World Wide Tracers, Inc. v. Metropolitan Protection, Inc.

• Decision Date: 04 April 1986
• Docket Number: No. C6-85-443,C6-85-443
• Citation: 384 N.W.2d 442
• Parties: 42 UCC Rep.Serv. 1573 WORLD WIDE TRACERS, INC., petitioner, Appellant, v. METROPOLITAN PROTECTION, INC., formerly Protection Technologies, Inc., Defendant, Metropolitan State Bank, John Hole, et al., Respondents.
• Court: Minnesota Supreme Court

Page 442

384 N.W.2d 442

42 UCC Rep.Serv. 1573

WORLD WIDE TRACERS, INC., petitioner, Appellant, v. METROPOLITAN PROTECTION, INC., formerly Protection

Technologies, Inc., Defendant,

Metropolitan State Bank, John Hole, et al., Respondents.

No. C6-85-443.

Supreme Court of Minnesota.

April 4, 1986.

Syllabus by the Court

Although in general broad descriptions of collateral in security agreements and financing statements are sufficient to perfect security interests, the description "any property of the debtor acquired after July 15, 1980," when read in conjunction with an attached list of collateral containing only tangible assets, is not sufficient to perfect a security interest in debtor's accounts receivable.

Terence P. Durkin, Minneapolis, for appellant.

Jim Lamphere, Bloomington, for Metropolitan State Bank.

Robert M. Smith, Minneapolis, for John & Gloria Hole, Raymond Lundgren.

Heard, considered, and decided by the court en banc.

AMDAHL, Chief Justice.

This case arises from an action brought by appellant, World Wide Tracers, Inc., against respondent, Metropolitan State Bank (bank), Metropolitan Protection, Inc. (debtor), and three guarantors of debtor, to enforce its rights under a security agreement with debtor. The trial court granted bank's motion for summary judgment, declaring that the descriptions of collateral in appellant's security agreement and in the accompanying financing statement were insufficient as a matter of law to perfect appellant's security interest in debtor's accounts receivable. The court of appeals affirmed the trial court, 373 N.W.2d 839. We affirm.

The facts in this case are not in dispute. On July 15, 1980, appellant sold to debtor certain of its assets and properties, including equipment, furniture, uniforms, accounts receivable, and contract rights. To secure payment of the purchase price, debtor executed a security agreement and financing statement in favor of appellant. The financing statement was filed with the Minnesota Secretary of State on July 16, 1980.

Both the security agreement and the financing statement contained the following language describing the collateral:

All of the property listed on Exhibit "A" attached hereto and made a part hereof, together with any property of the debtor acquired after July 15, 1980.

Both documents had the same Exhibit "A" attached. Exhibit "A" is a list of equipment, furniture, and fixtures owned by appellant and sold to debtor. Exhibit "A" does not include any accounts receivable or contract rights.

In February 1982, bank loaned monies to debtor, for which debtor executed two security agreements containing the following language:

All accounts of borrower now existing or hereafter at any time acquired, and all contract rights of borrower now existing or hereafter at any time arising.

All equipment now owned or hereafter acquired, including, but not limited to, office furniture and uniforms.

Debtor also executed a financing statement containing the following language to describe the collateral:

All accounts receivable and contract rights owned or hereafter acquired.

All equipment now owned or hereafter acquired, including but not limited to, office furniture and uniforms.

The financing statement was filed with the secretary of state's office on March 3, 1982.

When debtor defaulted on its agreement with appellant in fall 1982, appellant brought suit against debtor, guarantors of debtor's obligations, and bank, asserting the priority of its alleged security interest in the debtor's accounts receivable. Bank answered and counterclaimed, asserting its perfected security interest in debtor's accounts receivable. Debtor filed a petition in bankruptcy, and the bankruptcy trustee disclaimed any interest in and to the accounts receivable.

This appeal presents the following issues:

1. How strictly should the Uniform Commercial Code (UCC) requirements regarding the sufficiency of descriptions of collateral in security agreements and financing statements be applied?

2. Is the description of collateral as "all of the property listed on Exhibit 'A' and made a part hereof, together with any property the debtor acquired after July 15, 1980," a sufficient description of the collateral to perfect appellant's security interest in debtor's accounts receivable acquired after July 15, 1980?

1. Under Minnesota's version of the UCC, Minn.Stat. ch. 336 (1984), to perfect a security interest in an item of property, the creditor must have possession of the item, or there must be a signed security agreement between the creditor and the debtor. Minn.Stat. Sec. 336.9-203(1)(a) (1984). Additionally, to perfect a security interest in most types of collateral, a financing statement must be filed with the appropriate state or county office. Minn.Stat. Secs. 336.9-302, 336.9-401 (1984).

Article 9 of chapter 336 requires both the financing statement and the security agreement to contain an identification of the property to be secured. See Minn.Stat. Secs. 336.9-203(1)(a), 336.9-402(1). Regarding a security agreement, Minn.Stat. Sec. 336.9-203 requires the agreement to contain "a description of the collateral." With respect to a financing statement, Minn.Stat. Sec. 336.9-402(1) requires "a statement indicating the types or describing the items, of collateral." To perfect a security interest, both the description in the security agreement and the description in the financing statement must be "sufficient." The sufficiency of a description is governed by Minn.Stat. Sec. 336.9-110 (1984), which states that "any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described."

There is a split of authority regarding the analysis and application of the UCC collateral description requirements. Some courts have read the language of these UCC provisions narrowly and strictly. See, e.g., In re Sarex Corp., 509 F.2d 689 (2d Cir.1975); In re Middle Atlantic Stud Welding Co., 503 F.2d 1133 (3d Cir.1974); Mammoth Cave Production Credit Association v. York, 429 S.W.2d 26 (Ky.1968). These courts have been unwilling to accept broad descriptions of collateral in financing statements and security agreements. Under the view adopted by these courts the description "any property" would be clearly insufficient.

Other courts, probably a majority, adopt a more liberal view. See, e.g., United States v. First National Bank, 470 F.2d 944 (8th Cir.1973); Credit Alliance Corp. v. Trigg, 41 U.C.C.Rep.Serv. (Callaghan) 208 (S.D.Miss.1985); In re Sunberg, 35 B.R. 777 (S.D.Iowa 1983); Bankers Trust Co. v. Zecher, 103 Misc.2d 777, 426 N.Y.S.2d 960 (N.Y.Sup.Ct.1980); Klingner v Pocono International Raceway, Inc., 289 Pa.Super. 484, 433 A.2d 1357 (1981); Milwaukee Mack Sales, Inc. v. First Wisconsin National Bank, 93 Wis.2d 589, 287 N.W.2d 708 (1980). The court in Klingner explained this view by stating: "The Code is meant to be comprehensive and flexible, and to free the law from artificial distinctions restricting the rational conduct of commercial financing." 289 Pa.Super. at 489, 433 A.2d at 1360.

Under this view, broad descriptions of collateral in security agreements have been held sufficient so long as it was possible to "reasonably identify" the items subject to the security interests. The court in First National Bank stated:

[W]e are not convinced that the requirement in Section 9-203 * * * that the collateral be described, is a device for minimizing the amount of collateral a creditor can secure. That may be a laudable goal, but it is not encompassed by Sec. 9-110. * * * [T]he purpose of a description of collateral in a security agreement is only to evidence the agreement of the parties and therefore it need only "make possible the identification of the thing described."

470 F.2d at 947. In First National Bank, the court held that the description in the security agreement as "all farm and other equipment" was adequate to perfect a security interest in the debtor's after-acquired irrigation equipment. Id. at 947-48. Similarly, in Milwaukee Mack Sales, the Wisconsin Supreme Court held that the description "all debtor's equipment" sufficed to perfect a security interest in the debtor's trucks. 93 Wis.2d at 599, 287 N.W.2d at 714. A Pennsylvania appellate court permitted an even broader description by holding in Klingner that the language "all of Borrower's personal property and fixtures" created a security interest in "tickets and their proceeds." 289 Pa.Super. at 492, 433 A.2d at 1361. Finally, in Leasing Service Corp. v. American National Bank & Trust Co., 19 U.C.C.Rep.Serv. (Callaghan) 252, 263 (D.N.J.1976), a federal district court allowed the very broad description in a security agreement of "any and all property wherever located" to create a security interest in all of the debtor's property. See also In re JCM Cooperative, Inc., 8 U.C.C.Rep.Serv. (Callaghan) 247 (Bankr.W.D.Mich.1970) (description of collateral as "the proceeds and products [thereof] of all other equipment--including but not limited to--all tangible personal property now owned by the debtor" sufficiently described accounts receivable funds resulting from proceeds or products of the debtor's tangible property).

Courts adopting this broad view of the UCC collateral description requirements have generally demanded even less detail and specificity for descriptions in financing statements. See, e.g., Thorp Commercial Corp. v. Northgate Industries, Inc., 654 F.2d 1245 (8th Cir.1981) ("assignment accounts receivable" perfected a security interest of all the debtor's accounts receivable); In re F.R. of North Dakota, Inc., 41 U.C.C.Rep.Serv. (Callaghan) 265 (Bankr.D.N.D.1985) ("all furniture, fixtures, and small wares" was a sufficient description of the debtor's assets for the financing statement, but not for the security agreement); In re Mitchell Bros. Construction, Inc., 41 U.C.C.Rep.Serv. (Callaghan) 1124 (Bankr.W.D.Wis.1985) ("sup...