Grabowski v. Deere & Co. (In Re Grabowski)
2002 WL 971951, 277 B.R. 388 (2002)
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Rule of Law:
Under the revised Uniform Commercial Code Article 9, a financing statement that describes collateral by a general UCC category, such as 'equipment,' is sufficient to perfect a security interest, even if it lists the debtor's business address rather than the location of the collateral, as it provides adequate inquiry notice to subsequent creditors.
Facts:
- Ronald and Trenna Grabowski operated a farming operation at their home in Dubois, Illinois.
- From 1993 to 1999, the Grabowskis also owned and operated a John Deere farm equipment business at a separate location in Benton, Illinois.
- In December 1998, the Grabowskis granted Bank of America a security interest in their property.
- Bank of America filed a financing statement identifying the debtors by their individual names, listing their business address in Benton, and describing the collateral as 'All Inventory, Chattel Paper, Accounts, Equipment and General Intangibles'.
- In January 2000, the Grabowskis granted South Pointe Bank a security interest in specific items of farm equipment used in their farming operation.
- South Pointe Bank filed a financing statement listing the Grabowskis' home address in Dubois and specifically identifying the three pieces of farm equipment at issue: a John Deere 925 flex platform, a John Deere 4630 tractor, and a John Deere 630 disk.
Procedural Posture:
- Debtors Ronald and Trenna Grabowski filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court.
- Within the bankruptcy case, the debtors filed a proceeding to determine the validity, priority, and extent of liens held by Bank of America and South Pointe Bank on three specific items of farm equipment.
- The matter came before the bankruptcy court to resolve the priority dispute between the two secured creditors.
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Issue:
Does a financing statement that describes collateral by a general category like 'equipment' and lists the debtors' business address instead of their residential address, where the farm equipment is located, sufficiently perfect a security interest to give it priority over a subsequent creditor's more specific financing statement?
Opinions:
Majority - Kenneth J. Meyers
Yes. A financing statement sufficiently perfects a security interest if it provides inquiry notice to subsequent creditors that a lien may exist, necessitating further investigation. Under Illinois' revised UCC Article 9, a general description by UCC category, such as 'equipment,' is sufficient to perfect an interest in all of the debtor's equipment, and an address on the financing statement serves as a point of contact, not a limitation on the scope of the collateral. Bank of America's financing statement used the debtors' individual names, not their business name, and the broad category of 'equipment' was sufficient to cover the farm equipment. Therefore, it was sufficient to put a reasonably prudent subsequent lender like South Pointe on notice to inquire further about the extent of the prior lien.
Analysis:
This decision reaffirms the principle of 'inquiry notice' under revised UCC Article 9, emphasizing the liberal standards for collateral descriptions in financing statements. It clarifies that the burden is on subsequent creditors to conduct due diligence and investigate the scope of a prior-filed, general security interest. The ruling protects the priority of the first-to-file creditor, even in the face of minor inaccuracies like a non-residential address, so long as the financing statement provides enough information for a prudent lender to begin an investigation. This reinforces the strength of the 'first-to-file' rule and the minimalist requirements for perfection via a financing statement.
