In re Bollinger Corp.

Industrial Credit Corporation loaned $150,000 to Bollinger Corporation (debtor). Bollinger signed a promissory note in favor of Industrial, and the parties signed a security agreement, including certain Bollinger equipment and machinery as collateral. Bollinger paid off $85,000 of the loan and at that point secured a second loan, from Zimmerman & Jansen, Inc. (creditor). This loan was also for $150,000, including Zimmerman assuming the remaining $65,000 on the Industrial loan and an additional $85,000. Industrial assigned to Zimmerman the original promissory note and security agreement. Bollinger signed an additional promissory note in favor of Zimmerman for the new loan. Bollinger and Zimmerman did not sign a formal security agreement, but Zimmerman filed a financing statement detailing the machinery and equipment used as collateral for the Industrial loan. In addition, letters between the parties presumed that a security interest in the machinery and equipment had been created. Subsequently, Bollinger filed for bankruptcy. The bankruptcy court held that, because of the assignment of Industrial’s security agreement, Zimmerman was entitled to the remaining $65,000 on the Industrial loan. The court held, however, that because the parties did not sign a security agreement for the second loan, Zimmerman was not entitled to the additional $85,000 it was claiming. The United States District Court for the Western District of Pennsylvania reversed, finding that the promissory note alone was sufficient to constitute a security agreement. Bollinger’s trustee in bankruptcy appealed.