               United States Bankruptcy Appellate Panel
                               FOR THE EIGHTH CIRCUIT



                                      No. 99-6023 MN


In re:                                         *
                                               *
Jesus E. Cantu,                                *
                                               *
         Debtor.                               *
                                               *
Michael S. Dietz, Trustee,                     *          Appeal from the United States
                                               *          Bankruptcy Court for the
         Appellant,                            *          District of Minnesota
                                               *
               v.                              *
                                               *
Hormel Employees Credit Union,                 *
                                               *
         Appellee.                             *



                                 Submitted: July 20, 1999
                                 Filed: September 16, 1999



Before KOGER, Chief Judge, SCHERMER and SCOTT, Bankruptcy Judges

SCHERMER, Bankruptcy Judge

      The Chapter 7 Trustee, Michael Dietz, (the “Trustee”), appeals from a bankruptcy
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court order declaring that the Hormel Employees Credit Union (“Credit Union”) holds a


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            The Honorable Dennis O’Brien, Chief Judge, United States Bankruptcy Court for the
District of Minnesota.
valid and enforceable, properly perfected security interest in the Debtor’s vehicle. Because
we find that the Credit Union’s security agreement meets the requirements of Minn. Stat. §
336.9-203(1)(a) (Supp. 1999), we conclude that the security interest attached to the vehicle,
and accordingly, affirm.

                                         Background

        Prior to filing his Chapter 7 bankruptcy petition, the Debtor purchased a truck with
financing provided through the Credit Union’s open-end loan program. Under that loan
program, employees complete one general loan agreement and thereafter are eligible to draw
funds on either an unsecured or secured basis. Any advances taken from the Credit Union
under this general program are called “Sub-accounts.” With respect to secured Sub-accounts,
the loan agreement grants a security interest to the Credit Union in personal property but
does not describe the property that is to serve as collateral. Instead, the loan agreement
refers to a second document, called a funds advance voucher, and states that the collateral
will be described on that document. When issued, the funds advance voucher lists the
amount of the loan, the amount of monthly payments, the applicable interest rate, and a
detailed description of the property that serves as collateral for the specific Sub-account loan.
The borrower/debtor signs the loan agreement but is not required to sign the funds advance
voucher.

        In the instant case, the Debtor signed the loan agreement on July 7, 1997, and on the
same date, the Credit Union issued the funds advance voucher, fully describing the collateral
by make, model, year, and vehicle identification number. The loan agreement specifically
referred to the funds advance voucher stating: “with respect to my secured Sub-accounts, .
. . I am giving you a security interest in certain other personal property . . . which property
will be individually identified in separate funds advance vouchers which I will receive at the
time of each advance made under any Sub-account.” (Italics added). On July 7, 1997, the
Credit Union also issued a check for the loan proceeds payable to the Debtor and to the
automobile dealer from whom Debtor intended to purchase the described vehicle. The funds
advance voucher contained the following recitation on behalf of the Debtor concerning that
loan proceeds check:


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       by endorsing my loan check . . . . I give you a security interest in the property
       identified above to secure my obligations with regard to Sub-account noted
       above in accordance with the minimum payment and security agreement
       provision of the [loan agreement]. Your rights to the security are governed
       by that Agreement. (Italics added).

        The funds advance voucher also contains a critical statement providing that all terms
of the funds advance voucher are incorporated into the loan agreement and are binding upon
the Debtor with the same effect as if the terms were set forth in the loan agreement. As
stated, however, the Debtor was not required to sign the funds advance voucher.

       Because no single document contained the Debtor’s signature, language granting a
security interest, and a description of the collateral, the Trustee asserted that the Credit
Union’s security interest did not attach and sought to recover the vehicle for the benefit of
the estate under 11 U.S.C. § 544. The bankruptcy court heard cross-motions for summary
judgment and found that the Credit Union’s loan documents had to be read together. When
so read, the court found that the documents created a valid lien.

                                    Standard of Review

       The facts are not in dispute. Whether the Credit Union’s loan documents created an
enforceable security interest is a question of law which we review de novo. Litton Indus.
Automation Sys., Inc. v. Nationwide Power Corp., 106 F.3d 366, 367 (11th Cir. 1997)
(whether creditor held a security interest was pure question of law); Dowden v. Cross
County Bank (In re Brittenum & Assoc., Inc.), 868 F.2d 272, 274 (8th Cir. 1989)
(interpretation of bank accounts to determine whether lien rights existed was question of
law); In re U.I.P. Engineered Prods. Corp., 43 B.R. 480, 482 (N.D. Ill. 1984) (whether title-
retention clause created security interest was question of law for de novo review). See In re
Baltic Assocs., L.P., 170 B.R. 568, 569 (E.D. Pa. 1994) (determining perfection was
question of law).




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                                          Discussion

        Unless collateral is in the possession of a secured party, for a security interest to
attach and be enforceable, there must be a signed security agreement containing a description
of the collateral, value must be given, and the debtor must have rights in the collateral.
Minn. Stat. § 336.9-203(1)(a)(b) and (c) (Supp. 1999).2 In this matter, the Trustee disputes
only whether there is a signed security agreement that contains a description of the collateral.
The Trustee urges that no such agreement exists because the loan agreement, although
signed, does not contain a description of the collateral, and the funds advance voucher,
although containing a description of the collateral, is unsigned. The Trustee asserts that strict
construction of the statute requires the Debtor to sign the very document that contains a
description of the collateral and relies on statements from the Eighth Circuit Court of
Appeals in Shelton v. Erwin, 472 F.2d 1118, 1120 (8th Cir. 1973) for the principle that the
requirements of the Uniform Commercial Code are unambiguous and should not be relaxed
to accommodate even clear intentions of the parties. Id. The Credit Union, conversely,
urges that its documents are integrated, with cross-references from one to another, and that
under a composite document theory, all of the loan documents may be taken together to
satisfy the requirements of Minn. Stat. § 336.9-203(1)(a).

        First, this court finds that the general principle of Shelton is not dispositive because
that case is entirely distinguishable from the present. In Shelton, the court was faced with
a bill of sale and title application that clearly revealed an intent to create a security interest
but contained no language whatsoever granting that interest. In this matter, the grant of a
security interest is unequivocal. It is clearly stated in the loan agreement and echoed in the
funds advance voucher. Here, the question is not whether there is a grant of a security

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         Minn. Stat. § 336.9-203(1) states in relevant part,:
       [A] security interest is not enforceable against the debtor or third parties with
       respect to the collateral and does not attach unless:
               (a) the collateral is in the possession of the secured party pursuant to
       agreement, the collateral is investment property and the secured party has control
       pursuant to agreement, or the debtor has signed a security agreement which
       contains a description of the collateral . . .
               (b) value has been given; and
               (c) the debtor has rights in the collateral.

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interest, but whether the signed security agreement contains a description of the collateral
which satisfies Minn. Stat. § 336.9-203(1)(a). To answer this question, we must first
determine what documents comprise the security agreement.

        Under Minnesota’s adoption of the Uniform Commercial Code, “security agreement”
is defined as “an agreement which creates or provides for security.” Minn. Stat. § 336.9-
105(l). An “agreement” is “the bargain of the parties in fact as found in their language or by
implication from other circumstances including course of dealing or usage of trade or course
of performance as provided in this chapter . . . .” Minn. Stat. § 336.1-201(3). In this case,
both the language used by the parties and their course of conduct demonstrate that the funds
advance voucher and the loan agreement together create the security agreement. The loan
agreement grants the Credit Union a security interest in property and expressly states that
such property will be described in a separate funds advance voucher. The funds advance
voucher, when issued thereafter, contains a full description of the collateral and provides that
its terms are made part of the loan agreement. By cross-reference, the description of the
collateral in the funds advance voucher is made part and parcel of the loan agreement bearing
the debtor’s signature. Together, these documents constitute the security agreement and
satisfy the signed-writing requirement of Minn. Stat. § 336.9-203(1)(a).

       The course of conduct of the parties, and the purpose of the open-end loan program,
also support the conclusion that the loan agreement and funds advance voucher are to be read
together as comprising the security agreement. The loan program is designed to operate in
such a way that an employee has to sign only one loan agreement, (which, in reality, serves
as the credit application, loan agreement and Truth-in-Lending Disclosure Statement), and
thereafter, the employee may request advances, whether as secured or unsecured Sub-
accounts, in person or by telephone. Unless the documents are taken together, the open-end
agreement cannot operate as intended. It is the purpose of the Uniform Commercial Code
to promote and facilitate commercial transactions, “to simplify, clarify, and modernize the
law governing commercial transactions, [and] to permit the continued expansion of
commercial practices through custom, usage and agreement of the parties.” Minn. Stat. §
336.1-102(2)(a)(b). To deny enforcement of the security interest in this case would elevate
form over substance and negate the underlying principles of the code.


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       The Trustee suggests that unless the Debtor’s signature appears on the very document
that contains a description of the collateral, the Credit Union is able to unilaterally list
property on the funds advance voucher and claim a security interest on property without the
Debtor’s knowledge. The procedures in this case, however, preclude such a result. As stated
above, the Credit Union issued the loan proceeds check payable to the Debtor and to the
automobile dealer from whom Debtor intended to purchase his vehicle. The Credit Union
stamped an endorsement paragraph on the reverse side of the loan proceeds check which
required specific acknowledgment of the lien granted and provided:

       By endorsement of this check, it is agreed by the payees that: (1) this check
       shall only be used for the purchase by the first payee of 1993 GMC from
       second payee; (2) Said vehicle is free and clear of any liens, encumbrances or
       security interests; and (3) An application for a Certificate of Title for said
       vehicle shall immediately be filed naming the Hormel Employees Credit Union
       . . .as the first secured party.

                     __________________________
                      First Payee (Member-Borrower)

                     __________________________
                      Second Payee (Automobile Dealer)

By virtue of this endorsement, no question can exist concerning the Debtor’s full knowledge
and consent to the grant of a security interest in the vehicle involved.

        The drafters of the Uniform Commercial Code required a signed-writing describing
the collateral pledged before a security interest could attach in order to address the very
concerns raised by the Trustee. “A signed-writing prevents disputes over precisely which
items of property are covered by a security interest.” In re Numeric Corp., 485 F.2d 1328,
1331 (1st Cir. 1973) (citing Uniform Commercial Code § 9-203, Comment 3; J.K. Gill Co.
v. Fireside Realty Inc., 262 Or. 486, 488, 499 P.2d 813, 814 (1972)). A signed-writing, thus
serves as a statute of frauds to prevent enforcement of claims based on wholly oral
representations. Id. See Minn. Stat. § 336.9-203, Comment 5. (“The formal requisite of a
writing . . . is in the nature of a Statute of Frauds.”). Minnesota courts have stated, “‘[t]he
principal function of a description of the collateral in a security agreement is to enable the


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parties themselves . . . to identify it, particularly if the secured party has to repossess the
collateral . . . .’” In re Immerfall, 216 B.R. 269, 273 (Bankr. D. Minn. 1998) (quoting James
Talcott, Inc. v. Franklin Nat’l Bank, 194 N.W.2d 775, 782 (Minn. Ct. App. 1994)). See
World Wide Tracers, Inc. v. Metro. Protections, Inc., 384 N.W.2d 442, 448 (Minn. 1986)
(quoting James Talcott).

        In light of these purposes, and the flexible definition of “security agreement” which
includes documents that are incorporated into one another, or clarify one another, In re
Nickerson & Nickerson, Inc., 452 F.2d 56, 57 (8th Cir. 1971) (deficient description of
collateral in security agreement can be clarified by financing statement), where there is no
question about the understanding of the parties, the court finds no reason to insist that the
description of collateral must appear on the very same document which bears the debtor’s
signature. Provided “[a] writing or writings, regardless of label, . . . adequately describes the
collateral, carries the signature of the debtor, and establishes that in fact a security interest
was agreed upon . . . the formal requirements of [§ 9-203] and the policies behind it [are
satisfied].” Numeric Corp., 485 F.2d at 1331.

       In this case, there is no question that the parties demonstrated in writing their purpose
to create a security interest in the specified vehicle. We therefore conclude that the
bankruptcy court did not err in holding that this transaction satisfied the requirements of
Minn. Stat. § 336.9-203(1). The Credit Union was properly entitled to summary judgment.

       Accordingly, the order of the bankruptcy court is affirmed.

       A true copy.

              Attest:

                        CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
                        EIGHTH CIRCUIT




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