In re Stofko

• Decision Date: 23 December 1981
• Docket Number: Adv. No. 81-0086.,Bankruptcy No. 80-1585
• Citation: 17 BR 115
• Parties: In re Andrew L. STOFKO, Jr. and Catherine P. Stofko i/a/t/d/b/a West End Electric Supply, Debtors. WESTINGHOUSE CREDIT CORPORATION, Plaintiff, v. Stephen L. DUGAS, Trustee and Andrew L. Stofko, Jr. and Catherine P. Stofko i/a/t/d/b/a West End Electric Supply, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

17 B.R. 115 (1981)

In re Andrew L. STOFKO, Jr. and Catherine P. Stofko i/a/t/d/b/a West End Electric Supply, Debtors WESTINGHOUSE CREDIT CORPORATION, Plaintiff, v. Stephen L. DUGAS, Trustee and Andrew L. Stofko, Jr. and Catherine P. Stofko i/a/t/d/b/a West End Electric Supply, Defendants.

Bankruptcy No. 80-1585, Adv. No. 81-0086.

United States Bankruptcy Court, W.D. Pennsylvania.

December 23, 1981.

Christopher A. Beck, Pittsburgh, Pa., for debtors/defendants.

Donald R. Calaiaro, Pittsburgh, Pa., trustee.

David Abrams, Monroeville, Pa., for plaintiff.

MEMORANDUM OPINION

JOSEPH L. COSETTI, Bankruptcy Judge.

This case was commenced by the filing of a Petition by the Debtors under Chapter 13 of the Bankruptcy Code on October 1, 1980. This adversary action comes before the Court on a Complaint by Westinghouse Credit Corporation (hereinafter "Westinghouse" or the "Plaintiff") asking for relief from the automatic stay under Section 362 of the Bankruptcy Code so that it could foreclose on collateral in which it claims to have a security interest. An Answer was filed by the Debtors alleging that while Westinghouse did have a security interest in some of the Debtors' collateral, that had been repossessed in July of 1980. Further, the Debtors answered that Westinghouse had failed to perfect a security interest in any collateral that remained in the Debtors' possession. The Trustee did not file an Answer.

The basis of the Debtors' claim that Westinghouse failed to perfect its security interest is that Westinghouse's financing statement does not contain a description of the disputed collateral. Westinghouse and the Debtors entered into a security agreement (UCC Security Agreement—Inventory) which describes the disputed collateral at paragraph 4. The disputed collateral is "all of the Dealer's present and future inventory."

The Plaintiff's position is that while the standard form — Form UCC/1 — Financing Statement does not contain the words "all of the Dealer's present and future inventory," that the Financing Statement which shows the Plaintiff's security interest at paragraph 5 would put third parties on notice that Westinghouse would have a security interest in all inventory.

Since the crux of the dispute is the scope of the language involved, the pertinent language from the Security Agreement and the Financing Statement is printed below.

Security Agreement

3. COLLATERAL. As security for all present and future obligations to WCC, Dealer grants WCC a continuing security interest in inventory against which WCC has advanced, all replacements and substitutions and proceeds of such inventory, and all returned and repossessed goods. The collateral under this agreement described by type consists of refrigerators, freezers, dish and clothes washers and dryers, ranges, water heaters and coolers, garbage disposers, vacuum cleaners, furniture, television sets, radios, phonographs, tape recorders, speakers, amplifiers and any combination thereof, air conditioners, furnaces, humidifiers, dehumidifiers, air cleaners, heat pumps, organs, pianos, guitars, band instruments, power mowers, tillers and other power lawn tools, snow blowers, tractors, snow vehicles, all terrain vehicles, boats, boat motors and boat trailers, camper bodies, camping trailers, travel trailers, motor homes, mobile homes and all furniture, appliances, floor coverings and fixtures contained therein including without limitation the types of property listed above.

4. ADDITIONAL COLLATERAL. As additional collateral, Dealer assigns to WCC all present and future credits payable by those who sell to Dealer inventory financed by WCC and rental payments from those who lease inventory from Dealer. Dealer authorizes each lessee and seller to pay these directly to WCC. Also as additional collateral, Dealer grants WCC a security interest in all of Dealer\'s present and future inventory.

Financing Statement

5. This Financing Statement covers the following types (or items) of property: Refrigerators, freezers, dish and clothes washers and dryers, ranges, water heaters and coolers, garbage disposers, vacuum cleaners, furniture, television sets, radios, phonographs, tape recorders, speakers, amplifiers and any combination thereof, air conditioners, furnaces, humidifiers, dehumidifiers, air cleaners, heat pumps, organs, pianos, guitars, band instruments, power motors, tillers and other power lawn tools, snow blowers, tractors, snow vehicles, boats, outboard motors and boat trailers, camper bodies, camping trailers, travel trailers and mobile homes and all furniture, appliances, floor coverings and fixtures contained therein. Accounts, contract rights and general intangibles arising from purchase of the foregoing items by debtor when such items have been financed by Westinghouse Credit Corporation.

DISCUSSION

Under the Uniform Commercial Code, if Westinghouse has not perfected its interest in the disputed collateral, it becomes an unsecured creditor as of the date of the filing of the bankruptcy petition when the Trustee becomes a perfect lien creditor without knowledge. See 11 U.S.C. § 544(a) and 13 Pa.C.S.A. § 9301(a)(2). In this case the Debtor has asserted the defense of nonperfection to Westinghouse's Complaint for Relief from Stay. The Bankruptcy Code does not provide for the Debtors to attack Westinghouse's security in their own right. Therefore, if Westinghouse is found to be unsecured, the property would become property of the estate to be administered by the Trustee, except to the extent it is declared exempt by the Debtors. See In re Carter, 4 B.R. 692, 1 CBC 381 (Bkrtcy.D. Colo.1980).

In order for a security interest to be valid under the Uniform Commercial Code, both attachment and perfection must occur. A security interest or attachment arises upon the last of three events: (1) when a creditor gives value; (2) when a creditor and debtor enter into an agreement for the debtor to give a security interest to the creditor; and (3) when the debtor has interests in the property being secured. Perfection is accomplished upon the filing of a financing statement as provided in Section 9402 (13 Pa.C.S.A. § 9402). It is immaterial which of the two steps, attachment or perfection, occur first. In re Southwest Pennsylvania Natural Resources, Inc., 11 B.R. 900 (BC W.D.Pa.1981). The financing statement serves as notice to third parties.

The notice function of the financing statement is stated in the official comments to Section 9402 as follows:

2. This section adopts the system of a notice filing which has proved successful under the Uniform Trust Receipts Act. What is required to be filed is not, as under chattel mortgage and conditional sales acts, the security agreement itself, but only a simple notice which may be filed before a security interest or thereafter. The notice itself indicates merely that the secured party who has filed may have a security interest in the collateral described. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9-208 provides a statutory procedure under which the secured party, at the debtor\'s request, may be required to make complete disclosure. Notice filing has proved to be of great use in financing transaction involving inventory, accounts and chattel paper, since it obviates the necessity of refiling on each of a series of transactions in a continuing arrangement where the collateral changes from day to day. Where other types of collateral are involved, the alternative procedure of filing a signed copy of the security agreement may prove to be the simplest solution.

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