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Page 1
124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC Rep.Serv.2d 920
(Cite as: 124 B.R. 465)
[6] Secured Transactions 349A 92.1 Second, the Debtor's actual knowledge of the secur-
ity interest is imputed to the debtor-in-possession
349A Secured Transactions and defeats Debtor's avoidance power under 11
349AII Perfection of Security Interest U.S.C. § 544(a);
349Ak92 Financing Statement
349Ak92.1 k. In General. Most Cited Third, since Debtor's reorganization plan has been
confirmed, avoidance of Raymond's security in- filed with the proper office, namely, the Maryland
terest would create a windfall for Debtor and would State Department of Assessments and Taxation, in
not benefit creditors. Therefore, Raymond's secur- favor of Werres as secured party and Raymond as
ity interest should be enforced as between Ray- assignee. Werres has duly assigned the contract to
mond and Debtor; and Raymond, and in fact originally entered into the
agreement for Raymond and with Raymond's ap-
Fourth, reservation of title in the lease agreement proval.
with Debtor was sufficient to establish an enforce-
able security interest. The contract forwarded to Debtor by Werres for ex-
ecution identified the lessee on the heading and sig-
nature line as Scan Furniture. Likewise, on the fin-
I.
ancing statement Scan Furniture was listed as the
debtor. When the signature lines on an addendum to
Findings of Fact the lease and on the financing statement were com-
pleted, it appears someone at Debtor's offices typed
in SCAN Furniture, Inc., since the type face is dif-
At all times in 1987 and 1988 prior to filing its peti-
ferent and these portions had not been completed
tion initiating this case, Debtor was a consumer
when the documents were forwarded to Debtor for
owned cooperative engaged in the retail furniture
signature.
business with 15 stores and 3 warehouses. It en-
gaged in business under the trade name of SCAN, Apparently, Raymond and then Werres became
and it was well known among consumers by the concerned about what entity was responsible for the
name SCAN. Debtor's written promotional material debt. Raymond's credit department reported intern-
identified it as SCAN, a division of Greenbelt Co- ally that it had no financial information other than
operative, Inc. Its order forms, stationery, and busi- sales *468 figures on Scan Furniture, and thus it
ness cards, as well as the name on its headquarters would require individual financials on Scan Fur-
building in Savage, Maryland, carried similar dual niture or a guarantee from Greenbelt Cooperative,
identification. Checks used to pay vendors carried which it described as the parent company. At the
the name Greenbelt Cooperative, Inc., and the tele- request of Werres, by letter dated June 16, 1987,
phones were answered by operators who recited Debtor confirmed to Werres “that Greenbelt Co-
Greenbelt Cooperative. Debtor's annual report for operative, Inc. is responsible for the obligations of
1987 identified it as Greenbelt Cooperative, Inc. Scan Furniture as related to the Raymond Leasing
and contained text references to SCAN's activities. Agreement”. Thereafter, the financing statement
This report was circulated to all 115,000 of Debt- was filed listing Scan Furniture as the debtor, and
or's members and any vendors who requested it. there was never an additional filing which in any
way identified Greenbelt Cooperative, Inc. as the
Under date of May 4, 1987, Debtor executed a con-
debtor.
tract denominated an equipment lease with defend-
ant Werres Corporation (“Werres”). At the conclu- Two gentlemen with extensive experience in equip-
sion of the lease term, Debtor could purchase the ment leasing, William Single, Esquire, for Debtor
equipment, which consisted of forklifts, racking and George L. Beck, for defendants, were in sub-
and related items, for $1.00. The court has previ- stantial agreement. Each testified that his practice
ously granted partial summary judgment for Debtor in searching liens was to obtain a debtor/lessee's
that this contract was intended as a security agree- legal name and to check both the legal name and
ment for the purchase price, and it was not a true known trade names. Mr. Single testified further that
lease. On July 6, 1987 a financing statement was his practice was to file financing statements under
In Glasco, the court held that where a debtor held The conclusion here is consistent with dictum of
itself out to creditors as “Elite Boats, Division of the Court of Appeals for the Fourth Circuit in the
Glasco, Inc.” reasonably prudent creditors would be recent case of In re Bumper Sales, Inc., 907 F.2d
required to search under the trade name, “Elite 1430 (4th Cir.1990) where the court held under Vir-
Boats” in addition to its legal name, “Glasco, Inc.” ginia law that the secured creditor's use of its trade
Id. name on the financing statement was not seriously
misleading. Id. at 1435. After quoting from Sec-
A rule such as that articulated by the Fifth Circuit tions 9-402(1) and 9-402(8) of Virginia's Uniform
in Glasco, and followed in McBee, would introduce Commercial Code, which are worded identically to
uncertainty into commercial transactions. A secured the comparable Maryland sections quoted above, in
creditor, to be assured of protection for its security considering the name used by the secured party the
interest priority, would be at risk to identify and court explained:
search under all trade names by which a corporate
entity might be known. This is a particularly oner- The issue is “whether or not ‘a reasonably dili-
ous and unrealistic for nonlocal financial institu- gent searcher’ would be misled by the irregular-
tions, such as Raymond in this case, which are not ity.” In re Bosson, 432 F.Supp. 1013, 1017
familiar with the conduct of local businesses. (D.Conn.1977) (quoting J. White & R. Summers,
Handbook of the Law Under The Uniform Com-
Considering ease of administration of the statute, it mercial Code 839 (1972)). This is determined on
would appear much more efficient and certain to re- a case by case basis. The rationale for this min-
quire all concerned parties to operate with reference imal threshold is that the financing statement is
to the legal name of the debtor. If a creditor is al- designed to “indicate[ ] merely that the secured
lowed to file the financing statement under a trade party who has filed may have a security interest
name of the debtor, then each subsequent creditor in the collateral described. Further inquiry from
will need to determine and check under both the the parties concerned will be necessary to dis-
trade name, perhaps more than one, and the legal close the complete state of affairs.” Official
name of a debtor. It would be more straight forward Comment # 2, Va.Code § 8.9-402. See also In re
for the original creditor and each subsequent credit- Varney Wood Prods., Inc., 458 F.2d 435 (4th
or to determine the legal name of the debtor and file Cir.1972); Hixon v. Credit Alliance Corp., 235
and search under that one name. Va. 466, 369 S.E.2d 169 (1988).
This court concludes a Maryland court would apply Some courts have found that the use of the
a rule which requires, for it to be effective, that a debtor's trade name on the financing statement
financing statement be filed either under the legal is “seriously misleading” and not “minor er-
name of the debtor or under a name which is sub- ror.” See, e.g., Pearson v. Salina Coffee House,
stantially similar to the legal name of the debtor, so Inc., 831 F.2d 1531 (10th Cir.1987); In *471 re
that it would not mislead a reasonably diligent cred- Thomas, 466 F.2d 51 (9th Cir.1972); and Greg
itor searching the financing records. A creditor Restaurant Equipment & Supplies, Inc. v. Val-
should only be required to search under the legal way, 144 Vt. 59, 472 A.2d 1241 (1984).
name of a debtor to obtain notice of a security in- However, others have upheld the use of a debt-
terest or to be put on notice to inquire further. Such or's trade name. See, e.g., In re Glasco, Inc.,
a rule follows the weight of authority, it makes 642 F.2d 793 (5th Cir.1981). The court's con-
commercial sense, it promotes uniformity, and it is cern is understandable, because a prospective
sufficiently flexible to accommodate minor errors creditor checking to see if a financing state-
and oversights which are not misleading. ment has been filed may look only under the
perfected security interest in personal property, and The court continued, quoting Clark, The Law of Se-
knowledge is not a factor. Md.Com.Law Code Ann. cured Transactions Under the Uniform Commercial
§ 9-301(1)(b) (1990 Cum.Supp.). Compare Code Paragraph 3.2[2], at 3-8 (1980): “ ‘The secur-
Md.Com.Law Code Ann. § 9-301(1)(b) (1975), be- ity interest need not be perfected to be enforceable
fore it was amended by Md.Laws 1980, Ch. 824 to against the debtor; perfection is important only in-
delete the phrase “without knowledge of the secur- sofar as adverse third parties have entered the pic-
ity interest.” ture.’ ” Id. at 742. The analysis of the court is set
forth below:
tero have not been altered by the Bankruptcy Code, be able to make its deferred plan payments.
the court does not find them applicable in this case.
The controlling standard is not, as Raymond con- Further, the possibility of recovery in this proceed-
tends, whether the avoidance of Raymond's lien ing was a factor available to creditors in negotiating
either will result in a greater promised payment to or eliciting more favorable plan terms than Debtor
other creditors or is necessary to make promised might otherwise have proposed. There was an act-
plan payments. Rather, the controlling standard is ive committee of creditors, and Debtor's complaint
whether there will be some benefit to creditors from was filed before the confirmation hearing. The
the avoidance. The latter standard has been satisfied postpetition timing of the hearing and decision in
here. this case should not affect the merits of Debtor's
avoidance claim. It is benefit to Debtor's successful
This is a case under Chapter 11, where the acknow- reorganization which is the determinative element.
ledged purpose is a successful reorganization. As
stated in the House Report for the Bankruptcy Re- A case which contains many similarities to the in-
form Act of 1978: stant proceeding is In re Funding Systems Asset
Management Corp., 111 B.R. 500
The purpose of a business reorganization case, (Bankr.W.D.Pa.1990). In Funding Systems, the
unlike a liquidation case, is to restructure a busi- debtor equipment lessor sought, under 11 U.S.C. §
ness's finances so that it may continue to operate, 544(a)(1), to avoid security interests it had granted
provide its employees with jobs, pay its creditors, to Chemical in several computer leases because
and produce a return for its stockholders. The Chemical had failed to perfect its security interests
premise of a business reorganization is that assets as of the petition date. Id. at 502. The adversary
that are used for production in the industry for proceeding was commenced before confirmation of
which they were designed are more valuable than Funding Systems' plan, but it was decided after
those same assets sold for scrap. Often, the return confirmation. The court found Chemical had failed
on assets that a business can produce is inad- to perfect its security interest in most of the leases
equate to compensate those who have invested in prepetition. Therefore, the court held, inter alia,
the business. Cash flow problems may develop, that Chemical became an unsecured creditor as to
and require creditors of the business, both trade those leases on the petition date because of its fail-
creditors and long-term lenders, to wait for pay- ure to perfect; its rights in the leases became subor-
ment of their claims. If the business can extend or dinate to those of Funding Systems; and its security
reduce its debts, it often can be returned to a vi- interests could be avoided under Section 544(a)(1).
able state. It is more economically efficient to re- Id. at 522.
organize than to liquidate, because it preserves
jobs and assets. Chemical maintained, nevertheless, that lien avoid-
ance should not be permitted where it benefited
H.R.Rep. No. 95-595, 95th Cong. 1st Sess., Ch. 5, only the debtor and was not necessary for the debt-
Pt. I at 220. (1977), U.S.Code Cong. & Ad- or to meet its obligations to other creditors. Id. at
min.News 1978, pp. 5787, 6179. Debtor's plan re- 523. The court in Funding Systems rejected Chem-
quires deferred payments to certain classes of cred- ical's contention. Id. Its explanation is applicable in
itors. It also provided substantial cash payments to the instant situation.
creditors on its effective date. A recovery by Debt-
or in this proceeding will improve Debtor's finan- This is not the appropriate standard for determ-
cial health to the extent of the recovery. It will ining whether recovery by *474 Debtor in this in-
thereby increase the likelihood that Debtor's reor- stance would benefit its unsecured creditors. The
ganization will be successful and that Debtor will necessity of such recovery in order for Debtor to
be able to meet its obligation to unsecured credit- plicable in the instant proceeding. Rather, permit-
ors is not relevant. What matters is whether unse- ting debtor to exercise its avoidance powers will
cured creditors will receive “... some benefit from promote the success of the reorganization plan.
the recovery of the preferences, even if it is not
an increase in the amount the creditors will re-
D.
ceive.” In re Centennial Industries, Inc., 12 B.R.
99, 102 (Bankr.S.D.N.Y.1981). All that is re- [6] Raymond argues finally that a reservation of
quired is that recovery by Debtor will increase its title under a lease is a security interest. Maryland
assets and improve its financial health to the ex- Commercial Law Code Ann. § 1-201(37)
tent that the likelihood is improved of its being (Supp.1990) defines the term “security interest” in
able to satisfy its obligations to its creditors un- part as:
der the Plan. In re Tennesse Wheel & Rubber Co.,
64 B.R. 721, 724 (Bankr.M.D.Tenn.1986), aff'd [A]n agreement that upon compliance with the
mem., 75 B.R. 1 (M.D.Tenn.1987), citing, In re terms of the lease the lessee shall become or has
Southern Indus. Banking Corp., 59 B.R. 638 the option to become the owner of the property
(Bankr.E.D.Tenn.1986). for no additional consideration or for a nominal
consideration does make the lease one intended
Id. for security.
The equitable principles applied in the Vintero case The argument that the lease created a security in-
were followed in In re Chapman, 51 B.R. 663 terest does not bolster Raymond's position. What
(Bankr.D.C.1985) where a Chapter 13 debtor was the cases cited by Raymond do not contradict is that
not allowed to apply the strong arm clause of 11 where a lease is intended as a security agreement, a
U.S.C. § 544(a)(3) to avoid a third trust lien on the financing statement still must be filed in order to
debtor's residence. The debtor's plan proposed to perfect the creditor's security interest.
pay the only unsecured creditor just $1.00; but be- Md.Com.Law Code Ann. § 9-402. Consequently,
cause the unsecured creditor had not filed a claim the question still remains whether Raymond's se-
before the bar date, it in fact would receive nothing. curity interest was perfected, and for the reasons
Id. at 665. Since debtor's plan provided only de previously set forth, the court finds it was not.
minimis benefit, if any, to only one general creditor,
and since avoidance of the lien would benefit only
the debtor, the court found Section 544(a)(3) should III.
not be applied to invalidate the third trust. Id. at
666. Further, in Chapman, and as the court stated in Summary
Vintero, 735 F.2d at 742, no creditor would be ad-
versely affected by enforcement of the unperfected
lien against the debtor. Chapman, 51 B.R. at 666. In summary, Raymond's security interest in the
Another situation where Vintero's equitable prin- equipment under lease to Greenbelt Cooperative,
ciples might be applicable suggested in In re Inc. is valid against that company, but it was not
Howard's Appliance Corp., 874 F.2d 88, 95 (2nd perfected under Maryland law against third party
Cir.1989) is where the debtor is estopped by its creditors. Therefore, it may be avoided by Debtor,
own misconduct from seeking lien avoidance for its in its capacity as debtor-in-possession, under 11
own benefit. U.S.C. § 544(a)(1). Since avoidance of Raymond's
security interest will enhance the likelihood of
None of these considerations for not applying the Debtor's successful reorganization, avoidance does
strong arm clause of 11 U.S.C. § 544(a)(1) are ap- not constitute a windfall to Debtor without benefit
Bkrtcy.D.Md.,1991.
In re Greenbelt Co-op., Inc.
124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC
Rep.Serv.2d 920
END OF DOCUMENT
The material accompanying this summary is subject to copyright. Usage is governed by contract with Thomson Reuters,
West and their affiliates.
Date of Printing: Oct 26, 2010
KEYCITE
In re Greenbelt Co-op., Inc., 124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC Rep.Serv.2d 920
(Bankr.D.Md.,Feb 12, 1991) (NO. 88-5-3199-SD, A89-0186-SD)
History
Direct History
=> 1 In re Greenbelt Co-op., Inc., 124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC Rep.Serv.2d 920
(Bankr.D.Md. Feb 12, 1991) (NO. 88-5-3199-SD, A89-0186-SD)
Declined to Extend by
2 Rinn v. First Union Nat. Bank of Maryland, 176 B.R. 401, 25 UCC Rep.Serv.2d 1057 (D.Md. Jan
05, 1995) (NO. CIV. A. MJG-94-2030) HN: 4 (B.R.)
3 In re Coleman, 285 B.R. 892, 90 A.F.T.R.2d 2002-6819 (Bankr.W.D.Va. Sep 17, 2002) (NO.
7-01-00047, 7-01-01199-WSB-11) HN: 5 (B.R.)
Distinguished by
4 Dunes Hotel Associates v. Hyatt Corp., 245 B.R. 492 (D.S.C. Feb 18, 2000) (NO. C/A
2:98-535-18) HN: 5 (B.R.)
5 In re Levitsky, 401 B.R. 695 (Bankr.D.Md. Sep 30, 2008) (NO. 04-16203-JS, ADV. 04-2024,
ADV.05-1254) HN: 1,3,4 (B.R.)
The material accompanying this summary is subject to copyright. Usage is governed by contract with Thomson Reuters,
West and their affiliates.
Date of Printing: Oct 26, 2010
KEYCITE
In re Greenbelt Co-op., Inc., 124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC Rep.Serv.2d 920
(Bankr.D.Md., Feb 12, 1991) (NO. 88-5-3199-SD, A89-0186-SD)
The material accompanying this summary is subject to copyright. Usage is governed by contract with Thomson Reuters,
West and their affiliates.
Date of Printing: Oct 26, 2010
KEYCITE
In re Greenbelt Co-op., Inc., 124 B.R. 465, Bankr. L. Rep. P 73,853, 14 UCC Rep.Serv.2d 920
(Bankr.D.Md. Feb 12, 1991) (NO. 88-5-3199-SD, A89-0186-SD)
Citing References
Declined to Extend by
1 In re Coleman, 285 B.R. 892, 911+, 90 A.F.T.R.2d 2002-6819, 2002-6819+ (Bankr.W.D.Va. Sep
17, 2002) (NO. 7-01-00047, 7-01-01199-WSB-11) HN: 5 (B.R.)
2 Rinn v. First Union Nat. Bank of Maryland, 176 B.R. 401, 411, 25 UCC Rep.Serv.2d 1057, 1057
(D.Md. Jan 05, 1995) (NO. CIV. A. MJG-94-2030) HN: 4 (B.R.)
Distinguished by
3 In re Levitsky, 401 B.R. 695, 717+ (Bankr.D.Md. Sep 30, 2008) (NO. 04-16203-JS, ADV.
04-2024, ADV.05-1254) HN: 1,3,4 (B.R.)
4 Dunes Hotel Associates v. Hyatt Corp., 245 B.R. 492, 508+ (D.S.C. Feb 18, 2000) (NO. C/A
2:98-535-18) " HN: 5 (B.R.)
Examined
5 In re Glanz, 205 B.R. 750, 753+, 30 Bankr.Ct.Dec. 618, 618+ (Bankr.D.Md. Feb 26, 1997) (NO.
95-1-6794-DK, 96-1-A198-DK) " HN: 4,5 (B.R.)
Discussed
6 In re Derrick, 190 B.R. 346, 351+, 34 Collier Bankr.Cas.2d 1429, 1429+ (Bankr.W.D.Wis. Oct
13, 1995) (NO. 93-10404-12, A93-1028-12) " HN: 4 (B.R.)
7 In re Smith, 155 B.R. 145, 148+ (Bankr.S.D.W.Va. Jun 01, 1993) (NO. 92-0114, 92-20159) "
HN: 4,5 (B.R.)
Cited
8 In re CL Furniture Galleries, Inc., 1995 WL 756853, *5 (N.D.Ill. Dec 20, 1995) (NO. 95 C
50103) HN: 1 (B.R.)
9 In re Harstad, 1994 WL 526013, *1 (D.Minn. Jan 20, 1994) (NO. BKY 4-90-869, CIV. 3-93-512)
HN: 5 (B.R.)
10 In re Thriftway Auto Supply, Inc., 159 B.R. 948, 952, 22 UCC Rep.Serv.2d 605, 605 (W.D.Okla.
Oct 19, 1993) (NO. BK-93-1054-BH, CIV-93-1560-A) HN: 1 (B.R.)
Mentioned
17 In re Chama, Inc., 265 B.R. 662, 668, 46 UCC Rep.Serv.2d 278, 278 (Bankr.D.Del. Apr 26,
2000) (NO. 98-2252 (MFW), A-99-301 (MFW)) HN: 5 (B.R.)
Court Documents
Appellate Briefs
39 In Re: Molly Jane COLEMAN, Debtor; Roger Coleman, Plaintiff, Molly Jane Coleman, Debtor-
Appellant/Cross-Appellee, v. Community Trust Bank dba Pikeville National Bank & Trust, De-
fendant-Appellee/Cross-Appellant, Internal Revenue Service, Claimant-Appellee, United States
Trustee for the District of Maryland, Trustee., 2004 WL 3489016, *3489016+ (Appellate Brief)
(4th Cir. Sep 29, 2004) Brief of Appellee/Cross-Appellant (NO. 03-2328(L)) HN: 4,5
(B.R.)
40 In Re: Molly Jane COLEMAN, Debtor; Roger Coleman, Plaintiff, Molly Jane Coleman, Debtor-
Appellant/Cross-Appellee, v. Community Trust Bank dba Pikeville National Bank & Trust, De-
fendant-Appellee/Cross-Appellant, Internal Revenue Service, Claimant-Appellee, United States
Trustee for the District of Maryland, Trustee., 2004 WL 3489017, *3489017+ (Appellate Brief)
(4th Cir. Aug 27, 2004) Brief Of Appellant/Cross-Appellee Molly Jane Coleman (NO.
03-2328(L)03-2347) HN: 5 (B.R.)
41 DUNES HOTEL ASSOCIATES a South Carolina general partnership, in its capacity as the Debt-
or-in-Possession, representative of its Estate, Appellant, v. HYATT CORPORATION, a
Delaware corporation; and S.C. Hyatt Corporation, a South Carolina corporation, Appellees.,
1997 WL 33619042, *33619042+ (Appellate Brief) (4th Cir. Sep 15, 1997) Appellees' Respons-
ive Brief on Appeal Submitted by Hyatt Corporation and S.C. Hyatt Corporation (NO.
97-1774(L), 97-1943) " HN: 5 (B.R.)