Matter of Hinson and Hinson, Inc.
| Decision Date | 17 July 1986 |
| Docket Number | Bankruptcy No. 86-43. |
| Citation | 62 BR 964 |
| Parties | In the Matter of HINSON AND HINSON, INC. d/b/a Western Sizzlin' Steak House of Bedford, Pennsylvania, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Richard J. Bedford, Somerset, Pa., for debtor.
David C. Klementik, Windber, Pa., for Golden Isles.
Mark A. Gregg, Johnstown, Pa., Trustee.
Presently before the Court is a Motion To Abandon Property of the estate brought by Golden Isles Food Equipment Company (hereinafter "Golden Isles"), a creditor in this case. The Trustee has objected to this abandonment, alleging that Golden Isles' purchase money security interest in the subject property was improperly perfected, thereby subordinating its interest to that of the Trustee.
A hearing was held, at which time the parties submitted briefs. After additional research on the issue we have determined that the security interest claimed by Golden Isles was not validly perfected; therefore, the abandonment requested must be denied.
In the latter part of 1984, Joseph and Bernard Hinson, father and son, formed a Pennsylvania corporation, called Hinson and Hinson, Inc. The corporation filed a Fictitious Name Application on August 9, 1985, stating that Hinson and Hinson, Inc. would be doing business as Western Sizzlin' Steak House of Bedford, Pa. The corporate entity was created in order to obtain funding for the creation and operation of this restaurant facility. The restaurant building was completed in 1985.
In order to equip this restaurant facility, Hinson and Hinson, Inc., d/b/a Western Sizzlin' Steak House, entered into a Lease-purchase Agreement with Golden Isles. This Agreement called for a down payment of $10,000.00 and sixty (60) monthly installments of $2,970.00. At the conclusion of this five-year arrangement, Golden Isles would turn over the title to the equipment to Hinson and Hinson, Inc. The signature on the Agreement appeared as follows:
LESSEE HINSON AND HINSON, INC. d/b/a WESTERN SIZZLIN' STEAK HOUSE /s/ Bernard A. Hinson Bernard A. Hinson, Vice-President
Golden Isles prepared Form UCC-1 Financing Statements in order to perfect its interest in the equipment. The financing statements listed the Debtor as:
Mr. Bernard Hinson
d/b/a Western Sizzlin Steak House
These financing statements were signed as follows:
/s/ Bernard A. Hinson
Nowhere on the financing statements does the corporation's name, Hinson and Hinson, Inc. appear. Neither does the signature reflect that Bernard Hinson executed the statement in his corporate capacity. The financing statement was filed in the Bedford County Prothonotary's Office and in the Office of the Secretary of the Commonwealth.1 The financing statement was cross-referenced under Western Sizzlin' Steak House, but not under Hinson and Hinson, Inc.
Hinson and Hinson, Inc. paid the $10,000 down payment to Golden Isles, but paid no monthly installments. Hinson and Hinson, Inc. filed a Chapter 7 Petition in Bankruptcy on January 6, 1986. Thereafter, on January 13, 1986, Golden Isles filed this Motion to Abandon the equipment, as being burdensome to the estate. The Trustee has objected, alleging that Golden Isles is not a properly perfected secured creditor.
The issue to be decided is whether the Form UCC-1 Financing Statements, filed on behalf of Golden Isles, were sufficiently correct in both their form and content so as to create a perfected security interest. The pertinent statutory language covering this issue is found at 13 Pa.C.S.A. § 9402, which states:
The importance of these sections lies in the effectiveness of the notice which the filing gives to a creditor searching the records to determine what, if any, encumbrances exists on specific items being considered by that creditor as collateral.
The Trustee argues that the following items do not comply with the notice requirements of the Uniform Commercial Code, as adopted in Pennsylvania; and, are not minor errors, but in fact are seriously misleading, thereby nullifying the perfection claimed:
1) The name of the Debtor on the financing statement is Mr. Bernard Hinson d/b/a Western Sizzlin' Steak House; however the name of the Debtor in the security agreement and in this bankruptcy proceeding is Hinson and Hinson, Inc. d/b/a Western Sizzlin' Steak House.
2) The financing statement is signed by Bernard A. Hinson, as Debtor, with no indication of corporate capacity; whereas the signature on the security agreement shows Bernard A. Hinson as Vice President of Hinson and Hinson, Inc. d/b/a Western Sizzlin' Steak House.
A significant number of courts have discussed these issues with varying fact patterns which ultimately alter the outcomes.
In In re Green Mill Inn, Inc., 474 F.2d 14, 12 U.C.C.Rep. 184 (9th Cir.1973), a security agreement was entered into which listed the debtor as Green Mill Inn, Inc. The financing statement listed the debtor as Taylor, Maxine, but was signed:
Green Mill Inn, Inc., by Maxine Taylor, Pres.
The Court held that this was not a seriously misleading error because the signature showed corporate capacity, and the filing was cross-referenced under both the individual and the corporation names, thereby providing actual notice to anyone searching for a security interest given by the corporation.
In In re McCauley's Reprographics, Inc., 638 F.2d 117 (9th Cir.1981), the Court was faced with a corporation which was originally a partnership, consisting of Mr. and Mrs. McCauley. Both the security agreement and the financing statement were in the partnership name, and the financing statement was signed by Mr. John McCauley, with no indication of corporate capacity. The difficulty arose because the corporation, not the partnership, was the debtor. The Court found the error to be seriously misleading, and presented the following rationale:
Id. at 119. This case stressed that even though the names were the same, the partnership and corporation were different entities, each with its own legal status, and that the debt of one is not necessarily a debt of the other.
In Matter of Glasco, Inc., 642 F.2d 793 (5th Cir.1981), the Court dealt with a financing statement which was indexed under a trade name rather than the corporate identity. The Court noted that all of the debtor's checks, stationery, bank accounts, contracts, etc. were in the trade name. In holding that the indexing was not seriously misleading, the Court determined that a reasonably prudent searcher would have searched the trade name. In the case at bar, no testimony was offered as to the indices listed above. Furthermore, this case must be distinguished, because the Uniform Commercial Code, as adopted in Pennsylvania, specifically requires the name of the debtor, stating that trade names are unnecessary. Logically, then, trade names alone are insufficient.
Similarly, in In re Farm and Home Supply Co., 22 U.C.C.Rep. 1081 (Bktcy.W.D. Pa.1977), a partnership with a fictitious name entered into a security agreement and caused a financing statement to be filed. Later, the partnership incorporated, and entered into a new security agreement and financing statement, omitting the trade name. The Court held that the filing in the corporate name was sufficient; filing in the trade name was unnecessary.
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