Itt Commercial Finance Corp. v. Bank of West
| Decision Date | 05 April 1996 |
| Docket Number | No. EP-94-CA-71-F.,EP-94-CA-71-F. |
| Citation | 37 F.Supp.2d 829 |
| Parties | ITT COMMERCIAL FINANCE CORP., Plaintiff, v. BANK OF THE WEST, Defendant. |
| Court | U.S. District Court — Western District of Texas |
Robert M. O'Boyle, Haynes and Boone, Austin, TX, Paula Seabaugh, St. Louis, MO, for plaintiff.
Victor M. Firth, James, Goldman & Haugland, P.C., El Paso, TX, for defendant.
In this Texas Uniform Commercial Code ("UCC") case, the ultimate question is whether a first creditor's failure to correctly hyphenate a debtor's corporate name defeats the creditor's priority position in relation to a later-filed financing statement by another creditor. The correct name of the debtor is Compu-Centro, USA, Inc. The first creditor, Bank of the West ("BOW"), filed its financing statement on the corporation under the name "Compucentro, USA, Inc.," omitting the hyphen. The second creditor, ITT Commercial Finance Corp. ("ITT"), filed its financing statement in the exact legal name of the corporation "Compu-Centro, USA, Inc.," and did not omit the hyphen. When conducting a search request for ITT, the Texas Secretary of State ("Secretary") did not find a previous existing creditor for Compu-Centro, USA, Inc. The debtor has now declared bankruptcy and this battle between the creditors has ensued.
Before the Court are the parties' Cross-Motions for Summary Judgment. In choosing between difficult alternatives, the Court grants Plaintiff ITT's Motion for Summary Judgment and denies Defendant BOW's Motion for Summary Judgment.
ITT filed its Original Complaint on March 7, 1994, alleging: (1) breach of contract and (2) conversion. ITT also sought a declaratory judgment regarding certain secured interests. On March 25, 1994, BOW filed its Original Answer and also filed a counterclaim alleging the same causes of action and entitlement to declaratory judgment. ITT filed a Motion for Summary Judgment on September 6, 1994. BOW filed its own Motion for Summary Judgment on September 15, 1994.
The relevant facts are not in dispute. ITT and BOW are both commercial lenders. Over the course of several years, BOW (independently and via its predecessors in interest) and ITT loaned money to the same debtor, a fledgling microcomputer dealer initially known by the trade name "Compucentro USA" and subsequently incorporated as "Compu-Centro, USA, Inc." The genesis of these loans, and the subsequent efforts to secure them, involve relationships beginning in 1988 and ending in 1993.
In 1988, Coronado Bank extended an SBA-guaranteed loan to Carlos Chacon and received a security interest in a broad class of current and after-acquired property.1 At that time, the debtor was operating under the trade name "Compucentro, USA," a sole proprietorship owned by Carlos Chacon. On August 22, 1988, Coronado Bank filed a financing statement with the Secretary designating the borrower as "Chacon, Carlos d/b/a Compucentro USA."2
As a successor institution to Coronado Bank, Texas National Bank also extended SBA-guaranteed financing to Carlos Chacon in 1990 and, similarly, received a security interest in a broad class of current and after-acquired property. On February 27, 1990, Texas National Bank filed its financing statement, listing the debtor as "Carlos R. Chacon and Lorena Chacon d/b/a Compucentro, USA." In the latter part of 1990, BOW arranged to purchase the existing secured loans from the FDIC, receiver for Coronado and Texas National.
On November 12, 1990, Carlos Chacon formed a corporation. under the name "Compu-Centro, USA, Inc." Chacon wrote to his creditors, including BOW, on November 13, 1990, to provide notice that he had incorporated his business. In the letter, Chacon indicated to BOW that he had incorporated under the name "Compucentro, USA, Inc." Chacon continued to send occasional correspondence to BOW using the letterhead of the old company which still listed the debtor's name as "Compucentro, USA" leaving out the hyphen and the "Inc." The debtor also continued using the old company name when writing checks.
When BOW purchased the Coronado and Texas National Bank loans from the FDIC, BOW refinanced the original debt. BOW also took over, by assignment, Coronado and Texas National Bank's existing security agreements. With respect to the formation of the new corporation, there was no release of the existing liens of the sole proprietorship. Compu-Centro, USA, Inc. assumed responsibility for Carlos Chacon's secured debt and acknowledged the continuing security interest.
On January 28, 1991, BOW filed notice of assignment of Coronado Bank's August 22, 1988, filing. In this filing, the name of the debtor was listed as "Chacon, Carlos d/b/a Compucentro, USA." Nearly a month and a half later, on March 11, 1991, BOW filed notice of assignment of Texas National Bank's February 27, 1990, filing. In this filing, the debtor designation was "Carlos R. Chacon and Lorena Chacon d/b/a Compucentro, USA."
BOW also chose to independently extend secured financing to the new corporation, and filed a broad lien financing statement on January 18, 1991. In this filing, BOW specified the name of the debtor as "Compucentro, USA, Inc.," leaving out the hyphen.
On October 1, 1991, ITT agreed to extend a line of credit for inventory purchases to Compu-Centro, USA, Inc. The next day, Chacon, as the sole shareholder of Compu-Centro, USA, Inc. signed a personal guarantee in favor of ITT. On October 14, 1991, ITT filed a broad lien UCC-1 financing statement with the Secretary. The borrower was listed as "Compu-Centro, USA, Inc."
In the course of its credit review of the borrower, ITT obtained information suggesting that Compu-Centro, USA, Inc. began operations earlier than its November 1990 incorporation date under a different business structure and a different name. The information included a loan application indicating that the debtor had begun operations in 1986 and a credit report on Carlos Chacon which indicated that the corporation formerly operated under the trade name "Compucentro, USA." ITT also possessed financial statements of Carlos and Lorena Chacon and a dealer application form completed by Carlos Chacon, each of which listed a $68,000 liability for an SBA loan made by BOW. ITT, however, made no further investigation and did not obtain an official search under the name "Carlos Chacon" or the name "Compucentro, USA" or the name "Compucentro, USA, Inc."
On October 18, 1991, four days after filing its financing statement, ITT obtained an official search of the Secretary's records under the name "Compu-Centro, USA, Inc." ITT's filing was the only filing reflected in the records.
While the parties dispute the exact date, at some point in 1992 or 1993 the relationship between ITT and Compu-Centro, USA, Inc. soured as the debtor began facing cash-flow problems. ITT refused to advance additional funds for purchases of inventory unless those funds were secured by an irrevocable letter of credit issued by an independent creditor. Compu-Centro, USA, Inc. formally defaulted on its obligations to ITT on June 4, 1993, owing a total of $117,795.14. Compu-Centro, USA, Inc. informed ITT that it could not meet its payment obligations because BOW was in control of its accounts receivable and would not advance the requisite funds. On the same day, ITT sent a fax to BOW opining that ITT had a prior secured lien and demanding that BOW cease and desist from converting the accounts receivable of Compu-Centro, USA, Inc. BOW wrote back one week later, arguing that BOW in fact had the prior secured lien. On June 24, 1993, ITT and BOW entered into a subordination agreement which resolved some of their competing claims. ITT filed this lawsuit in March 1994.
In its Motion for Summary Judgment, ITT argues that its security interest in the assets of Compu-Centro, USA, Inc. has priority as a matter of law over BOW's security interest. When Carlos Chacon incorporated his business as "Compu-Centro, USA, Inc.," the filings made by BOW's predecessors in interest under the name "Carlos Chacon" became seriously misleading. In order to keep its security interest perfected, BOW had to file under the correct legal name of the new debtor, "Compu-Centro, USA, Inc."
Because BOW did not file under the correct legal name of the new debtor when it incorporated, BOW's security interest was no longer perfected. ITT claims that the name which BOW used on the financing statement, "Compucentro, USA, Inc.," was a tradename of the debtor. Thus, the Texas Non Uniform Amendment renders this financing statement ineffective. Alternatively, ITT argues that the name "Compucentro, USA, Inc." was seriously misleading as to the debtor's exact legal name, "Compu-Centro, USA, Inc."
In response, BOW argues that when Chacon incorporated as "Compu-Centro, USA, Inc.," the assets of the sole proprietorship were transferred unencumbered to the new corporation. Thus, the original financing statements of Coronado and Texas National Bank filed under Carlos Chacon's name were still valid. BOW was not obligated to refile in the name of the transferee, namely the new corporation "Compu-Centro, USA, Inc." Rather, ITT was obligated to trace the source of the debtor's title to the collateral in question by searching under the names of the prior owners of the collateral, in this...
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In re Stanton
...on other grounds by the circuit opinion, one should also consult the helpful analysis of this issue in ITT Commercial Finance Corp. v. Bank of the West, 37 F.Supp.2d 829 (W.D.Tex.1996). ...