Opinion ID: 1299095
Heading Depth: 1
Heading Rank: 5

Heading: Did Sac City have a Security Interest in Assets Later Acquired by TJC, Inc.?

Text: The record discloses the money held by the stakeholder bank resulted from the sale of assets of TJC, Inc. Some of these assets were acquired from Tommy Johnson and subject to the perfected security interest of Sac City. The corporation acquired other assets after it took over the dealership. Citizens insists Sac City had no security interest in the corporation's after-acquired personal property because Sac City did not have possession of this personalty or a security agreement signed by the corporation, citing subsection 554.9203(1), The Code, and Kaiser Aluminum & Chemical Sales, Inc. v. Hurst, 176 N.W.2d 166, 168 (Iowa 1970). Sac City seeks to cloak the corporation's after-acquired property with its security interest in Tommy Johnson's transferred assets, placing reliance on the second sentence of subsection 554.9402(7), The Code: 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 the 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 debtor even though the secured party knows of the transfer. (Emphasis added.) We have carefully analyzed the second sentence of this section. It distinguishes between debtor and organization in the first clause. However, the UCC definitions of debtor and organization may overlap. See §§ 554.9105(1)(d) (debtor),.1201(30) (person), .1201(28) (organization), The Code. Consequently, we conclude the first reference to debtor refers to individual debtors. See id. §§ 554.9105(1)(d),.1201(30). The second reference to debtor includes both individuals and organizations. See id. §§ 554.9105(1)(d),.1201(30), .1201(28). Sac City analyzes the situation before us as one of a mere name change that was not seriously misleading, hence its security interest covered after-acquired personalty of the corporation. There are at least three fatal flaws in this analysis. First, this was not a name change situation. The dealership had been operated as a sole proprietorship. Thomas S. Johnson did not change his name. A corporation was formed with four stockholders: Thomas Johnson, Corinne Johnson, Gerald Bunker, and Bob Johnson. Although the address, employees, phone number, and business remained the same after incorporation, the business structure, documentation, employer's identification numbers, tax forms, checking accounts, and advertising did change. Sac City made no effort to establish those factors to be considered in piercing the corporate veil. See Northwestern National Bank v. Metro Center, Inc., 303 N.W.2d 395, 398-99 (Iowa 1981). On this record we cannot view the corporation as the alter ego of Johnson. We must treat it as a distinct and different legal entity. This leads us to the second flaw. The corporation cannot be viewed as the debtor as that reference appears for the second time in the second sentence in subsection 554.9402(7). Following the context of the sentence as applied to the facts of this case, the debtor acquiring collateral must be the same debtor whose name, identity, or corporate structure has been changed. But TJC, Inc., did not undergo any of these changes. Finally, Sac City's financing statement was insufficient to perfect a security interest in after-acquired property of the corporation. Subsection 554.9402(1), The Code 1971, required that the financing statement be signed by the debtor. Further, section 554.9402(3), The Code 1971, makes it clear that the name of the debtor should be on the financing statement. See also § 554.9403(4), The Code. Sac City's financing statement does not carry the name of TJC, Inc. Thus even if Sac City had a security interest in the corporation's after-acquired property, it was never perfected. Many of the conflicting authorities relied on by the respective parties are exhaustively analyzed by William M. Burke, Chairman of the Committee on Uniform Commercial Code of the American Bar Association Section on Corporation, Banking and Business Law, in The Duty to Refile Under Section 9-402(7) of the Revised Article 9, 35 Bus. Law. 1083 (1980). Burke thus distills the rule that in varying factual situations will best withstand rigid scrutiny under applicable UCC provisions: With respect to new property acquired by the transferee, the secured creditor must establish both the existence of security interest in the property and perfection of the security interest. Assuming that the secured creditor can establish the existence of a security interest in the property acquired by the transferee, the last sentence of section [554.9402(7), The Code] clearly does not operate to perfect the security interest. The new property acquired by the transferee is by definition not collateral transferred by the debtor, within the meaning of the last sentence of section [554.9402(7), The Code]; and a financing statement filed in the name of the transferor can not perfect a security interest in property acquired by the transferee. As to new property acquired by the transferee after the transfer, the secured creditor should obtain a new security agreement signed by the transferee and file a new financing statement signed by the transferee. Burke, 35 Bus.Law. at 1100 (emphasis added and footnotes omitted). In this case Sac City did not demand a new security agreement and financing statement from the corporation, although it knew of the incorporation before Citizens filed its financing statement. Because Sac City's financing statement was inadequate to perfect a security interest in the corporation's after-acquired personalty, Citizen's security interest prevails as to this property or its proceeds. See §§ 554.9301, .9312, The Code.