Fernandez v White Rose Food Co.

[*1] Fernandez v White Rose Food Co. 2006 NY Slip Op 51683(U) [13 Misc 3d 1204(A)] Decided on August 7, 2006 Supreme Court, Bronx County Barone, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on August 7, 2006
Supreme Court, Bronx County

Jose Fernandez, Plaintiff,

against

White Rose Food Co., a Division of DiGiorgio Corp., FMC 2004 Corp., Jacqueline Hernandez, Ariano Diaz and 1383 Webster Food Corp., Defendant(s).



15553/05

John A. Barone, J.

I. Factual Background

This is a motion for summary judgment brought by defendant White Rose Food Co., against plaintiff Jose Fernandez. The underlying action was brought by Mr. Fernandez arising out of plaintiffs sale of his business 1383 Webster Food Corp., (Webster) to defendants Hernandez and Diaz on December 4, 2003. This was done by the sale of all shares in the stock of Webster to Mr. Hernandez and Mr. Diaz in return for two promissory notes in the total amount of $34,000.00. To secure payment plaintiff was the beneficiary of a Security Agreement executed by Hernandez and Diaz and collateralized by all of the chattels, fixtures, equipment and merchandise, and the lease for the business. The agreement purports to cover any additions or replacements to the property or any proceeds from the sale of the property of the business. It was also dated December 4, 2003.

On December 15, 2003 plaintiff filed a UCC-1 statement with the Office of the Secretary of State of New York. In that statement the collateral was described as a "certain Grocery store located at 1383 Webster Avenue, Bronx, NY 10456." No other description of the collateral was contained in the UCC-1 statement nor was there any mention of after acquired property.

In the meantime White Rose, a large supplier of foodstuffs, paper goods and other sundries to groceries and supermarkets began to supply co-defendant Webster. As was the normal custom in the industry White Rose extended credit to "Webster" for the supplies and took back its own Security Agreement dated April 14, 2004. In addition and pursuant thereto White Rose made its own UCC-1 filing. It set forth its own far more complete description of the collateral as "all inventory, equipment, machinery, furniture, and fixtures and accounts, contract rights, leasehold and general intangibles, presently owned or existing or hereafter acquired created or arising from any source whatsoever, together with any addition and accessions thereto [*2]or replacements or substitutions thereof."

Had the new enterprise prospered all parties would have gone on their way, requiring no intervention from this court. But, alas, as the poet Burns noted:

"The best laid plans of mice and men

Gang aft aglay

And leave us nought but grief and pain

For promised joy"

With the line of credit in place Webster proceeded to execute a promissory note in favor of White Rose for $150,000.00 and promptly fell in to default. Eventually the default, according to White Rose, amounted to $197,414.74.

Webster could not cure. White Rose foreclosed. An auction was held and White Rose took possession of the supermarket on October 20, 2004. White Rose then entered into an agreement with co-defendant herein FMC 2004 Corp., to transfer its interest. FMC then defaulted but staved off White Rose by entering into a forbearance agreement.

Predictably while all this was going on Mr. Hernandez and Mr. Diaz defaulted on their note to Mr. Fernandez who then brought suit. In addition to his complaint against the obligors on the note, plaintiff brought suit inter alia against White Rose for two counts of wrongful conversion. The basis of both allegations is that plaintiff based on its earlier filing had priority over White Rose and its assign FMC under the Uniform Commercial Code. Therefore the seizure of the assets of Webster by White Rose and its transfer to FMC was legally defective.

II. The Contentions of the Parties

Defendant White Rose who brought this motion contends that although plaintiff filed first, his filing was defective under UCC §9-103 and therefore does not attach to the property. In the first place, because the security agreement identifies Jacqueline Hernandez and Ariano Diaz as debtors and names Webster as a guarantor only. This conflicts with the UCC-1 filing which names Webster as the debtor and thereby violates UCC §9-503. Secondly, White Rose contends that the above quoted description of the collateral is inadequate based on UCC §§9-504 and 9-108(2).

Plaintiff in turn opposes White Rose's motion for summary judgment and cross-moves against White Rose for summary judgment. Plaintiff states that his security interest did attach to the property and that the security interest was properly perfected by his UCC-1 filing. (Plaintiff cites the same statutes cited by White Rose). This being so plaintiff's filing first in time gives plaintiff priority. Therefore, not only must White Rose's motion be denied but plaintiff's cross-motion for summary judgment against White Rose must be granted.

III. Legal Discussion

UCC §9-502 provides in relevant part [*3]

"... a financing statement is sufficient only if it:

(1) provides the name of the debtor;

(2) provides the name of the secured party...;

(3) indicates the collateral covered by the financing statement."

The UCC-1 form filed by attorney Figueroa on behalf of the secured party Jose Fernandez lists the debtor as 1383 Webster Food Co., and describes the collateral as "a certain Grocery store located at 1383 Webster Avenue, Bronx, NY 10456".

While designation of the debtor on plaintiff's UCC-1 is different from the debtors listed on his security agreement, this is less troubling than the collateral description in plaintiffs UCC-1 (cited above). The official comment to UCC §9-504 states:

"A financing statement sufficiently indicates collateral claimed to be

covered by the financing statement if it satisfies the purpose of

conditioning perfection on the filing of a financing statement i.e.

if it provides notice that a person may have a security interest in

the collateral claimed."

This vague language mirrors the vagueness of the statute itself. Due to this vagueness two "safe harbors" are set forth which if fulfilled will constitute a sufficient indication of collateral. Hawkland Miller and Cohen UCC Series §9-504(2) (Rev. Art. 9). While a supergeneric description of collateral such as "all the debtors assets" or all the debtors personal property are not deemed sufficient for description of collateral in the security agreement (UCC §§ 9-108;9-203(b)(3)(A) such a description may suffice in a financing statement since a security agreement must provide a description of the collateral (UCC §§9-203(b)(3)(A);9-203-6) whereas a financing statement need only indicate the collateral (UCC §§ 9-502 (a)(3); 9-502(1).

The difference is explained by the different purposes of the two instruments. A security agreement is a contract between debtor and creditor that determine what constitutes collateral. A financing statement exists only to alert a third party to the possible existence of an outstanding encumbrance, Hawkland, Miller supra; Rev §9:504:1.

Nevertheless, even in terms of the less particular requirements for a financing statement the lack of specificity in plaintiffs UCC-1 filing is troubling. What property exactly is included in the description "a certain Grocery store located at1383 Webster Avenue, Bronx, NY"? This may be an address or a corporate name but it indicates nothing about the property attached.

A careful UCC search would have disclosed this prior filed financing statement and this might in turn put off a wary creditor. Nevertheless, is the vague language cited above legally

sufficient? Specifically, there seems to be not even a hint in the financing statement that it covers "all assets or all personal property".

As this court reads the relevant precedents there must be some designation in the UCC-1 [*4]financing statement even in the most general terms of the "type" of collateral covered by the security agreement. General Electric Capital Commercial Automotive Finance, Inc., v. Spartan Motors Ltd., 246 AD2d 41 (1998); Bank of Utica v. Smith Richfield Springs, Inc., 58 Misc 2d 113 (1968).

In this case there was not even an attempt to delineate any type of property in the financing statement. As such it is simply inadequate as a matter of law. Since the court regards this issue as dispositive there is no need to consider other points raised in defendant's motion.

Conclusion

The motion of defendant White Rose is granted. The cross-motion of plaintiff Fernandez is accordingly denied.

This constitutes the decision and order of this Court.

Date:

John A. Barone, JSC