Bankruptcy Preferences-Secured Transactions-Security Interest in After-Acquired Property Is Voidable Preference if Received Within Four Months of Bankruptcy-In re Portland Newspaper Publishing Co.
In an effort to provide employment for several hundred workers who had lost their jobs in an unsuccessful strike against Portland’s two largest newspapers, the local printers’ unions and several civic leaders organized the Portland Reporter Publishing Co. (Reporter) to publish a rival newspaper. The unions also formed the Rose City Development Co. (Rose City), which leased facilities and equipment to Reporter and subsequently made several emergency operating loans to it. These loans were secured by an agreement designating as collateral all of Reporter’s previously unsecured accounts receivable, both present and after-accruing. This type of agreement -securing after-acquired property of the debtor-is provided for in section 9-204(3) of the Uniform Commercial Code (Code). Shortly after the execution of the agreement, Rose City filed the financing statement required by section 9-302 of the Code for the perfecting of the security interest. Two years later, when Reporter (which in the interim had merged with the Portland Newspaper Publishing Co.) was adjudicated bankrupt, Rose City attempted to establish its priority, as a secured creditor, to all of the accounts receivable of the insolvent newspaper which were covered by the security agreement. The trustee in bankruptcy objected, maintaining that the accounts receivable accruing within four months before bankruptcy were voidable preferences under section 60a of the Bankruptcy Act, so that only those receivables accruing prior to the four month period were subject to Rose City’s security interest. Held, a trustee in bankruptcy may void security interests in after-acquired accounts receivable accruing within four months of bankruptcy because such interests constitute transfers for an antecedent debt and thus are preferences within the meaning of section 60 of the Bankruptcy Act.