In re Abell, Bankruptcy No. 86-00721-BRC-EAS.

• Decision Date: 26 September 1986
• Docket Number: Bankruptcy No. 86-00721-BRC-EAS.
• Citation: 66 BR 375
• Parties: In re David F. ABELL and Donna F. Abell, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Mississippi

66 B.R. 375 (1986)

In re David F. ABELL and Donna F. Abell, Debtors.

Bankruptcy No. 86-00721-BRC-EAS.

United States Bankruptcy Court, N.D. Mississippi.

September 26, 1986.

Omar D. Craig, Oxford, Miss., for David and Donna Abell.

Michael Gratz, Tupelo, Miss., for First Citizens Nat. Bank.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

On consideration of the motion seeking relief from the automatic stay filed by First Citizens National Bank of Tupelo, Mississippi, hereinafter referred to as First Citizens or Bank; no responsive pleading having been filed by the debtors, David F. Abell and Donna F. Abell, d/b/a Dave's Camera Shop; on objection to the motion seeking relief from the automatic stay, as well as, a counterclaim seeking to void the lien of First Citizens, filed by the Trustee, Jacob C. Pongetti; both First Citizens and the Trustee being represented before the Court; the parties having agreed to a stipulation of facts, including the introduction of documentary evidence; and the Court having considered same, hereby finds as follows, to-wit:

I.

This Court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157, in addition to the general orders of reference executed by the United States District Court for the Northern District of Mississippi, dated July 27, 1984, and August 6, 1984. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(B), (C), (G), (K), and (O).

II.

STATEMENT OF FACTS

The debtor, David F. Abell, d/b/a Dave's Camera Shop, along with his wife, Donna F. Abell, executed a promissory note in favor of First Citizens National Bank on October 24, 1980, in the original principal sum of $100,000.00. As collateral for this note, First Citizens took a security interest in those items of personal property listed on Exhibits A and B, appended to the motion filed seeking relief from the automatic stay, consisting primarily of office equipment, fixtures, furniture, and photography equipment. First Citizens perfected its lien on this personal property by the filing of a Uniform Commercial Code financing statement with the office of the Chancery Clerk of Lee County, Mississippi, and the Mississippi Secretary of State, in compliance with state law, on November 9, 1980. A copy of the financing statement was appended as Exhibit B to the motion seeking relief from the automatic stay.

As additional security for the $100,000.00 loan, First Citizens obtained a deed of trust encumbering real property owned by the debtors. A copy of the deed of trust was appended as Exhibit C to the motion seeking relief from the automatic stay. The validity of this deed of trust and the resulting lien are not addressed by the trustee's objection and counterclaim, and as such, are not considered in this opinion.

Additionally, the debtors executed an amortized note in favor of First Citizens, dated July 20, 1985, in the principal amount of $21,360.86, bearing interest at the rate of 11.5% per annum, and having a final maturity of July 20, 1986. A copy of this note was appended as Exhibit F to the motion seeking relief from the automatic stay. This amortized note was apparently the renewal of an earlier promissory note executed by the debtors in favor of First Citizens on or about July 12, 1984, in the principal sum of $25,000.00. The earlier note was secured by a deed of trust, dated July 12, 1984, encumbering additional real property owned by the debtors, and reflected the principal amount of the indebtedness as $25,000.00. A copy of this deed of trust was appended as Exhibit D to the motion seeking relief from the automatic stay. The trustee has likewise voiced no objection to the validity of this lien or the deed of trust, encumbering the real property described therein. Consequently, the motion seeking relief from the automatic stay, insofar as it pertains to the debtors' real property, encumbered by the aforementioned two deeds of trust, i.e., Exhibits C and D to the motion, is well taken and will be sustained. The discussion concerning the personal property owned by the debtors will continue.

The financing statement, filed on November 9, 1980, applicable to the aforementioned furniture, fixtures, equipment, etc., remained in effect for a period of five years. Prior to the expiration of this five year period, no continuation statement was filed by First Citizens. However, on May 9, 1986, First Citizens filed a second financing statement with the office of the Chancery Clerk of Lee County, Mississippi, and the Mississippi Secretary of State, but without the debtors' signatures. (Note: There is a distinct difference between the filing of a financing statement and the filing of a continuation statement under the circumstances existing in this case, which will be discussed more fully hereinbelow.) On May 14, 1986, the debtors filed their voluntary petition for relief under Chapter 7 of the Bankruptcy Code.

The trustee's objection to the motion seeking relief from the automatic stay is based on the premise that First Citizens' lien is void as to the trustee since the initial financing statement expired after the passage of five years, and that the subsequent filing of the second financing statement, without the signature of the debtors, is insufficient to revive the perfection of First Citizens' security interest.

III.

DISCUSSION OF THE ISSUES

The central issue in the case is whether a financing statement which has lapsed or expired can be revived through the filing of a second financing statement which does not contain the debtors' signatures. A collateral issue is whether the security interest continues during the period of time between the expiration of the first financing statement and the time of the refiling of the second financing statement so that the second filing is not a preferential transfer, voidable by the trustee pursuant to 11 U.S.C. § 547(b). Another collateral issue, not covered by this opinion for reasons which will become obvious, is whether the second filing could be considered as a fraudulent involuntary transfer as contemplated under the provisions of 11 U.S.C. § 548(a)(2)(A) and (B).

The first part of this discussion is based on the proposition that the perfection of a security interest lapses at the end of five years from the date of the filing of the initial financing statement unless a continuation statement is filed. See Matter of Bufkin Brothers, Inc., 757 F.2d 1573, 1576 (5th Cir.1985) (applying Mississippi law).

Normally, the question presented in a case such as that now before the Court would be a simple one calling for a discussion of the Uniform Commercial Code filing requirements under state law and the implementation of these requirements mechanically. However, the Mississippi Legislature has enacted two statutes, regarding the continued perfection of a security interest created under the Uniform Commercial Code, which may seem at first impression to be somewhat conflicting. These two sections, set forth hereinbelow, provide how and when a secured party may continue perfection of a security interest both prior and subsequent to a lapse of perfection, resulting from the expiration of the five year effectiveness period. Miss. Code Ann. § 75-9-402(2)(c) (1972) (effective April 1, 1978) states, in pertinent part, as follows:

(2) A financing statement which otherwise complies with subsection (1) is sufficient when it is signed by the secured party instead of the debtor if it is filed to perfect a security interest in:

. . . .

(c) collateral as to which the filing has lapsed; . . .

emphasis added

Thus, it is obviously contemplated that a financing statement may be filed without the debtors' signatures, once a previously filed financing statement, signed by the debtors, has lapsed. This conclusion is further substantiated by the UCC-1 financing statement form itself which currently contains language to the effect that, "this statement is filed without the debtor's signature to perfect a security interest in collateral as to which the original filing has lapsed."

On the other hand, Miss.Code Ann. § 75-9-403(2) and (3) (effective July 1, 1985) state:

(2) Except as provided in subsection (6), a filed financing statement is effective for a period of five (5) years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the five (5) year period unless a continuation statement is filed prior to the lapse. If a security interest perfected by filing exists at the time insolvency proceedings are commenced by or against the debtor, the security interest remains perfected until termination of the insolvency proceedings and thereafter for a period of sixty (60) days or until expiration of the five (5) year period, whichever occurs later. Upon lapse, the security interest becomes unperfected unless it is perfected without filing. If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse.

(3) A continuation statement may be filed by the secured party within six (6) months prior to the expiration of the five (5) year period specified in subsection (2). Any such continuation statement must be signed by the secured party, identify the original statement by file number, and state that the original statement is still effective. . . . Upon timely filing of the continuation statement, the effectiveness of the original statement is continued for five (5) years after the last date to which the filing was effective, whereupon it lapses in the same manner as provided in subsection (2) unless another continuation statement is filed prior to such lapse. emphasis added

Thus, Miss.Code Ann. § 75-9-403 (1972) requires the filing of a continuation statement, prior to the lapse of the financing statement, which includes a statement that the original financing statement is...