In re Hurt Enterprises, Inc., 69-BK-175-H.

• Decision Date: 28 January 1971
• Docket Number: No. 69-BK-175-H.,69-BK-175-H.
• Citation: 321 F. Supp. 1307
• Court: U.S. District Court — Western District of Virginia
• Parties: In the Matter of HURT ENTERPRISES, INC., Bankrupt.

321 F. Supp. 1307

In the Matter of HURT ENTERPRISES, INC., Bankrupt.

No. 69-BK-175-H.

United States District Court, W. D. Virginia, Harrisonburg Division.

January 28, 1971.

Felix E. Edmunds, Edmunds, Freed & Cooley, Carter Allen, Allen & Dalton, Waynesboro, Va., for First & Merchants National Bank.

Charles E. Kelly, Staunton, Va., Trustee for Hurt Enterprises.

Colin J. S. Thomas, Jr., B. C. Goodloe, Staunton, Va., for HHK Property.

Anthony J. Baroody, Staunton, Va., for petitioner.

D. Allen Penick, Lexington, Va., P. Donald Moses, Staunton, Va., for Henry E. Osborne.

Benham M. Black, Staunton, Va., for Richard J. Heinrick, trading as Dick's Disposal and for Richard D. Miller, trading as Richard's Modern Welding.

OPINION

WIDENER, District Judge.

This is a petition for review of an order of the Referee in Bankruptcy disallowing the claim of First and Merchants National Bank, petitioner, as a secured creditor.

In 1966, Granny Mustard Corporation, under an existing security agreement with petitioner Bank, gave the latter a chattel mortgage covering certain restaurant equipment, none of which was a fixture. Messrs. Mustard and Johnson and their wives were individual endorsers on the obligation secured by the mortgage. Financing statements reflecting this transaction and showing that the equipment was or was to be located at 816 Greenville Avenue in Staunton, Virginia were filed with the State Corporation Commission on February 28, 1966, and with the office of the Clerk of the Circuit Court of the City of Staunton on March 3, 1966.

In 1968, Granny Mustard Corporation sold the aforementioned equipment to Hurt Enterprises, Inc., who thereafter operated restaurants at 816 and 816½ Greenville Avenue, Staunton. Hurt Enterprises also acquired from Granny Mustard a restaurant located in Waynesboro, Virginia. This facility was closed, however, shortly after its transfer. Subsequent to May, 1968, and at all times relevant to this proceeding, Hurt Enterprises' only place of business was in Staunton. The Bank's ledger sheet showed that the indebtedness of Granny Mustard Corporation was transferred to Hurt Enterprises on April 24, 1968. Thereafter, on September 26, 1968, the equipment was refinanced and a note payable to Bank was executed. The note form, containing a "collateral agreement" provision, indicates that Messrs. Mustard, Arehart, Hurt and two other individuals were makers of the note, and that Hurt Enterprises signed the "collateral agreement" provision, and endorsed for a deficiency. The referee found, and it is not disputed, that the note was made by Hurt Enterprises and endorsed by Mustard and Arehart individually. On October 2, 1968, a financing statement was filed in the Office of the Clerk of the Circuit Court of Augusta County, Virginia, which showed Bank as the secured party and Hurt Enterprises as the debtor, and which listed as collateral "All restaurant equipment located at Granny's Coach House Restaurant, located at 816½ Greenville Avenue, Staunton, Virginia." A similar financing statement was filed with the State Corporation Commission on May 26, 1969.

On May 22, 1969, Hurt Enterprises executed a note payable to petitioner in the amount of $11,400.00, apparently the balance then owed by Hurt Enterprises. This note, endorsed individually by Messrs. Mustard, Arehart, Hurt, and their wives, also contained a "collateral agreement" provision indicating the deposit as collateral of the above-mentioned "financing statement on restaurant equipment" filed with the Clerk of the Circuit Court of Augusta County.

Hurt Enterprises was adjudged a bankrupt on its petition filed December 11, 1969. First and Merchants National Bank filed its claim as a secured creditor on January 15, 1970. The referee held a hearing on the claim and found, inter alia, that the obligation owed petitioner by Granny Mustard Corporation had been satisfied, not assumed by Hurt Enterprises. By an order of April 16, 1970, the referee ruled that petitioner's claim be allowed as a general unsecured claim, on the ground that petitioner had failed to comply with the local-filing requirement of the Uniform Commercial Code, as adopted in Virginia. Va.Code § 8.9-401(1) (c) (1965 added vol.). Under this provision, the referee held a financing statement reflecting a security agreement between the bankrupt and petitioner was required to be filed with the Clerk of the Circuit Court of the City of Staunton, where the bankrupt had its place of business. The referee found that no such filing was made. The present petition followed.

Section 8.9-401 of the Code provides, in material part:

"(1) The proper place to file a financing statement in order to perfect a security interest is * * *:

* * * (c) * * * in the office of the State Corporation Commission and in addition, if the debtor has a place of business in only one county or city of this State, also in the office of the clerk of the court in which deeds are admitted to record of such county or city, * * *"

As noted, a financing statement listing the bankrupt as debtor was filed with the State Corporation Commission on May 26, 1969. Since...