absence of a security agreement would have clearly identified the device; to make the funding declaration an unacceptable substitute.

The Court then raised the issue of timing with the Bank`s use of the agreement as a replacement. It found that the agreement signed by S Coal in 2008 did not correspond in time to the filing of Peabody`s funding statement to prove that a security agreement covering the aircraft had been concluded at the time of the initial funding presentation. In addition, the Tribunal found that S Coal`s signing of the agreement simply indicated that S Coal had considered that it had created an interest in safety and not that the interest had actually been created. Since Peabody and the bank have not entered into a security agreement and are unable to sufficiently demonstrate the existence of a security agreement using the composite document theory, Peabody`s primary interest in the equipment is not valid.