In re Taylorville Eisner Agency, Inc., S-Bk-75-1538.
| Decision Date | 30 December 1977 |
| Docket Number | No. S-Bk-75-1538.,S-Bk-75-1538. |
| Parties | In re TAYLORVILLE EISNER AGENCY, INC., a corporation, Bankrupt. Vernon H. HOUCHEN, Trustee, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF PANA, a corporation, Defendant-Appellant. |
| Court | U.S. District Court — Southern District of Illinois |
Vernon H. Houchen, for Trustee.
William H. Amling, Amling & Beyers, Pana, Ill., for defendant-appellant.
W. Scott Murphy, Owen, Roberts, Susler & Taylor, Decatur, Ill., for Jewel Companies, Inc.
Daniel G. Reese, Taylorville, Ill., for Trustee, plaintiff-appellee.
This is an appeal from an order of the Bankruptcy Judge disallowing a claim of the First National Bank of Pana (First National Bank) as to proceeds of the sale of inventory and merchandise of a bankrupt grocery store. It is necessary to consider, in a case of first impression in this State, the construction to be given Section 9-402(7) of the Illinois Uniform Commercial Code, Ill.Rev.Stat. ch. 26 (hereinafter cited as UCC § ___).
On or about March 14, 1973, Charles E. Hebert and William D. Cooper (buyers) entered into an agreement with Robert Aldridge (seller) to purchase certain fixtures, equipment and inventory of a premises in Taylorville, Illinois, being operated as "Bob's Eisner Agency." The buyers made application to First National Bank to borrow the necessary money and thereafter executed a note to First National Bank dated April 1, 1973. A security agreement bearing the same date covering fixtures, equipment, inventory, and after-acquired property was also executed. Both the note and security agreement were signed by William Cooper and his wife, Gloria, and Charles Hebert and his wife, Carolyn. The First National Bank filed a proper financing statement with the Secretary of State on April 4, 1973, listing William Cooper and Charles Hebert as debtors and the address of the store in Taylorville.
Sometime prior to April 1, 1973, a corporate entity, Taylorville Eisner Agency, Inc., was formed. At 10:00 a. m., on the same day as the note and security agreement were signed, the Coopers and Heberts met as a board of directors of Taylorville Eisner Agency, Inc. At this initial meeting of the corporation the following officers were chosen: William Cooper, President; Gloria Cooper, Vice President; Carolyn Hebert, Secretary; and Charles Hebert, Treasurer. Among the business matters handled at this meeting, it was resolved that the corporation agreed to assume and pay the indebtedness of William Cooper, Gloria Cooper, Charles Hebert, and Carolyn Hebert, to the First National Bank in return for a transfer of the fixtures, equipment, and store inventory.
After April 1, 1973, Taylorville Eisner Agency, Inc., owned and operated the business. All payments made to the First National Bank on the note were by checks drawn on a Taylorville bank from the account of Taylorville Eisner Agency, Inc., and all of the checks were properly credited on the account due the First National from the Coopers and Heberts. There was a continual change of merchandise and inventory held for resale in the store so that on October 1, 1975, the date on which the voluntary petition for bankruptcy was filed on behalf of Taylorville Eisner Agency, Inc., none of the original merchandise and inventory held for resale was the same as that owned on July 1, 1973. The fixtures and equipment of the bankrupt had remained the same following the transfer of ownership from the Coopers and Heberts to the corporation.
The First National Bank filed their proof of claim in bankruptcy as a secured creditor. A claimant, Jewel Companies, Inc., and the trustee in bankruptcy objected to the First National Bank claim insofar as it included merchandise and inventory acquired after four months from the filing of the April 4, 1973, financing statement. Their objection was based on UCC § 9-402(7).
The Bankruptcy Judge held that First National Bank was aware of the change in ownership and change in the name of this business entity; and that under Section 9-402(7) it was necessary for First National Bank to file a new appropriate financing statement before the expiration of four months from the date of the change in ownership. This was due to the finding that the filed financing statement became seriously misleading after the changes in ownership and name of the business entity. Based on these factual findings and his interpretation of the statute, the Bankruptcy Judge allowed First National Bank's secured claim as to the fixtures and equipment acquired within four months of the date on which the financing statement became misleading, but held First National Bank had only a general unsecured claim as to the proceeds of the sale of inventory and merchandise acquired after the four month period.
Article IX of the Illinois Commercial Code is a comprehensive system designed to cover chattel security law. Basically it provides a way in which a secured party and debtor may enter into a security agreement which gives the secured party certain rights in specified collateral. As one means of giving notice of that interest to third parties, the code adopts the concept of notice filing. Notice filing involves the preparation of a financing statement and filing of it as required by the code. When required (UCC § 9-302), proper filing makes the security interest "perfected" (UCC § 9-303) and this may provide the secured party protection under the priorities provision (UCC § 9-312) as against conflicting interests in the same collateral. The portion of this statutory scheme with which we are concerned here is UCC § 9-402 which covers the formal requisites of the initial filing and later amendment of a financing statement. Subsection 7 provides:
A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership or corporate name of the debtor, whether or not it adds other trade names or names of partners. Where the debtor so changes his name or in the case of an organization its name, identity, or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change unless a new appropriate financing statement is filed before the expiration of that time. A filed financing statement remains effective with respect to collateral transferred by the debtor even though the secured party knows of or consents to the transfer.
No cases have been found interpreting this provision of the Illinois statute. Subsection 7 was a new provision added to the code effective July 1, 1973. While there is no legislative history for the amendment, it is noted that the Illinois code changes were exactly the same as the 1972 changes in the Uniform Commercial Code as promulgated by the American Law Institute, and National Conference of Commissioner's on Uniform State Laws. Thus, the Official Comments to the UCC may be of some help in interpretation.
Since we have a naked statute, unclothed with either legislative intent or judicial construction, the parties have striven mightily to dissect and give meaning to the words and sentences of the crucial subsection. The parties have endeavored to robe the statute according to their individual tastes. Under these circumstances it is necessary for me to lend a judicial imprimatur to one of the suggested interpretations.
The first question is what problem or problems did the legislature intend to address in UCC § 9-402(7) and the effect on the present facts. The subsection deals with several different problems. The first sentence speaks...
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