Pearson v. Salina Coffee House, Inc.

61 B.R. 538, 1 U.C.C. Rep. Serv. 2d (West) 584, 1986 U.S. Dist. LEXIS 24606
CourtDistrict Court, D. Kansas
DecidedJune 4, 1986
DocketNo. 84-1869
StatusPublished
Cited by3 cases

This text of 61 B.R. 538 (Pearson v. Salina Coffee House, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pearson v. Salina Coffee House, Inc., 61 B.R. 538, 1 U.C.C. Rep. Serv. 2d (West) 584, 1986 U.S. Dist. LEXIS 24606 (D. Kan. 1986).

Opinion

MEMORANDUM AND ORDER

CROW, District Judge.

This case is before the court on appeal from a decision of the bankruptcy court filed December 6, 1984, 44 B.R. 875. The court is persuaded oral argument would not be of material benefit in resolving the issue presented and therefore denies the trustee’s request for oral argument.

The parties have stipulated to the relevant facts and the court finds it unnecessary to repeat them fully herein. It is sufficient to state that the trustee in bankruptcy, plaintiff, had filed a complaint to avoid defendant’s security interest under 11 U.S.C. § 544. The trustee claimed the security interest taken by Salina Coffee House, Inc. was unperfected because the financing statement and accompanying documents reflected the debtor’s trade name, “Hilton Inn,” instead of its general partnership’s legal name, “Beacon Realty Investment Co.” See Kan.Stat.Ann. 84-9-402(7). The bankruptcy court, noting a split of authority on the issue, found the trade name filing to be sufficient to perfect [539]*539the security interest. The bankruptcy court’s decision was based upon “equity principles” and focused in large part upon the fact that defendant, other creditors, and the public at large had no reason to believe “Hilton Inn” was other than an independent autonomous business. The trustee now appeals.

Kan.Stat.Ann. 84-9-402(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...” The U.C.C. official comment to that subsection states:

In the case of partnerships it contemplates filing in the partnership name, not in the names of any of the partners, and not in any other trade names. Trade names are deemed to be too uncertain and too likely not to be known to the secured party or person searching the record, to form the basis for a filing system.

In urging reversal of the bankruptcy court, the trustee relies upon this interpretation of the statute and upon numerous cases finding trade name to be ineffective as against a trustee in bankruptcy. See, e.g., In re Leichter, 471 F.2d 785 (2d Cir.1972); In re Thomas, 466 F.2d 51 (9th Cir.1972); In re LFT, Ltd., 36 B.R. 411 (Bankr.D.Hawaii 1984); In re My Place or Yours, Inc., 34 B.R. 197 (Bankr.D.Vt.1983); In re Amsco, Inc., 26 B.R. 358 (Bankr.D.Conn.1982); In re Moore, 21 B.R. 898 (Bankr.D.Tenn.1982).

Defendant argues that Kan.Stat.Ann. 84-9-402(7) does not state that filing under the partnership name is necessary but merely provides such filing is sufficient, that the U.C.C. does not specify whether the filing under a trade name is sufficient, and that the official comment relied upon by the trustee states the general rule to which there are exceptions. As such an exception, defendant relies upon Kan.Stat. Ann. 84-9-402(8) which states: “A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.” Defendant stresses that the debtor has consistently held itself out to the public under the name “Hilton Inn”; therefore, the trade name filing is not “seriously misleading.” See In re McBee, 714 F.2d 1316 (5th Cir.1983); (filing under trade name “Oak Hill Gun Shop” rather than under name of sole proprietor, Joe Colley, sufficient); In re Glasco, Inc., 642 F.2d 793 (5th Cir.1981) (filing under trade name “Elite Boats, Division of Glaseo, Inc.,” instead of under corporate name of “Glaseo, Inc.,” not seriously misleading).

In response, the trustee cites cases holding that where there is no resemblance between a debtor’s trade name and its legal name, use of the trade name in a financing statement is seriously misleading, or is beyond redemption on the theory that the error is minor and is not seriously misleading. See, e.g., In re Leichter, supra; In re Thomas, supra; In re Merrill, 9 U.C.C. Rep. 757 (D.Nev.1971); In re Brown, 7 U.C.C.Rep. 565 (D.Me.1970). Conversely, where a trade name is sufficiently related to the legal name so as to give notice of a possible prior existing security interest to anyone searching the records, cases have found a trade name filing sufficient to perfect a security interest. See, e.g., In re Hammons, 438 F.Supp. 1143, 1151 (S.D. Mass.1977); In re Firth, 363 F.Supp. 369, 372 n. 5 (M.D.Ga.1973); In re Platt, 257 F.Supp. 478 (E.D.Pa.1966).

Although neither the Tenth Circuit nor the Kansas Supreme Court has resolved the issue of trade name filing, the Kansas Court of Appeals has squarely addressed it in Records & Tapes, Inc. v. Argus, Inc., 8 Kan.App.2d 255, 655 P.2d 133 (1982). This court is not bound by the Argus decision as it was not rendered by the highest court of the state. See King v. Order of Travelers, 333 U.S. 153, 160-61, 68 S.Ct. 488, 492-93, 92 L.Ed. 608, 613 (1948). Nonetheless, that decision is a datum for ascertaining state law which is “not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of [540]*540the state would decide otherwise.” West v. A.T.&T Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139, 144 (1940); see Commissioner v. Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782-83, 18 L.Ed.2d 886, 893 (1967).

The issue in Argus was whether a creditor filing a financing statement listing the debtor by its trade name, “Argus Tapes and Records,” had priority over a creditor subsequently filing a financing statement listing the debtor by the name “Argus, Inc., d/b/a Argus Tapes and Records.” The debtor’s correct legal name was “Argus, Inc.” The court of appeals affirmed the trial court’s holding that the trade name filing was sufficient to perfect the security interest and accordingly determined that the creditor who filed first had priority.

In making that determination, the court of appeals noted Kan.Stat.Ann. 84-9-402(7) & (8) as well as the official U.C.C. comments thereto, but rejected as oversimplistic a rule that trade name filings are per se insufficient to perfect a security interest. 8 Kan.App.2d at 257, 655 P.2d 133. In recognition of the notice system of filing in Kansas, see Allis-Chalmers Cred. Corp. v. Cheney Investment, Inc., 227 Kan. 4, 7-8, 605 P.2d 525 (1980), the court of appeals based its decision upon the fact that potential creditors searching the record “could not reasonably have been misled” by the trade name filing.

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61 B.R. 538, 1 U.C.C. Rep. Serv. 2d (West) 584, 1986 U.S. Dist. LEXIS 24606, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pearson-v-salina-coffee-house-inc-ksd-1986.