Bender v. James (In re Hintze)
525 B.R. 780 (2015)
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Rule of Law:
Under Florida's Uniform Commercial Code, a security agreement describing collateral with a super-generic phrase such as "all of Maker's assets" or "all the debtor's personal property" does not reasonably identify the collateral and is therefore insufficient to create an enforceable security interest.
Facts:
- On November 10, 2010, Matthew and Larina Hintze delivered a promissory note for $375,000 to Christopher James.
- The promissory note contained a clause stating, 'As security for the payment... Maker hereby grants to Holder a security interest in all of Maker’s assets.'
- One of the Hintzes, Matthew Hintze, was the owner of a business named TutoringZone, LC ('TZ I').
- Prior to their bankruptcy, TZ I transferred its intellectual property to TutoringZone II, LLC, an entity formed and owned by James.
- About nineteen months after the note was signed, on June 11, 2012, James's representative filed a UCC-1 financing statement describing the collateral as 'All personal property owned by the Debtors,' including specific examples like cash, stocks, and automobiles.
Procedural Posture:
- Matthew and Larina Hintze ('Debtors') filed a Chapter 7 bankruptcy petition.
- The bankruptcy Trustee (Plaintiff) filed a notice of intent to sell the Debtors' 100% membership interest in TutoringZone, LC.
- Christopher James (Defendant), a creditor, objected to the sale, asserting a perfected security interest in the asset.
- The Trustee then objected to the Defendant's proof of claim.
- The Defendant argued the Trustee must challenge the security interest's validity in an adversary proceeding.
- The Trustee commenced this adversary proceeding in the U.S. Bankruptcy Court for the Northern District of Florida, seeking a declaratory judgment that the Defendant's security interest is invalid.
- The Trustee filed a Motion for Summary Judgment, which the court is deciding in this order.
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Issue:
Does a collateral description in a promissory note stating 'all of Maker's assets' sufficiently identify the collateral under Florida’s Uniform Commercial Code to create a valid and enforceable security interest?
Opinions:
Majority - Specie, J.
No. A collateral description of 'all of Maker’s assets' is legally insufficient under Florida's Uniform Commercial Code to create an enforceable security interest. Florida Statute § 679.1081(3) explicitly states that super-generic descriptions like 'all the debtor’s assets' or 'all the debtor’s personal property' do not reasonably identify the collateral for the purposes of a security agreement. For a security interest to attach and be enforceable under § 679.2031, there must be an authenticated security agreement with a sufficient description of the collateral. Because the description in the promissory note is statutorily insufficient, a necessary element for the creation of a security interest is missing, and therefore no security interest ever came into existence. The court rejected the defendant's arguments that parol evidence could clarify the parties' intent or that the 'composite document rule' could be used to read the promissory note together with a UCC-1 financing statement filed nineteen months later. Finally, the bankruptcy trustee is not barred by waiver or estoppel because she acts not only in the shoes of the debtor but also with the statutory 'strong-arm' powers of a hypothetical judicial lien creditor under 11 U.S.C. § 544(a), allowing her to challenge the security interest's validity as a third party.
Analysis:
This decision strictly interprets the Uniform Commercial Code's requirements for collateral descriptions, confirming that super-generic descriptions are invalid for creating a security interest, though they may be sufficient for a financing statement. It solidifies the principle that the purpose of the description requirement in a security agreement is to provide objective identification of the collateral, thereby discouraging the use of parol evidence to define the scope of the security interest after the fact. The case also serves as a crucial reminder of the bankruptcy trustee's powerful status under § 544's 'strong-arm' clause, which allows the trustee to invalidate security interests that might otherwise be enforceable between the original parties, ensuring a fair distribution of assets to all creditors.
