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Keywords

statutehearingtrustbankruptcychapter 7 bankruptcy

trustbankruptcy

Related Cases

Matter of Godfrey, 59 B.R. 232, 1 UCC Rep.Serv.2d 318

Facts

On July 11, 1985, Robert E. Godfrey filed a chapter 7 bankruptcy petition, and Michael E. Kepler was appointed as the trustee. The trustee initiated an adversary proceeding against Production Credit Association of Dodgeville (PCA) to avoid its security interest in Godfrey's farm machinery, arguing that the financing statement's description was insufficient under Wisconsin statutes. PCA's security interest stemmed from two agreements, but the financing statement only described the collateral as 'Machinery,' failing to mention specific items or after-acquired machinery.

On July 11, 1985, the debtor, Robert E. Godfrey, filed a chapter 7 petition in bankruptcy and Michael E. Kepler was appointed trustee. On November 12, 1985, the trustee filed this adversary proceeding seeking to avoid the security interest of Production Credit Association of Dodgeville ('PCA') in the debtor's farm machinery. The basis of the trustee's claim is that the financing statement description of the collateral is inadequate and fails to meet the requirements of WIS.STATS. §§ 409.402(1)(a) and 409.110.

Issue

Did the financing statement's description of collateral as 'Machinery' provide adequate notice to third parties regarding the specific items covered by the security interest?

Rule

A financing statement must provide a sufficient description of collateral that reasonably identifies what is described, allowing third parties to make inquiry regarding the secured property.

A financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral.

Analysis

The court analyzed the financing statement's description in light of Wisconsin's liberal policy on the sufficiency of collateral descriptions. It concluded that the term 'machinery' was too generic and did not encompass specific items like tools, which were not fairly included under that term. The court referenced previous cases to illustrate that while some generic terms can be sufficient, in this instance, the description failed to provide reasonable notice.

The generic term 'machinery' is not reasonable notice with respect to any items of collateral, such as tools, which are not fairly encompassed by the term. Such items are not covered by PCA's financing statement, and PCA's lien on those items may be avoided.

Conclusion

The court ruled that PCA's lien on items not covered by the financing statement could be avoided by the trustee, while PCA's lien on specifically enumerated machinery could not be avoided. An evidentiary hearing was required to classify all other items of collateral.

Order accordingly.

Who won?

The Chapter 7 trustee prevailed in avoiding PCA's security interest in certain items, as the court found the financing statement inadequate for those items.

The trustee as a 'lien creditor' may avoid PCA's security interest pursuant to 11 U.S.C. § 544(a)(1) and WIS.STAT. § 409.301.

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