Court Opinion

ID: 9687238
Source: CourtListenerOpinion
Date Created: 2023-08-24 16:19:53.177304+00
Date Added: 2024-06-11T18:18:25.073198
License: Public Domain

HUGHES, Bankruptcy Judge,
dissenting:
My reading of the California Commercial Code as construed by California courts leads me to conclude that omission of Mrs. Biane’s name from the financing statement prevented the bank’s security interest in her property from becoming perfected. Accordingly, the bank’s security interest should be subordinated to the rights of her trustee in bankruptcy, which rights she holds as debtor-in-possession.
I
The only question presented by this appeal is whether the bank’s security interest is perfected. If Carolyn’s ownership were not affected by community property law, e.g., were she an unmarried co-tenant, the authorities would compel us to hold the financing statement invalid as to Carolyn’s creditors.
The leading case construing the relevant sections of California’s Commercial Code is K. N. C. Wholesale, Inc. v. AWMCO, Inc., 56 Cal.App.3d 315, 128 Cal.Rptr. 345 (1976), which held a financing statement that listed the non-owner parent corporation but not the owner subsidiary corporation to be deficient. After reciting Cal.Comm.Code § 9105(l)(d), the court stated:
The purpose of the filing requirements for perfection of security interest is to guarantee that third parties will have notice of existing security interests in collateral, thus protecting credit transactions. (See § 9402, Un.Com.Code comment 2, 3). In, cases where the “debtor” is not the owner but has only obtained his rights in the collateral due to the owner’s permission, a financing statement in the name of the “debtor” alone fails to give subsequent creditors of the owner any notice that the collateral is subject to a prior security interest. To avoid such potential fraud or misrepresentation, the term “debtor” as used in section 9402 must be taken as referring to both the actual debtor and the owner of the collateral, i.e., both names are required on the financing statement to perfect the security interest. (Emphasis in original).
This construction has been applied to joint-ownership cases. See, for example, G. F. C. Credit Corporation of Alabama v. Bancroft, 2 B.C.D. 524 (S.D.Ala.1976), where failure to give the names of both co-tenants rendered the financing statement invalid as to creditors of the omitted co-tenant.
*663The majority distinguishes these and other cases on the grounds that they do not involve community property ownership. It then states three reasons why this should make a difference:
1. “[Cjreditors and potential creditors of married persons living in community property states are under constructive notice that the spouses of those married persons have the power to and may commit community assets ... to security agreements.”
2. “Absent a statutory mandate, we see no reason to provide additional notice...”
3. “[S]uch a requirement could result in an unwarranted impediment to and confusion of commercial transactions.”
Each of these premises will be considered.
II
The first premise should not be read literally. An unperfected security interest is subordinate to a subsequent, perfected security interest even if the latter creditor had actual knowledge of the prior security interest. In re Smith, 326 F.Supp. 1311 (D.Minn.1971). Even a lien claimants’ priority over unperfected security interests is not conditioned on lack of knowledge of either the power to encumber or the fact of a prior encumbrance. Cal.Comm.Code § 9301(l)(b), (3).
Instead, I understand the majority to say that because Carolyn’s creditors had constructive notice of Pierre’s power to encumber her property, and because they could protect themselves by running a financing statement cheek under Pierre’s name, perfection as to those creditors is excused. This assumes, however, that Carolyn’s creditors know her marital status and her spouse’s name, which places a burden of inquiry on them that is not contemplated by the Commercial Code. On the other hand, the bank has to obtain this same knowledge if, as appellants insist, it is required to mention her name in the financing statement.
The question, it seems to me, comes down to who should bear the burden of inquiry. In a related context, this circuit has stated that “[t]he secured party, not the debtor or uninvolved third parties, has the duty of insuring proper filing and indexing of the notice.” In re Thomas, 466 F.2d 51, 53 (9th Cir. 1972). The majority justifies shifting that burden from the bank to uninvolved third parties with its second and third premises.
The second, absence of statutory mandate for additional notice, would seem to beg the question of whether the present statute requires the bank to give Carolyn’s name. We construe the statute to determine its mandate.
As an abstract matter, the third premise is plausible: commerce might well be impeded by requiring lenders (such as the bank) to learn the marital status of their borrowers and to place the spouses’ names on financing statements. The majority does not eliminate the burden of inquiry, however; it merely shifts that burden from one class of creditors to another, both of whom are engaged in commercial transactions.
Furthermore, the record is to the contrary. The bank obtained Carolyn’s signature on other commercial documents, including a guarantee of the debt underlying this controversy. There is no suggestion that learning the information needed to mention Carolyn in the financing statement impeded this transaction.
The bank also points to the requirement in Cal.Comm.Code § 9402(1) that a financing statement be signed by the debtor-owner. Assuming arguendo that requiring Mrs. Biane’s signature would be burdensome, it does not appear that it is required. The financing statement need “either ... be signed by the debtor or .. . contain the debtor’s name.” K. N. C. Wholesale, Inc. v. AWMCO, Inc., supra. The court concluded: “The financing statement . .. does not contain any reference to AWMCO, the owner of the collateral, and is therefore defective.”
Ill
I would hold that, as to Mrs. Biane’s community property interest in the collater*664al, the financing statement is defective because it does not contain any reference to her. This is the mandate of Cal.Comm. Code §§ 9402(1) and 9105(l)(d).