In re Howards Appliance Corp.
| Decision Date | 23 September 1988 |
| Docket Number | No. CV 87-0854.,CV 87-0854. |
| Citation | 91 BR 204 |
| Parties | In re HOWARDS APPLIANCE CORP. |
| Court | U.S. District Court — Eastern District of New York |
Philip Irwin Aaron, P.C. by Philip Irwin Aaron, Jericho, N.Y., for debtor.
Kane, Kessler, Proujansky, Pries & Nurnberg, P.C. by Jeffrey A. Oppenheim, New York City, for creditor Sanyo Elec., Inc.
Herzfeld & Rubin, P.C. by Leonard M. Polisar, New York City, for Unsecured Creditors' Committee.
On August 6, 1986, Appellant/Debtor Howards Appliance Corporation ("Howards") filed a voluntary Chapter 11 petition with the United States Bankruptcy Court for the Eastern District of New York. On August 14, 1986, Appellee/Creditor Sanyo Electric Co., Inc. ("Sanyo") moved for relief from the automatic stay to enable it to foreclose on certain of Howards' inventory in which Sanyo alleged a security interest. Sanyo alleged that it had a valid and perfected security interest in all Sanyo air conditioners located in New York and New Jersey. The Bankruptcy Court (Holland, J.) granted Sanyo's motion. This appeal followed. For the reasons set forth below, the decision of the Bankruptcy Court is affirmed in part, reversed in part, and remanded.
The pertinent facts of the case are as follows. Howards began operating an appliance store in Nassau County in 1973. On March 12, 1984, Howards entered into a security agreement with Sanyo, giving Sanyo a security interest in all Sanyo air conditioners in Howards' possession or thereafter acquired from Sanyo. The security agreement also stated that "the collateral will be kept at the debtor's place of business located at the address as shown at the beginning of this agreement, and that there are no other places of business of debtor." (emphasis added). To perfect its security interest, Sanyo filed financing statements with the Nassau County Clerk and the New York Secretary of State on March 30, 1984.
In April 1984, Howards opened a second store located in Suffolk County, and in November 1985, Howards opened a third store, also located in Suffolk County. Sanyo never filed any financing statements with the Suffolk County Clerk. In March 1986, Howards sold the Nassau County store, and thereafter operated stores exclusively in Suffolk County. Howards permitted the new owners of its former Nassau store to continue to use the Howards trade name and continued to advertise the Nassau County location along with the Suffolk County locations in newspaper ads. Although no written notice of the sale of the Nassau location was sent to Sanyo, Sanyo's sales representative informally learned of the sale in April or March 1986 and communicated this knowledge to the credit department for the purpose of exploring the possibility of extending credit to the new owners of the Nassau County location.
In the early part of 1986, Howards began storing Sanyo air conditioners in a warehouse in New Jersey. Sanyo never received written notification of the New Jersey storage and never filed financing statements in New Jersey. However, Sanyo's shipping department learned of the new destination of the air conditioners through the common carrier and appropriately adjusted the bills of lading to reflect the change. Since the filing of the voluntary Chapter 11 petition, Howards has continued to manage the Suffolk County stores as a debtor in possession.
With respect to the New York air conditioners, the Bankruptcy Court held that a financing statement filed with the Suffolk County Clerk was not needed to perfect Sanyo's security interest. The Court held that the financing statements filed with the Nassau County Clerk and the New York Secretary of State were sufficient to perfect air conditioners located in Suffolk County. The Bankruptcy Court, however, was only partially correct.
Under the Uniform Commercial Code, when the debtor has a place of business in more than one county, a financing statement need only be filed with the New York Secretary of State to satisfy the place of filing requirement for perfection of a security interest. N.Y.U.C.C.Law § 9-401(1)(c) (McKinney Supp.1988). Section 9-401(3) of the Uniform Commercial Code provides that, "a filing which is made in the proper place in this state continues effective even though the debtor's residence or place of business or the location of the collateral or its use, whichever controlled the original filing, is thereafter changed." N.Y.U.C.C.Law § 9-401(3) (McKinney Supp.1988). The Second Circuit, citing § 9-401(3), has held that, "a security interest, once perfected by filing, remains effective regardless of the number of times or places the debtor or the collateral moves." In re Knapp, 575 F.2d 341, 343 (2d Cir.1978).
Therefore, with respect to any air conditioners originally located in Nassau County and subsequently moved to Suffolk County, or any air conditioners shipped to Suffolk County while Howards operated stores in both Suffolk and Nassau Counties, the Bankruptcy Court is correct. Sanyo's security interest in these air conditioners was properly perfected by a filing with the New York Secretary of State, and it remained perfected even though Howards' place of business changed.
With respect to any air conditioners shipped to Suffolk County after the closing of Howards' Nassau County store, however, the Bankruptcy Court erred. The Second Circuit, in Knapp, held that the proper place for filing the financing statement is determined at the time the security interest attaches to the collateral. Id. at 344. Property, such as inventory, obtained subsequent to, but contemplated by the security agreement, is called after-acquired property. The air conditioners that were shipped to the Suffolk County stores after the closing of the Nassau County store were obtained by Howards after it entered into the agreement with Sanyo, and thus are considered after-acquired property.
Under New York Law, a security interest in after-acquired property cannot attach until the debtor has acquired the collateral. Marine Midland Bank-Eastern Nat'l Ass'n v. Conerty Pontiac-Buick, Inc., 77 Misc.2d 311, 317, 352 N.Y.S.2d 953, 961 (Sup.Ct. Albany County 1974). Therefore, Sanyo's security interest in these after-acquired air conditioners attached when they were received by Howards, and it is the location of Howard's business at that time that determines where Sanyo was required to file its security interest.
Section 9-401(1)(c) provides that if a debtor has a place of business in only one county of the state, financing statements must be filed with the New York Secretary of State and the County Clerk. N.Y.U.C. C.Law § 9-401(1)(c) (McKinney Supp.1988). Therefore, with respect to the air conditioners which Howards received when operating exclusively in Suffolk County, Sanyo has not complied with the steps necessary to perfect its security interest, since it never filed a financing statement with the Suffolk County Clerk. Sanyo claims, however, that Howards should be estopped from denying its presence in Nassau County since it held itself out as maintaining a Nassau location by allowing the new owners to continue using its name, by joint advertising, and through the clause in the security agreement that there are no other places of business.
Sanyo's argument is unpersuasive for two reasons. First, Sanyo cannot properly claim to have relied on Howards' allegedly misleading conduct with respect to continued ownership of the Nassau store in question, since both Sanyo's sales and credit departments had actual knowledge that the Nassau County location had been sold. Sanyo cannot assert estoppel without proving its own reliance on the alleged misleading conduct. See Wiser v. Lawler, 189 U.S. 260, 23 S.Ct. 624, 47 L.Ed. 802 (1903); 28 Am.Jur.2d Estoppel and Waiver § 80 (1966); 57 N.Y.Jur.2d Estoppel, Ratification, and Waiver § 56 (1986). Second, as discussed further below, with respect to the air conditioners stored in New Jersey, the Bankruptcy Code itself removes the possibility of asserting equitable estoppel against Howards by raising the status of a debtor-in-possession to that of a hypothetical lien creditor. 11 U.S.C. § 544(a); see In re Brent Explorations, Inc., 31 B.R. 745, 748-49 (Bankr.D.Col.1983).
Accordingly, with respect to the New York air conditioners, the case is remanded to the Bankruptcy Court for factual determinations as to which air conditioners were either brought to the Suffolk County stores from the Nassau County store, or shipped to the Suffolk County stores before the Nassau County store closed. Sanyo has a perfected security interest in these air conditioners. Sanyo does not have a perfected security interest in any air conditioners that the Bankruptcy Court determines were shipped to the Suffolk County stores after Howards closed its Nassau County store.
Howards argued in the Court below that because Sanyo never filed a financing statement in New Jersey, it does not have a perfected security interest in the air conditioners located in that state. The Bankruptcy Court held that the doctrine of equitable estoppel applies to prevent Howards from claiming that Sanyo's security interest in the New Jersey air conditioners was not perfected since Sanyo had no imputable knowledge that the goods in fact were being stored in New Jersey.
The Bankruptcy Court relied upon several cases which applied the doctrine of estoppel in bankruptcy proceedings. In Bank of Marin v. England, 385 U.S. 99, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), the Supreme Court held that, "there is an overriding consideration that equitable principles govern the exercise of bankruptcy jurisdiction." Id. at 103, 87 S.Ct. at 277. In addition, some courts have applied the doctrine of estoppel to prevent a debtor from denying that a security interest was perfected. See, e.g., In re Rule, 38 B.R. 37, 40-41 (Bankr.D.Vt.1983). Other courts have applied the...
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Rivercity Realty Corp. v. Cohen, 2010 NY Slip Op 30236(U) (N.Y. Sup. Ct. 2/3/2010)
...result. Both Marine Midland Bank v. Conerty Pontiac-Buick, Inc. (77 Misc2d 311 [NY Sup Ct 1974]) and In re: Howard Appliance Core. (91 BR 204 [EDNY 1988] rev'd in part 874 F2d 88 [2nd Cir. 1989]) hold that a security interest in after acquired property cannot attach until the debtor has the......