Court Opinion

ID: 6551371
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:26:41.408399+00
Date Added: 2024-06-11T15:56:07.021202
License: Public Domain

Judith Rogers, Judge, dissenting. In this opinion, the majority at least tacitly recognizes that the description contained in the bank’s financing statement is inadequate. Yet, it is being held that this description should be deemed adequate because of certain facts presumed to have been known by appellee’s agent, Newman. Assuming for the moment that “actual knowledge” is relevant to a determination as to whether a description is sufficient, it is unclear to me whether the majority is holding that Newman actually knew of the bank’s prior security interest, or whether he was possessed of sufficient knowledge such that he should have had constructive notice of the bank’s lien. Nevertheless, neither proposition is supported by the facts, and for this court to make such assumptions based on this record is beyond the realm of our appellate review, even when our review is de novo. In order to demonstrate my point, further elaboration on the “facts” is necessary. In April of 1983, Newman met with Stafford who was then only considering going into the chicken restaurant business. At this time, Stafford was seeking an idea of the estimated cost of this type of undertaking, and in response Newman prepared an estimate listing the necessary equipment and its cost. In speaking of this proposal, Stafford testified that it was “rough-scratched.” The site of the business was not determined until some three months later, and actual construction was not begun until September. There is no evidence in the record that Stafford and Newman had ever had any business dealings together prior to this instance, or afterwards. In the meantime, Stafford obtained a loan from the bank using the estimate, which was referenced as an attachment to the security agreement entered into by those parties. The security agreement was not filed along with the bank’s financing statement in August. According to Newman’s testimony, he did not know that the estimate he provided would be used to obtain a loan. He further testified that he was unaware of the particular financing arrangements Stafford had made. This testimony was obviously credited by the trial court in its denial of the appellants’ defense of unclean hands. The appellants contended that the actual cost of the equipment supplied was much lower than that reflected in the original estimate. Appellants thus argued that Stafford and Newman had colluded to inflate the cost of the equipment in the proposal in order for Stafford to obtain a higher loan. In our original opinion in this matter, we said that the credibility and the weight to be given the testimony are matters for the determination of the trial court, and the appellate court is not at liberty to disregard any testimony which the trial court has accorded some weight, citing Herrick v. Robinson, 267 Ark. 592, 595 S.W.2d 647 (1980). Yet, the majority has now concluded that the appellee had “actual knowledge,” based upon the facts that Newman delivered the equipment, and the financing statement named the debtor as “Stafford, Larry d/b/a Chick-N-Shack.” The question of actual knowledge was addressed in our original opinion where we deemed this to have been a question of fact resolved by the trial court in appellee’s favor, and we found that we could not say that the finding of the trial court was clearly erroneous. Ark. R. Civ. P. 52(a). The determination of whether a description in a financing statement is adequate is a question of fact. Security Tire & Rubber Co. Inc. v. Hlass, 246 Ark. 1113, 441 S.W.2d 91 (1969). The Code provides that any description of the personal property or real estate is sufficient, whether or not it is specific, if it reasonably identifies what is described. Ark. Code Ann. § 4-9-110 (1987). In United States v. Riceland Foods, Inc., 504 F. Supp. 1258 (E.D. Ark. 1981), it was pointed out that the test is that the description do the job assigned to it — that it make possible the identification of the thing described. It cannot be said of the description in this case, which purports to cover “[a] 11 equipment used in the business known as,” that it reasonably identifies the collateral, or that it makes possible the identification of the thing described. As found by the trial court, there is nothing in the description to provide a key to the identity of the collateral. And, as was stated in the original opinion in this case, this “description neither indicates where the equipment could be located, nor does it disclose the name of the business where the equipment was to be used.” The problem with this description then lies in its being an incomplete sentence and its failure to state the name of the business where the equipment could be located, and not necessarily with the usage of the general term “equipment.” Being so incompletely stated, this description cannot possibly put anyone on notice as to the collateral covered. As such, it does not provide even constructive notice because it suggests nothing to provoke further inquiry (unless the majority would also hold that a subsequent creditor has a duty to inquire at all times when faced with a wholly inadequate description). Yet, the majority has attempted to cure this deficiency by stating that the financing statement also named the debtor, the business and the address, and this was known to Newman because of his delivery of the equipment to that location. Of course, the Code requires every financing statement to include the name and address of the debtor, in addition to a description of the collateral. See Ark. Code Ann. § 4-9-402(1) (1987) (emphasis supplied). Simple reference to the name of a debtor listed in a separate part of the financing statement says nothing of the collateral which also must be described. Moreover, the majority’s logic concerning the curative function of so naming the debtor is faulty because it does not always, or necessarily, follow that the name and business address of the debtor designated is actually where the collateral can be located or is to be used, as fortuitously happened in this case. Thus a description should be judged by its own terms, and not by cross-reference to another part of the financing statement. I am also not convinced that the principles gleaned from the cases and authorities cited by the majority support the view that “actual knowledge” is determinative when considering the adequacy of a description in a financing statement. The issue here is whether, based on the adequacy of the description, the appellant’s security interest takes precedence over that of the appellee. None of the cases cited hinged upon the actual or presumed knowledge of the subsequent creditor as a test for determining the adequacy of a description, which consequently worked to cure a description which was deficient on its face. Certainly none of the cases cited deal with an analogous fact situation, and in each of the cases cited, there was something in the description itself which formed the basis for its being deemed adequate. For example, in Security Tire and Rubber Co., Inc. v. Hlass, supra, the collateral was described as “Company owned inventory of Stephens Tire Company, 2517 Alma Highway, Van Burén, Arkansas.” In reversing the trial court’s conclusion that the description of the collateral as “inventory” was insufficient as a matter of law, the court considered it important that the description also named the business and the address where the inventory could be located. There is no such qualifying language describing the “equipment” in the instant case. At this point, I should mention something about the case of Affiliated Food Stores, Inc. v. Farmers & Merchants Bank of Des Arc, Arkansas, 300 Ark. 450, 780 S.W.2d 20 (1989), which is discussed in the majority opinion. There the court held that the bank’s security interest could not prevail over the subsequent creditor because the bank had not filed its financing statement in the proper place. The court found that Ark. Code Ann. § 4-9-401(2) (1987) was inapplicable under the facts of that case because there was no evidence that the subsequent creditor had “actual knowledge of the bank’s interest.” Arkansas Code Annotated § 4-9-401(2) provides in part that a filing which is made in good faith in an improper place... is effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of such financing statement. The majority points out that the issue here, the adequacy of the description, is different from the issue addressed in Affiliated Food Stores, where under that Code provision one’s security interest may prevail despite an improper filing as against another who has actual knowledge of the contents of a financing statement. I agree with the majority that the two situations are distinguishable, but the difference is precisely my point. There is no concomitant code provision with respect to the description requirement, or any of the requirements found in Ark. Code Ann. § 4-9-402(1) (1987), the code section at issue here, regarding “actual knowledge.” Had the drafters of the Code intended that “actual knowledge” play a role in determining the adequacy of a description in a financing statement, as it does in situations involving improper filing, they certainly could have so provided. In sum, the majority’s emphasis on “actual knowledge,” which is the sole basis for granting the petition for rehearing, is strained and arguably inapplicable to the question at hand, even if the facts of this case supported such a conclusion. While I can agree with the majority that “notice filing” was all that was contemplated by the drafters of the Code, in my view, the facts here do not support a finding of either actual or constructive notice, particularly when such findings are based on the presumed knowledge of facts which were contrary to those found by the trial court. The majority has ignored the reality that this issue is a question of fact, and seems to have construed the evidence based on their own interpretation of relevant facts without giving due regard to the perspective of the trial court. I cannot so readily attribute such apparent or presumed knowledge to Newman as this court has done. Appellate courts should let judges and juries find facts, and we should refrain from assuming the trial court’s function or second guessing them. Furthermore, from a commercial standpoint, it is impractical to attribute such knowledge to a businessman who has many such dealings, when the description provides no reference or warning as to the intended collateral. The Code may not require a high degree of specificity, but it does envision some commercially practical minimum standard which is diminished and relaxed beyond recognition by the holding in this case. As the majority has pointed out, “[t]he Code helps only those who help themselves.” In re King-Porter Co., Inc., 446 F.2d 722 (5th Cir. 1972). I submit that this statement can be applied in this instance against sustaining the description found here. It is neither onerous, nor unreasonable to require a financing statement to make clear its intended collateral. Cracraft, J., joins in this dissent.