Wollenberg v. Phoenix Leasing Inc.

• Court: Arizona Court of Appeals
• Citation: Wollenberg v. Phoenix Leasing Inc., 893 P.2d 4, 182 Ariz. 4 (Ariz. App. 1994)
• Decision Date: 23 August 1994
• Docket Number: CA-CV,No. 1,1
• Parties: , 24 UCC Rep.Serv.2d 770 David WOLLENBERG and Debra A. Wollenberg, husband and wife, Plaintiffs-Appellants, v. PHOENIX LEASING INCORPORATED, a California corporation, d/b/a Phoenix Leasing Cash Distribution Fund III; Phoenix American Alarm Affiliates, Inc., a Nevada corporation d/b/a Phoenix Leasing Cash Distribution Fund III; and Phoenix Leasing Cash Distribution Fund III, Defendants-Appellees. 92-0267.
• Writing for the Court: VOSS; GRANT, P.J., and EHRLICH

Page 4

893 P.2d 4

182 Ariz. 4, 24 UCC Rep.Serv.2d 770

David WOLLENBERG and Debra A. Wollenberg, husband and wife, Plaintiffs-Appellants, v. PHOENIX LEASING INCORPORATED, a California corporation, d/b/a Phoenix Leasing Cash Distribution Fund III; Phoenix American Alarm Affiliates, Inc., a Nevada corporation d/b/a Phoenix Leasing Cash Distribution Fund III; and Phoenix Leasing Cash Distribution Fund III, Defendants-Appellees.

No. 1 CA-CV 92-0267.

Court of Appeals of Arizona Division 1, Department A.

Aug. 23, 1994.

Reconsideration Denied Oct. 14, 1994.

Review and Cross-Petition for

Review Denied April 25, 1995.

[182 Ariz. 5] McDaniel & Gan, P.C. by Chester J. Peterson, Phoenix, for plaintiffs-appellants.

Gammage & Burnham by Cameron C. Artigue, Phoenix, for defendants-appellees.

OPINION

VOSS, Judge.

David Wollenberg and Debra A. Wollenberg (Wollenberg) appeal from an adverse judgment, and the denial of their motion for new trial, in their action against Phoenix Leasing Incorporated and related business entities (Phoenix Leasing) for a declaration that Wollenberg's security interest in the customer accounts of nonparty Sunrise Security and Sound, Inc., (Sunrise Security) took priority over a security interest that Sunrise Security later granted to Phoenix Leasing in the same collateral. We must decide whether the trial court correctly held that Phoenix Leasing's security interest took priority over that of Wollenberg. We have jurisdiction pursuant to Ariz.Rev.Stat.Ann. (A.R.S.) section 12-2101(B) and (F)(1).

FACTS AND PROCEDURE BELOW

The action was tried to the court. Findings of fact and conclusions of law were made pursuant to Rule 52(a), Arizona Rules of Civil Procedure. No transcript has been included in the record on appeal. Both sides concede that the facts are not in dispute. We derive the pertinent facts from the trial court's findings as supplemented by documents admitted in evidence.

From the early 1980s through March of 1988, Wollenberg operated an alarm and security business under the name of "Paradise Valley Alarm Systems" as a sole proprietorship. In late 1987, non-party Warren D. Mays, having had previous experience with alarms and security, sought to re-enter the industry. Through Sunbelt Business Brokers, Mays learned of Wollenberg's Paradise Valley Alarm Systems.

Between December of 1987 and March of 1988, Wollenberg and Mays met about eight times to negotiate the sale/purchase of Paradise Valley Alarm Systems. Mays told Wollenberg that he had incorporated Sunrise Security and Sound, Inc., and intended to operate Paradise Valley Alarm Systems in that corporate form by transferring all its assets and operations into Sunrise Security.

In February and March of 1988, according to the purchase agreement which was prepared and signed, Mays agreed to buy Paradise Valley Alarm Systems for $255,000, $165,000 of which was to be represented by a promissory note secured by a chattel security agreement. The sale closed on March 31, 1988. At the closing Mays again expressed his intention to transfer Paradise Valley to Sunrise Security. Wollenberg stated that Mays was within his rights in doing so. Wollenberg executed a bill of sale conveying to Mays the business known as "Paradise Valley Alarm Systems," including, among other things, "customer accounts." Additionally, Wollenberg executed as secured party, and Mays executed as debtor, a chattel security agreement that granted Wollenberg a security interest in: "THAT CERTAIN BUSINESS KNOWN AS 'PARADISE VALLEY ALARM SYSTEMS' INCLUDING INVENTORY, CUSTOMER ACCOUNTS, THE BUSINESS TRADENAME AND TRADESTYLE, LEASEHOLD INTERESTS AND IMPROVEMENTS, AND THAT CERTAIN EQUIPMENT PER THE ATTACHED EXHIBIT 'A'...." The chattel security agreement form contained an optional after-acquired property clause which was not made part of the agreement. ¹

In connection with the closing, Mays and Wollenberg also executed an "ARIZONA UNIFORM COMMERCIAL CODE FINANCING STATEMENT--Form UCC-1." This financing statement, dated March 31, 1988, identified the "Debtor(s)" as "Mays, Warren D. & Catherine E.," and gave notice that it covered: "THAT CERTAIN BUSINESS KNOWN AS 'PARADISE VALLEY ALARM SYSTEMS' INCLUDING INVENTORY, THE BUSINESS TRADENAME AND TRADESTYLE, LEASEHOLD INTERESTS AND IMPROVEMENTS, AND THAT CERTAIN EQUIPMENT PER THE ATTACHED EXHIBIT 'A' WHICH EXHIBIT IS INCORPORATED HEREIN BY REFERENCE. CUSTOMER ACCOUNTS."

On the day after the closing, April 1, 1988, Mays transferred all the assets and operations of Paradise Valley Alarm Systems to Sunrise Security and Sound, Inc. Four days later, on April 5, 1988, Wollenberg filed with the Arizona Secretary of State the UCC-1 Financing Statement identifying Mays as "debtor." Wollenberg never filed a new or amended financing statement naming Sunrise Security and Sound, Inc., as debtor.

Almost a year later, on March 9, 1989, Sunrise Security and appellee Phoenix Leasing executed a loan and security agreement by which Phoenix Leasing lent Sunrise Security approximately $150,000 and Sunrise Security granted Phoenix Leasing a security interest in "any and all Alarm Accounts of Borrower, now owned or hereafter acquired ... and any and all monitoring agreements between Borrower and any central monitoring stations...." Before entering into the security agreement with Sunrise Security, Phoenix Leasing conducted a lien search under the names of Sunrise Security and Sound, Inc. and Paradise Valley Alarm Systems, Inc. The search revealed no liens. On April 6, 1989, Mays executed on behalf of Sunrise Security a UCC-1 Financing Statement identifying the debtor as Sunrise Security and Sound, Inc. d/b/a Paradise Valley Alarm Systems, Inc. The financing statement signed by Sunrise Security was filed with the Arizona Secretary of State on April 10, 1989.

Phoenix Leasing began collecting the ongoing accounts receivable of Sunrise Security in April of 1989. In August of 1989, Phoenix Leasing lent Sunrise Security additional funds in return for a new promissory note executed by Mays for Sunrise Security in the amount of $198,724.41, and a UCC-2 (continuation) Financing Statement in favor of Phoenix Leasing. The UCC-2 was filed with the Arizona Secretary of State on October 12, 1989.

Meanwhile, problems had arisen between Mays and Wollenberg. Mays allegedly defaulted on his promissory notes in favor of Wollenberg, leaving an unpaid balance in excess of $132,000 as of October 13, 1989. On discovering the lending relationship between Mays and Phoenix Leasing, Wollenberg demanded that they release Sunrise Security's financing statement. Both refused.

Wollenberg filed this action against Phoenix Leasing on February 2, 1990. The parties stipulated that further collections by Phoenix Leasing of payments on Paradise Valley Alarm Systems accounts, less a 10% administrative fee, would be deposited in a restricted bank account pendente lite.

The parties filed cross-motions for summary judgment. The trial court denied the motions. After trial, the trial court rendered its findings of fact and made the following pertinent conclusions of law:

1. Phoenix Leasing holds a perfected security interest in the accounts receivable of Sunrise Security.

2. Wollenberg's claimed security interest in the accounts receivable of Sunrise Security is unperfected, because Wollenberg breached his obligation of good faith under the Uniform Commercial Code by filing and relying upon a financing statement which he knew did not reflect the true state of affairs and which could be misleading to potential creditors.

4. Wollenberg's financing statement is not effective to perfect any security interest in the accounts of Sunrise Security because it is not filed in the name of the debtor, i.e., the owner of the collateral, as required by A.R.S. § 47-9402(A). Due to his acquiescence in Mays' transfer of Paradise Valley and express statement that Mays was "within his rights" in doing so, Wollenberg "authorized" this disposition of the collateral within the meaning of A.R.S. § 47-9306(B) and thus lacks a security interest in the collateral.

....

6. Pursuant to A.R.S. § 47-9312, Phoenix Leasing's perfected security interest in the accounts receivable of Sunrise Security is superior to any interest of Wollenberg, assuming that Wollenberg holds a security interest in that collateral.

The trial court entered judgment in accordance with its ruling and later denied Wollenberg's motion for new trial. Wollenberg timely appealed.

DISCUSSION

A. Wollenberg's Contentions

Wollenberg bases his bid for reversal on three provisions of Arizona's version of the Uniform Commercial Code (UCC). ² UCC section 9-201 provides in part:

Except as otherwise provided by this Act a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.

UCC section 9-306(2) states:

Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.

UCC section 9-402(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 the 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...