Beef & Bison Breeders, Inc. v. Capitol Refrigeration Co.
105 Misc. 2d 275, 1980 N.Y. Misc. LEXIS 2474, 431 N.Y.S.2d 986 (1980)
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Rule of Law:
Under New York's Uniform Commercial Code, a security interest in equipment must be perfected by filing a financing statement with both the Secretary of State and the local County Clerk's office to have priority over a subsequent judgment lien creditor. Separately, under New York civil procedure, priority among judgment creditors is determined by the order in which they deliver their executions to the same enforcement officer, not the order of levy.
Facts:
- On February 8, 1980, Kwik Serv Meats, Inc. granted Beef & Bison Breeders, Inc. a security interest in all its personal property and equipment as collateral for a promissory note.
- On February 20, 1980, Beef & Bison filed a financing statement with the New York Secretary of State's office, but did not file it in the Albany County Clerk's office.
- Kwik Serv Meats, Inc.'s only place of business was located in Albany County.
- Kwik Serv subsequently defaulted on the promissory note owed to Beef & Bison.
- Separately, Capitol Refrigeration Co., Inc. became a creditor of Kwik Serv.
- Patrick Cornell, Kwik Serv's landlord, also became a creditor of Kwik Serv for unpaid rent, and Kwik Serv's equipment remained on Cornell's property.
- Kwik Serv maintained checking accounts at Key Bank.
Procedural Posture:
- On April 4, 1980, Capitol Refrigeration entered a judgment against Kwik Serv in the Albany County Clerk's office.
- On April 16, 1980, Capitol Refrigeration delivered a property execution to the Albany County Sheriff.
- On June 30, 1980, Patrick Cornell entered a judgment against Kwik Serv in the Town of Colonie Justice Court, and a transcript was filed with the Albany County Clerk on July 1, 1980.
- On July 3, 1980, Cornell issued an execution to the Albany County Sheriff.
- On August 15, 1980, the Sheriff levied upon Kwik Serv's assets at its place of business on behalf of Capitol Refrigeration.
- On August 22, 1980, the Sheriff levied on Kwik Serv's bank accounts after being served with an execution specifying that property by Cornell's attorneys.
- Beef & Bison Breeders, Inc. filed a motion in a New York trial court to vacate Capitol Refrigeration's execution and levy.
- Patrick Cornell filed a separate motion in the same court seeking first priority to the proceeds from the bank account levy.
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Issue:
First, does a security interest that is filed with the Secretary of State but not the local County Clerk's office have priority over the claim of a subsequent judgment lien creditor? Second, does a junior judgment creditor who prompts a specific levy on property gain priority over a senior judgment creditor who had previously delivered their execution to the same Sheriff?
Opinions:
Majority - Edward S. Conway, J.
No to both questions. A creditor does not obtain priority with an improperly perfected security interest, and a junior judgment creditor does not gain priority over a senior one by initiating a levy. First, under UCC § 9-401(1)(c), to perfect a security interest in equipment when the debtor has a business in only one county, the creditor must file in both the Department of State and the local County Clerk's office. Because Beef & Bison failed to make the required local filing, its security interest was unperfected, and Capitol Refrigeration's subsequent levy as a judgment lien creditor takes priority. Second, under CPLR 5234(b), priority among judgment creditors is determined by the order in which their executions are delivered to the enforcement officer. Capitol Refrigeration delivered its execution to the Sheriff in April, while Cornell delivered its execution in July; therefore, Capitol Refrigeration has priority to the proceeds of all levies, regardless of who initiated the specific levy on the bank accounts.
Analysis:
This decision underscores the importance of strict compliance with statutory requirements for perfecting a security interest under the Uniform Commercial Code. It clarifies that a partial or good-faith filing in one of two required locations is insufficient to give a secured creditor priority over a subsequent lien creditor. The opinion also reinforces the clear, time-based priority rule for judgment creditors under New York law, confirming that the 'race' is to deliver the execution to the sheriff, not to locate and levy specific assets. This provides certainty for creditors by establishing a predictable and easily verifiable method for determining priority.
