Swanson v. Applied Process Technology International, LLC (In re Delta-T Corp.)

MEMORANDUM OPINION

This matter comes before the Court upon the Complaint filed by Clara P. Swanson, Chapter 7 Trustee (“Trustee”), against the defendants DCR Construction, Inc. (“DCR”) and M & I Marshall & Ilsley Bank (“M & I”). Following the conduction of oral argument on February 13, 2012, the Court took this matter under advisement. The Trustee, DCR, and M & I have stipulated to the facts necessary for this Court to decide the merits of the Complaint, and the matter is therefore ripe for decision. The Court has jurisdiction over this pro*498ceeding pursuant to 28 U.S.C. §§ 157(b)(2)1 and 1384(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a). This Memorandum Opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7052.

I. History

A. The Background of the Bankruptcy Case

The debtor, Delta-T Corporation (“Delta-T”), was founded in 1984. At one time, Delta-T was viewed as one of the leading bioethanol technology providers in the nation, offering design and manufacturing services and products. Complaint ¶ 10. Delta-T began experiencing financial difficulties, and on May 25, 2010 (the “Petition Date”), Delta-T filed a petition for relief under Chapter 7 of Title 11 of the United States Code in this Court. Stipulation ¶ 1. The Trustee was duly appointed as the Chapter 7 Trustee for Delta-T. Id. ¶ 2. On November 18, 2010, the Trustee commenced the above-captioned adversary proceeding by filing a fourteen-count Complaint against: (i) Applied Process Technology International, LLC (“APTI”); (ii) Bateman Litwin, N.V. (“Bateman Litwin”); (iii) Bateman Engineering, Inc. (“Bateman Engineering”); (iv) DCR; (v) M & I; and (vi) Pace Analytical Services, Inc. (“Pace”).2

B. The Settlement Agreement

In August 2011, the Trustee entered into a settlement agreement with APTI, Bateman Litwin, and Bateman Engineering, which, following a hearing, was approved by this Court by order entered on November 3, 2011 (“Settlement Agreement”). Pursuant to the Settlement Agreement, among other things, Bateman Litwin and APTI assigned to the Trustee the totality of their interests in certain garnished funds described in the Complaint, held pursuant to a writ of garnishment issued by the United States District Court for the Middle District of Florida, in the approximate amount of $648,000.00 (“Garnished Funds”).3 Accordingly, the only remaining contest between the Trustee on the one hand and DCR and M & I on the other hand is that contained in Count Twelve of the Complaint, which seeks entry of a declaratory judgment regarding the extent, validity, and priority of the liens allegedly held by DCR and M & I with respect to the Garnished Funds.4

*499II. The Complaint Against DCR and M & I

With respect to defendants DCR and M & I,5 the Trustee alleges as follows:

41. ... DCR obtained a judgment in the amount of $6,178,928.24 plus interest dated December 31, 2009 against Delta-T, in the United States District Court for the Middle District of Tampa [sic] (hereafter the “[Florida] District Court”).

42. The [Florida] District Court entered an order directing the clerk to enter an amended judgment dated January 5, 2010 adding the co-plaintiff, M & I Marshall Ilsley Bank as a judgment creditor. The Clerk entered an amended judgment showing both co-plaintiffs on that same day.

43. On January 15, 2010, the Florida District Court entered an Order Authorizing Writs of Garnishment against Bank of America and Branch Banking] and Trust Company (“BB & T”) to enforce the DCR judgment.

44. According to the pleadings on file in the Florida District Court proceedings, BB & T is holding approximately $648,662.58 (the “Garnished Funds”) pursuant to the writ.

45. The Garnished Funds were generated by the sale of certain items of personal property that Delta-T owned. Between December 12, 2009 and January 15, 2010, Delta-T sold its excess steel to two scrap dealers. These sales were made pursuant to purchase orders and evidenced by invoices, signed and issued prior to payment being made to Delta-T. For each sale, Delta-T and the respective buyer entered into a binding contract for the purchase of the goods, and title to those goods transferred, prior to the buyer making payment.

46.The Garnished Funds consist entirely of the proceeds of “accounts” as that term is defined in the Uniform Commercial Code, including the proceeds of accounts arising from the sale of the Debtor’s excess steel.

163. There is currently a dispute between the Trustee and [DCR and M & I] regarding the extent, validity and priority of property of their liens against, or rights in and to the estate, including the Garnished Funds.

164. Based upon the records reviewed by the Trustee to date, the following parties assert liens against property of the estate:

a. APTI by virtue of its alleged liens dating back to the June 1 Note, which was perfected on August 5, 2009;6

b. DCR by virtue of its garnishment order and its writs of execution, which were perfected no earlier than January 15, 2010;

c. M & I Bank, as a co-plaintiff with regard to the DCR liens, which was *500perfected no earlier than January 15, 2010; and

d. Pace, which filed a financing statement against all of the Debtor[’]s accounts receivable on March 8, 2010.7

165. As noted above, the lien securing the June 1 Note is (i) the first lien filed against Delta-T’s tangible and intangible personal property (exclusive of inventory); and (ii) avoidable for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 551. Although the Debtor and Bateman Litwin entered into the Amended Note on or about December 1, 2009, that instrument specifically stated that it did not satisfy or otherwise discharge the underlying instruments it sought to consolidate. Accordingly, the lien securing the June 1 Note was likewise not discharged or released.

166. Because the lien securing the June 1 Note is avoidable as a preference, given that it was not perfected until roughly 60 days after the Note was executed, it is avoidable for the benefit of the Debtor’s bankruptcy estate pursuant to 11 U.S.C. § 551.

167. The amount of the June 1 Note is $7,272,186, a sum which vastly exceeds the value of all existing property of the estate, including the Garnished Funds.

168. The Trustee’s rights, in and to all property of the estate are thus superior to all other alleged lien creditors or other claimants.

169.Even if the liens securing the June 1 Note and the other Notes are deemed to have been discharged by virtue of the Amended Note, however, that instrument too is void or avoidable by the Trustee for the benefit of the Debt- or’s bankruptcy estate. Accordingly, the Trustee’s rights in and to all property of the estate are still superior to all other alleged lien creditors or other claimants.

Complaint ¶¶ 41-46, 163-69. In its answer (“DCR Answer”), DCR asserts the Garnished Funds “are the proceeds of the cash sales of inventory, which had been located in DCR’s yard located in Florida, to two different buyers and for which payment was made substantially contemporaneously with receipt of the inventory by the buyers.” DCR Answer ¶ 45. DCR further asserts that the Garnished Funds consist primarily of the proceeds of inventory, with the source of the remaining funds being unknown. Id. ¶ 46. DCR also pleaded in the affirmative that any security interest granted to Bateman Litwin would have been avoidable by DCR under Florida state law pursuant to Fla. Stat. § 726.106(2), and, thus, even if the Trustee avoids and retains the alleged Bateman Litwin security interest, that security interest remains avoidable by DCR. Id. ¶ 186.8

APTI answered and cross-claimed against DCR, claiming a superior entitle*501ment to the Garnished Funds on three bases:

19. The Garnished Funds are the proceeds from Delta-T’s exercise of its right of replevin of DCR as to the raw materials pursuant to the Final Judgment rendered in the Replevin suit.

20. Alternatively, the Garnished Funds are the proceeds of accounts (or payment intangibles) generated by the purchase orders Delta-T received from the scrap dealers immediately prior to delivery of the raw materials to the scrap handlers.

21. Alternatively, if the raw materials were the inventory of Delta-T, APTI had a perfected security interest therein without the requirement of a financing statement being filed. The lien on the inventory attached and was liquidated prior to the expiration of the filing deadline under applicable state law.

APTI Cross-Claim ¶¶ 19-21. APTI has now exited this adversary proceeding by reason of the Settlement Agreement with the Trustee. Counsel for the Trustee advised at oral argument that the Trustee now relies only on the argument that the purchase orders for the sale of the excess steel created accounts in which the Trustee has a security interest as a result of the Settlement Agreement, and that the Trustee’s security interest attached to the proceeds of those accounts, thereby giving the Trustee rights superior to any rights DCR and M & I may have in the Garnished Funds. Counsel for the Trustee confirmed that the Trustee has abandoned any and all additional arguments that were raised in the pleadings filed in this matter by APTI, Bateman Litwin, and/or Bate-man Engineering and now held by her by virtue of the Settlement Agreement she entered into with those parties. Counsel for DCR affirmed that DCR likewise abandons all other arguments regarding entitlement to the Garnished Funds. DCR now relies only on its argument that it holds a superior lien on the Garnished Funds because the funds represent the proceeds of inventory, not accounts.

Given the nature of the resolution of the Complaint between the Trustee, APTI, Bateman Litwin, and Bateman Engineering, the remaining issue for this Court is to decide is the superiority of entitlement to the Garnished Funds between the Trustee, as the beneficiary of the security interests previously held by APTI and Bate-man Litwin against Delta-T, and DCR and M & I as lien creditors as to the Garnished Funds.9

III. Findings of Fact

A. The Stipulation

The Trustee and DCR entered into an extensive factual stipulation to provide the basis for the factual findings necessary to resolve the remaining count of the Complaint as to DCR and M & I (“Stipulation”). The Stipulation provides, in pertinent part, as follows:

*5024. Prior to the Petition Date, the Debt- or executed a series of Promissory Notes (collectively, the “Promissory Notes”) in favor of Bateman Litwin, N.V., its ultimate parent corporation. These Promissory Notes are more particularly described as follows:

a. A Secured Loan Agreement and Promissory Note dated June 1, 2009 (the “June 1 Note”), in the original principal amount of $7,272,186. A true and correct copy of the June 1 Note is attached hereto as Exhibit 1. The lien securing repayment of the June 1 Note was perfected on August 5, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this filing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 2.

b. A Secured Loan Agreement and Promissory Note dated July 1, 2009 (the “July 1 Note”), in the original principal amount of $3,025,000. A true and correct copy of the July 1 Note is attached hereto as Exhibit 3. The lien securing repayment of the July 1 Note was perfected on August 5, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 4.

c. A Secured Loan Agreement and Promissory Note dated August 7, 2009 (the “August 7 Note”), in the original principal amount of $3,996,232.51. A true and correct copy of the August 1 Note is attached hereto as Exhibit 5. The lien securing repayment of the August 7 Note was perfected on September 18, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 6.

d. A Secured Loan Agreement and Promissory Note dated September 1, 2009 (the “September 1 Note”), in the original principal amount of $449,810.41. A true and correct copy of the September 1 Note is attached hereto as Exhibit 7. The lien securing repayment of the September 1 Note was perfected on September 14, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 8.

e. A Secured Loan Agreement and Promissory Note dated September 10, 2009 (the “September 10 Note”), in the original principal amount of $5,000,000. A true and correct copy of the September 10 Note is attached hereto as Exhibit 9. The lien securing repayment of the September 10 Note was perfected on September 18, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 10.

f. A Secured Loan Agreement and Promissory Note dated September 11, 2009 (the “September 11 Note”), in the original principal amount of $300,000. A true and correct copy of the September 11 Note is attached hereto as Exhibit 11. The lien securing repayment of the September 11 Note was perfected on October 8, *5032009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 12.

g. A Secured Loan Agreement and Promissory Note dated October 1, 2009 (the “October 1 Note”), in the original principal amount of $1,492,666.20. A true and correct copy of the October 1 Note is attached hereto as Exhibit 13. The lien securing repayment of the October 1 Note was perfected on October 8, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 14.

h. A Secured Loan Agreement and Promissory Note dated November 3, 2009 (the “November 3 Note”), in the original principal amount of $495,000. A true and correct copy of the November 3 Note is attached hereto as Exhibit 15. The lien securing repayment of the November 3 Note was perfected on November 12, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 16.

i. An Amended and Restated Promissory Note dated December 1, 2009, (the “Amended and Restated Note”) in the amount of $22,280,892.12, which, by its terms, consolidated the previous notes, altered the interest rate and adjusted the payment schedule under the prior notes. A true and correct copy of the Amended and Restated Note is attached hereto as Exhibit 17. The Amended Note was perfected on December 4, 2009, by the filing of a financing statement with the Virginia State Corporation Commission. A true and correct copy of this financing statement as filed with the Virginia State Corporation Commission is attached hereto as Exhibit 18.10

5. On or about January 13, 2010, Bate-man Litwin assigned the Promissory Notes to APTI. On or about January 29, 2010, APTI conducted a foreclosure sale of certain of the collateral security [sic] repayment of the amounts due under the Promissory Notes. APTI was the sole bidder at the sale, tendering a bid of $2.2 million.

6. As of the date of this Stipulation, and after application of all available credits, the balance due under the Promissory Notes exceeds the amount of the Garnished Funds, even after taking into account all other property which allegedly secures repayment of the Promissory Notes.11

7. On February 18, 2009, DCR obtained an arbitration award against Delta-T in the amount of $5,322,003.20. This award was increased on April 16, 2009, to $6,178,928.24 on April 16, 2009 [sic]. On April 20, 2009, DCR filed a petition with the Florida District Court *504seeking to confirm the arbitration award. On January 5, 2011,12 the Florida District Court entered an Order directing the Clerk to enter judgment (the “Judgment”) against Delta-T, and in favor of DCR and M & I in the amount of $6,178,928,141. On January 15, 2010, the Florida District Court entered an Order Authorizing Ex Parte Writs of Garnishment against Bank of America (“BOA”) and Branch Banking & Trust Company (“BB & T”). The BB & T and BOA writs were issued and served the dame [sic] day. BB & T answered the writ and admitted it holds $648,662.59 (the “Garnished Funds”). BOA answered the writ and admitted it holds $4,470.20. BB & T now holds the Garnished Funds pursuant to the Florida District Court writ.

8. Prior to the Petition Date, the Debt- or was the owner of, among other things, certain stainless steel tubing (the “Stainless Steel”) which was located at DCR’s yard in Lakeland, Florida.

9. In late November, 2009 or early December, 2009, the Debtor began discussions with Central City Steel (“CCS”) in order to sell a portion of the Stainless Steel. On December 2, 2009, CCS issued to the Debtor a Purchase Order for a portion of the Stainless Steel. The Purchase Order was subsequently corrected to remove certain items which were not to be sold to CCS (as corrected, the “CCS Purchase Order”). By December 4, 2009, the Debtor had accepted the Purchase Order, as revised, and issued an email to DCR advising that CCS was authorized to pick-up those portions of the Stainless Steel which had been sold to CCS. A true and correct copy of the CCS Purchase Order is attached to the Stipulation as Exhibit 19.

10. CCS picked up those portions of the Stainless Steel which it had purchased on December 15-16, 2009 and January 14, 2009.13 CCS paid for the Stainless Steel by wire transfers initiated on December 17, 2009 in the aggregate amount of $126,000.00, and on January 15, 2010 in the aggregate amount of $101,500.00.

11. At or around the same time that it entered into negotiations with CCS, the Debtor began negotiating with Pasco Iron & Metal (“Pasco”) for a purchase of the remaining Stainless Steel. On January 5, 2010, Pasco issued to the Debtor a Purchase Order (the “Pasco Purchase Order”) for that portion of the Stainless Steel that it was acquiring. A true and correct copy of the Pasco Purchase Order is attached to the Stipulation as Exhibit 20. The Purchase Order was accepted by the Debtor on that same day.

12. Pasco picked up those portions of the Stainless Steel which it had purchased on (i) January 7, 2010; (ii) January 11, 2010; and (iii) January 12, 2010. Pasco paid for the Stainless Steel by wire transfers initiated on (i) January 7, 2010; (ii) January 12, 2010; and (iii) January 13, 2010, in the aggregate amount of $448,728.00.

13. All told, Delta-T received $676,228.00 as a result of the sales of the Steel to CCS and Pasco. These funds were deposited into the Debtor’s general *505operating account at BB & T. Of the Garnished Funds, $47,610.48 is not attributable to the sales of the Steel to Pasco and CCS.

Stipulation ¶¶ 4-13.

The Trustee and DCR also stipulated to the admissibility of certain documents (collectively, the “Stipulated Exhibits”) and testimony:

a. The December, 2009 bank statement for the BB & T Account, attached to the Stipulation as Exhibit 21.

b. The January, 2010 bank statement for the BB & T Account, attached to the Stipulation as Exhibit, 22.

c. The Amended Judgment in favor of the Judgment Creditors [DCR and M & I], and against Delta-T, attached to the Stipulation as Exhibit 23.

d. The transcript of the September 8, 2011 deposition of David Emmanuel Hughes, attached to the Stipulation as Exhibit 24.

e. The transcript of the August 9, 2011 deposition of Matthew Goldman, attached to the Stipulation as Exhibit 25.

f. The transcript of hearing held on October 20, 2010, attached to the Stipulation as Exhibit 26 [“October 20 Transcript”].

g. The Exhibits 1 through 15 tendered by DCR in relation to its previously filed Motion for Relief from Stay (Docket # 96 — List of Witnesses and Exhibits).

h. The Exhibits A through S tendered by the Trustee in relation to DCR’s Motion for Relief from Stay (Docket # 102 — List of Exhibits).

Id. ¶ 14. A review of the Stipulated Exhibits confirms that, while the Trustee (through assignment of the security interests of APTI and Bateman Litwin) holds the security interest in the accounts of Delta-T and all proceeds thereof, at no time relevant here has the Trustee possessed a valid security interest in the inventory of Delta-T.14

B. The Depositions

As noted in the Stipulation, the Trustee and DCR stipulated to the submission into evidence of various depositions taken in this proceeding. A summary of the portions relevant to the remaining dispute between the Trustee, DCR, and M & I follows.

1. The Deposition of David Hughes

The deposition upon oral examination of David Hughes (“Hughes”), taken on September 8, 2011, was agreed to by the parties and submitted as Stipulated Exhibit 24 (“Hughes Deposition”). Hughes previously served as Vice President of Projects for Delta-T and at the time of the deposition served as President and General Manager of APTI. Hughes Deposition at 7. Hughes testified that, while employed by Delta-T, he contacted Central City Steel (“Central City”) to negotiate a sale of a portion of Stainless Steel owned by Delta-T and located in the DCR storage yard in Lakeland, Florida. Id. at 14-15. Hughes identified an e-mail he sent on December 4, 2009, to a Chuck Langford, in response to an e-mail from Langford, in which Hughes identified the specific items of Stainless Steel purchased by Central City. Id. at 15-17 (citing Deposition Exh. 12). Hughes also identified a purchase order from Central City (see Deposition Exh. 13) and testified that “[w]e negotiated the price, and then the purchase order was created.” Hughes Deposition at 18. The purchase order was accepted by Delta-T, according to Hughes, at the end of November 2009 or early December 2009. Id.; see also id. at 29. Hughes also identified doc*506uments relevant to Delta-T’s sale of a portion of the Stainless Steel to Pasco Iron and Metal.15 See id. at 26-27.

2. The Deposition of Matthew Goldman

The deposition upon oral examination of Matthew Goldman (“Goldman”), submitted as Stipulated Exhibit 25, was taken on August 9, 2011 (“Goldman Deposition”). Goldman is the president of Pasco Iron and Metal (“Pasco”), and he personally arranged the purchase of a portion of the Stainless Steel from Delta-T. Goldman Deposition at 4. The terms of the purchase were described by Goodman as “[n]et cash, cash against documents. As soon as the material’s received at our facility, we will send a wire out immediately for the following day.” Id. at 6. Goodman testified the purchase order between Pasco and Delta-T constituted the entire agreement for the purchase of a portion of the Stainless Steel. Id. at 8, 25.

Goodman described Pasco’s payment obligation for the Stainless Steel as “[t]he same as the purchase order. Upon documents, upon receipt of documents.” Id. at 21. Goodman also detailed Pasco’s process for receipt and payment of the Stainless Steel. In general, after calculating the weight of a shipment of steel, payments were made “the same day or next day.” Id. at 12. As to the first truckload of steel, Goodman testified that after calculating the steel’s weight, a wire transfer to Delta-T in the amount of $80,024.00 was made on January 7, 2010, the day after the Stainless Steel arrived at Pasco’s facility, “[bjecause the material was wrapped in dunnage and it had to be removed and weighed and deducted off the inbound weight so we weren’t buying wood[,] we were just buying metal.” Id. at 6-7, 10 (citing Deposition Exh. 2). Goodman also related that payment was not immediately made because additional trucks were en route. Id. at 14-15.

Pasco sent another payment to Delta-T for three additional truckloads. Id. at 16-17. The third truckload of the Stainless Steel finished the weighing process on January 12, 2010, after its receipt on January 11, 2010. Id. at 15-16. The remittance advice from Pasco was printed within an hour of weighing and dunnaging the third truck. Id. at 17. The remaining truckloads of Stainless Steel were weighed and dunnaged on January 13, 2010. Id. at 19. Pasco processed a remittance advice for these materials, totaling $310,936.00, on January 13, 2010. Id. at 20.

3. The Hearing Testimony of David Hughes

David Hughes testified at the hearing on DCR’s Motion for Relief from the Automatic Stay conducted before this Court on October 20, 2010, as recorded in the October 20 Transcript. Hughes testified that he negotiated the sales of the Stainless Steel to Pasco and Central City. October 20 Transcript at 18. Hughes testified that he sent an e-mail to Chuck Langford of DCR on December 4, 2009, advising of the sale of the steel to Central City and believes the agreement with Central City was reached a day or two prior to sending the e-mail. Id. at 34-35. Hughes also identified the purchase order from Pasco dated January 5, 2010, and noted that it was his understanding that by that date, an agreement to sell the Stainless Steel to Pasco had been reached. Id. at 35.

Hughes described the terms of the sale of the Stainless Steel to Central City. Del*507ta-T was “to be paid in advance at the time the steel was to be removed from site,” but that did not occur as “[t]he steel was paid for a day, two days, three days after the steel left the site.” Id. at 19; see also id. at 35-36, 43. The sale terms to Pasco were to be “[u]pon receipt at Pasco Metal & Iron’s facility, after they validated the weights then they were to — to pay for the steel” by wire transfer. Id. at 19. Hughes confirmed that Pasco did pay by wire transfer and that these payments occurred after Pasco received the steel. Id.; see also id. at 43. Hughes identified the purchase orders from Pasco and Central City for the steel, which provided for Pas-co to pay “net cash, 100[%] by wire upon receipt” and for Central City to pay “cash in advance.” Id. at 20. The loading of the Stainless Steel, which was stored on pallets, was by forklift or crane upon tractor-trailer trucks at DCR’s storage yard, which, for each buyer, took several days. Id. at 18, 21.

Hughes testified Delta-T received two wire transfers of funds from Central City on December 17, 2009, in the respective amounts of $100,000.00 and $26,000.00. Id. at 21. The Stainless Steel purchased by Central City was loaded on December 15 and 16, 2009, and paid for on December 17, 2009. Id. at 22. Central City also sent two wire transfers for the Stainless Steel purchased out of the DCR yard on January 14 and 15, 2010, which payments were for steel retrieved on those respective dates. Id. at 23-24. An additional amount of Stainless Steel sold to Central City was picked up on January 21, 2010. Id. at 24. Hughes did not recall the exact date Delta-T was paid for the latter quantity; he could only recall that Delta-T was paid “within a few days of shipment.” Id. at 25.

Pasco retrieved one load of steel from the DCR yard on January 7, 2010, and a payment for $30,024.00 was received the same day. Id. at 26-27. Pasco made a second pickup, consisting of three truckloads of steel, on January 11, 2010, and a wire transfer of $101,768.00 for payment thereof was received on January 12, 2010. Two of the three trucks arrived at Pasco and were weighed on January 11; the third also arrived on January 11 but was not processed until the next day. Id. at 28-29. More trucks with Stainless Steel arrived at Pasco on January 12, 2010, which were paid for by a wire transfer of $310,396.00 to Delta-T on January 13, 2010. Id. at 26, 30. Delta-T’s expectation was “[t]o be paid when the equipment got picked up and weighed in and delivered,” but what actually happened was “[t]hey paid within a few days or a day or two of when the steel was picked up.” Id. at 32.

The above-recounted testimony along with the agreed exhibits provides the factual predicate for resolving the remaining question of the Complaint: determining entitlement to the Garnished Funds between the Trustee and DCR. The chart below summarizes the time line of the transactions at issue.

_Date_Event_

Late November/Early Negotiations begin between Delta-T and Central City; and between December 2009 Delta-T and Pasco, for the purchase of Stainless Steel located in _DCR’s yard in Lakeland, Florida_

December 2, 2009 Central City issues a purchase order for a portion of the Stainless _Steel (which purchase order was later revised)_

December 4, 2009 Delta-T accepts Central City’s revised purchase order and advises DCR (by e-mail from David Hughes to Chuck Langford) that Central City was authorized to pick up the steel it had purchased

*508December 15, 2009_Central City picks up a portion of the steel_

December 16, 2009 Central City picks up a portion of the steel_

December 17, 2009 Central City makes two wire transfers to Delta-T totaling $126,000.00 in payment for the steel picked up on December 15 and _16, 2009_

January 5, 2010_Pasco issues a purchase order for a portion of the Stainless Steel

January 5, 2010 Delta-T accepts the purchase order issued that day by Pasco for the _purchase of a portion of the Stainless Steel_

January 7, 2010_Pasco picks up a portion of the steel_

January 7, 2010 Pasco makes a wire transfer to Delta-T of $30,024.00 in payment of __the steel purchases picked up that same day_

January 11, 2010_Pasco picks up a portion of the steel_

January 12, 2010_Pasco picks up a portion of the steel_

January 12, 2010 Pasco makes a wire transfer to Delta-T in' payment for the steel _picked up on January 11, 2010_

January 13, 2010_Pasco picks up the remaining portion of the steel it purchased_

January 13, 2010 Pasco makes a wire transfer to Delta-T in payment for the steel purchases picked up on January 12 and 13, 2010, for total wire transfers made by Pasco between January 7 and January 13, 2010, of _$448,728.00 _

January 14, 2010_Central City picks up a portion of the steel_

January 14, 2010 Central City makes a wire transfer to Delta-T in payment for the _steel picked up on that date_

January 15, 2010_Central City picks up a portion of the steel_

January 15, 2010 Central City makes a wire transfer to Delta-T in payment for the steel picked up on that date (which, combined with the wire transfer _made on January 14, 2010, totaled $101,500.00)_

January 21, 2010 Central City picks up an additional portion of the steel, which was paid for a few days thereafter

IV. Conclusions of Law

A. The Controlling Legal Issues

As the Trustee has noted, much of what is needed to resolve the dispute between the Trustee and DCR is stipulated here:

There is no dispute that (i) APTI’s liens on accounts were perfected prior to the Judgment Creditor’s lien on the BB & T Account (Stipulation, ¶ s 4 and 7); (ii) the outstanding amount due under APTI’s Promissory Notes exceeds the amount of the Garnished Funds (Stipulation, 6); and (iii) the liens of APTI have been avoided for the benefit of the estate and transferred to the Trustee (November 1, 2011 Settlement Order, Adversary Docket No. 42, Exhibit A, numbered paragraphs 2 and 3).

Pre-Trial Brief of Trustee at 9. Neither the Court, the Trustee, nor DCR have uncovered any decision precisely factually analogous to the instant dispute. As a result of this seeming uniqueness, DCR directs the Court to consider prior decisions analyzing the relative priority of a non-purchase money security interest and a purchase money security interest in inventory. This argument is founded upon DCR’s assertion that at all times, the Stainless Steel remained Delta-T’s inventory, in which the Trustee never held a security interest. See DCR Pre-Trial Brief at 12-15. The Trustee argues instead that the decisions offered by DCR supply no assistance in determining the instant matter as the circumstances here involve not a competition for priority between two creditors with security interests *509in the same collateral, but, rather, the assessment of whether the Trustee ever had an interest in the proceeds of the sale(s) of the Stainless Steel (as represented by the Garnished Funds). Pre-Trial Brief of Trustee at 3; see also id. at 3 n.3 (“Because the Judgment Creditors [DCR and M & I] did not have a lien until after the sales were consummated, it is irrelevant whether the Stainless Steel was or was not ‘inventory.’ What matters is whether an ‘account’ was created in relation to each sale of the Stainless Steel.”).

This Court believes that the correct resolution to the instant conflict requires a determination of whether the Trustee, by assignment of APTI’s security interest, at any time had an interest in the Garnished Funds as proceeds of an account or accounts of Delta-T and, if so, did such interest arise before the garnishment lien of DCR.16 DCR contends that at no time *510under the agreed facts here did an account arise and that the Stainless Steel remained Delta-T’s inventory at all times until it was sold, at which time it was immediately converted into proceeds of such inventory and deposited into Delta-T’s bank account at BB & T. Accordingly, the determination of the respective rights of the Trustee and DCR in the Garnished Funds attributable to the sales of Stainless Steel to Central City and Pasco17 may be distilled to two legal issues: (1) whether an account or accounts arose from the sale(s) of the steel, and (2) whether the Garnished Funds, or some portion thereof, are properly characterized as proceeds of such account or accounts, to which the Trustee (by reason of receiving assignment of APTI’s security interests under the Settlement Agreement) has the superior claim.18 In addition to reviewing the effect of Article 9 of the Uniform Commercial Code upon the instant facts, the Court must also consider the effect of Article 2 of the Uniform Commercial Code governing commercial sales to ascertain if and when an account or accounts arose by reason of the sales of the Stainless Steel to Central City and Pasco by Delta-T.

B. What is an Account and What is Inventory Under the Uniform Commercial Code?

Consideration of what constitutes an account necessarily begins with the language of the Uniform Commercial Code as enacted in Virginia.19 Section 8.9A-*511102(a)(2) of the Code of Virginia defines an “account” as:

“Account,” except as used in “account for,” means a right to payment of a monetary obligation, whether or not earned by performance, (i) for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance issued or to be issued, (iv) for a secondary obligation incurred or to be incurred, (v) for energy provided or to be provided, (vi) for the use or hire of a vessel under a charter or other contract, (vii) arising out of the use of a credit or charge card or information contained on or for use with the card, or (viii) healthcare-insurance receivables. The term does not include (i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit rights or letters of credit, or (vi) rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.

Va.Code Ann. § 8.9A-102(a)(2). Thus, an account is a right to payment for property that has been or is to be sold. While “property is not a defined term in Title 8.9A of the Virginia Code, § 8.9A-102(a)(44) defines “goods” to include “all things that are movable when a security interest attaches.” Id. § 8.9A-102(a)(44). “Accounts” are specifically excluded from the definition of “goods.” Id. (“The term [‘goods’] ... does not include accounts -”).

Inventory is defined as a type of goods:

“Inventory” means goods, other than farm products, which:

(A) are leased by a person as lessor;

(B) are held by a person for sale or lease or to be furnished under a contract of service;

(C) are furnished by a person under a contract of service; or

(D) consist of raw materials, work in process, or materials used or consumed in a business.

Id. § 8.9A-102(a)(48). David Hughes testified at his deposition that the Stainless Steel was in the form of steel tubing that Delta-T intended to use for manufacturing “stainless steel vessels.” Hughes Deposition at 39. Neither the Trustee nor DCR has controverted this testimony. Given Mr. Hughes’ description of the form of the steel, its intended usage, and the lack of any evidence to the contrary, the Court finds as a finding of fact that the Stainless Steel constituted inventory; consequently, the Court finds that the Stainless Steel constituted “goods” owned by Delta-T.20 If the Stainless Steel remained inventory at all times here and accounts were not created, then DCR must prevail since the Trustee admittedly does not hold a security interest in Delta-T’s inventory. Examination of this question is determinative of whether DCR or the Trustee has the greater entitlement to the Garnished Funds.

*512C. When is a Security Interest in an Account Enforceable Under the Uniform Commercial Code?

In order for a security interest to be enforceable, a debtor must have “rights in the collateral.” Virginia Code § 8.9A-203 governs enforceability and provides, in relevant part:

(a) Attachment. A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment.

(b) Enforceability. Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtor and third parties with respect to the collateral only if:

(1) value has been given;

(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and

(3) one of the following conditions is met:

(A) the debtor has authenticated a security agreement that provides a description of the collateral....

Va.Code Ann. § 8.9A-203(a)-(b)(3)(A). Judge Ledbetter has succinctly distilled these requirements with respect to accounts: “A security interest attaches to an account receivable, under a valid security agreement, when the account comes into existence.” C.W. Jackson Hauling, Inc. v. S. Eagle, 12 Va. Cir. 401, 1988 WL 619303, at *1 (Va.Cir.Ct.1988).21

*513Previously, the Uniform Commercial Code distinguished between “contract rights” and “accounts,” with “accounts” resulting from contracts only where performance had occurred. As a result, a security interest in an account could not arise until the contract had been performed. This distinction was conclusively abandoned by revisions in Article 9 of the Uniform Commercial Code:

Before 1974, various sections of the Commercial Code suggested that an account came into existence only upon performance. Former section 9204, subdivision (2)(d) provided that the debt- or had no rights “[i]n an account until it comes into existence.” The 1974 amendment deleted this provision. It added subdivision (1) to provide, in pertinent part, that “a security agreement may provide that any or all obligations covered by the security agreement are to be secured by after-acquired collateral.” (Stats. 1974, ch. 997, § 17, p. 2123, eff. Jan. 1, 1976.) The Uniform Commercial Code Comment, to this section says that the statute “makes clear that a security interest arising by virtue of an after-acquired property clause has equal status with a security interest in collateral in which the debtor has rights at the time value is given under the security agreement.”

Similarly, former section 9106 defined an “account,” as a “contract right,” and “general intangibles.” The Uniform Commercial Code Comment, to this former provision stated that an “ ‘[a]ccount’ as defined is a right to payment for goods sold or leased or services rendered: that is to say, a right earned by performance, whether or not due and payable.... ” (Emphasis added; see Richmond Crane Rigging & Drayage Co. v. Liberty Nat. Bank, 27 Cal.App.3d 968, 974, 104 Cal.Rptr. 277 (1972).) The 1974 amendment to section 9106 did away with “contract right” altogether. The amendment, as italicized, provides: “ ‘Account’ means any right to payment for goods sold or leased or for services rendered which is not evidenced by an instrument or chattel paper, whether or not it has been earned by performance.” (Stats. 1974, ch. 997, § 11, p. 2121, eff. Jan. 1, 1976.) The Uniform Commercial Code Comment, to the amended statute says, “This Article rejects any lingering common law notion that only rights already earned can be assigned.”

Bank of Stockton v. Diamond Walnut Growers, Inc.,