In re Tebbs Const. Co., Inc., Bankruptcy No. 82-01156-R
| Decision Date | 03 April 1984 |
| Docket Number | Adv. No. 83-0161-R.,Bankruptcy No. 82-01156-R |
| Citation | 39 BR 742 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re TEBBS CONSTRUCTION CO., INC., Debtor. Robert A. CANFIELD, Trustee, Plaintiff, v. SMALL BUSINESS ADMINISTRATION and Chesapeake National Bank, Defendants. |
Robert A. Canfield, Richmond, Va., for plaintiff.
Stran L. Trout, Richmond, Va., for Small Business Admin.
Paul C. Stamm, Jr., White Stone, Va., for Chesapeake Nat'l Bank.
This matter came before the Court upon motions by the Small Business Administration and Chesapeake National Bank for the determination of their secured status. On February 14, 1984 this Court held an evidentiary hearing at which counsel for Chesapeake National Bank and counsel for the trustee presented evidence and argument as to the validity of the lien alleged to be held by Chesapeake National Bank on the proceeds of the trustee's sale of certain machinery and equipment formerly owned by the debtor. After consideration of the argument by counsel and an analysis of the applicable law, this Court renders the following opinion.
This matter initially came before the Court on the trustee's complaint to sell certain tangible personal property free and clear of liens. On July 8, 1983, this Court entered an order authorizing the trustee to sell certain personal property free and clear of liens and that any valid liens on the property sold would be transferred to the proceeds of sale. The Small Business Administration (SBA) had a lien on the property sold which was transferred to the proceeds of the sale. A dispute arose between the trustee and Chesapeake National Bank (CNB) as to whether CNB had a valid lien that attached to the proceeds of sale. The validity of that lien is the subject of the matter before the Court.
For purposes of the Court's determination, the parties have stipulated the relevant facts as follows:
1) Pursuant to a loan made to the debtor by CNB on January 22, 1975, CNB filed a financing statement on January 27, 1975 in both the Clerk's Office of the Virginia State Corporation Commission and in the Clerk's Office of the Circuit Court of Lancaster County, Virginia.
2) In 1977 the SBA, pursuant to a note executed in its favor by the debtor, filed a financing statement in the Clerk's Office of the Virginia State Corporation Commission on May 25, 1977 and in the Clerk's Office of the Circuit Court of Lancaster County, Virginia on May 26, 1977.
3) The SBA filed timely continuation statements on May 12, 1982, however, CNB failed to file timely continuation statements and, therefore, on January 27, 1982, CNB's financing statements lapsed.
4) On March 1, 1982, CNB filed a new original financing statement in the appropriate places. (It is the validity of this financing statement which is the narrow issue now before the Court.)
5) The amount due the SBA is approximately $22,000.00 and the amount due CNB is approximately $66,000.00.
6) The SBA's lien is superior to any lien that CNB may have with regard to the proceeds of the trustee's sale of the machinery and equipment.
With the above stipulations in mind the dispute before the Court is a narrow one. If the financing statement filed in 1982 by CNB is valid then CNB will have a lien on the proceeds of the sale of the machinery and equipment, but will be junior to the lien of the SBA. On the other hand, if the financing statement is defective and, therefore, invalid, then the trustee pursuant to 11 U.S.C. § 544(a) will assume a position superior to CNB with regard to said proceeds. Moreover, should the trustee prevail he may distribute the net proceeds unencumbered by any lien of CNB to general unsecured creditors of the estate. Should the trustee prevail CNB may nonetheless have a claim, although unsecured, for the amount of its indebtedness and may share in any distribution the trustee is able to make to unsecured creditors filing proofs of claim.
Resolution of the issue now before the Court turns on the interpretation of Va. Code § 8.9-402 which all parties agree is applicable to the present proceeding. Said section provides in pertinent part:
The parties do not contest whether the financing statement was properly filed. Therefore, if this Court finds that all the elements of Va.Code § 8.9-402 have been satisfied, this Court must hold that CNB has a valid lien although inferior to the lien of the SBA.
Section 8.9-402 requires that the following elements exist for a financing statement to be valid: (1) the name of the debtor; (2) the name of the secured party; (3) the signature of the debtor; (4) the address of the secured party from which information concerning the security interest may be obtained; (5) the mailing address of the debtor; and (6) a statement indicating the types, or describing the items of collateral. The parties agree that all of these elements have been met except that the parties do not agree that the financing statement was signed by the debtor and the parties do not agree that the financing statement contains an adequate description of the collateral.
As to the requirement that the financing statement be signed by the debtor, § 8.9-402(2)(c) provides that a financing statement that otherwise complies with the elements described above is sufficient when signed by the secured party instead of the debtor if it is filed to perfect a security interest in collateral as to which the filing has lapsed. In the instant matter, the parties have stipulated that the filing of the original financing statement as to the collateral has lapsed. Therefore, this Court holds that the lack of signature by the debtor with respect to the financing statement whose validity is now before the Court does not cause the financing statement to be defective. Rather the provisions of § 8.9-402 clearly provide that such a signature by the secured party under these circumstances is sufficient in itself. Thus, the only issue before the Court is whether CNB's new, original financing statement filed in May of 1982 contains an adequate statement of the collateral.
The description of collateral is found in the financing statement filed on March 1, 1982 and provides as follows:
Accounts receivable, inventory, and those items of machinery and equipment, with replacements thereof, as set forth in the attached security agreement. This financing statement applies to accounts receivable and inventory now owned and hereafter acquired.
The dispute centers on whether CNB has a lien on proceeds in the hands of the trustee from the sale of machinery and equipment or whether no such lien exists due to an inadequate description. Stated differently, the issue is whether the bank's failure to attach the security agreement to the financing statement, (which contained an enumeration of the items of machinery and equipment covered by the financing statement) causes the financing statement to lack an adequate description and, therefore, fail to perfect a valid lien.
Some courts have addressed the problem of where a financing statement attempted to incorporate another document to describe the collateral, but the document describing such collateral was not attached to the financing statement as provided in the financing statement. For example, a financing statement was held defective in In re Antekeier, 6 UCC Rep.Serv. 1027 (Bkrtcy.W.D.Mich.1969) where the financing statement provided "see attached description of property" but no such attachment was filed with the financing statement. Thus, in Antekeier the trustee in bankruptcy prevailed over the party filing such a defective financing statement. However, the opposite result was obtained in In re Bowser, 1 UCC Rep.Serv. 626 (Bkrtcy.W.D.Penn.1961). The court in Bowser held that a financing statement which provided a description of collateral as "see attached" to be a sufficient description of the collateral for purposes of U.C.C. § 402 because the court found that any interested party would be on notice that the schedule had been admitted inadvertently and could obtain the desired information from the secured party. 1 U.C.C.Rep. Serv. at 628. The instant matter differs from both Antekeier and Bowser in that although the bank omitted the document specifically describing the items of collateral, the description on the financing statement did include the names of the types of collateral covered by the financing statement.
The United States Court of...
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...statement attached to the operative filing that contained a valid collateral description); see also Canfield v. SBA (In re Tebbs Constr. Co., Inc.), 39 B.R. 742, 746 (Bankr. E.D. Va. 1984) (finding that a filing statement that referenced a security agreement that was not attached, but did r......