In re Tracy’s Flowers and Gifts, Inc.

In 1999 Tracy’s Flowers and Gifts, Inc. (Tracy’s Flowers) (debtor) received a loan from First Bank of South Arkansas (First Bank) (creditor). In exchange, Tracy’s Flowers gave First Bank a financing statement describing property, including inventory and equipment, that would serve as collateral for the loan. The financing statement identified First Bank as the secured party and Tracy’s Flowers as the debtor. First Bank filed the financing statement with the appropriate county office. Tracy’s Flowers never gave First Bank a document labeled as a security agreement. In 2000 Tracy’s Flowers filed for bankruptcy. First Bank filed a claim in the bankruptcy proceedings, arguing that it had a perfected security interest in Tracy’s Flowers’ inventory and equipment. The bankruptcy trustee sought to avoid the claim, arguing that First Bank did not have a perfected security interest in the inventory or equipment. Under Arkansas law, a security interest was perfected if the creditor filed a security agreement containing a description of the collateral and recorded a valid financing statement. The trustee reasoned that First Bank did not have a perfected security interest because it did not file a security agreement. First Bank asserted that the financing statement qualified as a valid security agreement because it described the collateral—the inventory and equipment—tied to the security interest.