Beeler

This is a bankruptcy case turning on lien priorities.

Facts

International Factors, Inc., in whose shoes Harrison Jewell now stands, financed Fleet Manufacturing. Fleet was a corporation. Kevin and Maryann Stanton, husband and wife, owned all the shares. International Factors took a security interest in Fleet’s property in 1994, with several continuing financing arrangements. That same year, the Stantons personally guaranteed Fleet’s obligations to International Factors.

Fleet got a big order from K-Mart, and needed more financing than in the past to make what K-Mart had ordered. As a condition of increasing its advances to Fleet Manufacturing, International Fae-tors obtained a second mortgage on the Stantons’ house. Later that year, the Stantons (but not Fleet) went bankrupt and filed a September 30, 1994 petition for Chapter 11 bankruptcy. International Factors continued to advance funds to Fleet on the pre-existing lien on the Stan-tons’ house.

On May 11, 1996, the bankruptcy proceeding was converted to Chapter 7. The bankruptcy trustee sold the Stantons’ house, and International Factors sought to attach the proceeds of the sale, based on the lien created by its deed of…

dissenting:

I would reverse the decision of the Bankruptcy Appellate Panel (“BAP”) and reinstate the bankruptcy court’s order granting summary judgment to the trustee. The majority errs by misinterpreting Washington hen law and then misapplying federal bankruptcy law based on its erroneous interpretation of Washington law. Based on my view of applicable law, I regret I cannot join my colleagues, and instead I respectfully dissent from the majority’s opinion.

I

Kevin and Maryann Stanton (“debtors”) owned all the shares of a business called Fleet Manufacturing (“Fleet”), which was organized as a closely held corporation. To finance Fleet, debtors and Fleet 1 entered several agreements with International Factors, Inc. (“creditor”), including a Recourse Factoring, Short-Term Financing, & Security Agreement (“Factoring Agreement”), a Continuing Guaranty and Waiver (“Guaranty”), and a Deed of Trust and Security Agreement (“Deed of Trust”). The Factoring Agreement provides that creditor will buy Fleet’s accounts receivable at a discount, as requested by Fleet, subject to creditor’s deeming the accounts acceptable in its sole discretion. The Factoring Agreement was signed on April 22,…