Opinion ID: 1178333
Heading Depth: 2
Heading Rank: 4

Heading: Transfer of Corporation Assets.

Text: Plaintiff's contention is that while there may have been compliance with the mechanical requirements of Section 55-9-505(2), nonetheless, this Court should look beneath a mechanical application of this section to see whether the plaintiff, as a creditor, is entitled to set aside the district court's summary judgment. Plaintiff relies upon Reeves v. Foutz and Tanner, Inc., 94 N.M. 760, 617 P.2d 149 (1980) and a supposed violation of the Uniform Fraudulent Conveyance Act, Sections 56-10-1 through 56-10-13, N.M.S.A. 1978, to support his contention. Section 55-9-505(2) states in part: (2) In any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation. Written notice of such proposal shall be sent to the debtor and    to any other secured party    who has duly filed a financing statement indexed in the name of the debtor in this state or is known by the secured party in possession to have a security interest in it. If the debtor or other person entitled to receive notification objects in writing within thirty days from the receipt of the notification or if any other secured party objects in writing within thirty days after the secured party obtains possession the secured party must dispose of the collateral under Section 9-504 [citation omitted]. In the absence of such written objection the secured party may retain the collateral in satisfaction of the debtor's obligation. (Emphasis added.) This section of the Uniform Commercial Code generally recognizes that a secured party, or an assignee of a secured party, may frequently be better off without a resale of the collateral. Hence, this section sanctions an alternative arrangement on certain conditions, and with certain exceptions, whereby the secured party, or assignee, may keep the collateral as his own, upon giving notice to the debtor and other secured parties known to the person making the proposal. Annot., 55 A.L.R.3d 651 (1974); Nelson v. Armstrong, 99 Idaho 422, 582 P.2d 1100 (1978); Haufler v. Ardinger, 28 U.C.C.Rep. 893 (1979). In this case, defendant Gozard became the assignee of the secured party when he paid off a promissory note to the American Bank of Commerce, in addition to other outstanding debts. In order to protect the position he had assumed, Gozard took an assignment of the bank's security interest that covered the restaurant's operating equipment. Gozard, therefore, was in possession of the collateral pursuant to the terms of the security agreement, as an assignee, as provided in Section 55-9-503, N.M.S.A. 1978. See Citizens National Bank v. Osetek, 353 F. Supp. 958 (D.C.N.Y. 1973). Gozard entered into active operation of the restaurant and has maintained it as a business ever since. He sent notice to the corporation that he intended to retain the operating equipment in satisfaction of the corporation's debt to him. There are no other secured parties in this case otherwise entitled to receive notice of Gozard's intention to retain the collateral. Defendant Gozard complied with the statutory requirements to retain the collateral in Section 55-9-505(2). Plaintiff, on the other hand, undertook no affirmative action to secure his position, nor paid any amount of the debt owing on the promissory note, nor paid any amount of the other outstanding debts owed, nor demonstrated his interest to further participate in the operation of the business. We find no circumstances in the present case which show that defendant Gozard has failed to comply with the provisions set out in Section 55-9-505(2). Plaintiff's reliance on Reeves v. Foutz and Tanner, Inc., supra , is misplaced. That case is authority for the proposition that, under Section 55-9-505(2), a creditor who has properly taken possession of collateral, and intends to retain possession thereof, must, if he intends to resell the collateral, account for any surplus from the sale to the debtor, pursuant to Section 55-9-504, N.M.S.A. 1978. Reeves does not support the rule that one must look beyond the application of Section 55-9-505(2) to determine whether an unsecured creditor's rights are entitled to rise to a position equal to or greater than the rights of an assignee of a secured party who has otherwise declared his intention to retain the collateral under Section 55-9-505(2). Further, in answer to plaintiff's contentions, we believe the Uniform Fraudulent Conveyance Act to be inapplicable. The purpose of that Act is to protect creditors when a debtor has made a conveyance of his property which diminishes the creditor's assets to the detriment of the rights of the creditor. First Nat. Bank in Albuquerque v. Abraham, 97 N.M. 288, 639 P.2d 575 (1982). In this case, the debtor is the corporation, and the corporation did not make a conveyance of the collateral to the prejudice of the plaintiff. Instead, defendant Gozard, as the assignee of the secured party, took possession of the collateral from the bank pursuant to Section 55-9-505(2). Accordingly, under the facts as they appear in the record in this case, and absent any badges or emblems of fraud alleged or proven, the provisions of the Uniform Fraudulent Conveyance Act are not controlling. First Nat. Bank in Albuquerque v. Abraham, supra .