Deere Credit, Inc. v. Pickle Logging, Inc. (In Re Pickle Logging, Inc.)
49 U.C.C. Rep. Serv. 2d (West) 971, 286 B.R. 181, 49 Collier Bankr. Cas. 2d 1103 (2002)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A security interest is unperfected if the collateral description in a security agreement and financing statement contains internally consistent errors that describe a different, existing type of equipment, as such a description is seriously misleading and fails to reasonably identify the collateral or put third parties on notice.
Facts:
- Pickle Logging, Inc. ('Debtor'), a logging company, refinanced eight pieces of equipment with Deere Credit, Inc. ('Movant').
- One of the refinanced items was a 548G skidder with serial number DW548GX568154.
- The security agreement and financing statement erroneously identified this item as a 648G skidder.
- The documents also listed a corresponding, but incorrect, serial number: DW648GX568154.
- A 548G skidder is substantially different in appearance, performance, and price from a 648G skidder.
- Debtor owned multiple skidders from Movant, including at least two 548G models and two 648G models.
- Pickle Logging, Inc. filed for Chapter 11 bankruptcy protection.
Procedural Posture:
- Pickle Logging, Inc. filed a petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Georgia.
- The Debtor filed motions to determine the secured status of various creditors.
- Following a hearing, the bankruptcy court entered an order on September 3, 2002, holding that Deere Credit, Inc. did not have a perfected security interest in the 548G skidder due to the description error.
- Deere Credit, Inc. (Movant) filed a Motion to Reconsider the court's order.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a description of collateral in a security agreement and financing statement that incorrectly lists both the model number and a corresponding, internally consistent incorrect serial number 'reasonably identify' the collateral under O.C.G.A. § 11-9-108(a) to perfect a security interest?
Opinions:
Majority - Laney, III, Bankruptcy Judge
No. A description of collateral that contains internally consistent errors pointing to a different piece of equipment is seriously misleading and does not perfect a security interest. Under O.C.G.A. § 11-9-108(a), a description is sufficient if it 'reasonably identifies what is described,' meaning it must raise a 'red flag' to a third party to investigate further. While an inaccurate serial number alone is not always fatal, it requires other information in the description to provide a 'key' to the collateral’s identity. Here, both the model number ('648G') and the serial number (which began 'DW648G') were incorrect, but they were consistent with each other. This consistency created a plausible, but false, description of a different piece of equipment (a 648G skidder) and offered no 'red flag' to a third party that there was a mistake. Given that the debtor owned multiple skidders of both types, a third party reviewing the documents would reasonably conclude that the 548G skidder was not encumbered. Therefore, Movant's security interest in the 548G skidder is unperfected and subordinate to the Debtor's rights as a hypothetical lien creditor.
Analysis:
This decision underscores the critical importance of accuracy in collateral descriptions within security agreements and financing statements. It clarifies that while minor or obvious errors may not defeat a security interest, internally consistent errors that plausibly describe a different piece of collateral are 'seriously misleading' and fatal to perfection. The ruling emphasizes the 'third-party notice' function of financing statements, establishing that a description fails if it provides no 'key' or 'red flag' to alert an ordinarily prudent person to a potential error. This precedent warns secured creditors that consistency in an error can be more damaging than a patent mistake, especially when a debtor owns multiple similar assets.
