DeGiacomo v. Raymond C. Green, Inc. (In re Inofin Inc.)

MEMORANDUM

I. INTRODUCTION

Mark G. DeGiacomo, the Chapter 7 Trustee (the “Trustee”) of Inofin Incorpo*25rated (“Inofín”) filed a Complaint against Raymond C. Green, Inc. (“RCG”) on April 25, 2011, one day before this Court conducted a hearing on RCG’s Motion for Relief from the Automatic Stay and for Related Relief. Approximately one year later, on April 4, 2012, the Trustee filed a First Amended Complaint. RCG filed an Answer to the First Amended Complaint and a Counterclaim, together with a demand for a jury trial. In October of 2012, the Trustee withdrew numerous counts of his First Amended Complaint, rendering RCG’s demand for a jury trial moot.1

The Court conducted a trial in this adversary proceeding on September 16, 17, and 18, 2013 with respect to the following counts of the Trustee’s First Amended Complaint:

Count I (Declaratory Judgment — Validity of the Defendant’s Security Interest);

Count II (Declaratory Judgment — Defendant’s Foreclosure Sale is Void Due to Lack of Security Interest);

Count III (Declaratory Judgment — Defendant’s Foreclosure Sale is Void Due to Bad Faith);

Count IV (Violation of Mass. Gen. Laws c. 106, § 9 — 625(a));

Count V (Violation of Mass. Gen. Laws c. 93A, §§ 2 and 11);

Count IX (Preference Pursuant to 11 U.S.C. § 547(b) — Security Documents);

Count X (Preference Pursuant to 11 U.S.C. § 547(b) — Loan Payments);

Count XVII (Recovery Pursuant to 11 U.S.C. § 550); and

Count XVIII (Preservation of Avoided Transfers Pursuant to 11 U.S.C. § 551).

In addition, the Court tried the following counts set forth in RCG’s Counterclaim:

Counterclaim Count I (Declaratory Judgment — Validity of RCG’s Security Interest);

Counterclaim Count II (Accounting); and

Counterclaim Count III (Payment of Proceeds).2

Prior to the commencement of the trial, on September 9, 2013, in conjunction with their Joint Pretrial Memorandum, the parties submitted a Statement of Uncontested Facts.3 At the trial, eight witnesses testified and numerous exhibits were introduced into evidence.

The parties submitted post-trial memo-randa on October 30, 2013. On December 4, 2013, the Trustee submitted a Supplemental Brief on the limited issue of whether he was required to include a count *26under 11 U.S.C. § 544(a)(1), to which RCG did not respond.

This Court has jurisdiction over the proceeding pursuant to 28 U.S.C. § 1384(b). With the exception of Count V, the Counts and Counterclaims involve core matters pursuant to 28 U.S.C. § 157(b)(2)(B), (C), (F), (K), and (0). Count V involves claims under Mass. Gen. Laws ch. 93A which are related to the bankruptcy case. See, e.g., In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991). Accordingly, this Court is required to submit proposed findings of fact and conclusions of law to the United States District Court with respect to Count V as RCG did not consent to the entry of a final order by this Court on that count. See 28 U.S.C. § 157(c)(1). The findings of fact and conclusions of law set forth in Section II.E, with respect to Count V, and Section III.E.3.b, therefore, are proposed findings of fact and conclusions of law subject to consideration by the United States District Court pursuant to 28 U.S.C. § 157(c)(1).

The issues presented in this adversary proceeding include whether RCG established that it has a perfected security interest in Retail Installment Sales Contracts (“Installment Contracts”) in its possession in light of an authenticated Security Agreement between Inofin’s predecessor and RCG through which RCG obtained a security interest, perfected by filing, in “all of the Debtor’s rights in and to chattel paper.... and all motor vehicle installments sales contracts [sic] purchased by Debtor with the proceeds of loans from Secured Party and assigned and delivered to Secured Party.”4 Resolution of the issue requires an examination of provisions of both the Uniform Commercial Code (“UCC”), as enacted in Massachusetts, and the Bankruptcy Code. Additional issues include whether RCG’s foreclosure sale of its collateral was commercially unreasonable, and, if so, whether the Trustee sustained his burden of proof as to the measure of damages; whether the Trustee’s claims under Mass. Gen. Laws ch. 93A are viable; whether the Trustee satisfied his burden of proof under 11 U.S.C. § 547(b) with respect to his claims that RCG received preferential transfers in the form of payments and the conveyance of Installment Contracts; and whether any exceptions to avoidance under 11 U.S.C. § 547(c) apply.

II. FACTS

A. Background

On February 9, 2011, approximately 38 creditors holding claims in the stated amount of $12,927,517.75 filed an involuntary petition against Inofin under Chapter 7 of the Bankruptcy Code. The Court, on February 16, 2011, entered an order for relief, and the Trustee became the permanent trustee on April 19, 2011.

RCG filed a Motion for Relief from the Automatic Stay and Related Relief on March 9, 2011. In its Motion for Relief from the Automatic Stay, RCG sought a determination that the automatic stay did not apply to its rights with respect to its portfolio of Installment Contracts in its possession, which were assigned to it by Inofin, purportedly to secure RCG’s loans to Inofin in excess of $8 million, or, in the alternative, relief from the automatic stay pursuant to 11 U.S.C. § 362(d) to obtain the portfolio which RCG contended was its collateral and the subject of valid, prepeti*27tion foreclosure sales. RCG also sought a finding that it was entitled to possession of the portfolio, including, without limitation, all of the proceeds of the portfolio and all documents, books and records in the possession of the Trustee relating to the portfolio, by reason of two foreclosure sales conducted prior to the entry of the order for relief.

The Trustee filed an Objection to the Motion for Relief from the Automatic Stay, and the Court conducted an evidentiary hearing on May 16, 2011. The Court, on July 27, 2011, issued a Memorandum and Order denying the Motion, finding that RCG did not establish a colorable claim to relief. See In re Inofin Inc., 455 B.R. 19 (Bankr.D.Mass.2011). RCG appealed the decision; the United States Bankruptcy Appellate Panel of the First Circuit dismissed the appeal because of the absence of a final order. See Raymond C. Green, Inc. v. DeGiacomo (In re Inofin Inc.), 466 B.R. 170 (1st Cir. BAP 2012).

The parties raised a number of issues in the litigation in connection with the Motion for Relief from Stay. There are, however, a number of additional issues presented in this litigation. The Motion for Relief from the Automatic Stay was a summary proceeding at which the ultimate issue was whether RCG established a col-orable claim to the estate’s property. As the United States Court of Appeals for the First Circuit observed in Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 32 (1st Cir.1994), stay relief proceedings “do not involve a full adjudication on the merits of claims, defenses, or counterclaims, but simply a determination as to whether a creditor has a colorable claim to property of the estate.” Thus, the findings of fact and conclusions of law set forth below are more developed and different from those that informed the Court’s decision with respect to the Motion for Relief from the Automatic Stay which was preliminary in nature. Not only have the parties presented substantially more testimony and documentary evidence, the present litigation will result in final determinations of the Trustee’s claims (except as to Count V) and RCG’s counterclaims. Indeed, the findings and rulings in the decision issued with respect to the Motion for Relief from the Automatic Stay do not bind the Court now. See Grella v. Salem Five Cent Savs. Bank, 42 F.3d at 32. As will be evident from the Court’s decision, the issues posed in this proceeding regarding the extent and enforceability of RCG’s security interest and the validity of its foreclosure sales pose complex and challenging problems in commercial law.

B. The Debtor’s Business and Its Written Agreements with Dealers and RCG

Inofin was a licensed financial services company, specializing in purchasing and servicing sub-prime automobile loans. Used car dealers (“Dealers”) in Massachusetts and other states up and down the Eastern Seaboard would sell vehicles to consumers for small cash down payments. The balance of the purchase price was financed by the Dealers using Installment Contracts. Each Installment Contract set forth the buyer’s weekly payment obligations to the Dealer and also granted the Dealer a security interest in the vehicle. Pursuant to the Installment Contracts, the buyer of the automobile granted the Dealer a security interest “in the collateral and all parts or other goods put on the collateral,” as well as “all money or goods received for the collateral and all insurance premiums, service and other contracts we finance.” 5

*28The Dealers then sold and assigned the Installment Contracts to Inofin pursuant to a Seller Agreement.” Each Installment Contract, such as the one introduced as an exhibit, was signed by the Dealer as Seller and Inofin and contains the following assignment clause:

By Signing below the Dealer/Creditor accepts this Contract and Assigns it to Inofin Incorporated in accordance with the Assignment of Seller below.

Stoughton Motor Mart, Inc.

Dealership

By: L. Jack Giandomenico Title: President Date: 8/23/2008

Assignment of Dealer: For value received, Dealer hereby transfers and assigns to Inofin Incorporated (“Assign-ee”) all of its rights, title and interest in this contract and the collateral. This transfer and assignment is made pursuant to and is subject to an Agreement between the Dealer and the Assignee by which the Assignee has agreed to accept the transfer and assignment of contracts from Dealer. The Dealer understands that this contract is sold under the recourse provisions of the Agreement.

It is unclear which “Agreement” the Dealers and Inofin referenced in the Installment Contracts, as Inofin and the Dealers separately executed a “Seller Agreement” 6 and a “Partial Purchase and Assignment” (“PPA”). The Seller Agreement was an agreement between Inofin, as Buyer, and the Dealer, as Seller, and pertained to all Installment Contracts assigned by the Dealer to Inofin. The consideration for the Seller Agreement was set forth as follows:

In consideration for the purchase of the Contracts by INOFIN, Seller agrees to sell, assign, convey, transfer, and set over to INOFIN all of its right, title and interest in and to the Contracts and Contract Documents (as hereinafter defined) and all rights conferred thereunder. All Contracts, Contract Documents and assignments shall be in a manner and form acceptable to INO-FIN. The term “Contract Documents” as used herein shall mean contracts of sale, installment contracts, security agreements, UCC filings, and all other documents or instruments evidencing, securing otherwise [sic] relating to the Contracts.

Pursuant to paragraph 4.E. of the Seller Agreement, only Inofin’s name was to appear in the lienholder section of the title issued by the Registry of Motor Vehicles for each vehicle subject to an Installment Contract. Pursuant to paragraph 5, the Dealer/Seller guaranteed “full, prompt and faithful performance and observance by the obligors under such Contracts of all terms, covenants and conditions.”

Inofin and the Dealers (but not the motor vehicle buyers) also executed a PPA for each transaction, which included a VIN number and a reference to an Inofin Worksheet Number. Among other things, *29the PPA set forth Inofín’s obligation to remit to the Dealers the balance of the weekly cash payments received by Inofin from the motor vehicle purchasers after Inofin had fully recovered the monies due it under the PPA. These payments to the Dealers are commonly referred to as the “dealer reserve,” or “backend payments.”7 Specifically, in each PPA, the Dealer agreed to assign, transfer, set over and convey to Inofin all of its right, title and interest in a specific “security instrument,” to be reassigned as provided in the agreement. That reassignment provision is as follows:

TERMINATION OF ASSIGNMENT:

This assignment shall terminate at such time as Buyer [Inofin] has received the Amount Purchased required under this Agreement, together with all other additional expenses for which Buyer is entitled to reimbursement or at any prior time as the Buyer, in its discretion, may determine. Upon such termination, Buyer shall reassign to Seller all Buyer’s then remaining right, title and interest in the Security Instrument and shall execute such documents and instruments as may be necessary to effect such reassignment and terminate Buyer’s interest as a matter of record. Upon reassignment any [and] all liability of the Buyer, if any, in regard to the Security Instrument or in regard to obligations, if any owed to Seller shall cease. Seller may terminate the assignment at any time by paying to [B]uyer the amount due together with all other additional expenses for which buyer is entitled to be reimbursed. Buyer may terminate any residual interest that [S]eller may have in the security instrument, notwithstanding any term or provision to the contrary in this agreement, at any time sixty (60) days after a default has occurred on the security instrument.

MISCELLANEOUS: Seller further acknowledges that Buyer is purchasing an interest as defined in this agreement and specifically acknowledges that this is not a loan or loan type transaction. This Agreement shall inure to the benefit of and be binding upon the heirs, successors, representatives and assigns of the parties hereto. This Agreement shall not be modified except in writing signed by all parties hereto. In the event any term or provision of this Agreement is found to be unenforceable or unlawful for any reason, the remainder shall be carried into effect as though the unenforceable portion was stricken *30here from.8

(emphasis supplied). Thus, RCG, as an assignee of Inofin, as set forth in detail below, is bound by the terms of the PPA. Kenneth Shilson, CPA (“Shilson”), RCG’s expert witness, testified that the PPAs were typical documents found in subprime used car financing transactions.

RCG and Inofin, then known as First Investors Factoring, Inc., commenced their lending relationship in April of 1996. First Investors Factoring, Inc. implemented a corporate name change with the Massachusetts Secretary of State on January 15, 1997, changing its name to “Inofin Incorporated.” Inofin obtained most of its capital for purchasing Installment Contracts from a large number of private lenders, including RCG, whose principal and owner is Raymond C. Green (“Green”). Inofin and RCG maintained a business relationship for almost 15 years until Inofin’s bankruptcy.

Specifically, the parties’ relationship commenced when First Investors Factoring, Inc. accepted the terms of a Commitment Letter, dated March 21, 1996, drafted by Green and addressed to Michael J. Cumomo [sic] (“Cuomo”), the President of First Investors Factoring, Inc. (and later Inofin). Through the Commitment Letter, Green informed Cuomo that First Investors Factoring, Inc.’s application had been approved and that RCG was prepared to make it a $500,000 secured loan with a one-year term at a 17% per annum interest rate, to be disbursed at the rate of $50,000 per week, “provided that prior to each disbursement the Borrower assign the collateral described in para 8 having a principal advance of $50,000 for ten consecutive weeks.” (emphasis supplied). The Commitment Letter for the loan, which could not be prepaid in whole or in part, further provided:

Each $50,000 weekly advance shall require weekly payments commencing one week after funding. All funds advanced to the Borrower shall be wired to Borrower’s account and all funds due from Borrower shall be wired to Lender’s account. The amount of the weekly payment shall be the total of the weekly principal payments due from the individual customers plus interest calculated as set forth in 4. above....

In paragraph 8, Green defined the collateral as “First lien on customer notes, dealers’ guaranties and other collateral received by Borrower;” in paragraph ll.a.v., he further required that “All original titles must be delivered to Lender with an al-longe assigning said titles to Lender.” In addition, the Commitment Letter provided for a $125 per week audit fee up to a maximum of $500 per month, as well as a requirement that the Borrower deliver internal monthly operating statements and profit and loss statements, balance sheets, and “[statements showing the payments made by all customers assigned to Lender [sic].” The Commitment Letter contained the equivalent of an integration clause at paragraph 13.9

Following acceptance of the terms of the Commitment Letter, RCG’s attorney, Stanley Wallerstein, Esq. (“Wallerstein”), *31prepared the initial loan documents in April 1996, which included a Promissory Note, a Loan Agreement, a Security Agreement and a UCC Financing Statement. On April 18, 2006, Wallerstein caused to be filed a UCC-1 Financing Statement with the Massachusetts Secretary of State’s Office on behalf of RCG against First Investors Factoring, Inc. On April 19, 1996 Wallerstein caused to be filed a UCC-1 Financing Statement with the Clerk for the Town of Rockland on behalf of RCG against First Investors Factoring, Inc.

Wallerstein testified that he discussed with Green the mechanism by which RCG would acquire a security interest in the Installment Contracts. He indicated that “they [Inofin] would deliver possession of the Installment Contracts and then he [RCG] would advance funds against them. And then next week they would give us [RCG] more chattel paper and Ray would advance funds against the new paper.” He testified that there were never any discussions about tying or tracing the Installment Contracts that were delivered to RCG to specific loan proceeds advanced by RCG or that RCG’s security interest was limited to Installment Contracts purchased with RCG loan proceeds as provided in the Security Agreement.

Wallerstein stated:

I believed at the time that the only safe way to perfect chattel paper was by possession because otherwise we would have no way of knowing whether they might have been delivered to another creditor right before we filed. So the only way to perfect and be assured of the first security interest or priority security interest was to keep possession. We still had to check the UCC to make sure there were no blanket filings before we got them, but once we had possession we knew if the UCC record was clear that we had a first priority.

During the 15 years in which they engaged in business, RCG and Inofin executed a number of documents pertinent to the resolution of the issues before the Court. A discussion of the documents and the parties’ practices follows.

1. The Promissory Notes

The documents executed by RCG and Inofin included promissory notes in favor of RCG executed by Inofin as follows:

1) a $500,000 promissory note, dated April 17, 1996, due and payable on April 17,1997;10

*322) a $400,000 promissory note, dated April 18, 2008, due and payable on April 18, 2011;11

3) a $7 million promissory note, dated May 2, 2008, due and payable on May 2, 2010;12

4) an $8 million promissory note, dated August 21, 2009, due and payable on August 21, 2011;13

5) a $200,000 promissory note, dated January 8, 2010, due and payable on January 8, 2013.14

All but the 1996 promissory note expressly provided: “Secured by a Security Agreement dated April 17, 1996.” The most recent note dated January 8, 2010 provides: “Secured by a Security Agreement dated April 17, 1996 and by the accounts set forth on the Allonge attached hereto.”15

Additionally, the notes contained provisions relative to defaults. They provided the following:

At the option of the holder, this note shall become immediately due and payable without notice or demand upon the occurrence at any time of the following events: (1) Default in any payment of principal or interest which is not cured within seven (7) days; (2) Default, for more than 21 days after notice thereof from holder to Maker, no cure having *33been effected, in the performance or observance of the terms or conditions of the Security Agreement or other instruments and documents ... securing this note; (3) Default for more than 21 days after notice thereof from holder to Maker, no cure having been effected, in the payment or performance of any other liability or obligation of the Maker to the holder; (4) Service, pursuant to trustee process, upon the holder hereof of a writ in which the holder is named as trustee of at least $10,000 of the Maker; (5) If the Maker is a corporation, trust or partnership, the liquidation, termination or dissolution of any such organization; or (6) If the Maker shall make an assignment for the benefit of creditors, or if a receiver of all or substantially all of Maker’s property shall be appointed and not dismissed within 60 days, or if a petition in bankruptcy or other similar proceeding under any law for relief of debtors shall be filed by or against ... Maker.

The parties agreed to the existence of the five promissory notes. Wallerstein testified that the second paragraph of the 1996 promissory note regarding payments of principal and interest involved complicated drafting. He stated:

The purpose of that paragraph was to describe the maker’s obligation to make weekly payments and it was very complicated because the — while the interest part was simple, the principal part was quite complicated because it was actually based upon the performance characteristics of the collateral package that had been given to RCG prior to the advance for that week. And so you’ll see that there’s a reference in terms of — to the partial purchase and assignment, the amount purchased. There’s also reference to the installment contract in order to determine how they— how this note had to amortize based upon the way that the underlying collateral for the note amortized.

A substantial gap in time exists between the $500,000 note executed on April 17, 1996 and the $400,000 note executed on April 18, 2008. The testimony and e-mail exchanges between Green and Wallerstein, however, establish that RCG made additional loans to Inofin during those years. On April 18, 2006, Green wrote Waller-stein, stating: ‘We have fully advanced on the last $2 million note. Would you please e-mail Kevin [Kevin Mann, Inofin’s Chief Executive Officer] new documents. The new loan would have the same terms and conditions as the last one.” Wallerstein replied:

I’ve attached the New Agreement and Note. However, I checked on-line to make sure that Joan [Green’s spouse and in-house counsel to RCG] had continued the old UCC-1 Financing Statement and it has not been continued and has expired. I also discovered that Kevin has been doing similar contract fi-nancings with three other lenders since 2004 — Mike Sgarzi, Robert Downing and John Butler. I hope he has not double financed any contracts. Assuming you do a new filing now, you will be behind their loans (on the specific contracts ), as well as many vendor financ-ings on leased and financed equipment and software.

(emphasis supplied). Wallerstein, later the same day, advised Green that he had “filed your new UCC,” adding “[y]ou will be ahead of any other secured parties (unless Kevin double financed any of your installment contracts with one of the three other lenders who recorded that deal first).” Neither the Trustee nor RCG introduced evidence as to how other creditors could obtain a security interest in Installment Contracts that were in RCG’s *34possession. In addition, neither party introduced evidence as to the method or methods employed by other secured parties to obtain perfected security interests in Installment Contracts. In other words, the Court has no evidence as to the amount of secured debt held by other secured lenders.

With respect to the $400,000 loan made by RCG to Inofin on April 18, 2008, Green, on behalf of RCG, advised Wallerstein that it was a “free standing loan” and would have “nothing to do with the other loans that I have made except for the fact that it is to be collateralized in the same manner.” Wallerstein replied with a question: “The collateral under the current security agreement is the consumer paper financed with your loans. Is this adequate collateral for this loan (what is its purpose)?” After learning 1) that the purpose was to enable Inofin to make more consumer loans, 2) that Green believed the consumer paper was adequate collateral for the loan, and 3) that, if all that was needed was a note, Green was prepared to “complete the deal as soon as he [Kevin Mann] puts up the collateral,” Wallerstein replied: “I assumed you were advancing the entire amount up front. If so, there is no need for a loan agreement. The Security Agreement referenced at the end of the note still governs.” On the same day, Green e-mailed Kevin Mann (“Mann”) about the quality of the collateral, which Green referred to as “the additional titles” to secure the loan. Upon receiving the list of accounts that were to make up the collateral for the $400,000 loan, Green advised Mann that only one contract on the list that Mann sent him met the tests required, namely a 10% deposit by the motor vehicle purchaser and an amount purchased not to exceed 110% of the NADA price.

2. The Security Agreement

The Security Agreement, dated April 17, 1996, referenced in four of the promissory notes, provided in its preface the following:

First Investors Factoring, Inc., a Massachusetts corporation with a place of business at 55 Accord Park Drive, Rock-land, MA 02370 (“Debtor”), subject to the terms and conditions hereof, hereby grants a security interest to Raymond C. Green, Inc. (the “Secured Party”), in and to the following property, whether now owned or hereafter acquired:

(i) all of the Debtor’s rights in and to chattel paper, instruments and all motor vehicle installments sales contracts purchased by Debtor with the proceeds of loans from Secured Party and assigned and delivered to Secured Party;

(ii) all collateral security for and all guaranties of, and all proceeds of, any of the foregoing.

(iii) all documents, books and records relating to the foregoing.

The property described above shall hereafter be collectively referred to as the “Collateral”.

The Collateral is pledged, assigned, mortgaged and transferred, and a security interest therein is granted, to the Secured Party as security for payment of all sums due under a promissory note (the “Note”) of Debtor in the original principal amount of $500,000.00 of even date herewith and as security for any and all obligations and liabilities of Debtor to the Secured Party of every kind, direct or indirect, absolute or contingent, due or becoming due, now existing or hereinafter arising (hereinafter collectively referred to as the “Obligations”).

(emphasis supplied).

In addition to the provisions reproduced above, the Security Agreement contained *35provisions through which Inofin 1) agreed to provide RCG with the right to examine and inspect and make extracts from its books and other records and “to arrange for verification of accounts, under reasonable procedures, directly with account debtors or by other methods;” 2) irrevocably appointed RCG its “true and lawful attorney ... with full power of substitution, in the name of the Secured Party or in the name of the Debtor or otherwise, for the sole benefit of the Secured Party, but at the sole expense of the Debtor, in the event of default ...3) granted RCG the rights and remedies of a secured party under the UCC and agreed that any notification of a sale or disposition of the Collateral would be deemed reasonable “if given at least ten (10) days before the time of such public sale, or the date after which any such private sale or other intended disposition is to be made ...and 4) agreed, among other things, to waive demand and notices of any description. Ino-fin also expressly agreed to the following:

TO THE MAXIMUM EXTENT PERMITTED BY LAW DEBTOR ALSO WAIVES ANY AND ALL RIGHTS THAT IT MAY HAVE TO JUDICIAL HEARING IN ADVANCE OF THE ENFORCEMENT OF ANY OF THE SECURED PARTY’S RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION, THE SECURED PARTY’S RIGHTS FOLLOWING AN EVENT OF DEFAULT TO TAKE IMMEDIATE POSSESSION OF THE COLLATERAL AND EXERCISE ITS RIGHTS WITH RESPECT THERETO.

(capitalization in original).

Additionally, the Security Agreement provided that “[a]ll the Secured Party’s rights and remedies, whether evidenced hereby or by any other agreement, instrument or paper, shall be cumulative and may be exercised separately or concurrently.” (emphasis supplied). The Security Agreement, which was prepared by Wallerstein, was to be governed by Massachusetts law. The Security Agreement did not contain a fixed term, but provided that it was “a continuing agreement in every respect,” unless terminated by Inofin subject to certain conditions. Absent any outstanding obligations, Inofin was afforded the right to terminate the Agreement. The Security Agreement did not contain an integration clause but provided that “[a]ny condition or restriction hereinabove imposed with respect to Debtor may be waived, modified or suspended by the Secured Party but only on the Secured Party’s prior action in writing and only so expressed in such writing and not otherwise.”

8. The Financing Statements

RCG filed UCC-1 financing statements with the Secretary of State for the Commonwealth of Massachusetts, the most recent one on April 18, 2006, with respect to the following:

All the Debtor’s rights in and to chattel paper, instruments and motor vehicle installment sales contracts purchased by Debtor with the proceeds of loans from Secured Party and assigned and delivered to Secured Party. All collateral security for and all guaranties of and all proceeds of any of the foregoing. All documents, books and records relating to the foregoing.

(emphasis supplied).

4. The Loan Agreements

Inofin and RCG also executed several Loan Agreements, the first dated April 17, 1996 and subsequent ones on May 2, 2008, and August 21, 2009, relating to the $7 million and $8 million promissory notes, respectively. Wallerstein testified that the 1996 Loan Agreement was the first docu*36ment he drafted and its purpose generally was to establish a “road map for the entire loan.” He also stated that “it would lay out the terms of the loan and the advances of the loan, the repayments of the loan, the security for the loan, [and] description of the collateral,” adding: “It would have representations and warranties of the borrower. It would have default provisions and it would have generally other boilerplate.”

The Loan Agreements are identical except for their dates, the loan amounts set forth in the agreements and the weekly advances contemplated by the parties. The May 2, 2008 Loan Agreement provided that advances under the $7 million note were to be made once per week in the amount of not less than $50,000 or more than $150,000, while the August 21, 2009 Loan Agreement provided that advances under the $8 million note were to be made once per week in an amount of not less than $50,000 or more than $170,000.

The Loan Agreements in paragraph 1(a) provided:

[A]dvanees hereunder shall be used by Borrower solely for the purpose of funding the purchase, from car dealers (“Sellers”), ... of “Installment Contracts” ... Advances hereunder shall be used by Borrower solely for the purpose of funding the purchase from car dealers (“Sellers”) ... Each such advance is secured by the collateral described in Section 2 hereof. Prior to each advance, Borrower shall deliver to Lender a schedule confirming that the income stream from the “Buyer’s” ... principal payments under each Installment Contract will fully amortize the principal amount advanced by Lender with respect to such Installment Contract prior to the maturity date of the Note.

As set forth above, each advance was to be secured by the collateral described in Section 2 of the Agreement, which provided:

In consideration of, and to evidence and secure the Loan, Borrower has executed and delivered, or will execute and deliver prior to the first weekly advance, the following loan documents:

(a) This Agreement.

(b) The Note.

(c) Security Agreement, which was executed on April 17,1996.

(d) UCC-1 Financing Statements filed with Massachusetts Secretary of State ... and Rockland Town Clerk ... as continued, [sic]

and prior to or simultaneously with each advance the following:

(e) The Security Documents, as follows:

(i) Original Retail Installment Sale Agreements (the “Installment Contracts” or singularly, an “Installment Contract”), in the form of Exhibit 1 attached hereto with the original signature of the Buyer. The “Buyer” as described therein shall have made a down payment of not less than ten (10%) percent of the sale price of the vehicle described therein (the “Vehicle”) and each transaction shall have Vendor’s Single Interest Insurance (“VSI Coverage”) and extended warranty coverage (if available), as described therein. Each Installment Contract shall be assigned by the “Seller” as defined therein to the Borrower, utilizing the “Recourse assignment” set forth on the reverse side thereof.

(ii) Borrower’s Original Partial Purchase And Assignment (the “Assignment”) in the form of Exhibit 2 attached hereto. The “Amount Purchased” as set forth therein *37shall not exceed one hundred ten (110%) percent of the wholesale price of the Vehicle as listed in the most current NADA Price Book plus the premium for VSI Coverage and extended warranty coverage (if purchased). Lender shall not be obligated to make any one of the advances described in Section 1(a) hereof unless (i) Borrower is then assigning, to Lender, or Lender already has an Assignment in which the aggregate “amount purchased” equals or exceeds the amount of such advance.

(iii) Application for Title (the “Application”) in the form of Exhibit 3 attached hereto or such form as is currently approved by the Registry of Motor Vehicles. Each such Application shall be completely filled in, including the insurance certification and shall list the Borrower as the first lien holder.

(iv) Allonge (the “Allonge”) from Borrower to Lender in the form of Exhibit 4 attached hereto executed by the Borrower.

All of the documents in this Section 2 are called the “Loan Documents” and those in clauses (c), (d) and (e) are called the Security Documents.16

(emphasis supplied). In Section 9(c) of the Loan Agreements, the parties agreed that “[n]o modification or waiver of any provisions of the Loan Documents shall be effective unless signed in writing by all parties thereto.” (emphasis supplied). Because the Security Agreement executed on April 17, 1996 is defined as both a Security Document and a Loan Document, none of its provisions could be modified or waived, unless “signed in writing by all parties thereto.”

The Commitment Letter provided that “prior to each disbursement the Borrower assign the collateral,” whereas in the 2008 and 2009 Loan Agreements, the language was changed to “prior to or simultaneously with each advance.” In addition, in the Commitment Letter, “original titles” were to be delivered via the allonges, whereas in the Loan Agreements the allonges referenced specific Installment Contracts, original PPAs and a VTN number.

Throughout their relationship, each Installment Contract delivered to RCG included an attached Allonge which provided as follows:

In consideration of One Dollar ($1.00) and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Inofin, Inc. [sic] hereby assigns, with full recourse, to Raymond C. Green, Inc., all of its right, title and interest in, to and under the following instruments:

Retail Installment Sale Agreement dated ...

by and between Seller ... and Buyer: ...

with respect to (the “Vehicle”) a: ... VIN: ...

Inofin, Inc. [sic] Partial Purchase and Assignment dated ..., by and between Inofin, Inc. and Raymond C. Green, Inc. with respect to the aforesaid Retail Installment Agreement and Vehicle,

(emphasis supplied). As set forth above, the PPAs were executed by the Dealers as Sellers and Inofin as Buyer. RCG was not a party to the PPAs, which had the effect of limiting its rights with respect to the total amounts due under the Installment *38Contracts between the Dealers and consumers which were assigned to RCG by Inofin.

Wallerstein testified that the PPAs were documents “that we needed to have because the formula in the commitment letter for determining the loan-to-value ratio was dependent upon what was called the amount purchased that was set forth in the partial purchase assignment agreements],”17 adding that “both the installment sale contract and the partial purchase assignment had an absolute assignment of the security interest in the vehicle, so that wasn’t something that we [RCG] needed to perfect.” Wallerstein also testified that “each allonge was intended to be a security agreement that conveyed a security interest in the particular contract [Installment Contract] to which it was attached.”

Wallerstein further testified that the Seller Agreement, discussed above, was not chattel paper and RCG could not perfect a security interest by possession. He also stated that the Security Agreement had two purposes:

[0]ne was to perfect by filing those elements of RCG’s collateral that could only be perfected by filing [a UCC-1 financing statement]; and the second was an attempt to broaden the scope of RCG’s security interest from contracts that we had by possession to also include contracts that we advanced funds against, but hadn’t necessarily been delivered or fully delivered including the title at a time that Inofin might default in the future.

In other words, according to Wallerstein, the purpose of the UCC-1 Financing Statement was to perfect a security interest in the Seller Agreements. With respect to the second purpose, he explained:

What I was concerned about was a situation. And essentially the last week or two where RCG would have gotten a collateral delivery and we would have given Inofin money, and then between the time they went and spent that money to buy contracts and the time that they delivered contracts to us, they might go under. And I felt that RCG should be entitled to what I considered to be a purchase money security interest in those contracts. I was particularly worried since I knew from my own experience as a Massachusetts resident that it could take four, five, six weeks to get a title out of the Registry of Motor Vehicles. I was concerned that someone might make an argument that we were unperfected in that period because we didn’t have the original title, so I thought I would expand it to make it clear that if we had financed the acquisition of a contract that we were claiming a security interest in that contract, even if we didn’t have full possession.

Wallerstein testified that he viewed “perfection by possession under 9-313 of the Code [UCC] as our principal means of getting a security interest and getting it perfected.” He added: “I had to modify the grant in the collateral we had perfected by filing, that is, the guaranties [the Seller Agreements] in [sic] the books and records because I couldn’t take blanket ones otherwise another lender couldn’t finance contracts without coming to RCG for release.” He emphasized that he “wasn’t concerned so much except with respect to the title with respect to a gap and what I had by possession. I was looking to expand it to get to contracts *39that we didn’t have possession on, we hadn’t lent against, but we had advanced funds.” He added: “So I thought it was very fair that, you know, if they gave us $50,000 of contracts and we gave them $50,000 and they went out and the next day or ten days later or whatever, they went under that any proceeds that came in from the contracts that were bought with Ray’s money but we didn’t have a new collateral delivery on, I wanted to be able to claim it.” Finally, he stated:

So I thought I was making it quite clear in this agreement to other creditors as to how they might make loans, but never ever, ever did it ever cross my mind that a security agreement under — and filing under 9-312 in any way invalidated or limited a security interest by possession under 9-313. It just never crossed my mind until I saw the Trustee’s objection.18

On cross-examination, Wallerstein admitted that there would have been no need for the extensive rights granted to RCG to monitor its loans with Inofin, to act as Inofin’s attorney, as well as upon default, if it was only utilizing the Security Agreement to take a security interest in the dealer guaranties set forth in the Seller Agreements. In addition, he admitted to advising RCG, upon learning that its UCC-1 had lapsed, that if it had received collateral packages with Installment Contracts that had been identified by other secured parties on UCC-ls filed after RCG’s UCC-1 had lapsed that it would be in second place with respect to those Installment Contracts delivered to it, explaining that “it was a question of the timing. If we had possession before they filed we would be in first place. If they had filed before we had possession, they would be in first place.”19 He also admitted that, because of the lapse in the UCC-1 Financing Statement, RCG would have to check UCC filings each week in order to verify that the Installment Contracts in its possession were not listed on another lender’s UCC filing if it were only perfected by possession because the loans in its portfolio could not be traced to RCG’s loan proceeds. He stated: “They should have done that.” On cross-examination, he also agreed that a segregated account at Inofin through which RCG could have traced its proceeds based on its security agreement would have obviated any risk of “double hawking” Installment Contracts.

Wallerstein testified that he did not include an integration clause in any loan documents he prepared because “they’re all supposed to work together supplementing, explaining, giving different rights, cumulative rights to each other....” Nevertheless, the Loan Agreements provided that the Loan Documents, including the Security Agreement, could not be modified or waived unless signed in writing by all parties.

C. The Parties’ Business Dealings

The parties agreed to an exhibit detailing how allonge packets were processed *40for RCG, captioned, “Processing Allonge packets for Ray Green.” The document sets forth the following procedure:

The packets need to be sent via FedEx each Friday, so this process is usually started by Wednesday of that week in order to ensure that all parts can be completed by Friday morning.

Grab stack of allonge packets from File Room (these are the loans from independent dealers), also grab a few (5 or less) of allonge packets from the Drive stores. Sign onto Intrack >Tools> Allonges > Enter loan account# > “LOAD ACCOUNT” Change date to Friday’s Date. If Friday is a holiday, use Thursday’s date.